<PAGE> 1
As filed with the Securities and Exchange Commission on September 11, 2000
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
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:
VIVENDI
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
N/A 42, avenue de Friedland Republic of France
(Translation of Registrant's 75380 Paris Cedex 08 (Jurisdiction of incorporation
name into English) France or organization)
(Address of principal executive
offices)
</TABLE>
Securities registered or to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
-------------------- ---------------------
<C> <S>
Shares, nominal value E 5.50 per share, represented by The New York Stock Exchange
American Depositary Shares (as evidenced by American
Depositary Receipts), each American Depositary Share
representing one-fifth of a share*
</TABLE>
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
<TABLE>
<S> <C>
American Depositary Shares.................................. 24,328,220
Shares, nominal value E 5.50 per share...................... 595,648,168
</TABLE>
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 [ ] No [X]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [ ] Item 18 [X]
* Listed, not for trading or quotation purposes, but only in connection with the
registration of the American Depositary Shares pursuant to the requirements of
the Securities and Exchange Commission.
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EXCHANGE RATE INFORMATION
Under the provisions of the Treaty on European Union negotiated at
Maastricht in 1991 and signed by the then 12 member states of the European Union
in early 1992, a European Monetary Union, known as EMU, was implemented on
January 1, 1999 and a single European currency, known as the euro, was
introduced. The following 11 member states participate in EMU and have adopted
the euro as their national currency: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. The legal rate
of conversion between the French franc and the euro was fixed on December 31,
1998 at E 1.00 = FF 6.55957, and we have translated French francs into euros at
that rate. For your convenience, this offering memorandum contains translations
of certain French franc and euro amounts into U.S. dollars. Unless otherwise
indicated, we have translated dollar amounts from euros at the rate of E 1.00 =
$.995, the noon buying rate in New York City for cable transfers in euros as
announced by the Federal Reserve Bank of New York for customs purposes on
December 31, 1999, which is the equivalent of FF 6.59253 to $1.00. This does not
mean that we actually converted these amounts into U.S. dollars. The noon buying
rate in New York City for cable transfers in euros as announced by the Federal
Reserve Bank of New York for customs purposes on September 6, 2000, was E 1.00 =
$0.8702.
Share capital in our company is represented by ordinary shares with a
nominal value of E 5.50 per share (hereinafter generally referred to as "our
shares"). Our shares are denominated in euros. Because we intend to pay cash
dividends denominated in euros, exchange rate fluctuations will affect the U.S.
dollar amounts that shareholders will receive on conversion of dividends from
euros to dollars.
The following table shows the French franc/U.S. dollar exchange rate for
1995 through 1998 based on the noon buying rate expressed in French francs per
$1.00, and the euro/U.S. dollar exchange rate for 1999 and 2000 based on the
noon buying rate expressed in dollars per euro. For information regarding the
effect of currency fluctuations on our results of operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations," page
76.
<TABLE>
<CAPTION>
PERIOD AVERAGE
YEAR END RATE(1) HIGH LOW
---- ------ ------- ---- ----
<S> <C> <C> <C> <C>
Euro/U.S. dollar 2000 through August 31................. 1.13 1.05 1.13 0.97
Euro/U.S. dollar 1999................................... 0.99 0.93 1.00 0.85
French franc/U.S. dollar
1998.................................................. 5.59 5.90 6.21 5.38
1997.................................................. 6.02 5.85 6.35 5.19
1996.................................................. 5.19 5.12 5.29 4.90
1995.................................................. 4.30 4.96 5.39 4.78
</TABLE>
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(1) The average of the noon buying rates for French francs or euros, as the case
may be, on the last business day of each month during the relevant period.
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FORWARD-LOOKING STATEMENTS
We make some forward-looking statements in this Registration Statement.
When we use the words "aim(s)," "expect(s)," "feel(s)," "will," "may,"
"believe(s)," "anticipate(s)" and similar expressions in this Registration
Statement, we are intending to identify those statements as forward-looking.
Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. You should not
place undue reliance on these forward-looking statements, which speak only as of
the date of this Registration Statement. We undertake no obligation to publish
revised forward-looking statements to reflect events or circumstances after the
date of this Registration Statement or to reflect the occurrence of
unanticipated events. We urge you to review and consider the various disclosures
we make concerning the factors that may affect our business carefully, including
the disclosures made in "Our Business as a Whole -- Risk Factors," page 54,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," page 76, and "Quantitative and Qualitative Disclosures About Market
Risk," page 108. Unless otherwise indicated, information and statistics
presented herein regarding market trends and our market share relative to our
competitors are based on our own research and various publicly available
sources.
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TABLE OF CONTENTS
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<CAPTION>
PAGE
----
<S> <C>
Description of Business............. 5
Description of Property............. 58
Legal Proceedings................... 59
Control of Registrant............... 61
Nature of Trading Market............ 62
Exchange Controls and Other
Limitations Affecting Security
Holders........................... 66
Taxation............................ 67
Vivendi Selected Consolidated
Financial Data.................... 72
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 76
Quantitative and Qualitative
Disclosures About Market Risk..... 108
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Directors and Officers of
Registrant........................ 110
Compensation of Directors and
Officers.......................... 112
Options to Purchase Securities from
Registrant or Subsidiaries........ 113
Interest of Management in Certain
Transactions...................... 115
Description of Securities to Be
Registered........................ 116
Defaults Upon Senior Securities..... 125
Changes in Securities and Changes in
Security for Registered
Securities........................ 126
Financial Statements................ 128
</TABLE>
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
We are one of Europe's largest companies with revenue in 1999 of E 41.6
billion. Our businesses are focused primarily on two core areas: communications
(1999 revenue of E 8.6 billion) and environmental management services (1999
revenue of E 22.4 billion). We operate a number of leading and increasingly
integrated businesses within these core areas:
<TABLE>
<CAPTION>
CORE AREAS/SEGMENTS: KEY SUBSIDIARIES/BRANDS:
-------------------- ------------------------
<S> <C>
COMMUNICATIONS
Telecommunications....................................... Cegetel
Multimedia and Publishing................................ Havas
Audiovisual and Pay Television........................... CANAL+
Internet................................................. Vivendi Net
ENVIRONMENT
Water.................................................... Vivendi Water
Waste Management......................................... Onyx
Transportation........................................... Connex
Energy................................................... Dalkia
</TABLE>
We are a leading European provider of communications services, and are
integrating our diverse array of telecommunications, Internet and media assets
to take advantage of the growing convergence of communications access and
content. Through our environmental management services businesses, we are
leaders in the development of new environmental management services that allow
us to take advantage of our unsurpassed geographic reach and multi-service
expertise and experience. As part of our strategy of focusing on these core
areas, we are in the process of divesting substantial non-core real estate and
construction businesses held through our subsidiary Vivendi Valorisation and our
investment in Vinci (we use the term "subsidiary" to refer to companies over
which we have effective control, and the term "investment" to refer to companies
in which we have an economic interest but do not control). We view our real
estate and construction businesses as non-core activities that do not play an
important role in our corporate strategy. We also intend to divest our interest
in Sithe Energies, Inc., a U.S. independent power generation company.
Below we show for the last three fiscal years the respective percentage
contribution of our businesses by geographical market to our consolidated
revenue, after the elimination of inter-segment transactions. The percentage in
each case is based on the location of the subsidiary generating the revenue.
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<TABLE>
<CAPTION>
COMMUNICATIONS ENVIRONMENT OTHER* CONSOLIDATED
--------------------- ------------------------ ---------------------- ------------------------
1997 1998 1999 1997 1998 1999 1997 1998 1999 1997 1998 1999
----- ----- ----- ------ ------ ------ ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Europe................. 100.0% 96.9% 90.5% 84.2% 88.0% 74.4% 94.7% 95.4% 94.9% 89.2% 89.2% 83.1%
France............... 98.6% 85.9% 79.7% 62.6% 58.7% 44.4% 70.2% 70.9% 65.8% 67.8% 67.8% 57.1%
Americas............... -- 1.8% 7.1% 12.9% 8.4% 21.7% .2% -- 1.0% 7.3% 7.3% 13.4%
Rest of the world...... -- 1.3% 1.4% 2.9% 3.6% 3.9% 5.1% 4.6% 4.1% 3.5% 3.5% 3.5%
===== ===== ===== ====== ====== ====== ===== ===== ====== ====== ====== ======
Total (E million)...... 1,666 5,952 8,573 14,326 16,047 22,428 9,485 9,738 10,622 25,477 31,737 41,623
</TABLE>
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* The "Other" category consists of our non-core construction and real estate
businesses. See "Description of Business -- Other Businesses," page 49.
Below we show for our most recent fiscal year the respective percentage
contribution by geographic area to our consolidated earnings before income,
taxes and exceptional items ("operating income"), after the elimination of
inter-segment transactions. The percentage is based on the location of the
subsidiary generating the operating income.
<TABLE>
<CAPTION>
COMMUNICATIONS ENVIRONMENT OTHER CONSOLIDATED
-------------- ----------- ----- ------------
<S> <C> <C> <C> <C>
1999 OPERATING INCOME
Europe................................ 90.5% 71.6% N/A 76.3%
France.............................. 85.2% 37.9% N/A 46.5%
Americas.............................. 9.5% 26.2% N/A 21.5%
Rest of the world..................... -- 2.2% N/A 2.2%
===== ======= === =======
Total (E million)..................... 551.6 1,654.2 74.7 2,280.5
</TABLE>
OVERALL STRATEGY
Our overall goal is to take advantage of the strong internal and external
growth opportunities available in the areas of our core
operations -- communications and environmental services. We intend to capitalize
on our strengths in communications by providing high value-added content and
services through a variety of access media: Internet, PC, television, mobile
telephony, and print. In environmental services, we plan to expand each of our
business segments -- waste, water, energy services and transportation -- through
internal growth and acquisitions of existing operations, and to coordinate the
operations of those businesses to meet what we believe to be a growing demand
for customized, comprehensive, packages of environmental management services on
a worldwide basis.
HISTORICAL BACKGROUND
Our company is a societe anonyme (i.e., a limited liability company)
organized under the laws of France. Originally named Compagnie Generale des
Eaux, we were founded in 1853. We initially supplied water to Paris and other
major European cities. From early on, however, we saw the advantages of
expanding our business into other fields, entering the water treatment industry
in 1884 and forming a water-related engineering company in 1918.
Our diversification into the telecommunications and media industries began
in 1983, when we created our subsidiary CANAL+, the first encrypted
pay-television channel in Europe, with the Havas media group. In 1987, to
capitalize upon our growing expertise in operating communications networks, we
created Societe Francaise de Radiotelephonie ("SFR"), a subsidiary that provides
mobile telephone services in France. Pursuing the same strategy, we founded our
subsidiary Cegetel,
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now France's second-largest telecommunications operator, in 1996 with several
partners. We currently have a 44% direct and indirect interest in Cegetel (and
appoint five of its nine directors), and a 35.2% indirect interest in SFR (and
appoint seven of its ten directors). Through a 1998 merger with Havas, we
obtained a substantial position in general publishing and multimedia and became
the leading educational publisher in Europe. Havas is now a wholly-owned
subsidiary that conducts our publishing and multimedia operations. To further
expand our content business, we acquired an additional 15% interest in CANAL+
from Richemont in September 1999, an acquisition that gave us control of CANAL+.
We now hold a 49% interest in CANAL+ and appoint six of its 13 directors. In
addition, three directors, who are also executive officers, serve at our
discretion. In June 1999, we acquired a 24.4% stake in British Sky Broadcasting
Group ("BSkyB"), the leading pay-television company in the United Kingdom and
Ireland. We have the right to appoint one of the 14 members of BSkyB's board of
directors.
We agreed to create Vivendi Net in May 2000 as part of our ongoing effort
to expand and integrate our portfolio of communications and media assets.
Vivendi Net will be a 50/50 joint venture between us and CANAL+ and will combine
most of the Internet operations of CANAL+ and Havas as well as our venture
capital and start-up company incubation activities. Our direct and indirect
interest in Vivendi Net will initially be 74.4%; our interest will increase to
100% as a result of the Seagram transaction. See "-- Recent Developments," page
8. We intend Vivendi Net to be the vehicle through which we will hold our
interest in the 50/50 joint venture we recently entered into with Vodafone that
operates Vizzavi, a multi-access Internet portal providing seamless, high value-
added communications and content services to customers through a variety of
communications devices.
We have consistently broadened our expertise in environmental services as
well. We entered the household waste incineration industry in 1967, and in 1980,
we acquired Compagnie Generale d'Entreprises Automobiles, a company experienced
in transportation and waste management services (its waste management business
now operates under the "Onyx" brand, and its transportation business is a
separate subsidiary called Connex). In 1981, we further expanded our
environmental portfolio by acquiring Compagnie Generale de Chauffe (later
renamed Dalkia), one of France's leading energy services companies. In 1998, in
order to expand our international reach, we purchased a 49% interest in a
holding company that owns 56.5% of Fomento de Construcciones y Contratas
("FCC"), a Spanish company involved primarily in urban sanitation, construction
and cement production. We also acquired the right to exercise half of the
holding company's power to appoint members to FCC's board of directors executive
committee members. We appointed seven of FCC's 15 current directors and half of
its executive committee members. FCC purchased our Spanish waste and waste
management operations in the same transaction. In 1999, in order to increase our
presence in North America, apply our environmental expertise to the market for
retail water products and develop our industrial outsourcing business, we
acquired United States Filter Corporation, the leading U.S. water equipment
firm. We further expanded our North American operations through our acquisition
of Superior Services, the fourth largest solid waste treatment company in the
United States.
Since 1995, we have implemented a long-term strategy of focusing on two
areas of operations: communications and environmental services. Pursuant to that
strategy, we have made numerous disposals of non-core assets, primarily in the
real estate and construction sectors. In 1997, for example, we sold E 640
million of real estate assets; we sold an additional E 1.2 billion worth of real
estate in 1999. In July 2000, we sold Nexity, our wholly-owned real estate
subsidiary, and we plan to sell our remaining real estate assets as
opportunities arise. We sold 34% of our 50.9% interest in Vinci, Europe's
leading construction company, in February 2000. We appointed four of Vinci's 18
directors. Disposals in other sectors include our sale of 24.6% of Electrafina,
a holding company with investments in Suez Lyonnaise des Eaux, Audiofina and a
number of international oil operations,
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in June 1998, and a variety of Havas' advertising, travel and other operations.
We have also announced our intention to sell our interest in Sithe, and a
process designed to lead to a sale is currently underway.
In May 1998, our shareholders approved our name change to "Vivendi" to
reflect the expansion of our core businesses in communications and environmental
management services as well as the increasingly international scope of our
business. At that time we renamed our major water subsidiary Compagnie Generale
des Eaux. In 1999 we contributed or sold our direct and indirect interests in
Compagnie Generale des Eaux, Connex, Onyx, FCC, Dalkia and United States Filter
Corporation to Vivendi Environnement. These transactions, along with the
consolidation of all our water businesses into Vivendi Water, were designed to
focus each of our environmental operations on the goal of maintaining our
position as the world's leading provider of environmental management services.
In July 2000 we issued approximately 37% of the share capital of Vivendi
Environnement in a public offering in Europe and a private placement in the
United States. Through Vivendi Environnement, each of the above-mentioned
companies, with the exception of FCC, was a wholly-owned, indirect subsidiary of
ours prior to the public offering and private placement.
RECENT DEVELOPMENTS
On June 20, 2000, we announced that we had entered into a merger agreement
and a number of related agreements with The Seagram Company Ltd. and CANAL+.
Pursuant to the agreements, subject to certain conditions, (i) we will merge
with and into Sofiee, our wholly-owned subsidiary, (ii) CANAL+ will contribute
its international operations, as well as some of its French pay-TV operations to
an affiliated entity, but will retain its pay-TV programming and broadcasting
activities that are subject to a French law that forbids any person or entity
from owning more than 49% of a company holding a television broadcast license
(the "French regulated businesses"), (iii) the entity that receives the
operations contributed by CANAL+ will merge with and into Sofiee, and (iv)
Sofiee shall acquire the outstanding capital stock of Seagram pursuant to a plan
of arrangement under Canadian law ((i)-(iv) collectively, "the transactions").
We expect the Seagram transactions to be completed during the fourth quarter of
2000. We intend to rename Sofiee "Vivendi Universal."
VIVENDI UNIVERSAL'S EXPECTED OPERATIONS
By combining the content and distribution assets of Vivendi, CANAL+ and
Seagram, Vivendi Universal will have global reach, linking a leading European
wireless and wired footprint with worldwide reach and an enormous array of
top-quality content. The businesses that Vivendi Universal will operate include
the following:
Universal Music Group is the world's largest recorded music company with a
leading position in every major market, including North America, South America,
Europe and Asia, and in every major music genre, including hip hop, R&B, rock,
country, jazz and classical. Universal Music & Video Distribution is the top
distributor of albums in the United States. Universal Music's publishing unit
owns copyrights to some 750,000 songs, and has a roster of musical artists that
includes Shania Twain, Andrea Bocelli, Dr. Dre, Sheryl Crow, Sting, Enrique
Iglesias, Jay-Z, Sisqo, Eiffel 65, DMX, George Strait, Blink 182 and U2. Vivendi
Universal will operate the world's leading music distribution network, Europe's
largest mail order music/video club, and several fast-growing Internet
operations.
In filmed entertainment, the combination of Universal Pictures and CANAL+
will create a library of some 9,000 films, one of the largest in the world.
Recent films produced or co-produced by Universal include The Mummy, American
Pie, Gladiator, Erin Brockovich, The Green Mile and U-571. Universal holds the
U.S. and Canadian distribution rights to Erin Brockovich, U-571 and American Pie
and holds certain distribution rights to U-571 and American Pie in additional
countries.
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Universal also holds worldwide distribution rights to The Mummy, worldwide
distribution rights to Gladiator outside the United States, Canada and Korea and
distribution rights to The Green Mile in several countries. The co-producers of
the films or third parties hold the remaining distribution rights.
Universal and CANAL+'s rights in the films in their respective libraries
vary from full ownership with worldwide distribution rights to distribution
rights in specific territories for fixed terms. Universal owns and has worldwide
distribution rights for most of the more than 2,400 films in its library other
than those acquired as part of the acquisition of PolyGram N.V. in 1998. For
several of its recent releases, Universal has shared distribution rights with
other studios with which it has co-produced the films or with third parties.
Universal's rights in the more than 2,000 films in the PolyGram library include
negotiated distribution rights for limited territories for some films and full
ownership and distribution rights for other films. CANAL+ has co-production
rights in the majority of the more than 5,500 films in its library. Under these
co-production arrangements, CANAL+, through its subsidiary StudioCanal, is the
owner or co-owner of the titles and has distribution rights for territories and
durations that vary from film to film. For more than 2,000 of the other films in
its library, CANAL+ has acquired distribution rights and rights to receive
revenue for a fixed term in specified territories in exchange for a fixed
payment to the owner or a guarantee of minimum revenue from a film. In limited
cases, CANAL+ has acquired distribution rights and receives a distribution fee
but has not made a fixed payment to the owner or guaranteed minimum revenue. In
other limited cases, CANAL+ holds a passive equity interest and receives a
percentage of revenue but does not have distribution rights.
Vivendi Universal will also have worldwide distribution capability.
Universal, through its subsidiaries, distributes its films in the United States
and Canada and distributes its films throughout the rest of the world primarily
through United International Pictures, a partnership with Paramount and MGM.
CANAL+ owns the only Europe-based motion picture studio with extensive
distribution capabilities through subsidiaries and joint ventures.
In recreation, Universal is one of the world's leading theme park
operators. Universal's Recreation Group operates Universal City Hollywood,
Universal Orlando and Universal Studios Port Aventura in Barcelona, Spain, among
other properties. In April, the company doubled the size of CityWalk at
Universal City Hollywood, adding over 30 new entertainment, dining and retail
venues. In 1999, it expanded its operations by opening the Islands of Adventure
theme park and a City Walk in Orlando, and is on schedule to open a new major
theme park in Osaka, Japan in the spring of 2001.
In television, Vivendi Universal will have a vertically integrated global
television sales network and production operation with customers in more than
180 countries. Its library of approximately 27,000 television episodes includes
such familiar programming as Magnum, P.I., Law and Order, Columbo and Alfred
Hitchcock Presents, as well as the programming of 13eme Rue, the most watched
basic channel of CANAL+'s multi-channel digital package offering. Additional
Universal assets include Studio Universal, a theme movie channel that operates
in key international markets, and a 42% stake in USA Networks, which operates
the USA Network, the Sci Fi Channel, the Home Shopping Network, TicketMaster,
the Hotel Reservations Network, Gramercy Pictures and October Films. Vivendi
Universal will also have broadcasting rights for a number of major sporting
events. See "-- Our Business -- Our Communications Business
Segments -- Audiovisual and Pay Television," page 20.
In publishing, Vivendi Universal will operate Havas, a leading publisher in
Europe and the leading developer of PC-based games in the United States (and the
second leading game developer in the world). Havas also has strong positions in
health, business and local information. See "-- Our Business -- Our
Communications Business Segments -- Multimedia and Publishing," page 17.
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By combining this array of popular content with a large international
customer and subscriber base that spans a range of access formats, Vivendi
Universal will be well-positioned to become a world leader in global media and
communications. We believe that its combination of content and access assets
will position the company to accelerate the worldwide growth of wired and
wireless Internet services by providing proprietary, value-added content,
e-services and e-commerce to customers through a variety of access devices. As a
result of the merger, we expect that:
- growth of the Vizzavi customer base will increase due to the addition of
Universal's music, film and television assets, which will substantially
enhance Vivendi Universal's global, local and personalized content in a
wide variety of entertainment and informational formats. In cooperation
with Seagram's Universal Music Group, for example, we anticipate that
Vizzavi will be able to offer subscribers personalized, interactive music
services and innovative pricing models designed to increase consumer
satisfaction, facilitate sales and lower costs;
- Vivendi Universal's access operations will benefit from enhanced
opportunities for cross-promotion, bundled service offerings and
advertising;
- Universal's content will benefit from having shared access to Vivendi's
large subscriber base; and that
- Vivendi Universal will be in a position to capitalize upon its
distribution capabilities in Europe and its expertise in creating
wireless content and services as the growth of wireless services
accelerates in North America and around the world.
Seagram currently operates a spirits and wine business that owns key brands
such as Chivas Regal Scotch Whisky, Crown Royal Canadian Whisky, Captain Morgan
Rums and Martell Cognacs. We plan to dispose of this business, which will be
non-core in Vivendi Universal, as soon as practicable following the closing of
the Seagram transactions.
We do not expect the fact that Vivendi Universal is prohibited from
acquiring more than 49% of CANAL+'s French regulated business to have a material
effect on Vivendi Universal's operations, in part because Vivendi is currently
subject to the same restriction.
TERMS OF THE TRANSACTIONS
In the Seagram transactions, holders of Seagram common shares will receive
a number of Vivendi Universal ADSs (each representing one share of Vivendi
Universal) determined with reference to an exchange ratio set forth in the plan
of arrangement. The exchange ratio will be equal to $77.35 divided by the U.S.
dollar equivalent of the average of the closing prices on the Paris Bourse of
the Vivendi ordinary shares during a measuring period preceding the closing,
unless the average is equal to or less than $96.6875 (in which case the exchange
ratio will be 0.8000) or the average is equal to or greater than $124.3369 (in
which case the exchange ratio will be 0.6221). As of the end of July, 2000, we
had approximately 605,741,000 shares outstanding, Seagram had approximately
436,469,000 shares outstanding and CANAL+ had approximately 126,115,000 shares
outstanding. In the merger transactions, Sofiee will issue one share for each
Vivendi ordinary share, two shares for each CANAL+ ordinary share, and between
0.6221 and 0.8000 shares for each Seagram share. Accordingly, Sofiee will issue
an aggregate of approximately 1,129,641,000 to 1,207,330,243 ordinary shares in
the merger transactions. In lieu of receiving Vivendi Universal ADSs, Canadian
resident holders of Seagram common shares may elect to receive for any of their
Seagram shares exchangeable shares to be issued by a Canadian subsidiary of
Vivendi Universal (the "exchangeable shares"). Exchangeable shares will be
exchangeable, at the option of the holder, for Vivendi Universal ADSs and will
be substantially the economic equivalent of the Vivendi Universal ADSs.
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The transactions are designed to be treated as a tax-free exchange for U.S.
Seagram shareholders and those Canadian Seagram shareholders who elect to
receive exchangeable shares.
Consummation of the transactions is subject to various conditions,
including the approval of our shareholders and the shareholders of Seagram and
CANAL+ and the receipt of required regulatory and Canadian court approvals.
Under the terms of the merger agreement, we have agreed to vote our CANAL+
shares in favor of the transactions. Copies of the merger agreement and plan of
arrangement are included herein as Exhibits 3.3 and 3.4, respectively.
Concurrently with the execution of the merger agreement, we entered into an
option agreement with Seagram, pursuant to which we have the right, under
certain circumstances, to purchase up to 19.9% of Seagram's issued and
outstanding common shares for $77.35 per share, subject to certain limitations.
A copy of the option agreement is included herein as Exhibit 3.5. Also
concurrently with the execution of the merger agreement we entered into a voting
agreement and a governance agreement (included herein as Exhibits 3.6 and 3.7,
respectively) with Edgar Bronfman, Jr., Seagram's Chief Executive Officer, and
certain other members of and affiliates of the Bronfman family who own Seagram
common shares (collectively, the "Bronfman shareholders").
Pursuant to the voting agreement, the Bronfman shareholders have agreed,
among other things, to vote shares representing approximately 24% of the
outstanding Seagram common shares in favor of the transactions.
Our company and Vivendi Universal have entered into a governance agreement
with certain members of the Bronfman family. Pursuant to the governance
agreement and the merger agreement, effective as of the completion of the
arrangement, Vivendi Universal will be required to appoint to, and thereafter
use its best efforts to continue to serve for a specified period on its board of
directors, a specified number of designees (initially five) initially designated
by Seagram's board. Three of the five designees will be Bronfman family members
who are parties to the governance agreement. The governance agreement also
requires that the number of directors on Vivendi Universal's board of directors
be reduced to 18 by the second anniversary of the completion of the arrangement.
The governance agreement also restricts the transfer of Vivendi Universal
securities held by the Bronfman shareholders and also contains other provisions
relating to the ownership, holding, transfer and registration of Vivendi
Universal securities by the parties.
VIVENDI UNIVERSAL'S EXPECTED MANAGEMENT
Vivendi Universal will be headquartered in Paris and will have an
additional corporate center in New York. We expect securities of Vivendi
Universal to be listed on the Paris, New York and Toronto stock exchanges.
Jean-Marie Messier, chairman and chief executive officer of Vivendi, will
fulfil the same responsibilities for Vivendi Universal. Edgar Bronfman, Jr.,
currently chief executive officer of Seagram, will be vice chairman with
responsibility for music and Internet operations. Eric Licoys, currently chief
operating officer of Vivendi and chief executive officer of Havas, will become
co-chief operating officer of Vivendi Universal with Pierre Lescure, currently
chairman and chief executive officer of CANAL+.
The Vivendi Universal board of directors will initially consist of
Vivendi's current 14 board members, Pierre Lescure and five new members from
Seagram's board, including three Bronfman family members and two independent
directors.
The members of Vivendi Universal's executive committee will initially be
Jean-Marie Messier, Edgar Bronfman, Jr., Eric Licoys, Pierre Lescure, Phillipe
Germond, and Vivendi chief financial officer Guillaume Hannezo.
11
<PAGE> 12
OUR BUSINESS
COMMUNICATIONS
Through our wholly-owned subsidiaries Havas and Vivendi Telecom
International ("VTI"), our controlling interests in Cegetel, CANAL+ and Vivendi
Net, and our investment in BSkyB, we are one of Europe's leading
telecommunications and media companies. We provide a wide variety of
communications, entertainment and educational products and services, from mobile
telephone and Internet services to film production and publishing. We focus
primarily on developing integrated telecommunications and multimedia services
for the European market and establishing and developing leading Internet
websites and services. We believe that by aggregating our portfolio of
communications and media assets, we can capitalize upon rapidly growing demand
for diverse but integrated communication and "infotainment" content and
services.
OUR COMMUNICATIONS STRATEGY
We intend to take advantage of the growing interdependence of content and
access occurring in the communications and media industries as a result of
technological advances and deregulation. We intend to attract and retain
consumers who demand content that is easily accessible from a variety of
communications devices. We believe that by aggregating our unique portfolio of
content and access assets we can become one of the world's leading
communications companies. Our strategy has three primary elements:
- EXPAND ACCESS
Through our interests in Cegetel, CANAL+, VTI and our joint venture with
Vodafone, we have access to the largest aggregate customer base in the
European communications industry. We intend to expand our reach further,
while minimizing our need to pay high prices for current-generation
telecommunications assets and licenses, primarily through:
-- Internal growth: Our communications businesses have experienced rapid
growth in recent years, particularly our Internet and telecommunications
segments. We plan to meet ever-growing demand for advanced
communications services by aggressively implementing technological
innovations, such as advanced Web television (to be introduced by CANAL+
in 2001). Similarly, Cegetel intends to facilitate the introduction of
broadband communications by making substantial investments in
next-generation Digital Subscriber Line ("DSL") technology.
-- Joint ventures, such as our partnership with Vodafone, through which we
will develop, operate and promote Vizzavi, a multi-access Internet
portal that will, when fully implemented, be the default Internet home
page covering the 80 million subscriptions for telecommunications and
pay television services provided by Vivendi, Vodafone and their
affiliates.
-- Along with each other Cegetel shareholder, we have agreed to conduct
telecommunications business in France only through Cegetel.
-- Acquisitions in high-growth areas, including our recent purchases of
interests in PTC, a Polish mobile telephony company, and Magyar Telecom,
a Hungarian fixed-line telephony firm.
-- Selective bids for third-generation Universal Mobile Telecommunications
System ("UMTS") licenses, such as our successful bid for a UMTS license
to serve the rapidly-growing Spanish market. UMTS is a high-speed
standard for mobile telephony that will allow us to provide an
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<PAGE> 13
extensive range of new services, including video telephony and
high-speed access to the Internet and to corporate intranets.
- ENHANCE CONTENT
Our strategy is to build European and world leadership in key content areas
that can be accessed though the Internet. Through Havas, CANAL+ and Vivendi Net,
we have a wide range of entertainment, educational, multimedia and reference
content, including Europe's second largest library of film and television
rights, rights to broadcast major sporting events and a collection of popular
websites and computer games. We intend to expand our content offerings further
by leveraging our large and loyal telecommunications customer base to obtain
broadcasting rights on favorable terms. We also intend to make selected
acquisitions in key areas -- for example, our recent acquisition of Prize
Central, a company that will, when combined with Vivendi Net's WON.com, be the
second-leading on-line game site in the world. Pursuant to our strategy, we
recently announced an agreement to combine with The Seagram Company Ltd., the
world's leading recorded music company and one of the top three movie studios in
the United States. See "-- General -- Recent Developments," page 8. The Seagram
transactions will substantially increase our already considerable array of
content assets.
- INTEGRATE
We are in the process of integrating and aggregating our services in two
ways. First, we are leveraging and enhancing our communications assets by using
them to provide a distribution channel for our multimedia products and services.
By featuring Havas-created Wireless Application Protocol games, for example, we
believe that Vizzavi is enhancing both its own value and that of the games.
Wireless Application Protocol, or WAP, is an application environment and
communication protocol for wireless devices designed to enable independent
access to the Internet and advanced telephony services. We intend to apply the
same strategy to the film, music and other content assets we acquire as part of
the Seagram transaction. Our entertainment products will also promote our
communications networks, as when CANALNUMEDIA, part of Vivendi Net, takes
advantage of the strong CANAL+ brand in building its entertainment-oriented
website.
Second, we are integrating our communications assets to provide a
personalized and consistent user environment, regardless of the mode of access.
Vizzavi is the cornerstone of this element of our strategy: It provides
web-based communications services, e-commerce and entertainment in a user-
friendly, integrated package that is accessible from mobile telephones, personal
data appliances, televisions and PCs. We introduced Vizzavi in France in June
2000. We plan to introduce it in the United Kingdom, Italy and Germany by the
end of 2000 and in other European countries in 2001.
OUR COMMUNICATIONS BUSINESS SEGMENTS
TELECOMMUNICATIONS
Through Cegetel and VTI, we provide a broad range of telecommunications
services, including mobile and fixed telephony, Internet access and data
services and transmission.
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<PAGE> 14
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
TELECOMMUNICATIONS*
Revenue................................................. 4,102 2,875 1,618
Adjusted EBITDA**....................................... 1,372 674 331
Operating Income........................................ 351 23 188
</TABLE>
-------------------------
* Cegetel capitalizes and amortizes over a 12 month period subscriber
acquisition costs.
** Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. We consider operating income to be the
key indicator of the operational strength and performance of our business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this Registration Statement may not be
strictly comparable to similarly titled measures widely used in the United
States or reported by other companies.
CEGETEL
We founded Cegetel in 1996 and currently own, directly and indirectly, 44%
of its outstanding equity. We own 9% of the shares directly. We also own 70% of
Compagnie Transatlantique de Radiotelephonie Cellulaire ("Transtel"), which owns
50% plus one of Cegetel's shares, giving us a 35% indirect stake. SBC
International, Inc. ("SBCI") and SBCI International-Societe de Radiotelephonie
Cellulaire, Inc. ("SBCI-SRC") together own the remaining 30% of Transtel.
We appoint five of Cegetel's nine directors. In addition to SBCI and
SBCI-SRC, which together hold a 15% interest in Cegetel through Transtel, our
current partners in Cegetel are British Telecom ("BT"), which has a 26% stake in
the company, and Mannesmann, which owns 15%. Under an agreement with Vodafone,
we have an option to purchase from Mannesmann (which has been acquired by
Vodafone) an additional 7.5% indirect interest in Cegetel. Vodafone has also
indicated a desire to sell us a further 7.5% indirect interest, although no
definitive agreement has been finalized and we can provide no assurance that
such an agreement will be reached. We describe below the Shareholders' Agreement
that governs our participation in Cegetel. See " -- Shareholders' Agreement,"
page 16.
Cegetel divides its activities into three parts:
- Consumer and Professional Division. The Consumer and Professional
Division offers three types of service:
-- Mobile Telephony through SFR. Cegetel offers mobile telephone services
through its 80% owned subsidiary SFR (the remaining 20% of which is
owned by Vodafone). SFR, an innovator in the French telecommunications
market, provides the latest mobile offerings, the most recent being WAP
services. SFR customers can use their mobile handsets outside France
via roaming agreements with local operators in 90 countries. Cegetel
intends to participate in the French government's call for tenders of
four nationwide UMTS licenses that we expect will be granted by early
2001.
-- Fixed Telephony. Since February 1998, Cegetel has offered long
distance and international fixed telephone service through Cegetel 7, a
company 80% owned by Cegetel and 20% by Telecom Developpement ("TD") (a
company that is, in turn, owned 49.9% by
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<PAGE> 15
Cegetel and 50.1% by Societe Nationale des Chemins de Fer Francais
("SNCF"), the state-owned French railway company).
-- Internet. Through Cegetel (37%) and CANAL+ (18%), we hold a 55%
position in AOL CompuServe France. America Online, Inc. and Bertelsmann
hold the remaining 45%. Under the AOL CompuServe France Shareholders'
Agreement, no shareholder may provide Internet access services for
personal computers in France other than through AOL CompuServe France;
this provision, however, does not apply to the operation of Internet
websites. We have announced our decision to sell our interest in AOL
CompuServe France.
- Business Division. Cegetel operates its business marketing division
through Cegetel Entreprises (owned 80% by Cegetel and 20% by TD). Cegetel
Entreprises offers business customers a variety of services, including:
-- Wireless and fixed telephony, along with management tools such as call
limitation services, consumption reports and grouped bills;
-- Data transmission;
-- Internet access, website hosting services, development of e-commerce
sites and intranet management; and
-- Local telephony access through fiber optic loops in 19 heavy-use areas.
- Network and Information Systems Division. Cegetel's communication
networks are operated through its Network and Information Systems
Division.
-- Mobile. SFR operates a dense, high-quality mobile telecommunications
network based on the "Global System for Mobile Communications"
("GSM") -- the digital standard currently dominant in Europe. This
network is capable of providing service to 97% of the French population
and carries 20 million minutes of mobile telephone traffic a day.
According to an audit performed by the French government in October
1999, the SFR network ranks first in France in terms of overall
quality. SFR intends to introduce General Packet Routing Service
("GPRS") technology that it believes will increase the speed of its
network by a factor of ten by 2001.
-- Local. Cegetel must pay substantial interconnection fees to France
Telecom in order to provide local telephone service. To avoid these
fees, Cegetel has built 19 fiber optic local loops in dense business
districts in cities such as Paris, Lille, Lyon and Marseille.
Additionally, Cegetel intends to offer access services based on
Asymmetric Digital Subscriber Line ("ADSL") technology, which allows
continuous high-speed connections through existing telephone lines,
when and if French law is amended to require France Telecom to unbundle
its local loop.
-- Long distance. The backbone of Cegetel's fixed and mobile
telecommunications infrastructure is TD's long-distance
telecommunications network. TD owns, operates and maintains an entirely
digital telecommunications network throughout France, consisting of
approximately 14,000 kilometers of high-capacity fiber optic cables.
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<PAGE> 16
Shareholders' Agreement
The governance of Cegetel is subject to a Shareholders' Agreement to which
we are a party, along with BT, Mannesmann, SBCI, SBCI-SRC and Transtel. Among
other things, the Shareholders' Agreement provides that:
- Neither we, BT, Mannesmann nor SBCI (the "Cegetel Shareholders") can
conduct telecommunications business in France or its overseas departments
and territories other than through Cegetel. This provision does not apply
to the operation of Internet websites.
- Cegetel's board of directors has nine members, five of whom are nominated
by us, two by BT, one by Mannesmann and one by SBCI. The board of
directors of Transtel has six members, four of whom are nominated by us
and two by SBCI.
- Cegetel can take certain actions only if representatives of each of the
Cegetel Shareholders consent. These actions include:
-- making any change in the scope of its business;
-- changing any provision of its statuts (i.e., its charter or by-laws) or
amending any shareholders' agreement between it, on the one hand, and
any of the Cegetel Shareholders or Vodafone, on the other hand; and
-- except in limited cases, increasing its share capital with a waiver of
preferential subscription rights or merging or dividing Cegetel or
selling Cegetel shares to the public.
- Subject to some exceptions, representatives of BT must also consent to
any transaction that would result in a shareholder other than us or
Transtel obtaining a greater interest in Cegetel than that held by BT.
- If all of BT, Mannesmann and SBCI dissent, we cannot cause Cegetel to:
-- create or acquire shares in any entity in which Cegetel or companies it
controls hold less than 100% of the shares and voting rights; or
-- subject to some exceptions, acquire, dispose of, lease or loan a
material amount of assets or significantly reduce or cease any material
business operation.
- The Cegetel Shareholders' Agreement contains a number of limitations on
the transfer of Cegetel Shares:
-- During a "standstill" period due to expire in 2002, no Cegetel
Shareholder may transfer its interest in Cegetel except in limited
circumstances.
-- We may not sell our directly or indirectly held Cegetel shares during
the standstill period in an amount that would reduce our stake in
Cegetel, together with the stake held by Transtel, to less than a
majority.
-- Except in limited circumstances, any other Cegetel Shareholder seeking
to dispose of Cegetel shares must first offer such shares to us. If we
choose not to exercise our right to purchase all shares pursuant to
such an offer, the other Cegetel Shareholders must be given an
opportunity to purchase the shares in question.
-- We may not dispose of any Cegetel shares without first offering those
shares to the other Cegetel Shareholders.
- If a competitor of Cegetel makes an offer for our company, then, subject
to the limitations set forth in the section entitled "Take-over" of the
Cegetel Shareholders Agreement, the other
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<PAGE> 17
Cegetel Shareholders have the right to purchase, at fair market value,
our direct and indirect interest in Cegetel. Those rights are not
triggered in the case of a reverse take-over.
We do not believe that the Seagram transactions, the creation of Vivendi
Universal or the implementation of our plans in connection with Vivendi
Universal will implicate any provision of the Cegetel shareholders' agreement.
OUR OTHER TELECOMMUNICATIONS INTERESTS
In addition to our investment in Cegetel, we have also invested in a number
of telecommunications companies outside of France through VTI:
- Xfera. In March, 2000, Xfera, a consortium that we lead along with
Sonera Corp. and ACS Telefonia Movil, won a 20-year license to provide
advanced UMTS services in the rapidly growing Spanish mobile telephony
market for an up-front payment of E 132 million. The Spanish mobile
market currently has only three major competitors. Xfera plans to invest
E 5 billion in Spanish UMTS operations over the next ten years.
- Elektrim Telekomunikacja. In December, 1999 we entered into an agreement
with Elektrim to acquire 49% of Elektrim Telecom, a company that holds
51% of PTC, a Polish mobile telephony operator with 1.7 million
subscribers, and 100% of Polish cable television operator Bresnan with
288,000 subscribers.
- Magyar Telecom. We operate several regional companies in Hungary that
have monopolies for voice telephony on fixed networks. In 1999 we
increased our ownership interest in these companies from 40% to 100%.
- Monaco Telecom. In June, 1999 we acquired a 51% interest in Monaco
Telecom, the dominant telecommunications operator in the Principality of
Monaco. Monaco Telecom has a monopoly in Monaco on voice, data and
intermediation between telephony operators until 2023.
- Kencell. In 1999 we and our Kenyan partner Sameer won the tender to
operate a GSM mobile telephone network in Kenya through Kencell. Our
stake in Kencell is 40%.
MULTIMEDIA AND PUBLISHING
We carry out our publishing and multimedia activities through our
wholly-owned subsidiary Havas. With revenue in 1999 of E 3.3 billion and
operating income of E 355 million, we are one of the leading editors and
distributors of multimedia educational, reference and game products in the
world. We are also the leading publisher of general interest books and free
publications in France. Finally, we are one of continental Europe's leaders in
business, professional, educational and reference publishing.
<TABLE>
<CAPTION>
1999 1998
----- -----
(E MILLION)
<S> <C> <C>
MULTIMEDIA AND PUBLISHING
Revenue..................................................... 3,317 2,876
Adjusted EBITDA*............................................ 417 355
Operating Income............................................ 355 252
</TABLE>
-------------------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. We consider
17
<PAGE> 18
operating income to be the key indicator of the operational strength and
performance of our business and adjusted EBITDA to be a pertinent comparative
measure for investors. Adjusted EBITDA should not be considered an alternative
to operating or net income as an indicator of our performance, or as an
alternative to cash flows from operating activities as a measure of liquidity,
in each case determined in accordance with generally accepted accounting
principles. In addition, adjusted EBITDA, as defined in this Registration
Statement may not be strictly comparable to similarly titled measures widely
used in the United States or reported by other companies.
After a series of disposals of non-core businesses (e.g., the Havas Voyages
travel agencies and the Avenir group outdoor advertising business), and a number
of important acquisitions (including California-based educational software and
games producer Cendant Software, the Spanish textbook publisher Anaya and the
U.K.-based MediMedia and Barbour publishing groups), Havas' business is now
organized around two customer-oriented segments: the Business and Professional
division and the General Public division.
Business and Professional. Havas publishes 80 trade, business and general
news press titles, including books, magazines, newspapers, newsletters and
scientific journals. This activity accounted for E 1.3 billion (or 48%) of
Havas' total 1999 revenue. Twenty percent of this revenue was generated outside
of France. The business and professionals division operates in the following
areas:
- Medical information. Through Havas MediMedia, we are the third largest
medical information company in the world. We provide a complete line of
up-to-date information and support services for health professionals. We
offer products including publications addressed to general practitioners,
scientific journals, and books and reviews for students and medical
professionals. We also offer medical reference information that is
available in paper, CD-ROM and on-line formats.
- Information technology. Through 01 Informatique, the leading French
information technology weekly, we reach over 60% of the IT executives in
France and attract 57% of the recruiting classifieds for the French IT
market. We also publish the leading Italian professional IT weekly.
- Construction and public works. We provide technical, commercial,
regulatory and public procurement information to construction and public
works professionals and local authorities in France and in the United
Kingdom.
- Economics/Finance/News. We publish L'Express and L'Expansion, two of the
best known and most influential news and business magazines in France.
- Free press. We are the leading publisher of free newspapers in France.
General Public. Havas' General Public division produces and distributes
educational and reference materials, games and general literature in paper and
electronic formats. This division generated revenue in 1999 of E 1.5 billion,
accounting for 48% of Havas' total publishing and multimedia revenue.
- Havas Interactive. Our interactive multimedia activities are conducted
through Havas Interactive, which was considerably strengthened by the
1999 acquisition of Cendant Software. Havas Interactive produces on-line
games and over 100 educational and reference CD-ROMs in 10 languages.
Havas Interactive generates 80% of its revenue in the United States. We
are the leading PC game software developer in the United States and
second in the world with games developed under the Sierra, Blizzard, and
Davidson brands, including Caesar III, Pharaon, Gabriel, Knight 3 and
Starcraft. We also operate WON.net, the world's leading website in terms
of "stickiness," or average time spent per visit. WON.net recently merged
with Prize Central to form the world's second-leading on-line game
website. In addition, we
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<PAGE> 19
are the leading provider of interactive educational products in Europe
and second in the world, with brands that include Knowledge Adventures
and Coktel, and titles including Jumpstart, Mathblaster, Readingblaster,
Classwork, and Katego. We are also third worldwide in instructional
products under the Artist, Masterbook and Generation brands.
- Education and Reference.
-- Textbooks. We are the leading publisher of educational textbooks in
continental Europe. In France, we hold nearly 40% of the textbook
market, and we are leaders in textbooks for university level arts and
sciences, bringing together famous French brands such as Nathan,
Bordas and Armand Colin. Our recent acquisitions of Anaya and Aique,
as well as our 50% stake in leading Brazilian publishers Atica and
Scipione, have made us the leader in high growth Spanish- and
Portuguese-speaking countries. In the fourth quarter of 2000, Havas
and Vivendi Net intends to launch education.com, a website intended to
become a leading provider of educational tools for students, teachers
and parents. We intend to launch education.com first in markets where
Havas already owns significant educational content, i.e., France,
Spain, the United States and Germany.
-- Reference Materials. Eight of ten households in France own our
"Larousse" dictionary, a brand name synonymous with "dictionary" in
French- and Spanish-speaking countries. In addition, we publish a wide
array of specialized language dictionaries, encyclopedias and other
reference books.
- Literature. We are the leading publisher in France of literature
addressed to the general public. We publish works by authors including
Salman Rushdie, Tennessee Williams, Primo Levi, Vladimir Nabokov,
Danielle Steel, John Grisham and Ken Follett. We also publish essays,
practical guides, young people's literature and comic books. In addition,
we have a strong presence in French, Spanish and English language books
geared to children and adolescents, both in fiction and nonfiction. We
recently secured the exclusive right to publish Star Wars-related books
in France until 2006.
- Book club and on-line sales. France Loisirs, a 50/50 joint venture
between Havas and Bertelsmann, is the leading book club in the French
market, with 28 million volumes sold annually to nearly 4 million
members. BOL France, our on-line book selling operation (also a 50/50
joint venture with Bertelsmann), was launched in February 1999 and
currently offers 400,000 French-language titles.
Services. Havas Services provides promotion, distribution, inventory
management and other administrative support services to our core publishing and
multimedia businesses. Havas Services generated 4% of Havas' total revenue in
1999.
Technology. In 1999 we founded Bookpole, a joint venture with printing
company Maury Imprimeur, to provide digital printing services. Digital printing
will allow us to publish titles in response to orders from customers rather than
in large pre-sale batches. This will allow us to reduce the cost of maintaining
large inventories. We also have state of the art billing and invoicing systems
and automated platforms for stocking, handling and tracking orders that improve
the effectiveness of our "old economy" operations and give us a solid
technological base for our e-commerce activities.
Havas Advertising. We have a 19.7% investment in Havas Advertising, the
largest communications consultancy in France and fourth worldwide, with more
than 8,000 employees and 220 agencies in 65 countries. Vivendi appointed four of
Havas Advertising's directors. Our stake will decline to 15% when Havas
Advertising completes its acquisition of Snyder Communications.
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<PAGE> 20
AUDIOVISUAL AND PAY TELEVISION
Our audiovisual and pay television segment consists primarily of our
controlling interest in CANAL+, Europe's leading pay-television company. We also
have a substantial investment in BSkyB, the leading pay-television company in
the United Kingdom and Ireland.
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
(E MILLION)
<S> <C> <C> <C>
AUDIOVISUAL AND PAY TELEVISION*
Revenue................................................... 1,152 201 47
Adjusted EBITDA**......................................... 86 13 (7)
Operating Income.......................................... (103) (5) (11)
</TABLE>
-------------------------
* Does not include our stake in BSkyB.
** Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. We consider operating income to be the
key indicator of the operational strength and performance of our business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA as defined in this Registration Statement may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.
CANAL+
CANAL+ is Europe's leading pay-television company with over 13.9 million
subscriptions. It generated 1999 revenue of E 3.3 billion, 79% of which came
from subscription fees. CANAL+ is also a European leader in content development
and management with numerous international distribution agreements, an extensive
library of film and television titles and major film and television production
facilities. Finally, CANAL+ is a leading supplier of technology for digital
television, such as software that encrypts television signals to provide
conditional access (MediaGuard) and an operating system for managing multimedia
applications for television (MediaHighway).
CANAL+ is a public company listed on the Paris Bourse and included in the
CAC40 Index and the Euro Stoxx 50. In February 1989, CANAL+ shares began trading
over-the-counter in the United States as unsponsored American Depositary
Receipts ("ADRs"). Each CANAL+ ADR is backed by one-fifth of a share of CANAL+.
CANAL+ ADRs had a closing price of $33.5 on June 28, 2000 (and a closing price
of $28.97 on December 30, 1999).
Our Interest in CANAL+. We co-founded CANAL+ in 1983 and now own 49% of
its equity. French audiovisual law prohibits us from increasing our ownership in
CANAL+ to more than 49%. According to CANAL+'s most recent annual report, no
other shareholder holds more than 5%.
We appoint six members of the Board of Directors of CANAL+. Other seats are
held by representatives of CANAL+'s management (three seats) and independent
members (four seats).
CANAL+'s Activities. CANAL+'s core business is the production, marketing
and distribution of subscription television services. It is also active in film
and program production and the development of digital television technology,
Internet services and interactive services.
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<PAGE> 21
- Channel Production, Distribution, Marketing and Subscription
Management. CANAL+ offers two main subscription television products:
-- Premium Channels. CANAL+'s premium channel offers programming with a
unique mix of recently-released feature films (300 first-run movies
each year) and, for French viewers, major sports events such as the
French First Division soccer championship and the English Premier
League soccer championship. CANAL+ provides locally tailored versions
of its French premium channels in 10 other countries. In 1999 it had
about 5 million subscriptions in France and another 5 million
elsewhere. CANAL+'s premium channel has a very loyal customer base,
with a churn rate in 1999 of only 9%.
-- Theme Channels. CANAL+ owns a 30.1% interest in MultiThematiques,
Europe's leading producer of "theme channels," channels aimed at niche
viewers. Vivendi indirectly owns an additional 30%. MultiThematiques'
25 channels now have a total of 13.4 million subscriptions in Europe.
MultiThematiques produces such successful channels as Planete, Canal
Jimmy, Cine Cinemas, Cine Classics and Seasons.
-- Multi-Channel Package Distribution. CANAL+ began offering channels
via satellite in 1992. These channels, some of which are affiliated
with CANAL+ and some with other producers, are today part of the
CANALSATELLITE digital package. This package, which features over 60
French-language channels, radio stations and interactive services, had
over 1.37 million subscriptions in France at the end of 1999. CANAL+
also has over 2.2 million subscribers for the digital multiple-channel
packages it provides outside of France. It offers digital
direct-to-home services with partners in Spain, Italy, Poland and
Scandinavia. CANALSATELLITE generated more than 265,000 net new
subscriptions in France in 1999. It accounted for more than half of
the new digital satellite subscriptions in France for 1999.
- Production and Rights Management. CANAL+ began producing and
distributing movies and television programs in 1987. Initially conceived
to produce a steady stream of new content for CANAL+'s television
channels, these activities have grown into one of Europe's leading
audiovisual content production and distribution groups, involving all
aspects of cinema and television production, rights acquisition and
library management. Canal+'s audiovisual production and distribution
operations are conducted through StudioCanal, a majority owned subsidiary
of CANAL+ that is listed on the Paris Bourse. StudioCanal's business
includes principally the following:
-- Film Production and Rights Acquisition. StudioCanal produces,
co-produces and acquires rights to premium quality feature films,
including major international and European productions. It is one of
the largest feature film producers in France, producing between 30 and
40 films per year, and it has distribution rights acquisition
partnerships with major studios such as Universal, Warner Bros. and
Pathe. It is in the process of building a pan-European distribution
network, and has distribution subsidiaries in France, Germany and
Spain. Recent releases produced or distributed by StudioCanal include
French hits such as Taxi, La Buche and Le Bonheur est dans le pre,
European films such as La Vita e Bella, Il Postino and Abre los ojos
and international films as Sixth Sense, Message in a Bottle, Mission
to Mars and Chicken Run.
-- Film Rights Management. StudioCanal sells television broadcast rights
to feature films in its extensive library of 5,573 titles (as of
January 1, 2000), the third largest catalogue in the world behind
those of Kirch (15,000 titles, consisting principally of
German-language rights) and Time Warner (5,700 titles). The film
library includes blockbusters such as Terminator 2, Basic Instinct and
Highlander, French films such as La Grande vadrouille, La Grande
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<PAGE> 22
illusion, Belle de Jour and La Haine and classic American titles
such as The Graduate and The Deer Hunter. See
"-- General -- Vivendi Universal's Expected Operations," page 8.
-- Television Production. StudioCanal is the principal shareholder of
the largest television production business in France and one of the
largest in Europe. It is the only European television producer with
programs in all of the major programming categories (fiction,
animation, entertainment and documentaries). Its programs include the
TV dramas Docteur Sylvestre and Un Homme en colere, the animation
classics Babar and Tintin, the game shows Pyramide (based on The
$25,000 Pyramid), Qui est Qui, Le Juste prix (based on The Price is
Right) and Les Z'amours (based on The Newlywed Game) and the adventure
games Fort Boyard and Desert Forges.
- Sports Rights and Management. CANAL+ operates a dedicated subsidiary
called SPORT+ through which it acquires and markets international rights
to major sporting events. SPORT+ holds international rights to the French
first division soccer championship, the English Premier League soccer
championship, the Spanish first division soccer championship and "Coppa
del Rey," the Portuguese soccer championship and "Taca de Portugal,"
games from the Italian Class A soccer league and "Coppa Italiana,"
qualifying rounds for the 2002 World Cup for South American countries and
the "Coppa Libertadores." SPORT+ also holds worldwide rights to all
International Handball Federation matches, European rights to
International Basketball Federation matches and international rights to
the French Elite 1 rugby championships. SPORT+ has no other material
broadcasting rights.
Since 1991, CANAL+ has managed the Paris Saint-Germain (PSG) club, a
leading French soccer club with over 30,000 season ticket holders. In 1997,
CANAL+ acquired Geneva's Servette soccer team. CANAL+ believes that direct
involvement in club management enables it quickly to identify and exploit
emerging trends in sports rights management.
- Technology. CANAL+ has developed leading-edge technology for digital
television, including MediaGuard, a software program used to encrypt
television signals to provide conditional access, and MediaHighway, an
operating system used to manage interactive and multimedia applications
through television set-top boxes. CANAL+'s technology is used in 5
million digital set-top boxes in 12 countries, making CANAL+ the European
leader in digital television technology.
- On-line Services and Internet Access. CANAL+ will own 50% of Vivendi Net
by virtue of the contribution of CANALNUMEDIA to Vivendi Net. See
"-- Internet," page 23. CANAL+ created CANALNUMEDIA in September 1999 to
provide Internet services across Europe. CANALNUMEDIA operates
canalplus.fr, one of most visited websites in France. CANAL+ holds an
18.3% interest in AOL CompuServe France, along with co-investors Cegetel
and America Online, Inc.
BSKYB
We currently own 24.4% of BSkyB and have the right to appoint one of the 14
members of its board of directors. BSkyB operates the leading pay-television
broadcasting service in the United Kingdom and Ireland. Its principal activities
are the operation and distribution of more than a dozen wholly owned television
channels, the marketing of programming to direct-to-home satellite subscribers,
and the operation of a digital broadcast business. BSkyB launched its satellite
digital broadcast service in mid-1998, making expanded programming choices and
interactivity (such as home shopping, banking services, on-line education,
game-playing, and Internet services) available for the first time throughout the
United Kingdom. BSkyB established a free Internet service in the United Kingdom
and Ireland in 1999.
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RECENT DEVELOPMENTS
- Seagram Transactions. As described in greater detail in
"-- General -- Recent Developments" (page 8), we announced on June 20,
2000 that we had entered into a series of agreements with Seagram and
CANAL+, as part of which the non-regulated activities of CANAL+ will be
combined with the film activities of Seagram under a new entity which
will be wholly owned by Vivendi Universal. Following the transactions,
the new entity (to be called CANAL+) will have a supervisory board of at
least six members (chaired by Vivendi Universal chief executive officer
Jean-Marie Messier) and a five-member management board (chaired by
current CANAL+ chairman Pierre Lescure). The current CANAL+ will be
renamed CANAL+ Programmes and will continue operating the French Premium
Pay-TV channel's programming and broadcasting activities.
- Lagardere Alliance. On July 11, 2000, CANAL+ entered into an alliance
with Lagardere, a French media company. Lagardere acquired a 34% stake in
CANALSATELLITE and a 27.4% stake in MultiThematiques. CANAL+ reduced its
stake in MultiThematiques to 27.4% (Vivendi reduced its indirect interest
to 9%). CANAL+ and Lagardere set up three joint ventures. The first, 51%
owned by Lagardere and 49% by CANAL+, will own and operate existing theme
channels and is intended to create others. The second, 51% owned by
Lagardere and 49% by CANALSATELLITE, will oversee interactive services
for new channels jointly created by CANALSATELLITE and Lagardere. The
third, a 50/50 venture between Lagardere and MultiThematiques, will
create and distribute new theme-based channels based on Lagardere's
international brands such as Elle.
- Eurosport Acquisition. In May 2000, CANAL+ and TF1 announced that they
had acquired interests in Eurosport International and Eurosport France
from ESPN.
- Exchangeable Notes. In July 2000, we issued a series of exchangeable
notes with an aggregate principal amount of E 1.44 billion. Each note has
a nominal value of E 24.22 and is exchangeable for one share of BSkyB
stock. We may elect to give noteholders who exercise their exchange
rights the cash equivalent of the then-prevailing market price of the
BSkyB stock rather than the stock itself. The notes bear interest at 1%
per annum and are scheduled to mature in July 2003.
INTERNET
Pursuing our strategy of becoming a leading provider of web-based content
and services in Europe, we have agreed to create Vivendi Net together with
CANAL+. In addition to most of our Internet-related activities and those of
CANAL+, Vivendi Net will hold our 50% stake in the Vizzavi joint venture with
Vodafone. Vivendi Net will also hold our venture capital funds, Viventures I and
Viventures II, and @Viso, our start-up company "incubator." Directly and through
our interest in CANAL+, we will initially own 74.4% of Vivendi Net. Following
the completion of the Seagram transactions, we will own 100% of Vivendi Net, 50%
directly and 50% through the CANAL+ group.
VIVENDI NET
Vivendi Net's operations are to be organized into the following divisions,
all of which will share support functions such as finance, recruiting,
e-commerce platforms, public relations, knowledge management, corporate affairs,
business development, mergers and acquisitions and in-house legal services.
- Expansion of Vizzavi. On May 16, 2000 we signed an agreement with
Vodafone pursuant to which we will create a 50/50 joint venture to
operate and promote Vizzavi, a multi-access Internet portal. Vizzavi will
from its inception be the default Internet access portal for up to
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80 million subscribers of telecommunications and pay television
operations in which either we and Vodafone has a stake (the "local
operating companies"). Vizzavi will provide users of televisions,
personal computers, mobile telephones and personal data appliances a
single, seamless environment for web-based personal communication
services, e-commerce and entertainment. It is also a channel for Internet
distribution of our content assets. We expect that Vizzavi will create
new cross marketing opportunities by collecting customer data through a
personalized interface that each subscriber will create. Under the
agreement with Vodafone, we will cause all providers of Internet content
that we own or control to first offer that content on arm's length terms
to Vizzavi.
Pursuant to the Vodafone Joint Venture Agreement, the gross margin
generated by Vizzavi through advertising, e-commerce transaction
commissions and subscription services will be split on a 50/50 basis
between Vizzavi and the local operating companies. This arrangement will
be reviewed after two years, when it may be adjusted to ensure that it
remains fair to all parties. The clearance of the Vodafone Joint Venture
Agreement by the European Commission's anti-trust authorities occurred on
July 20, 2000. Pending the outcome of the arbitration proceedings brought
by BT, Vizzavi was launched in France in June 2000 exclusively as a
Vivendi venture. It intends to expand into Germany, Italy and the United
Kingdom by the end of 2000, and to create additional subsidiaries in
those countries. Twenty percent of the equity in these subsidiaries may
be offered, in proportion to the number of subscribers, to some of the
local operating companies (i.e., Vodafone UK, SFR, Mannesmann Mobilfunk,
Omnitel, CANAL+ and Telepiu), subject to those operators entering into
commercial agreements with Vizzavi. Vizzavi intends to extend its
operations during 2001 to cover Portugal, Spain, Sweden, Greece and the
Netherlands. Vodafone has agreed not to acquire any stake in our company
until 2004 unless a third party makes a bid for a controlling interest,
any person or entity crosses the 15% ownership threshold in our shares
or, subject to some exceptions, we acquire or bid for fixed or mobile
telephony operations or licenses in Germany, Italy or the United Kingdom.
- Planned integration of i(france). On May 4, 2000 we acquired i(france),
a multiservice portal that serves six European countries. i(france)
provides a number of Internet-related services, including e-mail,
personal web page and WAP site hosting and intelligent diaries. We intend
to integrate i(france), particularly its website creation and hosting
technology, into Vizzavi. i(france) has had more than 2.2 million unique
visitors; 4.2 million of its pages were viewed in April 2000.
- Development of existing and future thematic portals. We intend to create
leading Internet media brands for services based on thematic categories
by leveraging our existing content-related assets, brands and know-how.
Each branded category of web-based content and services is being
developed as a stand-alone business unit with the flexibility to pursue
growth through joint ventures, mergers or public listings. The
pan-European scope of such thematic portals is being enhanced by Vizzavi,
which will feature those portals on a preferred, but not exclusive,
basis. One group of portals, e-verticals, focuses on healthcare,
information technology, financial information, recruitment and local
services. Another, e-dutainment, concentrates on movies, sports, games
and education.
-- e-verticals consists of the following existing business units, each of
which will be held 50% by Vivendi Net and 50% by Havas:
-- Healthcare. @medica is a leading French healthcare website
launched in November 1999 with 50,000 users per month. It offers
scientific content and services to professionals, supported by
Havas' assets in medical press and book
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publishing. A version aimed at the general public is to be
launched in September 2000.
-- Information technology. 01 Net is a French information
technology-related portal launched by Havas in April 2000. It
offers a wide range of content and services such as newsletters,
downloadable software, product and website directories,
information technology-related help services and IT-related
recruitment services to professionals and the general public.
Three and a half million of its pages were viewed in April 2000.
-- Financial information. lavf.com. is a free personal finance
portal launched in April 2000. It provides users access to
financial markets with real time stock quotes and offers a wide
range of finance-related content and services such as historical
performance charts, newsletters, finance-related help services and
telephone and e-mail alert services. Through a partnership with
Vega Finance, it offers access to on-line brokerage services as
well.
-- Directory and transactional services. We have recently
established a 50/50 joint venture with Scoot to introduce Scoot's
innovative combination of business directory and e-commerce
services to continental Europe under the "Scoot" brand. We have
not yet determined whether we will transfer our interest in the
venture to Vivendi Net.
-- e-dutainment consists of the following activities currently conducted by
CANAL+ or Havas (those conducted by CANAL+ will be held by Vivendi
through the CANAL+ group following the Seagram transaction):
-- Entertainment. CANALNUMEDIA operates Canal.plus.fr, a leisure
portal with one million unique users and 1.4 million pages viewed
in April, 2000. CANALNUMEDIA's long-term goal is to establish
itself as Europe's leading entertainment portal by building on the
strong CANAL+ brand name as well as on the relationship that
CANAL+ has developed with its customers. CANALNUMEDIA will
concentrate on fields in which CANAL+ is well known: sports,
movies and music.
-- On-line games. We hold a 50% stake in the company that owns 83%
of Flipside.com. Flipside.com will combine our WON.net site with
the recently acquired Prize Central to become the second leading
on-line game site in the world. Flipside will offer a range of
on-line entertainment channels, including over 50 games targeting
a broad spectrum of users to over 1 million unique visitors per
month.
-- Planned education site. Vivendi Net, together with Havas, plans
to launch education.com, an educational website, in the fourth
quarter of 2000. We intend this site to become one of the first
comprehensive on-line education service providers in Europe.
- Planned transfer of venture capital and incubation activities: Vivendi
Net will hold (within its e-Vestor business unit) our 22% investment in
Softbank Capital Partners LP, a venture capital fund with total
commitments of $240 million that invests in young Internet companies.
Vivendi Net will also hold our 29% investment in Viventures, a E 118
million venture capital fund now substantially invested in early stage
communications and Internet companies in Europe and the United States, as
well as our soon to be established Viventures II fund. We intend to
pursue our incubator activities through Vivendi Net by contributing to it
our 50% stake in @Viso, a 50/50 joint venture with Softbank. With total
committed capital of $500
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million, @Viso is primarily dedicated to facilitating the rapid
introduction of Internet companies with business models successful in the
United States to continental Europe. It does so by providing equity
capital and local market-specific services, including marketing,
administration and technical and customization services to companies such
as E-Loan Europe, Buy.com Europe, MessageMedia Europe, Interliant Europe
and Vstream Europe.
- Other
-- E-Carrieres. E-Carrieres is a leading French job recruiting
website, offering free on-line recruiting ads, information and
services for job seekers and recruiting agencies and companies.
-- Bonjour.fr. Bonjour.fr is a major French advertising website,
with revenue of E 420,000 in 1999 and eight million viewed pages
in April 2000. Bonjour.fr has created a number of local portals
dedicated to areas including Paris, Lyon, Lille, Montpellier and
Rennes.
COMPETITION -- COMMUNICATIONS
TELECOMMUNICATIONS
The consumer telecommunications industry in France is currently very
competitive and may become more so as a result of the French government's recent
decision to award telecommunications licenses to approximately 100 operators
(including approximately 12 that may compete significantly with us). We compete
in this industry primarily through SFR, an 80% owned subsidiary of Cegetel. As
of December 31, 1999, SFR had 7.3 million mobile customers, giving it a 35.8%
share of the French mobile market measured by volume. SFR's major competitors
include France Telecom, which had a market share of 49.7% in 1999, and Bouygues
Telecom, which had a 15.5% share. Cegetel 7 had 1.4 million customer lines at
the end of 1999, which we estimate to represent approximately 5.1% of the French
long distance and international telephony market. Cegetel's primary competitor
in the long distance and international telephony market is France Telecom, which
enjoys significant advantages as a result of its historical position as the
dominant provider of telecommunications services in France, including a near
monopoly on local traffic. To overcome this situation and be in a position to
offer broadband access and related services, Cegetel has developed a strategy of
installing fiber optic and radio local loops to avoid, wherever practicable,
France Telecom's control over individual consumers' connections to the fixed
telephone network.
The French business telecommunications sector is highly competitive as
well. We estimate that Cegetel has an overall market share of 14.9%, second to
France Telecom.
AOL Compuserve France had approximately 450,000 customers at the end of
1999, representing 17% of the French market. Its main competitors are Wanadoo, a
subsidiary of France Telecom, Club Internet, a subsidiary of Deutsche Telekom,
and Infonie. Competition has intensified with the introduction of free Internet
access in the fall of 1999 by Freeserve and Libertysurf.
MULTIMEDIA AND PUBLISHING
We face a number of strong competitors across the range of our publishing
and interactive multimedia activities in France, in Europe as a whole and
worldwide. Bertelsmann is our biggest single competitor, as it is, like us,
present in a wide variety of publishing and multimedia markets around the world.
Our business and professional division also faces strong competition from Reed
Elsevier and Wolters Kluwer. With regard to our scientific and trade activities
in particular, our primary competitors are The Thomson Corporation and Harcourt
Brace. In the educational, reference, general literature and multimedia sectors,
we compete principally with Hachette, Pearson and Harcourt Brace.
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AUDIOVISUAL AND PAY TELEVISION
The European pay-television sector is relatively new, and penetration rates
continue to rise significantly. The potential for growth has attracted
significant competitors to the French market, including Television Par Satellite
(which is owned by TF1, M6, France 2, France 3, France Telecom and Suez
Lyonnaise des Eaux). In Spain, CANAL+ competes with Telefonica's subsidiary Via
Digital. Competitors in Italy include News Corporation through its investment in
Stream. In addition, the introduction of digital distribution methods, including
cable and satellite, has enabled new entrants to the European pay television
market to compete vigorously. Generally, competition is country-by-country due
to national differences in viewer preferences.
Other than Belgium, operations outside of France are not yet profitable,
but we believe they represent strong growth potential for CANAL+. CANAL+ has a
leading market position in all the countries in which it operates.
INTERNET
The market for web-based services is rapidly evolving and highly
competitive. Due to the greater maturity of the North American market,
increasing numbers of U.S. market participants such as Yahoo! and AOL have
turned their attention to the European market. We believe the principal
competitive factors in the European market are customer base, brand recognition,
performance, ease of use, value-added services, functionality and features and
customer service. Additional competitors include France Telecom's Wanadoo and
other Internet software, content, service and technology companies,
telecommunications companies, cable companies and equipment/technology
suppliers.
RESEARCH AND DEVELOPMENT -- COMMUNICATIONS
We intend to become one of the principal participants in the European
communications industry, and therefore has a research and development policy
designed to keep us in the forefront of applying the latest technological
innovations in the field, particularly with respect to mobile telephony, the
Internet and multimedia services.
The introduction of mobile telephony and the Internet have dramatically
shortened product life cycles in the telecommunications industry. We expect that
we will have to make substantial future investments in our telecommunications
activity, especially for wireless networks, due to customer growth, increased
usage and the need to offer new services and greater functionality. Our
operations and our ventures depend in part upon the successful deployment of
continuously evolving telecommunications technologies. We use technologies from
a number of vendors and make significant capital expenditures in connection with
the deployment of such technologies.
Cegetel invested E 32 million in research and development in 1999, E 25.4
million in 1998 and E 23.8 million in 1997.
The focus of Cegetel's development efforts is currently on:
- integration of broadband voice, data and video in connection with new
multi-media services;
- architecture of current and future telecommunications systems such as
UMTS;
- convergence of communications technologies (Internet, mobile, fixed
telephony, broadband transmission, information systems) that will pave
the way for multimedia content and mediation tools such as e-commerce.
Our development efforts in multimedia and publishing are primarily directed
towards the development of new CD-ROM products and on-line services and
upgrading existing products. Due to the increasing technological complexity of
computer games, our research and development
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expenditures in this area may increase in the near future. We invested E 37
million in research and development through Havas in 1999 and E 4 million in
1998, primarily in connection with the development of Internet services.
In our audiovisual and pay television segment, CANAL+ has an in-house
technological research center that develops digital access control devices such
as MediaGuard and interactive systems such as Mediahighway. In February 1999,
CANAL+ developed with MediaOne the first interactive television system in the
United States based on open technology. CANAL+ invested E 12 million in its
research and development activities in 1999.
Our areas of Internet-related research currently include:
- mobile Internet services that allow users to surf the Web, read e-mail
messages, send faxes, make purchases and access service packages from a
mobile phone;
- unified messaging facilities that offer a single point of access to
information stored in various servers and networks (e.g., voice, fax and
e-mail);
- auto-based communications that make multimedia technology accessible from
cars, enhancing driver safety and improving the quality of road travel.
REGULATION -- COMMUNICATIONS
TELECOMMUNICATIONS
The French telecommunications market was largely deregulated in July 1996
under the Loi de Reglementation des Telecommunications (the "LRT") and its
supplemental legislation (known as decrets d'application). The LRT is a
"transposition" of European Community directives regarding deregulation into
French law. Among other things, the LRT allows telecommunications operators to
set prices freely. It does not, however, currently provide companies like ours
equal access to local telephone loops.
The Agence de Reglementation des Telecommunications (the "ART") is the
regulatory authority with jurisdiction over the telecommunications industry in
France. It is responsible, among other things, for issuing recommendations to
the government regarding interconnection conditions and applications for
telecommunications licenses, settling conflicts in the interconnection domain
and allocating frequency bandwidth and telephone numbers.
Through SFR, TD and Cegetel Entreprises, Cegetel has licenses to provide
mobile, long-distance and local telephone services. Each license carries certain
obligations. The terms of its long-distance license, for example, require TD to
make investments in network infrastructure. Similarly, SFR's license obligates
it to provide nationwide coverage. We believe Cegetel has satisfied its
requirements to date. Cegetel intends to apply for an additional UMTS license in
2000.
AUDIOVISUAL AND PAY TELEVISION
The communications industry in Europe is regulated by various national
statutes, regulations and orders, often administered by national agencies such
as the Conseil Superieur de l'Audiovisuel (the "CSA") in France. These agencies
usually grant renewable broadcast licenses for specific terms. In France, CANAL+
holds a pay-television broadcast license for over-the-air, satellite and cable
broadcasts. The CSA recently renewed this license for a five-year period
starting in January 2001. CANAL+ operates its activities in Spain, Italy,
Belgium, Poland, and Scandinavia in accordance with the domestic regulations of
those countries.
Because CANAL+ holds a French broadcast license, it is subject to French
laws which mandate that (i) no more than 49% of its equity may be held by any
one person and (ii) 60% of the films it
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broadcasts in France must be European in origin and 40% must have been filmed in
French. CANAL+ invests 20% of total prior-year revenue in the acquisition of
film broadcasting rights, including 9% of prior year revenue for French language
films and 3% for other European films. Regulations in Belgium, Spain and Poland
also require specified levels of European and national content.
MULTIMEDIA AND PUBLISHING, AUDIOVISUAL AND PAY TELEVISION AND INTERNET
The European Community has adopted a variety of Directives that address
intellectual property, advertisement, e-commerce, mail order and telemarketing.
We do not believe that the transposition of any of these Directives into French
law has had a negative impact on our businesses. Except for issues related to
the method by which various governments will award UMTS telecommunication
licenses (see "-- Our Business as a Whole -- Risk Factors," page 54) and the
possible amendment of French telecommunications law to require the unbundling of
France Telecom's local loop, we are not aware of any other material legislative
or regulatory development that is likely to have a material effect on our
businesses.
ENVIRONMENT
Through Vivendi Environnement, we offer a wide variety of environmental
services, including water treatment and systems operation, waste management,
energy and transportation services, to public authorities and industrial,
commercial and residential customers around the world. Vivendi Environnement is
the leading global provider of these services, defined collectively as
environmental management services. It increasingly provides these services in
innovative, integrated packages customized to meet the needs of particular
customers. It employs approximately 180,000 people in over 100 countries. It
generated revenue of E 22.4 billion and an operating income of E 1.7 billion in
1999.
OUR ENVIRONMENTAL STRATEGY
Vivendi Environnement's strategy is to use its broad range of services and
extensive experience to capitalize on increased demand for reliable, integrated
and global environmental management services. The major elements of this
strategy are to:
- LEVERAGE OUR EXPERTISE, LEADING MARKET POSITIONS AND STRONG FINANCIAL
POSITION TO DELIVER STRONG INTERNAL GROWTH
Providing environmental services has been the core business of Vivendi
Environnement for nearly 150 years. It has demonstrated technological,
financial and management expertise and routinely enjoys success in
bidding for contracts with industrial companies and public authorities.
It has vast experience in the management of long-term relationships with
public authorities. It also has a track record of using its technological
and management expertise to deliver high quality service while reducing
costs. It intends to use its broad range of expertise and experience to
take advantage of the increasing demand for privatized and out-sourced
environmental management services.
- DEVELOP UNIQUE, INTEGRATED, MULTI-SERVICE OFFERINGS
Vivendi Environnement intends to integrate its environmental operations
to meet increasing demand for comprehensive environmental management
services. We expect that industrial companies will increasingly seek a
single "one-stop" environmental management services provider that
coordinates the performance of many of their non-core activities.
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- ACHIEVE AND MAINTAIN "BEST-IN-CLASS" PERFORMANCE IN EACH ENVIRONMENTAL
MANAGEMENT BUSINESS THROUGH INVESTMENTS IN TECHNOLOGY AND PERSONNEL
The projects Vivendi Environnement undertakes require extensive technical
know-how and excellent management capabilities. Vivendi Environnement
invests heavily in both technology and personnel to ensure that it
delivers the highest quality environmental services possible. Its goal is
to achieve and maintain "best-in-class" service across its business
segments.
- SEIZE OPPORTUNITIES ARISING FROM ITS WORLDWIDE REACH
Because Vivendi Environnement's operations span the globe, it can offer
multinational industrial customers uniform service quality and
centralized environmental services management. It is one of the only
environmental services companies with the ability to offer services on a
worldwide basis.
Vivendi Environnement's world-wide presence also allows it to seize
quickly opportunities to enter fast-growing markets for environmental
management services in countries outside of Western Europe and North
America. The extensive experience it has acquired in dealing with a wide
variety of legal and political environments facilitates its entry into
those countries.
- FOCUS ON HIGH VALUE-ADDED ENVIRONMENTAL SERVICES
Vivendi Environnement intends to focus on providing high value-added
environmental services and to limit its exposure to low-margin commodity
supply businesses, in particular by divesting its power generation
assets. This focus will also enable Vivendi Environnement better to take
advantage of its core strength: its ability to provide creative,
customized, integrated environmental services to clients with large,
geographically diverse and complex operations.
- MAKE OPPORTUNISTIC ACQUISITIONS TO EXPAND OUR SERVICE OFFERINGS AND
GEOGRAPHIC REACH
Vivendi Environnement intends to acquire environment-related companies
when the opportunity to do so on favorable terms arises. The purpose of
these acquisitions will be to expand the portfolio of services it can
offer clients and to extend its geographic reach. Vivendi Environnement
believes that successful acquisitions in key areas will significantly
enhance its ability to provide high value-added services in growing
markets.
At the end of July, 2000 Vivendi Environnement sold the shares it issued in
an initial public offering in France and in an international private placement.
Vivendi Environnement intends to use the proceeds of the public offering and
private placement to repay a portion of the debt it owes to our company.
Following the public offering and private placement, our ownership in Vivendi
Environnement was diluted to approximately 63%.
OUR ENVIRONMENTAL BUSINESS SEGMENTS
WATER
Vivendi Environnement, through its subsidiary Vivendi Water, is the leading
water and waste water treatment and system operator in the world. Vivendi
Water's two main subsidiaries are Compagnie Generale des Eaux, the leading water
and waste water services company in France, and United States Filter
Corporation, North America's leading water company.
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<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(E MILLION)
<S> <C> <C> <C>
WATER
Revenue..................................................... 10,684 6,722 6,578
Adjusted EBITDA*............................................ 1,320 830 787
Operating Income............................................ 793 405 383
</TABLE>
-------------------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. We consider operating income to be the key
indicator of the operational strength and performance of our business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA as defined in this Registration Statement may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.
Including its 1999 acquisitions on a full-year basis, Vivendi Environnement
generated 70% of its water revenue in 1999 from contracts with public
authorities, 23% from industrial customers and 6% from the individual consumer
sector. It provides the following services and products:
- Municipal and Industrial Outsourcing. The focus of our water business is
on the management and operation of water and waste water treatment and
distribution systems for public authorities and private companies. It
provides integrated services that cover the entire water cycle, from
collection and treatment to storage and distribution. Its activities
include the design, construction, operation and maintenance of
large-scale, customized potable water plants, waste water treatment and
re-use plants, desalination facilities, potable water distribution
networks and waste water collection pipelines, as well as the provision
of water purification-related services to end users.
- Water Treatment Systems and Equipment. Through United States Filter
Corporation and Omnium de Traitements et de Valorisation ("OTV"), Vivendi
Water is the world's leading designer and manufacturer of water equipment
and water systems for public authorities and private companies. It treats
ground water, surface water and waste water using a wide range of
separation processes and technologies and engineers customized systems to
reduce or eliminate water impurities. Its recycle/reuse systems provide
industrial customers with the ability to circulate treated water back
into plant processes, thereby reducing water usage, operating costs and
environmental damage.
Vivendi Water also designs, engineers, manufactures, installs, operates
and manages standardized and semi-standardized water equipment and
systems designed to treat water for particular industrial uses. For
example, many manufacturing processes -- particularly those used in the
food and beverage, pharmaceutical, microelectronics, paper, chemical
processing and oil/petrochemical industries -- require treated water to
improve product quality and reduce equipment degradation. Vivendi Water
uses a broad range of physical, biological and chemical treatment
technologies that can be combined and configured to treat water to a
customer's individual specifications.
- Bottled Water and Household Filtration Products. Through United States
Filter Corporation, Vivendi Water provides consumers in North America and
Europe bottled water under the "Culligan" brand. It offers the same
consumers a variety of point-of-entry and point-of-use water treatment
products such as water softening, conditioning and filtration equipment.
It
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<PAGE> 32
generated two-thirds of its 1999 consumer water revenue in North America,
the remainder coming primarily from Europe.
Vivendi Water provides water services and products to three types of
customers: public authorities, private firms and consumers. Local authorities,
primarily in Europe, accounted for 70% of its 1999 water revenue (E 7.7
billion). It operates water and/or waste water facilities for municipalities
such as Paris, London, Berlin, Lyon, Marseille, Sydney, Vancouver, New Orleans
and Tianjin, China. It recently signed a contract to design, build and operate a
waste water treatment installation in Chengdu, China. Its industrial clients
include Hyundai and Aerospatiale. Most are located in North America (where it
generated 88% of its 1999 industrial client water revenue). About two-thirds of
its consumer customers are in North America; the remainder are in Europe. It
sells bottled water through a residential and commercial distribution network.
It purifies drinking water at over 140 company-owned, franchised or licensed
bottling locations and sells that water through over 720 independent and
company-owned dealerships in the United States.
RECENT DEVELOPMENTS
On July 19, 2000, Vivendi Environnement announced that it had agreed to
sell the Kinetics Group, a subsidiary of United States Filter Corporation, to a
group of investors. The Kinetics Group contributed about 2.5% of Vivendi
Environnement's 1999 consolidated revenue. Vivendi Environnement will use the
proceeds of the sale to reduce its indebtedness by approximately $500 million.
Completion of the transaction is subject to the buyer obtaining debt financing
and to customary regulatory requirements.
WASTE MANAGEMENT
Through its wholly-owned subsidiary Compagnie Generale d'Entreprises
Automobiles, which operates under the "Onyx" brand, and its participation in
FCC, Vivendi Environnement is a global waste management leader -- the largest in
Europe and the third largest in the world. Vivendi Environnement provides waste
management services to 50 million people in 35 countries on five continents. It
has waste management contracts with approximately 4,000 municipalities and
250,000 industrial clients worldwide. Its principal markets are Europe and North
America. It also provides waste management services in the Asia/Pacific region
and in Latin America. It intends to conduct its waste operations in Latin
America through Proactiva Medio Ambiente ("Proactiva"), a joint venture with
FCC.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
WASTE
Revenue..................................................... 3,521 2,837 2,215
Adjusted EBITDA*............................................ 619 495 355
Operating Income............................................ 278 226 158
</TABLE>
-------------------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. We consider operating income to be the key
indicator of the operational strength and performance of our business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
32
<PAGE> 33
adjusted EBITDA as defined in this Registration Statement may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.
SERVICES
Our core business consists of the collection, processing and disposal of
municipal, commercial and industrial waste. Our waste activities fall into two
broad categories: waste collection and related services and waste disposal and
treatment.
- Waste Collection and Related Services.
-- Collection. Vivendi Environnement collects approximately 13.4 million
metric tons of waste annually from residences and communal
depositories and approximately 9.5 million metric tons annually from
industrial sites. It transports this waste to transfer stations,
recycling and treatment centers or directly to disposal sites.
-- Transfer Stations. Solid waste consolidated at transfer stations is
usually compacted for transport to disposal sites.
-- Recycling. Recycling generally involves the collection of paper,
cardboard, glass, plastic, wooden and metal waste that customers
either separate into different containers or commingle with other
recyclable materials. Vivendi Environnement sorts and recycles
approximately 3 million metric tons of solid waste each year at its
111 treatment units. It sells recyclable material to intermediaries or
directly to industrial clients. With 70 sorting and recycling units
throughout Europe handling approximately 1.8 million metric tons of
waste paper per year, it is a European leader in recycling waste paper
and cardboard. It also recycles some 200,000 metric tons of waste
paper in the U.S. annually.
-- Commercial and Industrial Cleaning. Vivendi Environnement conducts
its commercial and industrial cleaning operations primarily under the
brand name "Renosol." It cleans, among other things, offices, train
stations, subways, airports, museums and supermarkets. It also cleans
industrial sites, primarily auto manufacturing and food processing
plants, offering specialized services such as high-pressured cleaning,
clean-room cleaning and tank cleaning.
-- Liquid Waste Management. Vivendi Environnement's liquid waste
management operation focuses principally on pumping and transporting
liquid effluent associated with water treatment sewage networks and
oil residues to treatment centers. Liquid waste is usually treated at
treatment centers owned by third parties; in France, however, it
treats about one-third of the waste it collects on its premises.
-- Street Cleaning. Vivendi Environnement provides mechanized street
cleaning services for public authorities, including authorities in
London, Paris, Madrid and Buenos Aires.
- Waste Disposal and Treatment.
-- Non-Hazardous Solid Waste. Vivendi Environnement disposes of
approximately 30 million metric tons of non-hazardous solid waste a
year by depositing it in landfills, by incinerating it at incineration
plants or through composting.
-- Landfill disposal. Vivendi Environnement disposes of approximately 20
million metric tons of non-hazardous solid waste a year in 133
different landfills (100 of which we own). It estimates that it can
continue to fill its landfills at its current pace for approximately
15 years. It has developed expertise in waste treatment methods that
minimize emission of liquid or gaseous pollutants, allowing it to
manage landfills under strict environmental
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<PAGE> 34
regulations. It primarily relies on landfill disposal for industrial
solid waste. For municipal waste, it uses landfill disposal,
incineration and composting.
-- Incineration. Vivendi Environnement uses the 75 incineration plants
it operates to incinerate approximately 9 million metric tons of waste
per year, the majority of which is municipal waste. At some
incineration plants, it uses the heat created by incinerating waste to
generate energy. It sells this energy principally to district thermal
networks or electricity providers such as Electricite de France
("EDF"). It uses incineration as its primary method of waste disposal
in densely populated areas where landfill space is scarce.
-- Composting. Vivendi Environnement composts approximately 1.1 million
metric tons of waste a year at its 65 composting production units. It
then sells a portion of the composted waste for use as fertilizer.
-- Hazardous Waste. Vivendi Environnement treats approximately 1.8
million metric tons of hazardous waste a year. Eighty percent of its
business in this category comes from the chemical, petro-chemical and
metallurgy industries, primarily in the United States, France and the
United Kingdom. Vivendi Environnement collects hazardous waste from
customers and transports it, usually in specially constructed
containers, tankers or semi-trailers, and treats it at one of 29
treatment facilities. Vivendi Environnement's principal methods for
treating hazardous waste are:
-- incineration for organic liquid waste, solvents, salted water and
sludge;
-- stabilization of residues followed by disposal in
specially-designed landfills; and
-- physical-chemical treatment for inorganic liquid waste.
In Europe, Vivendi Environnement's municipal waste management operations
generate approximately 41% of its total waste management revenue. In North
America, municipal waste management represents about 35% of its total waste
management revenue. Contracts with industrial customers accounted for
approximately 60% of its 1999 waste revenue, 65% in North America and 59% in
Europe.
RECENT DEVELOPMENTS
Vivendi Environnement has agreed to merge its wholly-owned subsidiary
Norskgsenvinning, the leading waste management company in Norway, with a company
that owns 100% of Marius Pedersen, the leading Danish waste management firm.
Vivendi Environnement will own 65% of the surviving entity, which will be the
market leader in Central Europe as well as Scandinavia.
ENERGY
Through its wholly-owned subsidiary Dalkia, Vivendi Environnement is a
leading energy management services provider in the rapidly growing European
market. Dalkia provides energy management services in 26 countries. It also
offers a wide range of industrial utilities and facilities management services.
Demand for outsourced industrial utilities and facilities management, almost
non-existent ten years ago, has grown significantly. Dalkia earned revenue of
more than E 600 million in these sectors in 1999. Its primary markets are
France, the United Kingdom and Central and Eastern Europe. In addition, we own a
61.4% interest in Sithe Energies, a company primarily engaged in the
development, construction, ownership and operation of non-utility electric
generating facilities in the United States. On August 14, 2000, we announced a
transaction with a subsidiary of PECO Energy Company pursuant to which we will
reduce our stake in Sithe to approximately 30%.
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<PAGE> 35
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
ENERGY*
Revenue..................................................... 2,845 2,706 3,103
Adjusted EBITDA**........................................... 388 341 265
Operating Income............................................ 170 136 92
</TABLE>
-------------------------
* Does not include results of Sithe.
** Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. We consider operating income to be the key indicator
of the operational strength and performance of our business and adjusted EBITDA
to be a pertinent comparative measure for investors. Adjusted EBITDA should not
be considered an alternative to operating or net income as an indicator of our
performance, or as an alternative to cash flows from operating activities as a
measure of liquidity, in each case determined in accordance with generally
accepted accounting principles. In addition, adjusted EBITDA as defined in this
Registration Statement may not be strictly comparable to similarly titled
measures widely used in the United States or reported by other companies.
Dalkia provides the following services:
- Energy management. Energy management consists of operating heating and
cooling systems to provide comfortable living and working environments
and redesigning and operating existing energy systems to maximize their
efficiency.
Dalkia manages some 55,000 heating systems in France and 10,000 elsewhere
in Europe. It provides integrated energy services, including in most
cases system construction and improvement, energy supply, system
management and maintenance, to about 40,000 governmental, industrial,
commercial and residential customers.
Dalkia is also Europe's leading operator of large "district" heating and
cooling systems. In district systems, thermal energy is generally
produced at a central location and distributed through pipes to dispersed
locations. Dalkia does not ordinarily own the systems it operates. In
most cases, public authorities own the systems but delegate to Dalkia the
responsibility of building, managing, maintaining and repairing them. The
systems Dalkia operates heat and cool a wide variety of public and
private facilities, including schools, hospitals, office buildings and
residences.
Dalkia currently manages more than 250 district heating and cooling
systems in Europe, mainly in France, the United Kingdom, Germany, and
Central and Eastern Europe. In France, it operates 186 district heating
and cooling systems, about half of those in existence. It is expanding
rapidly in Central Europe, for example, through its recent acquisition of
Moravskoslezke Teplarny and TEK, two major participants in the Czech
district heating market for a total of E 133 million. Throughout Central
and Eastern Europe, it has set up a number of energy services companies,
in many cases in cooperation with the European Bank for Reconstruction
and Development.
Dalkia has become a European leader in cogeneration (the simultaneous
production of electricity and heat) and on-site power production. Under a
typical cogeneration contract, it provides a governmental or industrial
customer with steam power at a favorable price in exchange for the right
to produce electricity through cogeneration on the customer's premises.
French law requires EDF, the French government-owned electricity company,
to purchase
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<PAGE> 36
cogenerated power at specified rates. Dalkia sells EDF the power it
produces through cogeneration under a 12-year contract. Dalkia's total
electrical power production capacity (including cogeneration facilities,
peaking plants and stand-by generating units) is 2,740 MW in Europe,
including 2,240 MW in France.
- Industrial Utilities. Dalkia began providing industrial utilities
services several years ago when it saw that many of its customers were
beginning to outsource non-core industrial activities such as the
production and distribution of steam heat, compressed air and
demineralized water. It has become a leading provider of industrial
utilities services in France and the United Kingdom, and has developed
expertise in the analysis of industrial processes, productivity
enhancement and preventive maintenance.
- Facilities Management. In a further response to the increasing
popularity of outsourcing, Dalkia has recently added facilities
management to its portfolio of services. The support services it offers
range from electrical and mechanical equipment maintenance to secretarial
services.
Dalkia provides energy services to both public and private customers. Its
public customers include authorities in suburban Paris, Lyon, Nice, Nottingham
in the United Kingdom, Ostrava in the Czech Republic and Bratislava in the
Slovak Republic. Its industrial customers include international groups such as
Eurolysine (Ajinomoto group), Michelin, Renault, Smurfit, Solvay and Unilever.
Its facilities management customers include public institutions like the
European Parliament and private firms like Alstom, Bull and Phillips. The
primary market for its energy services is Europe. Latin America is potentially
an important market for its facilities management business, as is the
Asia/Pacific region for its heating system activities.
SITHE
Sithe is a leader in the North American independent power generation
market. As of December 31, 1999, it operated 49 operating power plants in North
America with an aggregate average net capacity of 8,074 MW and had six projects
under advanced development representing approximately 4,230 MW. Internationally,
Sithe and its affiliates had interests in eight projects in operation (465 net
MW), four projects under construction (324 MW) and three projects under advanced
development (535 MW) in the Asia/Pacific region, and 500 net MW under
construction or advanced development in other countries. Sithe had 1999 revenue
of $1.1 billion.
On November 24, 1999, Sithe acquired 21 power generating plants in the
United States for approximately $1.72 billion (including the assumption of $76.7
million of liabilities) from GPU Inc. On February 19, 2000, Sithe agreed to sell
the plants to Reliant Energy Power Generation for $2.1 billion. On August 11,
2000, we entered into a stock purchase agreement and a put and call agreement
with a subsidiary of PECO Energy Company and the other shareholders of Sithe
with respect to our stake in Sithe. The stock purchase agreement provides that
current Sithe shareholders will sell a total of 49.9% of Sithe to PECO for
approximately $680 million (of which our share will be approximately $431
million). Our stake in Sithe will be approximately 30% following this sale.
Pursuant to the put and call agreement, we can put, or the buyer can call, our
remaining stake in Sithe at any time between two and five years after the
closing of the sale at a price that will be determined pursuant to the formula
set forth in the agreement.
RECENT DEVELOPMENTS
On June 22, 2000, we entered into a memorandum of understanding with
Vivendi Environnement and EDF pursuant to which Dalkia will consolidate its
energy operations with those of EDF. As European energy markets continue to
deregulate, Vivendi Environnement and EDF believe that their customers
increasingly demand comprehensive energy solutions that combine power generation
and
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<PAGE> 37
energy services. Together Vivendi Environnement and EDF intend to provide such
integrated services, mainly to large industrial firms, and to develop an
expanded international presence. Dalkia will focus on developing the thermal
services, industrial utilities and independent power production aspects of the
business, and EDF, the leading power production company in Europe, will
concentrate on the production, distribution and sale of power.
Initially, EDF will purchase a 34% stake in CGC Holding, Dalkia's direct
parent. We expect that this stake will eventually rise to 50%. EDF's initial
investment in CGC Holding will be made on the basis of CGC Holding's market
value prior to the transaction. The transaction is contingent upon the results
of both parties' due diligence and upon the parties entering into certain
ancillary agreements before September 15, 2000. The memorandum of understanding
also provides for Vivendi Environnement's creation with EDF of three companies.
One, to be owned equally by CGC Holding and EDF, will seek to develop an
integrated power generation and energy services business under a common brand.
Another equally owned company will finance new independent power production and
cogeneration projects. The third, in which CGC Holding will have a 75.76% stake,
will hold all of Dalkia's international interests.
TRANSPORTATION
Through Connex, Vivendi Environnement is a leading European private
operator of local and regional passenger transportation services. Connex
provides integrated transportation solutions involving bus, train, maritime,
tram and other networks. Earlier this year, it purchased from Via-GTI urban and
inter-city transportation assets that generated revenue of E 260 million in
1999. Approximately 45% of its transportation revenue is from the road
transportation sector and approximately 55% is from rail transportation.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
TRANSPORTATION
Revenue................................................. 2,457 1,992 1,689
Adjusted EBITDA*........................................ 182 144 97
Operating Income........................................ 96 75 45
</TABLE>
-------------------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. We consider operating income to
be the key indicator of the operational strength and performance of
our business and adjusted EBITDA to be a pertinent comparative measure
for investors. Adjusted EBITDA should not be considered an alternative
to operating or net income as an indicator of our performance, or as
an alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally
accepted accounting principles. In addition, adjusted EBITDA as
defined in this Registration Statement may not be strictly comparable
to similarly titled measures widely used in the United States or
reported by other companies.
Connex operates road and rail passenger transportation networks under
contract with national, regional and local transit authorities. The public
authority with which it contracts generally owns the infrastructure it uses; the
authority also typically establishes schedules, routes and fare structures for
the networks it operates and manages. Some of its networks combine different
modes of transportation to accommodate passenger needs and promote increased
ridership. For example, it provides interconnected bus and train services in the
cities of Rouen, France, and Stockholm, Sweden.
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<PAGE> 38
The fares Connex charges to passengers on its transportation networks are
usually insufficient to cover its costs; consequently, the public authority
typically provides it a guaranteed minimum payment or pays it a subsidy. It
seeks to increase profitability by reducing its operating costs and increasing
traffic through improvements in system speed and reliability, service
customization and vehicle comfort and safety. Connex also tries to reduce costs
by rationalizing previously government-run operations and by sub-contracting the
services it offers, such as the provision of drivers and other personnel, to
other firms.
- Rail Transportation. Connex operates 24 passenger rail networks in
Europe. Its largest European market is the United Kingdom, where it has
contracts to operate two rail franchises. One contract expires in 2011;
the other, held through Connex's subsidiary Connex South Central, is
currently open to tender for a 15-year renewal/extension beginning in
2003. Our renewal of the South Central contract, which generated revenue
of E 500 million in 1999, will be subject to competitive bidding. As of
the date of this Registration Statement, there was one bidder in addition
to Connex South Central, which submitted its final bid on May 24, 2000.
The successful bidder will be announced in the summer of 2000.
Connex often rents and maintains the trains it uses, which are typically
owned by private entities. In Sweden, Connex operates the Stockholm metro
under contract with the local transit authority, which owns the trains.
Connex began its expansion outside of Europe in 1998. It operates one
commuter rail system in Melbourne, Australia under a franchise agreement
with the regional transit authorities. It operates a monorail passenger
transportation line in Sydney as well.
Connex is responsible for driving, inspecting, cleaning and providing
security on the trains it operates, selling tickets, providing customer
services, and maintaining, cleaning and providing security in the stations
on its networks. It also provides rail cargo services, including freight
train operation for SNCF and performs railway siding management services
for customers with plants linked to the public rail network, primarily
those in the automobile, petrochemical and petroleum refining industries.
- Road Transportation. The focus of Connex's road transportation business
is on the operation of urban and inter-city public bus networks under
contracts with public authorities. Its most important road transportation
markets are in France, Scandinavia, Eastern Europe and Australia. It also
offers a number of transportation-on-demand services designed to minimize
the inefficiency inherent in operating regular services on little-used
lines, outside of normal hours or in isolated areas. For example, it uses
minibuses, operated under sub-contracts with individual vehicle-owners,
on pre-determined routes and timetables.
In addition, Connex owns and operates three tram systems (in Saint-Etienne
and Rouen in France and Stockholm in Sweden) in partnership with financial
institutions and train manufacturers. These tram systems are generally
integrated into the other urban bus transportation networks that Connex
operates by means of an integrated ticketing system.
In France, governmental authorities typically own the buses used on urban
networks and lease them to us as part of the operating contract. However,
we usually own the motorcoaches used on inter-city networks. In the other
countries in which we operate, we typically own the buses and motorcoaches
used in urban and inter-city networks. We are responsible for the
maintenance of the equipment we use whether it is owned or leased.
In both the road and rail transportation sectors, the vast majority of
Connex's customers are the national, regional and local public authorities
responsible for providing public transit services. Connex operates 26 rail
networks, 186 road networks, 20 integrated networks and 3 tram systems that
carry, in the aggregate, one billion passengers a year.
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<PAGE> 39
FOMENTO DE CONSTRUCCIONES Y CONTRATAS -- FCC
FCC, a public company listed on the Madrid Stock Exchange, is one of
Spain's largest companies, with a market capitalization of E 2.1 billion as of
September 6, 2000. FCC operates in a number of different environmental and
construction-related industries. In October 1998, to exploit the growing demand
for integrated environmental management services, we acquired from another
shareholder (who is also a member of our board of directors -- see "Interest of
Management in Certain Transactions," page 115) a 49% interest in the holding
company that owns 56.5% of FCC. The transaction had economic effect from July 1,
1998. In December 1999, we transferred our interest in this holding company to
Vivendi Environnement. The other shareholder owns the remaining 51% of the
holding company.
<TABLE>
<CAPTION>
1999 1998
----- ----
(E MILLION)
<S> <C> <C>
FCC*
Revenue..................................................... 1,876 983
Adjusted EBITDA**........................................... 272 209
Operating Income............................................ 190 75
</TABLE>
-------------------------
* Figures reflect a 49% share of FCC. We proportionally consolidate FCC based
on our 49% interest in the holding company that controls it.
** Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. We consider operating income to be the
key indicator of the operational strength and performance of our business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA as defined in this Registration Statement may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.
FCC's main activities are:
- construction, which represented 48% of its overall 1999 revenue;
- waste and water services, which represented 29% of its 1999 revenue; and
- cement production, which represented 11% of its 1999 revenue.
FCC also manufactures urban fixtures, manages car parks, provides airport
handling and vehicle inspection services, buys and sells real estate and,
through its approximately 80% holding in Grucysca, participates in the
industrial logistics and other services sectors. As part of our international
expansion, we have consolidated most of our water and waste treatment businesses
with FCC's operations in Latin America and the Caribbean in Proactiva. On July
20, 2000, Vivendi Environnement and FCC entered into an agreement under which
Vivendi Environnement purchased 50% of Proactiva; the remainder being retained
by FCC. Under the same agreement, our company and Vivendi Environnement sold
their water and waste management operations to Proactiva. Most of the transfers
covered by the agreement are now completed.
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<PAGE> 40
SERVICES
- Waste and Water Services. FCC is the leading waste management company
and the second largest water and waste water treatment company in Spain,
where it conducts the bulk of its operations. FCC collects, processes and
disposes of household waste, providing the public authorities responsible
for waste collection and disposal a full range of waste management
services.
FCC's water and waste water treatment activities cover the full cycle of
water treatment, including water treatment and distribution. In 1999, FCC
acquired Vivendi Water's Spanish operations, doubling its market share in
this sector.
- Construction. FCC is one of the five leading construction companies in
Spain. FCC's projects include the construction of roads, high-speed
railway lines, airports, offices, commercial centers and residential
homes. FCC intends to sell publicly or privately up to 49% of this
business.
- Cement Production. FCC produces cement through its 49% interest in
Portland Valderrivas. It began to expand internationally with its 1999
acquisition of Giant Cement in the United States for E 291 million.
Under the terms of an option agreement dated October 6, 1998 with the other
shareholder in the holding company through which we hold our stake in FCC, the
other shareholder has an option (the "put option"), exercisable between April
18, 2000 and October 6, 2008, to sell us the shareholder's 51% interest in the
holding company at a price based on the average market price of FCC's common
stock over the three months prior to exercise. The exercise price of the put
option is capped at seven times FCC's EBITDA from the previous fiscal year or
29.5 times FCC's earnings per share, whichever is lower. The agreement also
provides for mutual rights of first refusal on any transfers of shares in the
holding company to a third party. Additionally, the other shareholder has a call
on the shares of the holding company through which we own our interest in FCC
that becomes exercisable in the event we cease to hold a majority of the capital
of Vivendi Environnement. The exercise price of the call is the lower of the
purchase price Vivendi Environnement paid to acquire its interest in the holding
company and the market price of the FCC shares. Vivendi Environnement and the
other shareholder share equally the holding company's right to be represented in
the main executive bodies of FCC, i.e., the board of directors and executive
committees of FCC and its subsidiaries. The holding company's articles of
association also provide that certain important decisions, such as increases or
decreases of share capital, amendments to articles of association, merger,
spin-offs or dissolutions, require supermajority shareholder approval.
None of these decisions, therefore, could be taken without the consent of
both us and the other shareholder.
COMPETITION -- ENVIRONMENT
Most markets for environmental services are very competitive and are
characterized by technological and regulatory change and experienced
competitors. Competition in each of the markets Vivendi Environnement serves is
primarily on the basis of the quality of the products and services provided,
reliability, customer service, financial strength, technology, price, reputation
and experience in providing services, adapting to changing legal and regulatory
environments, and managing employees accustomed to working for public sector
entities or non-outsourced divisions of commercial enterprises. In each of the
markets in which Vivendi Environnement operates, its competitive strengths are
its high level of technological and technical expertise, its financial position,
its geographical reach and its experience in providing environmental management
services, managing privatized and outsourced employees and meeting regulatory
requirements.
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With regard to integrated, large-scale environmental management services in
particular, Vivendi Environnement's competitors include Suez Lyonnaise des Eaux
and RWE and its primary competitive strength is its demonstrated ability to
provide innovative, integrated environmental services that are tailored
specifically to the needs of individual clients and offered on a global basis.
Vivendi Environnement anticipates that other enterprises that compete with it in
individual environmental sectors will, in the coming years, seek to expand their
activities to become integrated environmental management services providers.
WATER
Vivendi Water is the world's leading private provider of water services to
municipalities and industrial firms, its principal competitors being Suez
Lyonnaise des Eaux, Thames Water, Anglian Water, Severn Trent and Saur Cise. It
has leading positions in the European and North American markets, and a strong
basis for growth in Latin America and the Asia/Pacific region, especially
Australia and China. It estimates that its share of the rapidly growing
industrial out-sourcing market is approximately 30%. It has a leading position
in the highly fragmented water equipment market as well.
WASTE MANAGEMENT
Vivendi Environnement's waste management operations are carried out mainly
in Europe, where it is the market leader in the collection and disposal of
household, commercial, industrial and hazardous waste. Its main pan-European
competitors are Suez Lyonnaise des Eaux and, to a lesser extent, Cleanaway. As a
result of its 1997 acquisition of Leigh Interest, it ranks among the top three
providers of household, commercial, industrial and hazardous waste management
services in the United Kingdom, along with Shanks and Sita-Wattco. In Germany,
much of the household and commercial waste management business is run by
municipalities, although there is a gradual trend toward privatization. Vivendi
Environnement's biggest competitors in Germany are RWE Umwelt and Rethmann.
Vivendi Environnement has strong market positions in Norway, Ireland,
Switzerland and Israel.
The North American household, industrial and hazardous waste management
markets are undergoing rapid consolidation. Vivendi Environnement has taken
significant steps toward establishing its competitive position through the
acquisition in 1999 of Superior Services, Inc., which provides household and
industrial waste collection and disposal services to customers in 12 states, and
through its majority interests in Onyx Environmental Services and Onyx
Industrial Services, which provide hazardous waste and industrial cleaning
services, respectively, in the United States. Its major competitors in the
United States include Allied BFI, Waste Management and Republic Waste. It
expects further consolidation in this sector and intends to participate actively
in this process.
Vivendi Environnement's Latin American operations are concentrated in
Brazil, Venezuela, Argentina and Chile, where its primary competition is from a
variety of local companies and SITA (a subsidiary of Suez Lyonnaise des Eaux).
It plans to expand its activities in Latin America through ProActiva. It has
strong operations in Singapore and Taiwan, and is among the market leaders in
Australia and New Zealand. Its main competitors in the Asia/Pacific region are
various local companies, Cleanaway and Suez Lyonnaise des Eaux.
ENERGY SERVICES
Vivendi Environnement's traditional competitor in district thermal
management is Suez Lyonnaise des Eaux through its subsidiary Elyo. It
increasingly faces competition from large European gas and electricity companies
such as Gaz de France, RWE, Veba, Texas Utilities and Power Gen, especially for
large district heating contracts in Eastern and Central Europe. Outside
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France, it competes with local service providers such as the municipal utilities
in Germany, which operate district heating systems and electricity and/or gas
distribution systems. Its competitors in cogeneration consist primarily of large
utilities companies such as RWE, Veba, Texas Utilities, Endesa, National Power
and Power Gen. It competes primarily with large firms such as Honeywell and
Johnson Control for facilities management business.
TRANSPORTATION
Vivendi Environnement has a 20% share of the privately run passenger
transportation market in France, 17% of the privately run rail market in the
United Kingdom, 22% of the privately run passenger road transportation market in
Scandinavia and 30% of the privately run road transportation market in Portugal,
all measured by revenue.
Most privately operated passenger transportation companies serve a limited
geographic area. Vivendi Environnement's major competitors are those companies
that, like it, provide passenger transportation services in a number of
different countries. Its competitors include Stagecoach, its principal
pan-European competitor, National Express First Group, Arriva and Go Ahead in
the United Kingdom and Via GTI and Transdev in France. It anticipates that new
competitors may seek to enter the market, including civil engineering companies,
train manufacturers and public operators seeking to expand into contiguous
regions.
FCC
FCC is the leading private provider of waste management services in Spain,
with a share of the market for waste management services of approximately 43%.
Its primary competitor in this market is Cespa. After Aguas de Barcelona, FCC is
the leading private operator in the water and waste water treatment market in
Spain, with a market share of 10%.
The cement production sector in Spain is relatively concentrated. FCC is
the only major Spanish competitor, with approximately 17% of the Spanish market.
Its main competitors are Spanish branches of multinational cement manufacturers
such as Cemex, Holderbank and Lafarge.
The construction market in Spain has recently undergone a process of
consolidation. Five major competitors, one of which is FCC, have emerged. With
numerous small companies and a number of larger international companies vying
for business, however, the market remains competitive.
RESEARCH AND DEVELOPMENT -- ENVIRONMENT
Research and development is a critical component of Vivendi Environnement's
ongoing effort to provide its customers with cost-effective and environmentally
sound products and services. It has 11 research facilities throughout the world,
staffed by a total of 500 scientists and other researchers. In 1997, 1998 and
1999, it invested E 38.9 million, E 48.1 million and E 53 million, respectively,
in research and development.
In order to provide its customers with the highest quality drinking water,
as well as with cost-effective water treatment solutions, Vivendi Environnement
conducts research on water treatment and distribution primarily at laboratories
in Paris, Lyon, Rennes, Metz and Agen in France, Watford in Great Britain,
Adelaide in Australia, Berlin in Germany, Rothschild in Wisconsin, and in situ
at its different water treatment plants throughout the world. In 1999 it set up
new water research centers in Australia and North America. Approximately 350
researchers are involved in its water-related research and development projects.
In 1999 it invested approximately E 36 million in water research and development
projects. Its researchers have developed the technology necessary for
large-scale nanofiltration, a purification method that uses membranes with
microscopic holes to remove impurities from water, and submerged membrane
filtration, a method using underwater purification
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filters. As a result of this technology, Vivendi Environnement has been able to
produce potable water from low quality sources.
Vivendi Environnement conducts a significant part of its waste management
and treatment research and development through the Centre de Recherches pour
l'Environnement, l'Energie et les Dechets ("CREED") research and testing center
in Limay, France owned by us and Vivendi Environnement. CREED's budget for the
year 2000 is E 10 million. With fifty engineers and researchers, and affiliated
centers in the United Kingdom and Taiwan, CREED conducts approximately sixty
research programs geared towards developing services for industrial firms and
municipalities. The subjects of these programs include mechanized waste
collection processes, computerized waste collection monitoring, new uses for
recycled products, energy recovery during thermal treatment and the development
of more efficient waste treatment and recovery methods. CREED also studies the
treatment of industrial effluents, the recovery and recycling of household waste
and the remediation of land contaminated by heavy metal and organic pollutants.
In our continuing effort to improve air quality, CREED also conducts research on
the detection, measurement and treatment of dioxins originating from
incineration plants. Total research and development expenditures in connection
with waste treatment were approximately E 23 million for 1999. Vivendi
Environnement has been awarded more than sixty patents as a result of its waste-
related research.
Vivendi Environnement conducts its research and development efforts in
energy at CREED as well. Its researchers work primarily to find ways of limiting
the emission of greenhouse gases from its thermal energy production systems.
Other research projects in this area include the development of cogeneration
techniques that use natural gas or biogas from landfills to optimize energy
output and the study of microgeneration technologies that could resolve costly
problems associated with power transmission. Total product development
expenditures in connection with Vivendi Environnement's activities in the energy
services sector were approximately E 5 million in 1999.
Vivendi Environnement's research and development in passenger
transportation includes the design of improved vehicle configuration to achieve
greater passenger comfort and safety, the development of global positioning
system (GPS) technology and the provision of real time information to customers.
Approximately 30 people are involved in its research efforts in the
transportation services field. Total product development expenditures in
connection with transportation services for 1999 were approximately E 5 million.
Vivendi Environnement conducts a number of its research efforts in
cooperation with research centers and institutions of higher learning in France
and elsewhere. In France, it has worked with the Pasteur Institute in Paris, the
Ecole des Ponts et Chaussees, the Compiegne University of Technology, the Ecole
Polytechnique, the Ecole Superieure des Travaux Publics and the National Centre
for Space Studies in areas such as recycling, dioxin analysis and treatment and
waste combustibility. Partners outside France include Georgia Tech, the U.S.
Environmental Protection Agency ("EPA"), the Swiss federal water institute, the
Australian Water Quality Centre, the Helsinki University of Art and Design, the
Hong Kong Science and Technology University, Tsinghua University in China, the
Asian Institute of Technology in Thailand and Berliner Wasser Betriebe in
Berlin.
REGULATION -- ENVIRONMENT
Vivendi Environnement's businesses are subject to extensive, evolving and
increasingly stringent environmental regulations in developing countries as well
as in Western Europe and North America.
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WATER
The water and waste water treatment industries are highly sensitive to
governmental regulation. In Europe and the United States, governments have
enacted significant environmental laws at the national and local level in
response to public concern over the environment. The quality of drinking water
and the treatment of waste water are increasingly subject to regulation in
developing countries as well, both in urban and rural areas.
The quality of water for human consumption is strictly regulated at the
European Union level by the Directive on Drinking Water. The collection,
treatment and discharge of urban as well as industrial waste water is governed
by the Directive on Urban Waste Water. Public authorities also impose strict
regulations upon industrial waste water that enters collection systems and the
waste water and sludge from urban waste water treatment plants.
France has numerous laws and regulations concerning water pollution, as
well as numerous governmental authorities involved in the enforcement of those
laws and regulations. Certain discharges, disposals, and other actions with a
potentially negative impact on the quality of surface or underground water
sources require authorization or notification. For instance, public authorities
must be notified of any facility that pumps underground water in amounts that
exceed specified volumes. French law prohibits or restricts release of certain
substances in water. Individuals and companies are subject to civil and criminal
penalties under these laws and regulations.
In the United States, the primary federal laws affecting the provision of
water and waste water treatment services are the Water Pollution Control Act of
1972, the Safe Drinking Water Act of 1974 and the regulations promulgated
pursuant thereto by the EPA. These laws and regulations establish standards for
drinking water and liquid discharges. Each U.S. state has the right to establish
criteria and standards stricter than those established by the EPA and a number
of states have done so.
WASTE MANAGEMENT
In France, ministerial orders establish standards for disposal sites for
household, industrial and hazardous waste. These orders govern, among other
things, site selection and the design, construction and testing of disposal
sites. Administrative officers can impose strict standards with regard to waste
disposed of at a site. Hazardous waste is subject to strict monitoring at all
stages of the disposal process.
At the European Union level, the framework for waste management regulation
is provided by Directives that establish overall regulatory goals of waste
prevention, collection, recycling and re-use. European Union member states must
prohibit the uncontrolled discarding, discharge and disposal of waste. Entities
that store or dump waste for another party must obtain an authorization from the
competent authority that prescribes the types and quantities of waste to be
treated, the general technical requirements to be satisfied and the precautions
to be taken. Regulatory authorities frequently check compliance with those
requirements. Additionally, specific European Union Directives govern the
operation of landfill sites, the collection and disposal of hazardous waste, and
the operation of municipal waste-incineration plants.
In France, waste treatment and disposal facilities are subject to laws that
require Onyx to obtain permits to operate most of its facilities from municipal
and regional authorities. The permitting process requires Onyx to complete
environmental impact studies and risk assessments with respect to the relevant
facility. Landfill operators must provide specific financial guarantees (which
typically take the form of bank guarantees) that cover the monitoring and
remediation of the site during, and up to 30 years after, its operation.
Operators must comply with standards for residential solid waste landfills and
for industrial and toxic waste landfills. Incineration plants are subject to
rules that limit the emission of pollutants.
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Vivendi Environnement's U.K. waste management operations and facilities are
subject to the Environmental Protection Act of 1990, which requires local
authorities to transfer their waste disposal operations either to a specialized
waste disposal entity owned by the local authority or to a private contractor,
and the Environment Act of 1995, which addresses pollution control, land waste
and nuisances.
The major statutes governing Vivendi Environnement's waste management
activities in the United States include the Resource Conservation and Recovery
Act of 1976, the Clean Water Act, the Toxic Substances Control Act, the
Comprehensive Environmental Response, Compensation and Liabilities Act of 1980,
as amended (also known as "Superfund"), and the Clean Air Act, all of which are
administered either by the EPA or state agencies to which the EPA delegates
enforcement powers. Each state in which Vivendi Environnement operates also has
its own laws and regulations governing the generation, collection and disposal
of waste, including, in most cases, the design, operation, maintenance, closure
and post closure maintenance of landfills and other solid and hazardous waste
management facilities. In order to develop and operate a landfill, transfer
station, hazardous waste treatment/storage facility or other solid waste
facility, Vivendi Environnement must typically undergo several difficult
governmental review processes and obtain one or more permits that may not
ultimately be issued.
In view of the fact that the waste management business is subject to risks
of liability for property damage and personal injury caused by pollution and
other hazards, Vivendi Environnement carries insurance policies covering what it
believes to be the most important casualty risks. However, we cannot provide
assurance that the coverage provided by these policies will be sufficient to
cover any liability to which Vivendi Environnement may be subject. See "-- Our
Business as a Whole -- Risk Factors," page 54.
ENERGY SERVICES
Vivendi Environnement's energy-related activities in Europe (primarily the
generation and delivery of thermal energy and independent power generation) are
subject to an EU Directive that establishes emission limits for sulphur dioxide,
nitrogen oxides and dust and regulates the construction of combustion plants.
The European Commission is considering an amendment to this Directive that, if
adopted, would impose emission thresholds twice as strict as those currently in
effect. The new thresholds would apply to all new installations put into
operation after January 1, 2000. Other existing Directives require the
implementation of national emission ceilings for certain atmospheric pollutants
such as sulphur dioxide, nitrogen oxide, volatile organic compounds and ammonia.
The use of gas and other combustible material in France is subject in some
instances to a domestic natural gas tax. Energy produced by a cogeneration
facility is exempt from this tax for a period of five years after the facility
begins operations. The law providing for this exemption was renewed in 1999; any
cogeneration plant we build before 2004 will therefore be eligible for the
exemption.
TRANSPORTATION
Vivendi Environnement's transportation service activities are subject to a
number of EU Directives that limit emissions from petrol and diesel engines and
require us to obtain certain permits. One Directive sets forth guidelines for
the laws of the member states with respect to the emissions of gas pollutants
from diesel engines used in vehicles. Another sets forth guidelines for the laws
of the member states with respect to emissions of gas and particulate pollutants
from internal combustion engines installed in mobile equipment other than road
vehicles.
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CONTRACTS -- ENVIRONMENT
The vast majority of Vivendi Environnement's contracts to provide
individual environmental services are medium and long-term agreements with
municipal and industrial clients. These contracts fall into two broad
categories: those with public authorities and those with private firms. In
France and other countries with civil law systems, administrative law governs
contracts with public authorities, whereas private law applies to contracts with
private enterprises. In common law countries such as the United Kingdom and the
United States, common law ordinarily governs both contracts with public
authorities and with private enterprises.
The majority of Vivendi Environnement's government contracts relate to its
operations in France. The services that it provides to public authorities are
considered "public services" under French administrative law. This means that
the procedures used in awarding contracts, and many provisions of those
contracts, are mandated by law.
A French public authority can choose among a number of different types of
contracts when delegating the management of public services to a private
operator. The choice among these types is usually based on the nature of the
service to be provided, the level of investment required of the private operator
and the form of the operator's fee or rate. There are four basic types of
contract for the delegated management of public services: concession contracts,
affermage contracts, management contracts and public markets contracts.
- Under a concession contract, the private operator invests in the
equipment used to provide the public service and manages it at its own
risk in return for fees or rates paid by the consumers of the service,
typically the public. In some cases, the public authority pays a subsidy
to the operator as well. Ownership of the equipment remains with the
public authority. Concession-type agreements are common in the energy
services, water and waste water treatment and waste management sectors in
France.
- The affermage contract, the most common type, is similar to the
concession agreement in that the private operator performs a public
service at its own risk. However, the private operator in an affermage
contract does not invest in property, plant or equipment, although it
usually must maintain the existing facilities and equipment.
Consequently, the private operator receives part of the fees or rates
paid by the public to cover the cost of operating the service, and the
public authority receives the remainder to cover its infrastructure
investments. Affermage contracts are common in the energy services, water
and waste water treatment, waste management and public transportation
sectors. They predominate in the water distribution sector. There are
also "mixed" contracts under which the private operator both manages the
existing facilities and introduces new equipment.
- Under a management contract, the private operator manages a public
service for a fixed fee. The private operator does not invest in
facilities or equipment, but may be responsible for maintenance. The
public usually pays the operator's fee in the form of fees or rates. If
the fees or rates paid are less than the amount of the fixed fee due to
the contractor, the public authority pays the balance to the private
operator.
- Under a public market contract, the public authority, rather than users
of the service, pays the operator's fee or rate.
The duration of Vivendi Environnement's contracts depends primarily on the
size of the investment the contract requires it to make. In France, the Sapin
Law of 1993 provides that a contract for the delegated management of public
services must have a fixed term that does not exceed the period over which the
private operator depreciates the investments it makes under the contract.
Concession-type contracts typically last about 20 years. Affermage contracts are
shorter,
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usually around 12 years, although they may be as short as eight or as long as 20
years. Management contracts are typically not longer than five years. Contracts
cannot be automatically renewed. When a contract expires, the public authority
must call for tenders for a new contract, meaning that the operator whose
contract expires must then compete with other candidates to renew the contract.
The public authority can also refuse to delegate the service and operate it
itself.
There are a number of features common to each of the contract types just
described. These common features are mandated by French administrative law and
include provisions that:
- entitle the public authority to impose penalties for breach of the
contract by the private operator and to modify the terms of or terminate
the contract if the public interest so requires (the authority must
compensate the private operator for damages suffered as a result of the
modification or termination of the contract, except in the case of fault
of the operator);
- provide for renegotiation of the agreement to ensure it remains fair to
both sides; and
- grant the public authority the right to supervise how the public service
is provided.
A private operator's fees, and any method of adjusting those fees, are
generally fixed by contract. In some cases, however, fees and adjustment
provisions are fixed unilaterally by the public authority. In no instance may a
private operator charge the public more than the cost of providing the service
(including applicable taxes and fees) plus its contractual remuneration.
French law requires public authorities to award contracts for the provision
of public services through a competitive bidding process. The procedure for this
process is heavily regulated and is controlled by independent administrative
authorities and tribunals. The criteria public authorities use in assessing
competitive bids include price, the investments the candidates offer to make,
the candidates' experience and the candidates' ability to conform to applicable
regulatory standards and to adapt to new standards.
Supervising authorities ensure that public authorities delegating services
strictly observe applicable regulations regarding bidding procedures. A
supervising authority can invalidate a contract years after it is entered into
if those regulations are violated. A private operator must account for its
management to several governmental authorities, each of which may, in some
circumstances, publish statements critical of the private operator.
Outside of France, other countries with civil law systems, such as Spain
and Italy, have adopted the French system of delegated management of public
services. Public authorities in these countries typically delegate services to
private operators through contracts similar to concession, affermage or
management contracts.
In common law countries such as the United Kingdom and the United States,
the law governing public contracts is less rigid than in civil law countries,
and the types of contract under which public authorities in such countries
delegate the operation of services are more varied. Among the types of contract
common in such countries are build-operate-transfer contracts, under which the
private operator undertakes to construct and operate the requisite facilities
and assumes an obligation to transfer the installation to the public authority
at the end of the contract; franchise contracts, which require the contractor to
invest in equipment and to operate the service in accordance with specifications
established by a regulatory body; and service contracts, under which the
operator makes no investments and operates the service for a fixed fee and/or a
share of the profit generated.
There is a trend in both developed and developing countries to adopt
systems similar to the system of delegated management of public services used in
France. We believe that Vivendi Environnement's experience with this system is a
competitive advantage in this changing environment.
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WATER
Vivendi Environnement has approximately 5,000 contracts with public
authorities to provide water and waste water services, including about 3,800 in
France. Three-quarters of its contracts with local French authorities are
affermage agreements; most of the remainder are long-term concession contracts.
In both cases, Vivendi Environnement bills end-users directly. It shares revenue
with local authorities under formulas based largely on the length of the
contract and the level of investment required.
Vivendi Environnement's contracts with industrial and commercial
enterprises for water and waste water treatment tend to last three to ten years.
These contracts typically require us to meet specified service requirements.
Contracts are usually on a fixed-price basis, subject to adjustments for
inflation and other cost increases. In the water treatment equipment and systems
market, Vivendi Environnement normally designs and installs larger systems under
turnkey contracts within 24 months of acceptance of a customer order. Under
these contracts, customers typically pay a lump-sum in several installments
based on a predetermined schedule. Vivendi Environnement distributes bottled
water and household filtration products either directly to customers or through
independent dealers.
WASTE MANAGEMENT
Vivendi Environnement performs most municipal solid waste collection and
recycling services under contracts with, or franchises granted by,
municipalities or regional authorities. Contracts with public authorities
typically cover collection, transfer, disposal and/or recycling.
The duration of Vivendi Environnement's contracts usually depend upon the
nature of the services it provides, applicable local regulations and the level
of capital expenditure the contract requires it to make. Collection contracts
usually last from three to five years. The length of disposal contracts ranges
from one year for disposal in landfills that we own to up to 30 years for
contracts involving the construction, financing and operation of new
waste-to-energy facilities. Collection contracts with industrial customers
typically last one to three years; treatment contracts last an average of five.
In recent years, Vivendi Environnement has entered into a number of
integrated waste management contracts with French and U.K. industrial clients
that cover a broad range of waste management services, including treatment,
recycling, disposal and/or handling of waste. In the United Kingdom, these
integrated services contracts now account for 15% of Vivendi Environnement's
industrial waste management revenue.
ENERGY SERVICES
The majority of the contracts in the energy services sector involve heating
systems management. Contracts to operate district heating systems are typically
long-term, lasting up to 20 years. Contracts to operate other heating systems
for public or private clients may last up to 16 years. Industrial utilities
management contracts usually expire after three to five years, but occasionally
run as long as 12 years if we provide cogeneration services as well. Contracts
in the facilities management sector are generally in the three- to five-year
range. Vivendi Environnement's average energy contract lasts approximately seven
years.
TRANSPORTATION
Almost all Vivendi Environnement's contracts in the transportation sector
are with national, regional and local public authorities. In France and,
increasingly, in other countries, contracts are usually based on the concession
model. In the United Kingdom, in contrast, private operators run transportation
networks under franchise agreements. The rail transportation network in the
United
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Kingdom is regulated by the Strategic Rail Authority, which has broad power to
impose rules regarding schedules, fare structure and safety.
Ordinarily, Vivendi Environnement's rail contracts last from 12 to 20
years, while its road contracts typically last for four to 12 years, a disparity
due to the greater investment required in the rail transportation sector.
COMPLIANCE WITH LAWS AND REGULATION
We are subject to a variety of laws that prohibit companies from bribing
foreign officials for the purpose of obtaining or keeping business. We have
taken precautions and instituted a number of procedures to comply with these
laws, but we cannot assure you that our precautions will protect us against
liability. In particular, we may be held responsible for actions taken by our
local representatives or agents, regardless of our ability actually to control
them. We have created a senior executive position of ethical manager and an
ethics program designed to maximize compliance with applicable laws and
regulations.
OTHER BUSINESSES
REAL ESTATE
As part of our strategy of focusing on our core communications and
environmental businesses, we have decided to withdraw from the real estate
business. In order to facilitate this withdrawal, we restructured Compagnie
Generale d'Immobilier et de Services ("CGIS"), our wholly-owned real estate
subsidiary, into two principal groups of companies: Nexity and Vivendi
Valorisation. We sold 100% of Nexity, formed out of our ongoing property
businesses, in July 2000. Vivendi Valorisation holds our remaining property
assets, which consist primarily of investments arising out of past property
development projects. We hold these assets on our balance sheet at their current
market value. Pending their sale, Nexity will manage Vivendi Valorisation's
residual assets. Vivendi Valorisation's revenue represented 34% of CGIS's total
revenue for 1999.
<TABLE>
<CAPTION>
REAL ESTATE 1999 1998 1997
----------- ----- ----- -----
(E MILLION)
<S> <C> <C> <C>
Revenue..................................................... 1,686 1,818 1,445
Adjusted EBITDA*............................................ 92 20 (122)
Operating Income............................................ 37 (3) (55)
</TABLE>
-------------------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. We consider operating income to be the key
indicator of the operational strength and performance of its business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA, as defined in this registration statement may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.
VIVENDI VALORISATION
Activities. The principal assets of Vivendi Valorisation include land and
land development rights, commercial property (owned and leased) and loans
extended to finance commercial property
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sales. The majority of these assets are associated with our past involvement in
long-term residential and commercial property development projects. Given the
complexity and the long-term nature of our contractual obligations in these
projects, our assets cannot easily be transferred or sold. We intend to divest
these assets as and when opportunities arise. A dedicated team of approximately
30 Nexity professionals will manage the assets of Vivendi Valorisation pending
their sale.
- Land and Land Development Rights.
-- Paris Area. Vivendi Valorisation owns land and development rights,
and a partially-constructed building, at La Defense, near Paris.
Vivendi Valorisation has committed to sell these assets for about E
210 million, subject to certain conditions.
-- South of France. Vivendi Valorisation retains land and land
development rights in two large development projects in La Napoule and
Antibes in southern France. Development and urbanization
authorizations for both sites were cancelled by local authorities. We
will seek to obtain the approval of the local authorities to develop
or redevelop some of the land before selling it.
-- Germany. Vivendi Valorisation owns land and related assets in
Babelsberg, 20 miles outside of Berlin. We have developed one-third of
the marketable portion of this land, and sold or leased 23%.
- Commercial Property Interests. Vivendi Valorisation continues to hold
significant interests in a number of large building complexes acquired in
connection with past development projects. While Vivendi Valorisation
owns certain minor buildings outright, the majority of these interests
take the form of long-term leases from third party owner-investors, with
rents paid by Vivendi Valorisation and guaranteed by us, coupled with
purchase options in favor of Vivendi Valorisation and/or us.
-- Philip Morris/Danton. In 1996, CGIS transferred to Philip Morris
three office buildings constructed as part of the Danton development
project at La Defense. CGIS agreed to lease back the buildings for 30
years at progressively rising rents, payment of which was guaranteed
by us. Vivendi Valorisation has an option to purchase the buildings in
2011 for E 714 million and in 2020 for E 434 million.
-- Berlin. In 1996, we purchased three defeasance structures for
building complexes in Berlin. CGIS sold each structure to, and leased
it back from, a third party.
-- Loan Assets. CGIS provided financing to buyers of a number of its
properties, such as Philip Morris (a loan of E 117 million) and SITQ
(a loan of E 207 million).
CONSTRUCTION
On February 10, 2000, as part of our strategy of focusing on our two core
businesses, we sold 34.4% of Vinci to a number of institutional investors. The
sale reduces our stake in Vinci to 16.9%. We appointed four of Vinci's 18
directors. We have committed not to engage in further sales of Vinci shares
until 2001, except to Vinci itself. On July 17, 2000, Vinci launched a friendly
exchange offer for the construction company Groupe GTM. If the offer is
consummated, our stake in the combined entity, which will be the world's largest
construction firm, will be diluted to approximately 9% of the outstanding share
capital.
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<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(E MILLION)
<S> <C> <C> <C>
CONSTRUCTION
Revenue................................................. 8,903 7,886 8,009
Adjusted EBITDA*........................................ 428 271 244
Operating Income........................................ 176 82 (4)
</TABLE>
-------------------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. We consider operating income to
be the key indicator of the operational strength and performance of
its business and adjusted EBITDA to be a pertinent comparative measure
for investors. Adjusted EBITDA should not be considered an alternative
to operating or net income as an indicator of our performance, or as
an alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally
accepted accounting principles. In addition, Adjusted EBITDA, as
defined in this registration statement may not be strictly comparable
to similarly titled measures widely used in the United States or
reported by other companies.
Vinci is Europe's leading construction company and is, based on its current
structure, one of the ten largest construction groups in the world in terms of
total 1999 sales. Vinci's principal activities are organized into five
divisions: building and civil engineering; road construction; electrical
engineering and electrical works; heating, cooling and architectural finishing
operations; and concessions. In 1999, Vinci had consolidated revenue of E 8.9
billion. We fully consolidated Vinci in our accounts in 1997, 1998 and 1999. We
intend to account for Vinci using the equity method in 2000.
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OUR BUSINESS AS A WHOLE
EMPLOYEES
As of December 31, 1999, we employed approximately 290,000 people
worldwide:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
APPROXIMATE NUMBER OF EMPLOYEES
-------------------------------
<S> <C>
COMMUNICATIONS
Telecommunications......................................... 8,400
Audiovisual and Pay Television............................. 4,000
Publishing and Multimedia.................................. 20,000
ENVIRONMENT
Water...................................................... 67,000
Waste...................................................... 56,000
Energy Services............................................ 23,000
Transportation............................................. 34,000
Sithe...................................................... 2,100
OTHER*
Real Estate................................................ 4,450
Construction............................................... 70,700
</TABLE>
-------------------------
* We plan to divest the majority of these operations in 2000.
FCC has 43,000 employees.
Our employees' membership in trade unions varies from country to country,
and we are party to numerous collective bargaining agreements. As is generally
required by law, we renegotiate our labor agreements in Europe annually in each
country in which we operate.
There is no material level of trade union membership in our U.S. operations
other than in United States Filter Corporation, where 6.4% of our employees are
unionized, and Onyx, where 17% of our employees are unionized.
A French law enacted in 1998 requires all employers of more than 20
employees in France to implement a 35-hour work week by January 1, 2000. We
believe that we are one of the first major companies in France to be in
substantial compliance with the new law. We do not expect the law to have a
material effect on our business or results of operations.
Although we have experienced strikes and work stoppages in the past, we
believe that relations with our employees are generally good. We are not aware
of any material labor arrangement that has expired or is soon to expire and that
is not expected to be satisfactorily renewed or replaced in a timely manner.
INTELLECTUAL PROPERTY
We currently own a significant number of patents in France, the United
States and in various countries worldwide. Although we believe that the patents
associated with our various operations are of value, we do not consider any of
them to be essential to our business.
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<PAGE> 53
Trademarks and brand name recognition are important to our businesses,
particularly the Multimedia and Publishing, Audiovisual and Pay Television and
Internet segments. We have registered our trademarks and believe that there is
significant value associated with them.
INSURANCE
Some of our important activities outside of France are covered by damage,
business loss and civil liability policies that we are required to maintain
either by contract or by the institutions that finance these activities. In
addition, some investments abroad are covered by political risk policies with
the Compagnie d'Assurance Francaise Pour le Commerce Exterieur ("COFACE").
Our telecommunications, multimedia and publishing, water, energy services,
waste management and transportation segments all maintain damage insurance
policies (and in some cases, business loss policies) that cover our assets as
well as those for which we have contractual responsibility. These segments also
maintain liability policies that cover up to E 30 million annually.
Our U.S. subsidiaries have coverage under separate damage and civil
liability insurance policies. The civil liability insurance provides coverage up
to E 30 million annually. Moreover, our rail transportation operations are
covered by a specific civil liability program with a dedicated pool of 155
million British pounds.
At the Company-wide level, we have entered into a contract covering civil
pollution and environmental policies that provide coverage up to E 30 million
for our non-U.S. subsidiaries. In addition to the civil liability programs held
by each segment, we have several civil liability excess policies that provide
coverage up to E 270 million (with deductibles of E 30 million). These policies
cover all subsidiaries of which we own more than 50%. In addition, we have a
liability policy that covers the management of those subsidiaries of which we
own more than 50% or which we manage.
ENVIRONMENTAL POLICIES
While our operations and many of our products, services and technologies
are aimed at protecting the environment, our activities impact the environment
in negative ways as well. To minimize this impact, we have undertaken to enhance
the environmental performance of all our business sectors by implementing an
environmental protection action plan.
The first phase of the plan, for the period between 2000 and 2005, will
focus on pursuing the following goals:
- Improving air quality by reducing direct CO(2) emissions produced by our
worldwide operations by over 10%;
- Using water resources properly by increasing control over water losses,
creating improved waste water treatment systems and improving the average
output rates of water distribution networks;
- Improving waste management techniques through recovery of biogas,
improved treatment of leachates in landfill sites, the development of new
recycling processes and improved treatment of incinerator plan emissions;
- Reducing visual disfigurement of natural landscapes;
- Conserving soil by reducing pollutants contained in sludge and compost;
- Increasing the research and development budget for environmental services
by 30%; and
- Improving environmental management by increasing the number of employees
certified under ISO 14001 by at least 10% per year and increasing
spending on vocational training.
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<PAGE> 54
RISK FACTORS
You should carefully consider the risk factors described below in addition
to the other information presented in this registration statement.
WE MAY SUFFER REDUCED PROFITS OR LOSSES AS A RESULT OF INTENSE COMPETITION
Most of the industries in which we operate are highly competitive and
require substantial human and capital resources. Many other companies serve each
of the markets in which we compete. From time to time, our competitors may
reduce their prices in an effort to expand market share or win a competitively
bid contract. Competitors may also introduce new technology or services or
improve the quality of their service. We may lose business if we are unable to
match the prices, technologies or service quality offered by our competitors.
In addition, content and integration of content with communications access
are increasingly important parts of the communications business and are key
elements of our strategy. In accordance with that strategy, our Communications
business relies on some important third-party content. For example, CANAL+
acquires rights to show feature films and sports events as elements of its
programming. As the communications business becomes more competitive, the cost
of obtaining this third-party content could increase. Any of these competitive
effects could have an adverse effect on our business and financial performance.
WE MAY NOT BE ABLE TO RETAIN OR OBTAIN REQUIRED LICENSES, PERMITS AND
APPROVALS
We need to obtain a variety of permits and approvals from regulatory
authorities to conduct and expand our businesses. The process for obtaining
these permits and approvals is often lengthy, complex and unpredictable.
Moreover, the cost of obtaining permits and approvals may be prohibitive. If we
are unable to obtain the permits and approvals we need to conduct and expand our
businesses at a reasonable cost and in a timely manner, our ability to achieve
our strategic objectives could be impaired.
DEMAND FOR OUR INTEGRATED COMMUNICATIONS AND ENVIRONMENTAL MANAGEMENT
SERVICES MAY BE LESS THAN WE EXPECT
We believe that important factors driving our growth in the next several
years will be increased demand for (1) integrated communications and content
services that are accessible through a variety of communications devices and (2)
large-scale, integrated environmental management services. Although we expect
markets for both types of services to develop rapidly, our expectations may not
be realized. If either market does not grow as quickly as we expect, or at all,
our profitability and the return we earn on many of our investments may suffer.
WE MAY NOT BE ABLE TO MEET ANTICIPATED CAPITAL REQUIREMENTS FOR CERTAIN
TRANSACTIONS
We routinely engage in projects that require us to seek substantial amounts
of funds through various forms of financing. Our ability to arrange financing
for projects and the costs of capital depends on numerous factors, including
general economic and capital market conditions, the availability of credit from
banks and other financial institutions, investor confidence in our businesses,
the success of current projects, the perceived quality of new projects and
provisions of tax and securities laws that are conducive to raising capital. We
may forego attractive business opportunities and lose market share if we cannot
secure financing on satisfactory terms.
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OUR BUSINESS OPERATIONS IN SOME COUNTRIES MAY BE SUBJECT TO ADDITIONAL
RISKS
We conduct business in markets around the world. The risks associated with
conducting business in some countries outside of Western Europe, the United
States and Canada can include slower payment of invoices, nationalization,
social, political and economic instability, increased currency exchange risk and
currency repatriation restrictions, among other risks. We may not be able to
insure or hedge against these risks. Furthermore, financing in countries with
less than investment grade sovereign credit ratings may not be available. As a
result, it may be difficult to create profit-making operations in developing
markets.
CURRENCY EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY AFFECT OUR FINANCIAL
RESULTS AND THE PRICE OF OUR SHARES
We hold assets and liabilities, earn income and pay expenses of our
subsidiaries in a variety of currencies. Our financial statements are presented
in euros. Therefore, when we prepare our financial statements, we must translate
our assets, liabilities, income and expenses in currencies other than the euro
into euros at then-applicable exchange rates. Consequently, increases and
decreases in the value of the euro will affect the value of these items in our
financial statements, even if their value has not changed in their original
currency. In this regard, an increase in the value of the euro may result in a
decline in the reported value, in euros, of our interests held in foreign
currencies.
WE MAY NOT BE SUCCESSFUL IN DEVELOPING NEW TECHNOLOGIES OR INTRODUCING NEW
PRODUCTS AND SERVICES
Most of the industries in which our Communications businesses operate are
subject to rapid and significant changes in technology and are characterized by
the frequent introduction of new products and services. We cannot predict the
effect that technological changes may have on our businesses. Our pursuit of
necessary technological advances may require substantial investments of time and
resources, and we may not succeed in developing marketable technologies in spite
of such investments. Furthermore, we may not be able to identify and develop new
product and service opportunities in a timely manner. Finally, technological
advances may render our existing products obsolete, forcing us to write off
investments made in those products and to make substantial new investments.
OUR SHARE PRICE MAY BE SUBJECT TO THE VOLATILITY GENERALLY ASSOCIATED WITH
INTERNET AND TECHNOLOGY SHARES
The market for shares of Internet and technology companies has recently
experienced extreme price and volume volatility that has often been unrelated or
disproportionate to the operating performance of those companies. Because the
value of our company is based in part on our Internet and other high-technology
operations, the price of our shares may be subject to similar volatility.
CHANGES IN ENVIRONMENTAL LAWS AND REGULATIONS COULD DECREASE DEMAND FOR OUR
ENVIRONMENTAL SERVICES
Laws and regulations that require industrial firms and public authorities
to make substantial expenditures to meet environmental quality standards and
that impose substantial penalties for non-compliance are a principal factor
driving demand for our environmental services. If governmental authorities relax
the requirements those laws and regulations impose, our customers could have
less need for many of our services. Less stringent laws or regulations, or a
decline in enforcement of those laws or regulations, could therefore reduce
demand for our services.
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<PAGE> 56
PROVISIONS IN MANY OF OUR ENVIRONMENTAL CONTRACTS MAY CREATE SIGNIFICANT
RESTRICTIONS OR OBLIGATIONS ON OUR BUSINESS OR ALLOW OUR CUSTOMERS TO
MODIFY OR TERMINATE OUR CONTRACTS
Contracts with governmental entities make up a significant percentage of
Vivendi Environnement's revenue. Vivendi Environnement is subject to various
statutes and regulations that apply to companies contracting with the government
that differ from laws governing private contracts. In civil law countries such
as France, for instance, government contracts often allow the governmental
entity to modify or terminate the contract unilaterally in certain
circumstances. Modifications and terminations of our contracts with governmental
authorities could, to the extent Vivendi Environnement is not entitled to
compensation, reduce our revenue and profits.
Some of Vivendi Environnement's contracts allow its customers to assess a
penalty, or to terminate its contract, if it fails to meet specified operating
standards. Vivendi Environnement's inability to meet specified operating
standards could hurt its business if customers were to terminate or reduce their
payments under a sufficient number of these contracts.
VIVENDI ENVIRONNEMENT MAY INCUR ENVIRONMENTAL LIABILITY IN CONNECTION WITH
PAST, PRESENT AND FUTURE OPERATIONS
Our environmental businesses are subject to extensive and increasingly
stringent environmental laws and regulations. These laws and regulations govern,
among other things, the quality of water intended for human consumption, the
collection, treatment and discharge of waste water, the operation of landfills,
the collection and disposal of hazardous waste and the operation of municipal
waste incineration plants. In some circumstances, we or Vivendi Environnement
could be required to pay fines or damages under these environmental laws and
regulations even if:
- it exercises due care in conducting its operations;
- it complies with all applicable laws and regulations; and
- the quantity of pollutant at issue is very small.
In addition, courts or regulatory authorities may require us or Vivendi
Environnement to undertake investigatory and/or remedial activities, curtail
operations or close facilities temporarily or permanently in connection with
applicable environmental laws and regulations. We or Vivendi Environnement could
also become subject to claims for personal injury or property damage. Being
required to take such actions, or to pay environmental damages, could hurt our
business substantially or affect our ability to obtain new business.
COMPLIANCE WITH ENVIRONMENTAL LAWS IS COSTLY AND MAY BECOME MORE SO IN THE
FUTURE
Vivendi Environnement has made and will continue to make capital and other
expenditures to comply with applicable environmental laws and regulations. For
instance, governmental authorities may require Vivendi Environnement from time
to time to incur expenditures for pollution control devices, or to upgrade,
remove or retrofit equipment used in its operations. Each of our environmental
businesses, moreover, may become subject to stricter laws and regulations, and
correspondingly greater compliance expenditures, in the future. If Vivendi
Environnement is unable to recover any of these expenditures through higher
prices, this would adversely affect its operations and profitability.
SOME PROVISIONS OF OUR STATUTS COULD HAVE ANTI-TAKEOVER EFFECTS
Our statuts contain provisions that are intended to impede the accumulation
of our shares by third parties seeking to gain a measure of control of our
company, or so-called "creeping takeovers." For example, our statuts provide
doubled voting rights for shareholders who hold shares for two or
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<PAGE> 57
more years and adjust the rights of shareholders who own in excess of 2% of the
total voting power of our company through the application of a formula designed
to limit the voting power of those shareholders to that which they would possess
if 100% of the shareholders were present or represented at the meeting at which
the vote in question takes place. See "Legal Proceedings," page 59. Because
holders of Vivendi ADSs hold their Vivendi ordinary shares through a single
depositary, all such holders (other than those who withdraw their shares from
the depositary and vote the shares directly) are treated as a single shareholder
for purposes of this provision.
PREEMPTIVE RIGHTS MAY NOT BE AVAILABLE FOR U.S. PERSONS
Under French law, shareholders have preemptive rights (droits preferentiels
de souscription) to subscribe for cash issuances of new shares or other
securities giving rights to acquire additional shares on a pro rata basis. U.S.
holders of our shares may not be able to exercise preemptive rights for our
shares unless a registration statement under the Securities Act is effective
with respect to such rights or an exemption from the registration requirements
imposed by the Securities Act is available. We may from time to time issue new
shares or other securities giving rights to acquire additional shares at a time
when no registration statement is in effect and no Securities Act exemption is
available. If so, U.S. holders of our shares will be unable to exercise their
preemptive rights.
AS A "FOREIGN PRIVATE ISSUER," VIVENDI IS EXEMPT FROM A NUMBER OF RULES
UNDER THE EXCHANGE ACT AND, ACCORDINGLY, IS PERMITTED TO FILE LESS
INFORMATION WITH THE SEC THAN A COMPANY INCORPORATED IN THE UNITED STATES
As a "foreign private issuer," Vivendi is exempt from rules under the U.S.
Securities Exchange Act of 1934 that impose certain disclosure and procedural
requirements for proxy solicitations under Section 14 of the Exchange Act. For
example, Vivendi's officers, directors and principal shareholders are exempt
from the reporting and "short-swing" profit recovery provisions of Section 16 of
the Exchange Act and the rules thereunder with respect to their purchases and
sales of Vivendi Universal shares. Moreover, Vivendi Universal is not required
to file periodic reports and financial statements with the SEC as frequently or
as promptly as U.S. companies whose securities are registered under the Exchange
Act.
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ITEM 2: DESCRIPTION OF PROPERTY
We have operations in over 100 countries; moreover, our activities are
predominantly service-oriented. As a result, although some of our businesses own
or lease plants and other physical properties, none of these plants or physical
properties is individually material to our company as a whole.
In connection with our waste business, we own or operate approximately 110
sorting, recycling and transfer facilities, 133 solid waste landfill sites and
75 incineration and waste-to-energy transformation facilities worldwide.
Collectively, but not individually, these facilities and sites are material to
our business. We own approximately two-thirds of the solid waste landfill sites
we operate.
The physical properties of Vivendi Valorisation consist principally of land
near Paris, in the South of France, and near Berlin. Vivendi Valorisation also
holds interests in commercial property developments near Paris and in Berlin.
These properties and interests are described above in "Description of
Business -- Other Businesses -- Real Estate," page 49. We do not view these
properties as material to our business.
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ITEM 3: LEGAL PROCEEDINGS
In the ordinary course of our business, we are, from time to time, named as
a defendant in various legal proceedings. We maintain comprehensive liability
insurance and believe that our coverage is sufficient to ensure that we are
adequately protected from any material financial loss as a result of any legal
claims made against us.
BT filed a request for arbitration against us with the International Court
of Arbitration on March 8, 2000, alleging that we breached the Cegetel
Shareholders' Agreement by agreeing with Vodafone to establish a joint venture
to develop and market Vizzavi. Specifically, BT claims that by creating and
marketing Vizzavi, we are violating the provision of the Cegetel Shareholders'
Agreement that requires the Cegetel Shareholders to conduct their
telecommunications operations in France exclusively through Cegetel. Prior to
the final decision being rendered, the marketing and commercialization of the
Vizzavi multi-access portal will continue by Vivendi in France as well as in the
rest of the world by Vivendi and Vodafone. The transfer of Vizzavi France to the
joint venture between Vivendi and Vodafone and the sale of the Cegetel shares
held by Mannesmann to Vivendi will not take place until the final decision of
the arbitral tribunal has been rendered. BT had requested the arbitrator to
enjoin us from marketing and commercializing Vizzavi while the arbitration is
pending. We expect that the final decision will be rendered before the end of
the year. We believe BT's allegations to be without merit and we intend to
defend vigorously the arbitration.
Five complaints have been filed in federal court in the Central District of
California on behalf of putative former shareholders of United States Filter
Corporation, which we acquired in 1999. These putative class actions seeking to
represent all former public shareholders of United States Filter Corporation
name Vivendi, Jean-Marie Messier and certain of our affiliates as defendants and
assert violations of U.S. securities laws on the ground that payments made to
three members of United States Filter Corporation's management, which were
stated in the tender offer documents for United States Filter Corporation to
have been made with respect to their employment arrangements, were allegedly
additional consideration to these executives for the purchase of their United
States Filter Corporation shares. The complaints allege that the U.S. securities
regulations requiring that all shareholders receive the same consideration for
shares sold in a tender offer were thereby violated, and seek damages in an
unspecified amount. The complaints have been consolidated with a lawsuit filed
on March 23, 1999 by putative shareholders of United States Filter Corporation
against its former directors, alleging that they breached their fiduciary duties
by accepting the merger proposal and failing to maximize shareholder value. An
amended consolidated complaint dated July 7, 2000 combines allegations of the
U.S. securities laws violations described in the preceding paragraph with claims
for breach of fiduciary duties against former directors of United States Filter
Corporation. If these lawsuits are ultimately determined adversely to us they
could have a material adverse effect on our financial position. We believe the
allegations to be without merit and intend to defend the suits vigorously.
PSG, a unit of our U.S. subsidiary Aqua Alliance, is cooperating with an
ongoing investigation by the Department of Justice into allegations that some
members of the Houston City Council received illegal payments from various
individuals in transactions among PSG, its consultants and municipal officials
with respect to the awarding of certain municipal contracts. Upon learning of
the investigation, Aqua Alliance initiated an independent investigation into
these matters and placed PSG's then Chief Executive Officer on administrative
leave of absence with pay. The PSG Chief Executive Officer, who has denied any
wrongdoing, resigned from PSG on December 4, 1996. Aqua Alliance received a
subpoena from the Department of Justice following a March 24, 2000 meeting
between the Department of Justice and the company. Formal and informal document
requests made by, and conversations with representatives of, the Department of
Justice suggest that the scope of the investigation includes whether
representatives and consultants of PSG, retained by PSG to assist it in
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advising the City of Houston regarding the privatization of Houston's water and
wastewater system, made or were involved in the making of any illegal payments.
To date, no charges of wrongdoing have been brought against PSG or any PSG
executive or employee by any grand jury or governmental authority. However,
because the government's investigation is still underway and is conducted
largely in secret, we cannot provide any assurance as to whether governmental
authorities will ultimately bring criminal charges or assert civil claims
resulting from this investigation.
Lawsuits were filed on September 22, 1999 and February 10, 2000 in the
Commonwealth Court in Arecibo, Puerto Rico against, among others, Compania de
Aquas de Puerto Rico ("CAPR"), an indirect subsidiary of Vivendi Environnement.
The complaints allege that CAPR, which operates numerous water and water
treatment plants in Puerto Rico, has unlawfully allowed its Barceloneta plant to
emit offensive odors and toxic substances into the environment, and has thereby
harmed the health of the plaintiffs, a group of local residents. We do not
believe the suits will have a material adverse effect on our business and intend
to defend them vigorously.
A lawsuit was filed on April 7, 2000 in the Commercial Court of Paris by
the Association de Defense des Actionnaires Minoritaires seeking invalidation of
a provision of our statuts that adjusts the rights of shareholders who own in
excess of 2% of the total voting power of our company through the application of
a formula designed to limit the voting power of those shareholders to that which
they would possess if 100% of the shareholders were present or represented at
the meeting at which the vote in question takes place. The complaint alleges
that the provision improperly limits the number of votes that a proxy may carry
and improperly assimilates the voting rights of different shareholders. We
believe the allegations to be without merit and intend to defend the suit
vigorously.
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ITEM 4: CONTROL OF REGISTRANT
We are not directly or indirectly owned or controlled by another
corporation or by any governmental entity.
To the best of our knowledge, there are no shareholders whose beneficial
ownership represents 5% or more of our share capital or voting rights. The total
common shares owned by our officers and directors as a group (24 persons)
represented .05% of our outstanding common shares and .04% of our voting shares
as of February 16, 2000. Pursuant to our statuts, each of our directors and
officers must own at least 750 of our shares.
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ITEM 5: NATURE OF TRADING MARKET
THE PARIS BOURSE
Our shares have been listed on the Paris Bourse since 1853 and are included
in the CAC40 Index. Authorized financial institutions that are members of the
Paris Bourse trade securities listed on the Premier Marche or the Second Marche
of the Paris Bourse. Securities listed on the Premier Marche trade continuously
on each business day from 9:00 A.M. to 5:30 P.M. (Paris time), with a
pre-opening session from 7:45 A.M. to 9:00 A.M. Any trade of a security that
occurs after a stock exchange session closes is recorded on the next business
day at the previous session's closing price for that security. The Paris Bourse
has introduced continuous electronic trading during trading hours for most
listed securities. ParisBourse(SBF) S.A. manages and operates the Paris Bourse.
ParisBourse(SBF) S.A. publishes a daily official price list that includes price
information on listed securities.
ParisBourse(SBF) S.A. places securities listed on the Premier Marche, the
Second Marche or the Nouveau Marche, depending on their trading volume.
ParisBourse(SBF) S.A. has placed our shares in the category known as Continu A,
which includes the most actively traded securities. The minimum daily trading
volume required for a security to be in Continu A is twenty trades or FF
250,000, equal to E 38,112.
ParisBourse(SBF) S.A. may suspend trading in a security listed on the
Premier Marche if the quoted price of the security exceeds specific price limits
defined by its regulations. In particular, if the quoted price of a Continu A
security varies by more than 10% from the previous day's closing price,
ParisBourse(SBF) S.A. may suspend trading in that security for up to 15 minutes.
It may suspend trading for a further 15 minutes if the price again varies by
more than 5%. ParisBourse(SBF) S.A. may also suspend trading of a security
listed on the Premier Marche in other limited circumstances, including, for
example, when there is unusual trading activity in the security. In addition,
the Conseil des Marches Financiers, the organization with general authority over
French stock exchanges, may also require ParisBourse(SBF) S.A. to suspend
trading in exceptional cases.
Traders of securities listed on the Premier Marche settle their trades
either in the cash settlement market (marche au comptant) or in the monthly
settlement market (marche a reglement mensuel). Our shares will settle in the
monthly settlement market. There are two ways to settle trades in this market.
One option is to settle on the third trading day following the trade (reglement
immediat). The second option is to elect on the determination date (date de
liquidation), which is the sixth trading day before the end of the month, either
to settle by the last trading day of the month or to pay an additional fee and
postpone the settlement decision until the determination date of the following
month. Stock exchange authorities have announced plans to eliminate the monthly
settlement mechanism after September 22, 2000.
Equity securities traded on the monthly settlement market are transferred
only after they have been registered in the purchaser's account. Under French
securities regulations, any sale of a security traded on the monthly settlement
market during the month of a dividend payment date is deemed to occur after the
dividend has been paid. If the sale takes place before, but during the month of,
a dividend payment date, the purchaser's account is credited with an amount
equal to the dividend paid and the seller's account is debited by the same
amount.
In March 2000, ParisBourse(SBF) S.A. announced that it would merge with the
Brussels and Amsterdam exchanges in order to create the Euronext stock exchange.
The Euronext is due to begin operations in September 2000. Future coordination
among the different exchanges may require ParisBourse(SBF) S.A. to change some
or all of the procedures and practices we have described in this section.
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PRICE INFORMATION ON THE PARIS BOURSE
The table below shows the high and low prices in euros on the monthly
settlement market of the Paris Bourse for our shares for the periods indicated.
The CAC 40 Index is derived daily by comparing the total market capitalization
of 40 stocks included in the marche a reglement mensuel of the Paris Bourse to
the total market capitalization of the same stocks on December 31, 1987. The CAC
40 Index indicates trends in the French stock market as a whole and is one of
the most widely followed stock price indices in France.
<TABLE>
<CAPTION>
E
----------------
PRICE PER SHARE
----------------
CALENDAR PERIOD HIGH LOW
--------------- ------ ------
<S> <C> <C>
1998
First Quarter............................................... 72.35 49.4
Second Quarter.............................................. 71.85 51.69
Third Quarter............................................... 65.81 49.75
Fourth Quarter.............................................. 52.99 38.62
1999
First Quarter............................................... 92.95 72.33
Second Quarter.............................................. 81.1 69.6
Third Quarter............................................... 83.7 65.05
Fourth Quarter.............................................. 92.95 61.1
2000
First Quarter............................................... 150.0 79.1
Second Quarter.............................................. 122.0 85.3
</TABLE>
On July 10, 2000 the closing sale price of our shares on the Paris Bourse
was E 90.00.
PURCHASE OF OUR OWN SHARES
Under French law, our company may not issue shares to itself. However, we
may, either directly or through a financial intermediary acting on our behalf,
purchase our shares for one of three purposes:
- to reduce our share capital by canceling the shares we purchase with our
shareholders' approval at an extraordinary general meeting;
- to provide shares to our employees under a profit-sharing plan or stock
option plan; or
- to acquire up to 10% of our share capital, provided our shares are listed
on a regulated market (e.g., the Premier Marche, the Second Marche or the
Nouveau Marche). To acquire our shares for this purpose, we first must
file a note d'information that has received the approval, or visa of the
Commission des Operations de Bourse ("COB") and obtain our shareholders'
approval at an ordinary general meeting.
We may not cancel more than 10% of our outstanding share capital over any
24-month period. In addition, we may not repurchase shares to reduce our share
capital or to provide shares to our employees in an amount that would result in
us holding, directly or through a person acting on our behalf, more than 10% of
our outstanding share capital or, if we have different classes of shares, 10% of
the shares in each class.
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<PAGE> 64
We must hold any shares we repurchase in registered form. These shares must
also be fully paid up. Shares we repurchase are deemed outstanding under French
law but are not entitled to dividends or voting rights, and we may not exercise
the preferential subscription rights attached to them.
The shareholders may, at an extraordinary general meeting, decide not to
take these shares into account in determining the preferential subscription
rights attached to the other shares. However, if the shareholders decide to take
them into account, we must either sell the rights attached to the shares we hold
on the market before the end of the subscription period or distribute them to
the other shareholders on a pro rata basis.
TRADING IN OUR OWN SHARES
Under Reglement no 90-04 of the COB, as amended, we may not trade in our
own shares for the purpose of manipulating the market. Trades by a company in
its own shares will be permitted if:
- they are executed on behalf of the company by only one intermediary in
each trading session (except that, during the issue period of any
securities, more than one intermediary can be involved if the trades are
made to ensure the success of the issuance);
- no block trades are made at a price above the current market price; and
- each trade is made at a price that falls between the lowest and the
highest trading price of the trading session during which it is executed.
If a company's shares, like our shares, are continuously quoted (cotation
en continu), then a trade will be permitted only if it meets three further
requirements:
- the trade must not influence the determination of the quoted price before
the opening of trading, at the first trade of the shares, at the
reopening of trading following a suspension, or, as applicable, in the
last half hour of any trading session or at the fixing of the closing
price;
- the trade must not be carried out in order to influence the price of a
derivative instrument relating to the company's shares; and
- the trade must not account for more than 25% of the average total daily
trading volume on the Paris Bourse in the shares during the five trading
days immediately preceding the trade. This last requirement applies only
to trades in shares that, like our shares, are traded on the monthly
settlement market.
We are not permitted to trade in our own securities during the 15-day
period before the date on which we make our consolidated or annual accounts
public. We are also prohibited from trading in our own shares when we are in
possession of non-public information that, if disclosed, would have a
significant impact on the market price of our securities.
After making an initial repurchase of our own shares, we must file monthly
reports with the COB and the CMF that contain specified information about
subsequent transactions. The CMF makes this information publicly available.
AMERICAN DEPOSITARY SHARES
American Depositary Shares ("ADSs"), each representing one-fifth of a
nominal share, have been traded over the counter in the United States since June
1995. The Bank of New York serves as depositary with respect to the ADSs. As of
December 31, 1999, 24,328,220 ADSs were outstanding in the United States. This
program will remain in effect after the listing of our ADSs on The New York
Stock Exchange.
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<PAGE> 65
PRICE INFORMATION FOR ADSS
The table below shows the high and low prices in dollars for ADSs
representing our shares for the periods indicated.
<TABLE>
<CAPTION>
$
--------------------
PRICE PER ADS
--------------------
CALENDAR PERIOD HIGH LOW
--------------- -------- --------
<S> <C> <C>
1998
First Quarter............................................... $11.1250 $ 8.6667
Second Quarter.............................................. $14.2500 $10.9583
Third Quarter............................................... $15.8750 $12.8750
Fourth Quarter.............................................. $17.1667 $12.1250
1999
First Quarter............................................... $19.9167 $16.2083
Second Quarter.............................................. $17.2917 $14.5000
Third Quarter............................................... $17.2500 $13.8750
Fourth Quarter.............................................. $18.2500 $13.3125
2000
First Quarter............................................... $27.6250 $17.0000
Second Quarter.............................................. $23.1250 $16.6875
</TABLE>
SHAREHOLDING IN FRANCE AND THE UNITED STATES
As of May 31, 2000 we had 605,508,712 shares outstanding. We estimate that
as of that date, approximately 47.33% of our shares traded on the Paris Bourse
were held by French residents and approximately 8.61% by residents of the United
States. We believe that the first fiscal year in which we had more than 300 U.S.
shareholders was 1998.
As of July 10, 2000, there were 43 registered holders of ADRs in the United
States holding a total of 35,922,715 ADRs.
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<PAGE> 66
ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
French company law currently does not limit the right of nonresidents of
France or non-French persons to own and vote shares. However, nonresidents of
France must file an administrative notice with French authorities in connection
with the acquisition of a controlling interest in us. Under existing
administrative rulings, ownership of 20% or more of our share capital or voting
rights is regarded as a controlling interest, but a lower percentage might be
held to be a controlling interest in some circumstances depending upon factors
such as:
- the acquiring party's intentions; and
- the acquiring party's ability to elect directors, and financial reliance
by us on the acquiring party.
French exchange control regulations currently do not limit the amount of
payments that we may remit to nonresidents of France. Laws and regulations
concerning foreign exchange controls do require, however, that all payments or
transfers of funds made by a French resident to a nonresident be handled by an
accredited intermediary. In France, all registered banks and most credit
establishments are accredited intermediaries.
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<PAGE> 67
ITEM 7: TAXATION
On August 31, 1994, the United States and France signed a tax treaty (the
"Treaty"). The following is a general summary of the principal tax effects that
may apply to you as a holder of our shares for purposes of U.S. federal income
tax and French tax, if all of the following apply to you:
- you own, directly or indirectly, less than 10% of our share capital;
- you are:
a citizen or resident of the United States for United States federal
income tax purposes;
a United States domestic corporation; or
otherwise subject to United States federal income taxation on a net
income basis in respect of your shares of our company;
- you are entitled to the benefits of the Treaty under the "Limitations of
Benefits" article of the Treaty;
- you hold your shares of our company as capital assets; and
- your functional currency is the U.S. dollar.
YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
CONSEQUENCES TO YOU OF ACQUIRING, OWNING OR DISPOSING OF OUR SHARES, RATHER THAN
RELYING ON THIS SUMMARY. The summary may not apply to you or may not completely
or accurately describe tax consequences to you. For example, special rules may
apply to U.S. expatriates, insurance companies, tax-exempt organizations,
financial institutions, persons subject to the alternative minimum tax,
securities broker-dealers, traders in securities that elect to mark-to-market
and persons holding their shares as parties to a conversion transaction, among
others. Those special rules are not discussed in this Registration Statement.
The summary is based on the laws, conventions and treaties in force as of the
date of this Registration Statement, all of which are subject to changes,
possibly with retroactive effect. Also, this summary does not discuss any tax
rules other than U.S. federal income tax and French tax rules. Further, the U.S.
and French tax authorities and courts are not bound by this summary and may
disagree with its conclusions.
TAXATION OF DIVIDENDS
WITHHOLDING TAX AND AVOIR FISCAL
We will withhold tax from your dividend at the reduced rate of 15%,
provided that you have complied with the following procedures:
- You must complete French Treasury Form RF1 A EU-No. 5052, "Application
for Refund," and send it to the French tax authorities before the date of
payment of the dividend. If you are not an individual, you must also send
the French tax authorities an affidavit attesting that you are the
beneficial owner of all the rights attached to the full ownership of the
shares, including, among other things, the dividend rights, at the Centre
des Impots des Non Residents, 9 rue d'Uzes, 75094 Paris Cedex 2, France.
- If you cannot complete Form RF1 A EU-No. 5052 before the date of payment
of the dividend, you may complete a simplified certificate and send it to
the French tax authorities. This certificate must state that:
-- you are a resident of the United States for purposes of the Treaty;
-- your ownership of our shares is not effectively connected with a
permanent establishment or a fixed base in France;
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<PAGE> 68
-- you own all the rights attached to the full ownership of the shares,
including, among other things, the dividend rights;
-- you meet all the requirements of the Treaty for the reduced rate of
withholding tax; and
-- you claim the reduced rate of withholding tax.
If you have not completed Form RF1 A EU-No. 5052 or the simplified
certificate before the dividend payment date, we will deduct French withholding
tax at the rate of 25%. In that case, you may claim a refund of the excess
withholding tax by completing and providing the French tax authorities with Form
RF1 A EU-No. 5052 before December 31 of the calendar year following the year
during which the dividend is paid.
The Application for Refund, together with instructions, can be obtained
from the U.S. Internal Revenue Service or from the Centre des Impots des Non
Residents (9, rue d'Uzes, 75094 Paris Cedex 2, France) upon request. After
completing it, you send it to the Centre des Impots des Non Residents at the
same address.
Under the Treaty, you may be entitled, in certain circumstances, to a
French tax credit called the avoir fiscal. The avoir fiscal is generally equal
to 50% of the dividend paid for individuals, or 40% of the dividend paid for
shareholders other than individuals. You may be entitled to a payment equal to
the avoir fiscal, less a 15% withholding tax, if any one of the following
applies to you:
- you are an individual or other non-corporate holder that is a resident of
the United States for purposes of the U.S.-France tax treaty;
- you are a U.S. corporation, other than a regulated investment company;
- you are a U.S. corporation that is a regulated investment company and
that owns, directly or indirectly, less than 10% of the share capital of
our company, provided that less than 20% of your shares are beneficially
owned by persons who are neither citizens nor residents of the United
States; or
- you are a partnership or trust that is a resident of the United States
for purposes of the Treaty, but only to the extent that your partners,
beneficiaries or grantors would qualify as eligible under the first or
second points on this list and are subject to U.S. income tax with
respect to such dividends and payment of the avoir fiscal.
If you are eligible, you may claim the avoir fiscal by completing Form RF1
A EU-No. 5052 and sending it to the French tax authorities at the Centre des
Impots des Non Residents (9, rue d'Uzes, 75094 Paris Cedex 2, France) before
December 31 of the year following the year in which the dividend is paid. As
noted below, you will not receive this payment until after January 15 of the
calendar year following the year in which the dividend was paid. To receive the
payment, you must submit a claim to the French tax authorities and attest that
you are subject to U.S. federal income taxes on the payment of the avoir fiscal
and the related dividend. For partnerships or trusts, the partners,
beneficiaries or grantors, as applicable, must make this attestation.
Specific rules apply to the following:
- tax-exempt U.S. pension funds, which include the exempt pension funds
established and managed in order to pay retirement benefits subject to
the provisions of Section 401(a) of the Internal Revenue Code (qualified
retirement plans), Section 403 of the Internal Revenue Code (tax deferred
annuity contracts) or Section 457 of the Internal Revenue Code (deferred
compensation plans); and
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<PAGE> 69
- various other tax-exempt entities, including certain state-owned
institutions, not-for-profit organizations and individuals (with respect
to dividends they beneficially own and that are derived from an
individual retirement account).
Entities in these two categories are eligible for a reduced withholding tax
rate of 15% on dividends, subject to the same withholding tax filing
requirements as eligible U.S. holders, except that they may have to supply
additional documentation evidencing their entitlement to these benefits. These
entities are not entitled to the full avoir fiscal. They may claim a partial
avoir fiscal equal to 30/85 of the gross avoir fiscal, provided that they own,
directly or indirectly, less than 10% of our capital and that they satisfy the
filing formalities specified in Internal Revenue Service regulations.
The avoir fiscal or partial avoir fiscal and any French withholding tax
refund are generally expected to be paid within 12 months after the holder of
shares files Form RF1 A EU-No. 5052. However, they will not be paid before
January 15 following the end of the calendar year in which the dividend is paid.
For U.S. federal income tax purposes, the gross amount of a dividend and
any avoir fiscal, including any French withholding tax, will be included in your
gross income as dividend income when payment is received by you, to the extent
they are paid or declared paid out of our current or accumulated earnings and
profits as calculated for U.S. federal income tax purposes. Dividends paid by
our company will not give rise to any U.S. dividends received deduction. They
will generally constitute foreign source "passive" income for foreign tax credit
purposes. For recipients predominantly engaged in the active conduct of a
banking, insurance, financing or similar business, dividends paid by our company
will generally constitute foreign source "financial services" income for foreign
tax credit purposes.
Also for U.S. federal income tax purposes, the amount of any dividend paid
in euros or French francs, including any French withholding taxes, will be equal
to the U.S. dollar value of the euros or French francs on the date the dividend
is included in income, regardless of whether the payment is in fact converted
into U.S. dollars. You will generally be required to recognize U.S. source
ordinary income or loss when you sell or dispose of euros or French francs. You
may also be required to recognize foreign currency gain or loss if you receive a
refund under the Treaty of tax withheld in excess of the treaty rate. This
foreign currency gain or loss will generally be U.S. source ordinary income or
loss.
To the extent that any dividends paid exceed our current and accumulated
earnings and profits as calculated for U.S. federal income tax purposes, the
distribution will be treated as follows:
- first, as a tax-free return of capital, which will cause a reduction in
the adjusted basis of your shares in our company. This adjustment will
increase the amount of gain, or decrease the amount of loss, that you
will recognize if you later dispose of those shares; and
- second, the balance of the dividend in excess of the adjusted basis will
be taxed as capital gain recognized on a sale or exchange.
French withholding tax imposed on the dividends you receive and on any
avoir fiscal at 15% under the Treaty is treated as payment of a foreign income
tax. You may take this amount as a credit against your U.S. federal income tax
liability, subject to specific conditions and limitations.
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<PAGE> 70
THE PRECOMPTE
A French company must pay an equalization tax known as the precompte to the
French tax authorities if it distributes dividends out of:
- profits that have not been taxed at the ordinary corporate income tax
rate, or
- profits that have been earned and taxed more than five years before the
distribution.
The amount of the precompte is 50% of the net dividends before withholding
tax.
If you are not entitled to the full avoir fiscal (as described above), you
may generally obtain a refund from the French tax authorities of any precompte
paid by us with respect to dividends distributed to you. Under the Treaty, the
amount of the precompte refunded to U.S. residents is reduced by the 15%
withholding tax applied to dividends and by the partial avoir fiscal, if any.
You are entitled to a refund of any precompte that we actually pay in cash, but
not to any precompte that we pay by offsetting French and/or foreign tax
credits. To apply for a refund of the precompte, you should file French Treasury
Form RF1 B EU-No. 5053 before the end of the year following the year in which
the dividend was paid. The form and its instructions are available from the
Internal Revenue Service in the United States or from the Centre des Impots des
Non Residents.
For U.S. federal income tax purposes, the amount of the precompte will be
included in your gross income as dividend income in the year you receive it. It
will generally constitute foreign source "passive" income for foreign tax credit
purposes. For recipients predominantly engaged in the active conduct of a
banking, insurance, financing or similar business, the precompte will generally
constitute foreign source "financial services" for foreign tax credit purposes.
The amount of any precompte paid in euros or French francs, including any French
withholding taxes, will be equal to the U.S. dollar value of the euros or French
Francs on the date the precompte is included in income, regardless of whether
the payment is in fact converted into U.S. dollars. You will generally be
required to recognize a U.S. source ordinary income or loss when you sell or
dispose of the euros or French francs.
TAXATION OF CAPITAL GAINS
If you are a resident of the United States for purposes of the Treaty, you
will not be subject to French tax on any capital gain if you sell or exchange
your shares, unless you have a permanent establishment or fixed base in France
and the shares you sold or exchanged were part of the business property of that
permanent establishment or fixed base. Special rules apply to individuals who
are residents of more than one country.
In general, for U.S. federal income tax purposes, you will recognize
capital gain or loss if you sell or exchange your shares in the same manner as
you would if you were to sell or exchange any other shares held as capital
assets. Any gain or loss will generally be U.S. source gain or loss. If you are
an individual, any capital gain will generally be subject to U.S. federal income
tax at preferential rates if you meet the specified minimum holding periods.
PFIC
We believe that we will not be treated as a passive foreign investment
company, or PFIC, for U.S. federal income tax purposes for the current taxable
year or for future taxable years. However, an
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<PAGE> 71
actual determination of PFIC status is fundamentally factual in nature and
cannot be made until the close of the applicable taxable year. We will be a PFIC
for any taxable year in which either:
- 75% or more of our gross income is passive income; or
- our assets that produce passive income or that are held for the
production of passive income amount to at least 50% of the value of our
total assets on average.
If we were to become a PFIC, the tax applicable to distributions on our
shares and any gains you realize when you dispose of our shares may be less
favorable to you. You should consult your own tax advisors regarding the PFIC
rules and their effect on you if you purchase our shares.
FRENCH ESTATE AND GIFT TAXES
Under "The Convention Between the United States of America and the French
Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24,
1978," if you transfer your shares by gift or if they are transferred by reason
of your death, that transfer will be subject to French gift or inheritance tax
only if one of the following applies:
- you are domiciled in France at the time of making the gift, or at the
time of your death; or
- you used the shares in conducting a business through a permanent
establishment or fixed base in France, or you held the shares for that
use.
FRENCH WEALTH TAX
The French wealth tax does not generally apply to shares if the holder is a
resident of the United States for purposes of the Treaty.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividend payments on the shares and proceeds from the sale, exchange or
other disposition of the shares may be subject to information reporting to the
Internal Revenue Service and possible U.S. backup withholding. U.S. federal
backup withholding generally is a withholding tax imposed at the rate of 31% on
specified payments to persons that fail to furnish required information. Backup
withholding will not apply to a holder who furnishes a correct taxpayer
identification number or certificate of foreign status and makes any other
required certification, or who is otherwise exempt from backup withholding. Any
U.S. persons required to establish their exempt status generally must file
Internal Revenue Service Form W-9, entitled Request for Taxpayer Identification
Number and Certification. Finalized Treasury regulations which are applicable to
payments made after December 31, 2000, have generally expanded the circumstances
under which information reporting and backup withholding may apply.
Amounts withheld as backup withholding may be credited against your U.S.
federal income tax liability. You may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the Internal Revenue Service and furnishing any required
information.
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<PAGE> 72
ITEM 8: VIVENDI SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data together
with the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," page 76, and our consolidated financial
statements, beginning on page 128.
Our consolidated financial statements have been prepared in accordance with
French GAAP, which differs in certain significant respects from U.S. GAAP. Note
25 to our consolidated financial statements describes the principal differences
between French GAAP and U.S. GAAP as they relate to us. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations," page
76, for a discussion of accounting changes, business combinations and
dispositions of business operations that affect the comparability of the
information provided below.
The information below and our consolidated financial statements are
reported in euros. For your convenience, we have also presented U.S. dollar
amounts, calculated at the rate of E .995 to U.S.$1.00, which is the noon buying
rate at December 31, 1999.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
U.S.$ EUROS
-------- --------------------------------------------------------
1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Amounts in accordance with
French GAAP
Revenue................... 41,814.0 41,622.5 31,737.1 25,476.6 25,293.4 24,843.3
Revenue outside France.... 17,911.3 17,829.3 10,313.0 8,204.8 7,793.0 7,212.2
Operating income.......... 2,291.0 2,280.5 1,331.4 595.5 546.4 211.8
Exceptional items, net.... (841.7) (837.8) 249.3 878.6 139.8 (208.4)
Goodwill amortization..... 614.8 612.0 209.5 374.7 146.8 155.6
Minority interest......... 5.3 5.3 212.2 (115.1) (56.4) (194.0)
Net income................ 1,438.0 1,431.4 1,120.8 822.0 297.7 (562.0)
Basic earnings per
share.................. 2.7 2.7 2.5 2.1 0.8
Dividends per share....... 1.0 1.0 0.9 0.8 0.6 0.6
Amounts in accordance with
U.S. GAAP
Shareholders' Equity...... 17,032.5 16,954.5 10,258.4 -- -- --
Net income................ 247.2 246.1 565.2 -- -- --
Basic EPS................. 0.48 0.48 1.29 -- -- --
Diluted EPS............... 0.47 0.47 1.25 -- -- --
</TABLE>
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<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
U.S.$ EUROS
-------- --------------------------------------------------------
1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
PERIOD END):
Amounts in accordance with
French GAAP
Total Shareholders'
Equity................. 10,942.3 10,892.2 7,840.2 6,846.7 5,134.7 4,600.2
Minority interest......... 4,071.0 4,052.4 2,423.0 1,742.3 825.9 921.5
Total assets.............. 83,157.8 82,777.0 48,982.4 39,365.2 36,624.9 35,339.5
Total long term assets.... 45,549.5 45,340.9 26,072.6 20,810.4 19,098.4 18,377.9
Net cash provided by
operating activities... 1,415.9 1,409.4 2,897.9 1,601.1 2,502.0 3,112.6
Capital expenditure....... 6,822.7 6,791.5 4,478.2 2,713.3 2,134.4 2,843.2
Net financial debt........ 22,937.6 22,832.6 6,502.1 4,177.0 6,874.6 7,875.7
OTHER DATA
Adjusted EBITDA(1)........ 5,259.1 5,235.0 3,453.0 2,144.2 2,003.8 1,795.1
</TABLE>
-------------------------
(1) Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and
equipment owned by local authorities. We consider operating income to be the
key indicator of the operational strength and performance of our business
and adjusted EBITDA to be a pertinent comparative measure for investors.
Adjusted EBITDA should not be considered an alternative to operating or net
income as an indicator of our performance, or as an alternative to cash
flows from operating activities as a measure of liquidity, in each case
determined in accordance with generally accepted accounting principles. In
addition, adjusted EBITDA, as defined in this Registration Statement may not
be strictly comparable to similarly titled measures widely used in the
United States or reported by other companies.
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E 1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
U.S.$ EUROS
------- -----------------------------
1999 1999 1998 1997
------- ------- ------- -------
AMOUNTS IN MILLIONS
<S> <C> <C> <C> <C>
RECONCILIATION OF ADJUSTED EBITDA WITH
OPERATING INCOME:
Telecommunications............................... 1,379 1,372 674 331
Publishing and Multimedia........................ 419 417 355
Audiovisual and Pay Television................... 86 86 13 (7)
Internet......................................... (51) (51) (4)
</TABLE>
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<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
U.S.$ EUROS
------- -----------------------------
1999 1999 1998 1997
------- ------- ------- -------
AMOUNTS IN MILLIONS
<S> <C> <C> <C> <C>
COMMUNICATION...................................... 1,833 1,824 1,038 324
Water............................................ 1,327 1,320 830 787
Waste Management................................. 622 619 495 355
Energy Services.................................. 390 388 341 265
Transportation................................... 183 182 144 97
FCC.............................................. 273 272 119
ENVIRONMENT........................................ 2,795 2,781 1,929 1,504
SITHE.............................................. 193 192 256 218
CONSTRUCTION AND REAL ESTATE....................... 521 520 291 122
OTHERS............................................. (83) (82) (61) (24)
ADJUSTED EBITDA*................................... 5,259 5,235 3,453 2,144
Amortization and depreciation.................... (2,690) (2,678) (1,832) (1,314)
Expenses of replacement and repair of
installation.................................. (278) (276) (290) (235)
OPERATING INCOME................................... 2,291 2,281 1,331 596
</TABLE>
-------------------------
* Adjusted EBITDA is defined as operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. We consider operating income to be the key
indicator of the operational strength and performance of our business and
adjusted EBITDA to be a pertinent comparative measure for investors. Adjusted
EBITDA should not be considered an alternative to operating or net income as
an indicator of our performance, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
adjusted EBITDA as defined in this Registration Statement may not be strictly
comparable to similarly titled measures widely used in the United States or
reported by other companies.
DIVIDENDS
Under French law and our statuts, our statutory net income in each fiscal
year, as increased or reduced, as the case may be, by any profits or losses
carried forward from prior years, less any contributions to legal reserves, is
available for distribution to our shareholders as dividends, subject to other
applicable requirements of French law and our statuts.
Dividends paid to holders of ADSs evidenced by ADRs will generally be
subject to French withholding tax at a rate of 25% which, subject to certain
procedures and exceptions, may be reduced to 15% for holders who are residents
of the United States. Certain holders of ADRs who are residents of the United
States may be entitled to receive a subsequent payment representing the French
avoir fiscal, or tax credit, in an amount equal to 40% or 50% depending on the
beneficiary of any dividends paid by us, less applicable French withholding tax.
See "Taxation," page 67, for a summary of certain U.S. federal and French tax
consequences to holders of ADRs. Holders of ADRs should consult their own tax
advisors with respect to the tax consequences of an investment in the ADSs.
Dividends paid to holders of ADRs will be subject to a charge by the depositary
for any expenses incurred by the depositary of the ADRs in the conversion of
francs to dollars.
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<PAGE> 75
The table below sets forth, for the years indicated, the amount of
dividends paid per share, without including the French avoir fiscal, and the
amount of dividends paid per share, including the French avoir fiscal (before
deduction of any French withholding tax). The amount of dividends per ADS has
been translated into dollars and adjusted for the one-to-five ratio of shares to
ADS. An annual dividend is paid in each year in respect of the prior year.
<TABLE>
<CAPTION>
DIVIDEND FOR
DIVIDEND PER ADS INCLUDING
YEAR TO WHICH DIVIDEND SHARE INCLUDING DIVIDEND PER AVOIR FISCAL
DIVIDEND RELATES(1) PER SHARE(2) AVOIR FISCAL(3) ADS(4) (3)(4)
------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995................. E 1.72 $2.18 E 2.58 $3.28 E 0.34 $0.44 E 0.52 $0.66
1996................. 1.83 2.03 2.74 3.05 0.37 0.41 0.55 0.61
1997................. 2.29 2.51 3.43 3.78 0.46 0.50 0.69 0.75
1998................. 2.75 2.94 4.13 3.88 0.55 0.52 0.82 0.77
1999................. 1.00 1.10 1.50 1.66 0.20 0.22 0.30 0.33
</TABLE>
-------------------------
(1) Under French law, payment of annual dividends must be made within nine
months following the end of the year to which they related.
(2) The amount of dividends per share have been translated into euros using the
fixed exchange rate of E 1.00 -- FF 6.5597.
(3) Payment equivalent to the French avoir fiscal, or tax credit, less
applicable French withholding tax, will be made by the French State only
after receipt of a claim for such payment and, in any event, not before
January 15 of the year following the calendar year in which the dividend is
paid. Certain U.S. tax-exempt holders of ADRs will not be entitled to full
payment of avoir fiscal. See "Taxation," page 67.
(4) Translated solely for convenience into dollars at the Noon Buying Rates on
the respective dividend payments date, or on the following business day if
such date was not a business day in the United States. Avoir fiscal amounts
have been converted into dollars at the Noon Buying Rate on such dates
although such amounts are paid subsequent to such payment dates. The Noon
Buying Rate may differ from the rate that may be used by the depositary to
convert euros to dollars for the purpose of making payments to holders of
ADRs.
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ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our operations should be read in conjunction
with our financial statements and related notes included elsewhere in this
registration statement. The following discussion contains forward-looking
statements that involve risks and uncertainties, including, but not limited to,
those described in "Description of Business -- Our Business as a Whole -- Risk
Factors," page 54. Our results may differ materially from those anticipated in
these forward-looking statements.
Since the introduction of the euro on January 1, 1999, our functional and
reporting currency has been the euro. Accordingly, we have prepared our 1999
consolidated financial statements in euros. The consolidated financial
statements for prior years have been prepared in French francs and have been
restated in euros for each period presented using the official fixed exchange
rate E 1 = FF 6.55957. Therefore, the consolidated financial statements for
prior years depict the same trends that would have been presented had they been
presented in French francs. However, because they were originally prepared in
French francs, they are not necessarily comparable to financial statements of a
company which originally prepared its financial statements in a European
currency other than the French franc and restated them in euros. See Note 2 to
the Consolidated Financial Statements, "Summary of Significant Accounting
Policies -- Introduction of the Euro."
OVERVIEW
We grew substantially in the 1997-99 period, both in terms of revenue (E
25.5 billion in 1997 compared to E 41.6 billion in 1999, representing a 27.8%
compound annual growth rate) and operating income (E 596 million in 1997
compared to E 2.3 billion in 1999, or a 95.7% compound annual growth rate).
Revenue generated by our Communications division grew at an annual rate of
126.9%, from E 1.7 billion to E 8.6 billion, and its operating result went from
a E 199 million loss to a E 552 million profit. In the Environment business,
revenue increased by 25% a year to E 22.4 billion, and operating income by 40%
per year to E 1.6 billion.
Our growth was driven by both significant internal revenue growth (9.5% a
year over the period) in our Communications and Environmental divisions, and
through our policy of selective acquisitions in our core strategic businesses.
INTERNAL GROWTH
COMMUNICATIONS
Our goal is to become a leading European communications company. We intend
to achieve that goal by aggressively expanding our ability to provide high-value
added content and services over the full range of media: Internet, television,
print and mobile and fixed telephony. In the 1997-99 period, following this
strategy has resulted in internal growth of 50% a year.
- ACCESS
Our provision of access to communications services expanded rapidly in the
1997-99 period, chiefly due to a dramatic increase in demand for our mobile
telecommunications services, which grew an average of 54% per year during the
period. Cegetel's mobile phone subscriber base grew by more than 5 million
during the period (from 2.23 million at the end of 1997 to 7.34 million at the
end of 1999). Meanwhile, operating income reached E 581 million in 1999,
compared to a E 40 million loss in 1997. SFR benefited from the dramatic
expansion of the French market, where the mobile telephony penetration rate has
tripled from 10% at the end of 1997 to 33.8% at the end of 1999. SFR was able to
maintain its market share at 36% while generating more revenue per subscriber
than its main competitors.
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<PAGE> 77
Internal growth in telecommunications was also the result of Cegetel's
expansion in the fixed-line consumer and professional markets, which were opened
to competition in January 1998. Cegetel also benefited from growth in the
Internet and data communications markets, which together represented the bulk of
its fixed-line market growth over the 1997-99 period. Cegetel's revenue in the
fixed-line market rose from E 28.5 million in 1997 to E 143.5 million in 1999.
In the long distance fixed-line segment, Cegetel had 1.1 million clients as of
December 31, 1999, having had none at the end of 1997.
- CONTENT
Our publishing and multimedia segment generated internal growth of 6.2%
over the period, helped by an improving advertising market in France and by the
launch of several new periodicals. We expect the Seagram transactions to spur
substantial internal growth in both our content and access activities. See
"Description of Business -- General -- Recent Developments," page 8.
ENVIRONMENT
In the 1997-99 period, our Environment division capitalized on its historic
competitive advantages to generate internal revenue growth of 8%. Primarily as a
result of a E 266 million cost cutting program we were able to achieve internal
growth in operating income of 11%.
Internal revenue growth was principally due to a number of new contracts,
including contracts to:
- provide water and wastewater services to the city of Berlin through a
partnership with RWE and Allianz (generating annual revenue of
approximately E 600 million) (the "Berlin water contract").
- operate the Stockholm metro (annual revenue of approximately E 180
million) (the "Stockholm metro contract").
- operate a rail franchise from Hillside to Melbourne, Australia (annual
revenue of E 120 million, beginning September, 1999) (the "Melbourne
contract").
As a result of these and other new contracts, we had at the end of 1999
more than 80 million clients in the water sector, waste management capacity of
25 million tons a year, 40,000 energy services customers and transportation
volume of one billion passengers a year.
GROWTH TRENDS AND MATERIAL UNCERTAINTIES
We believe that we can continue to achieve substantial growth in 2000 and
beyond. The key industry factors that will enable us to sustain significant
internal growth in our two core businesses are:
- In the Communications division, continuing growth in the mobile telephony
sector, particularly in mobile data and wireless internet services, and
increasing demand for multimedia services, which we intend to exploit by
leveraging our key content assets, including those we will acquire in the
Seagram transactions.
- In the Environmental division, the acceleration of the trend towards
privatization in the municipal market. Ten percent of the worldwide
operating and management ("O&M") water market is currently privatized. We
estimate that this percentage will grow to 35% by 2015. Similarly,
although the O&M industrial water market is only 1% privatized today, it
is growing at over 20% a year. We anticipate similar growth trends in our
other environmental businesses.
The factors that may cause our expectations not to be realized include, but
are not limited to, those described in "Description of Business -- Our Business
as a Whole -- Risk Factors," page 54.
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<PAGE> 78
EXTERNAL GROWTH
The following is a summary of some of the material transactions and
developments during the 1997-99 period in each of our core businesses.
COMMUNICATIONS
Over the 1997-99 period, we supplemented the strong internal growth in our
Communications businesses discussed above by entering into joint ventures and
acquisitions that significantly expanded our telecommunications, audiovisual and
publishing assets.
TELECOMMUNICATIONS
- Cegetel acquired a 49.9% ownership interest in TD through investments
made in July 1997 and December 1998 for a total price of E 518.2 million
(the "TD acquisition"). Through this acquisition, SNCF and Cegetel agreed
jointly to make use of TD's fixed long distance network. We account for
TD using the equity method. TD reduced our net income by E 17.1 million
in 1998 and by E 1.1 million in 1999.
- In accordance with our strategy of developing an international
telecommunications customer base through acquisitions in high-potential
countries, we purchased a 49% interest in a joint venture with Elektrim,
a company that controls the leading Polish mobile telephony operator and
the Polish cable operator Bresnam. The acquisition took place in December
1999. The total purchase price was E 1,198.8 million.
AUDIOVISUAL AND PAY TELEVISION
- We purchased an additional 15% interest in CANAL+ in September 1999 for E
1,374 million, increasing our total interest in CANAL+ to 49% and giving
us control of the company. CANAL+ would have reduced our operating income
by E 23 million in 1999 had it been included for the full year.
- Also in September 1999, we acquired a 24.4% equity interest in BSkyB, the
leading pay-television company in the United Kingdom and Ireland, through
a merger with Pathe and a purchase of BSkyB shares from Granada and
Pearson. The total purchase price was E 1,258.8 million. We account for
BSkyB using the equity method. BskyB reduced our net income by E 13.7
million in 1999, and would have reduced net income by E 141 million had
it been included for the full year.
- In July 2000 we issued a series of exchangeable notes with an aggregate
principal amount of E 1.44 billion. Each note has a nominal value of E
24.22 and is exchangeable for one share of BSkyB stock. We may elect to
give noteholders who exercise their exchange rights the cash equivalent
of the then-prevailing market price of the BSkyB stock rather than the
stock itself. The notes bear interest at 1% per annum and are scheduled
to mature on July 20, 2003.
PUBLISHING AND MULTIMEDIA
Acting on our belief that controlling content and value-added services is a
key competitive advantage for a telecommunications operator, we made a number of
substantial content-related acquisitions in the 1997-99 period. We acquired
29.3% of Havas, then a multi-services communications company, in February 1997
and merged with it effective January 1, 1998. In 1998 and 1999, we significantly
expanded Havas' international presence through a number of acquisitions:
- At the end of 1998, we acquired Cendant Software (now Havas Interactive),
the world's second leading developer of educational and games computer
software, for E 678 million (the
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<PAGE> 79
"Havas Interactive acquisition"). Havas Interactive contributed E 47.4
million to our operating income in 1999 (E 66.7 million before
amortization).
- In September 1998, we acquired Anaya, a Spanish publishing firm, for E
199.7 million (the "Anaya acquisition"). Anaya contributed E 30 million
to our operating income in 1998 and E 10.2 million in 1999 (in 1998, the
contribution reflected Anaya's results only for the second half of the
year, when its performance is generally superior to that achieved in the
first half).
- In August 1999, we acquired MediMedia, a company specializing in the
publication of medical information, for E 237 million (the "MediMedia
acquisition"). MediMedia contributed E 10.7 million to our operating
income in 1999.
Havas contributed E 252 million to our operating income in 1998 and E 355
million in 1999. We believe that its contribution to the value of our company is
even greater than these numbers suggest, however. Through Havas, we have
dramatically increased the library of content we can offer users of our
communications systems; as a result, we believe that we have substantially
enhanced the value of those systems.
ENVIRONMENT
Over the 1997-99 period, we complemented internal growth in our
environmental businesses with growth delivered by joint ventures and
acquisitions that significantly expanded our asset base:
WATER
- Vivendi Water revenue grew 27% a year over the period. Internal growth
averaged 4.7% a year, helping lead to our E 10.7 billion in 1999
environmental revenue. Meanwhile, operating income grew by 44% a year to
E 793 million in 1999, including internal growth of 7% a year, partially
as a result of a cost reduction program initiated in 1997.
Pursuant to our strategy of making opportunistic acquisitions of
environmental companies, we complemented our internal growth primarily
through the acquisition of United States Filter Corporation, the world's
leading manufacturer of water equipment and water treatment systems (the
"United States Filter Corporation acquisition"). We acquired United
States Filter Corporation in April, 1999 for E 5,801 million. United
States Filter Corporation contributed E 339 million to our operating
income in 1999. It would have contributed E 475 million had it been
included for the full year.
WASTE
- Revenue in the waste sector grew 26% a year over the 1997-99 period,
reaching E 3.5 billion in 1999, with a balance of internal growth and
acquisitions. Growth in operating income was similar. Our primary
waste-related acquisitions were in furtherance of our strategy of
expanding in both Europe and the United States. They included:
-- a controlling stake in Superior Services, a U.S. waste management
company, acquired in June 1999 for E 932.2 million (the "Superior
Services acquisition"). Superior Services contributed E 25 million to
our operating income in 1999 and would have contributed E 29 million
had it been included for the full year;
-- E 103.5 million of hazardous waste-related assets from Waste
Management, Inc. in March 1999 (the "Waste Management acquisition").
These assets contributed E 13.3 million to our operating income in
1999, and would have contributed E 26 million had they been included
for the full year; and
-- a controlling stake in Leigh Interest, a British waste management
company, acquired in August, 1997 for E 185.5 million (the "Leigh
Interest acquisition"). Leigh Interest
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<PAGE> 80
contributed E 21.1 million to our operating income in 1998 and,
combined with our other U.K. units, E 36.8 million in 1999.
TRANSPORTATION
Revenue in transportation grew 21% a year over the 1997-99 period, reaching
E 2.4 billion in 1999, with a mix of internal growth, primarily as a result of
new contracts, and acquisitions. Operating income growth was 45% per year,
caused in part by productivity gains. Our primary transportation-related
acquisition was our purchase in December 1997 of a controlling stake in
Linjebuss, the leading transportation company in Scandinavia, for E 156 million
(the "Linjebuss acquisition"). Linjebuss contributed E 16.3 million to our
operating income in 1998 and E 7 million in 1999.
FCC
In October 1998, in order to reinforce our presence in the fast growing
Spanish market, we acquired a 49% interest in the holding company that owns
56.5% of FCC (the "FCC acquisition"). We acquired this interest for E 794.2
million. We proportionally consolidated FCC in our financial statements based on
our interest in the holding company. FCC contributed E 75 million to our
operating income in 1998 and E 191 million in 1999.
DIVESTITURES
In 1995, we were involved in dozens of unrelated businesses. That year, we
began to implement a long-term strategy of focusing on just two: communications
and environmental services. We pursued that goal aggressively in the 1997-99
period, making substantial disposals of non-core assets.
COMMUNICATIONS
In communications, the bulk of our streamlining effort in 1997-99 was
directed towards focusing Havas, which was highly diversified when we acquired
it, on its multimedia and publishing operations. To that end, we sold:
- Havas' yellow pages businesses to France Telecom for E 411 million;
- IP, an advertising management agency, to CLT for E 207 million; and
- Havas Voyages, a travel agency, to American Express Voyages, for E 167
million.
The proceeds of these sales have been distributed to Havas' shareholders as
part of Havas' merger with our company. Further sales included:
- Havas' billboard advertising operations to the Decaux group for E 877
million (the "billboard advertising sale"), generating a capital gain of
E 575 million;
- 9% of Havas Advertising to a group of investors for E 198.4 million (the
"Havas Advertising sale"), generating a capital gain of E 148.7 million;
and
- our interest in Audiofina to Groupe Bruxelles Lambert for E 704.1 million
at the end of 1999, leading to a capital gain of E 275.2 million (the
"Audiofina sale").
CONSTRUCTION AND REAL ESTATE
We disposed of a substantial number of non-core real estate assets in
1997-99, including E 1.2 billion of real estate assets to Unibail, Accor,
Blackstone and Colony in 1999 (the "1999 real estate sales"), and E 640 million
of real estate assets to SITQ in 1997 (the "SITQ sale").
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OTHER
Other disposals of non-core assets included our sale of 24.6% of
Electrafina, a holding company with investments in Suez Lyonnaise des Eaux,
Audiofina and a number of international oil operations, to Groupe Bruxelles
Lambert for E 1.1 billion in June 1998 (the "Electrafina sale").
BASIS OF PRESENTATION
INCLUSION OF ACQUISITIONS
Information regarding businesses and interests we acquired between January
1, 1997 and December 31, 1999 is included only from the date of acquisition. For
example, we include only eight months of results for United States Filter
Corporation because we acquired it at the end of April 1999. Subject to that
qualification, the information below consolidates all of the businesses and
interests we held at the end of 1999.
FORMATION OF VIVENDI ENVIRONNEMENT
Vivendi Environnement was formed at the end of 1999. It brings together the
majority of our water, waste management, energy services and transportation
businesses, as well as our interest in FCC. We transferred Generale des Eaux,
Dalkia, United States Filter Corporation, Companie Generale d'Entreprises
Automobiles and our interest in FCC to Vivendi Environnement in December 1999.
We have not transferred all our environment-related subsidiaries or contracts to
provide environmental services. The following information related to our
environmental segments includes (i) certain environment-related operations,
contracts and subsidiaries not currently part of Vivendi Environnement and (ii)
our interest in Sithe, although we have not transferred that interest to Vivendi
Environnement and do not intend to do so. We have agreed to transfer to Vivendi
Environnement the operating income we receive under some environmental contracts
that we have not yet transferred to Vivendi Environnement.
DISPOSITION OF REAL ESTATE ASSETS
In 1995, we regrouped our real estate business in our wholly owned
subsidiary CGIS. In response to the real estate crisis of the early 1990's in
France, CGIS substantially restructured the business and entered into a
divestiture program pursuant to which it has sold over E 3 billion of real
estate assets since 1995.
In 1999, as part of this divestiture program, CGIS sold 40 hotels, mainly
in Paris, and a group of office, retail and multi-purpose facilities (with
299,250 square meters of leaseable space and ancillary areas and 2,956 parking
spaces).
These sales resulted in the recognition of a net capital loss of E 384
million.
As part of our strategy of focusing on our two core businesses,
Communications and Environment, we have decided to withdraw from the real estate
business in 1999. As a result:
- we sold Nexity to a group of investors in July 2000. Nexity (formerly New
CGIS) regroups our ongoing real estate businesses. No significant capital
gain arose from this disposal; and
- we intend to sell Vivendi Valorisations (formerly CGIS Cantonnement)
assets whenever favorable opportunities arise. Vivendi Valorisations
regroups various real estate assets that cannot easily be transferred or
sold. As part of this strategy, we have reviewed the value of our real
estate assets through a future cash-flow analysis and, as a result, have
recognised an additional reserve of E 890 million in our 1999 accounts.
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In total, we incurred real estate-related losses of about E 240 million in
1999, net of reversal of provisions and deferred tax assets.
TAXES
We file a consolidated tax return for all our French subsidiaries in which
we have an ownership interest of 95% or more, as does Vinci. We booked deferred
tax assets on net operating loss carryforwards and on timing differences when,
in our opinion, it was more likely than not that some or all of the deferred tax
assets would be realized. At each closing date, in light of the forecasted
taxable incomes of each tax entity, we reviewed such judgments.
At the end of 1998, we concluded that only a portion of our tax group's
total tax loss carryforwards and timing differences could be offset against
future taxable income. We estimated that only the losses expiring in 2002 and
2003 would be used. In 1999, we initiated and/or announced a number of
transactions from which we anticipate realizing substantial capital gains.
Because of the expected increase in our future taxable incomes, we have revalued
the expected tax savings of our tax loss carryforwards at E 1 billion.
CONSOLIDATED OPERATIONS: 1999 VS. 1998
REVENUE
Our consolidated revenue rose to E 41.6 billion in 1999 from E 31.7 billion
in 1998. Of this 31.2% increase, 19.6% resulted from acquisitions, primarily of
United States Filter Corporation and Superior Services, Havas Interactive and
full effect of our earlier acquisition of FCC. A further 9.7% was due to
internal growth, principally in the telecommunications sector. The impact of
changes in exchange rates, particularly in the U.S. dollar/euro exchange rate,
accounted for the remaining 2%.
DIVISIONAL ANALYSIS
Communications had revenue of E 8.6 billion in 1999, compared to E 6
billion in 1998. Of this 43% increase, 23% was the result of internal growth in
the telecommunications sector, caused primarily by a significant increase in
demand for our mobile telephony services. The remaining 21% resulted from
acquisitions, principally of Havas Interactive, MediMedia and CANAL+ (the
additional 15% ownership interest acquired in September 1999 caused us to
consolidate CANAL+ fully from the fourth quarter of 1999, having previously
accounted for our interest using the equity method). The Communications division
represented 21% of our revenue in 1999, compared to 19% in 1998 and 6% in 1997.
Our environmental businesses recorded revenue of E 22.4 billion in 1999,
compared to E 16 billion in 1998. Of this 40% increase, 29% is attributable to
external growth, principally our acquisitions of United States Filter
Corporation and Superior Services. Approximately 8% was due to internal growth,
which resulted primarily from the new contracts won during this period and from
the full year impact of contracts won in the preceding years. The environmental
businesses represented 54% of our revenue, compared to 50.5% in 1998 and 56% in
1997.
Construction and real estate accounted for E 10.6 billion of our total
revenue in 1999, compared with E 9.7 billion in 1998. This 9.3% increase is
primarily attributable to acquisitions in the construction sector (3.1%) and
internal growth (5.2%), particularly in our housing and commercial real estate
businesses. Construction and real estate represented 25% of our revenue in 1999,
compared to 30.5% in 1998 and 37% in 1997.
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GEOGRAPHIC BREAKDOWN
The table below summarizes the relative contribution of our business
divisions to our 1999 revenue and a breakdown between revenue generated in
France and elsewhere.
<TABLE>
<CAPTION>
OUTSIDE
FRANCE FRANCE TOTAL
------------ ------------ --------------
VALUE % VALUE % VALUE %
----- --- ----- --- ----- -----
(IN E BILLION)
<S> <C> <C> <C> <C> <C> <C>
Communications.............................. 6.8 29% 1.7 10% 8.5 21%
Environment................................. 10.0 42% 12.5 70% 22.5 54%
SUBTOTAL ENVIRONMENT AND COMMUNICATIONS..... 16.8 71% 14.2 80% 31.0 75%
Construction & Real Estate.................. 7.0 29% 3.6 20% 10.6 25%
---- --- ---- --- ---- ---
TOTAL....................................... 23.8 100% 17.8 100% 41.6 100%
</TABLE>
Our revenue in France totaled E 23.8 billion, compared to E 21.4 billion in
1998 (an 11% increase, most of which came from internal growth (10%)). The
majority of this growth was in Communications, which increased its revenue by
34% to E 6.8 billion. It had internal growth of 26%, due largely to the
continued strong growth of its French telecommunications operations (up 42% in
1999 to E 4.1 billion). The publishing and multimedia business grew 23% to E 2.7
billion, mostly due to acquisitions. The environmental division's revenue
generated in France increased 6% to E 10 billion, with 4% internal growth. Our
construction and real estate revenue increased 1.5% to E 7 billion. In total,
revenue generated in France in 1999 represented 57% of our total revenue,
compared to 67% in 1998.
Revenue generated outside France increased 73% to E 17.8 billion in 1999,
primarily as a result of our acquisitions of United States Filter Corporation
and Superior Services and the inclusion of a full year of FCC and Havas
Interactive. Internal growth, principally due to the impact of new environmental
contracts, accounted for the remainder, or 10%. The Communications division's
revenue outside France grew by 107% (5% internally) to E 1.7 billion, or 20% of
the division's total revenue. Environmental revenue outside France grew by 88%
(13% internally) to E 12.5 billion, or 55% of the total revenue of the division.
Construction and real estate revenue outside France increased 28% (3%
internally) to E 3.6 billion. In total, business outside France represented
42.8% of our total revenue, compared to 33% in 1998 and 32% in 1997.
The breakdown of our 1999 revenue outside France by geographic area is as
follows:
<TABLE>
<CAPTION>
EURO
ZONE EUROPE
OUTSIDE OUTSIDE THE
FRANCE EURO ZONE AMERICAS OTHER TOTAL 1998
------- ----------- -------- ----- ----- ----
(E BILLION)
<S> <C> <C> <C> <C> <C> <C>
Communications.................... 0.7 0.3 0.6 0.1 1.7 0.9
Environment....................... 3.1 3.6 4.9 0.9 12.5 6.6
SUBTOTAL ENVIRONMENT AND
COMMUNICATIONS.................. 3.8 3.9 5.5 1.0 14.2 7.5
Construction & Real Estate........ 2.1 1.0 0.1 0.4 3.6 2.8
--- --- --- --- ---- ----
TOTAL............................. 5.9 4.9 5.6 1.4 17.8 10.3
33% 28% 31% 8% 100% 100%
--- --- --- --- ---- ----
1998.............................. 4.0 3.8 1.5 1.0 10.3
</TABLE>
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In Europe, our revenue increased 42.8% to E 10.8 billion in 1999, an
increase principally attributable to the integration of the European units of
United States Filter Corporation, the inclusion of a full year of FCC and the
acquisition of Teerbau, the leading road construction firm in Germany, in May
1999. Internal growth, largely due to the Berlin water contract and the
Stockholm metro contract, accounted for the remainder.
Revenue in the "euro zone" outside France (which includes 10 countries in
Western Europe), increased 46.7% to E 5.9 billion, due primarily to the
integration of FCC over a 12-month period, the Teerbau and CANAL+ acquisitions,
the integration of the European businesses of United States Filter Corporation
and the Berlin water contract. Three quarters of the revenue in this category
was generated in Germany (E 2.3 billion) and Spain (E 2.1 billion).
In European countries outside of the euro zone, revenue increased 29% to E
4.9 billion in 1999, largely due to the inclusion of United States Filter
Corporation's European businesses and the impact of the Stockholm metro
contract. The United Kingdom is our largest market in this region. Our 1999 U.K.
revenue was E 3.5 billion, up 17.6% from 1998. The bulk of the increase in the
United Kingdom was caused by the inclusion of United States Filter Corporation's
European businesses.
In the Americas, we increased our revenue nearly fourfold in 1999 to E 5.6
billion, principally because of our acquisitions of United States Filter
Corporation, Superior Services and Havas Interactive. Internal growth was 23.8%,
primarily in the water and waste management sectors.
In the Asia/Pacific region, revenue reached E 0.8 billion in 1999,
including E 0.3 billion in Australia, up 71% from 1998. This growth is
attributable primarily to our acquisition of United States Filter Corporation
and Havas Interactive and new transportation contracts, especially the Melbourne
contract. Our exposure to risks related to emerging markets remained very
limited in 1999, as revenue in these areas was approximately E 1 billion, or
2.4% of the yearly total.
2000 OUTLOOK
We expect a number of factors to affect our revenue in 2000, including, but
not limited to, the following: Our revenue from operations may decline in 2000
due to Sithe's sale of power generating plants and our sale of 33% of Vinci in
February. We may make further dispositions of non-core assets in 2000 that would
depress our revenue further. On the other hand, we expect our environmental
businesses overall to grow in 2000 due to the consolidation of our 1999
acquisitions and the effect of the environmental contracts we won in 1999. In
communications, we also expect our revenue to grow as a result of the CANAL+
acquisition, the Seagram transactions (which we expect to close during the
fourth quarter of 2000) and continued growth in the telecommunications market.
However, although we currently expect our telecommunications revenue to continue
to grow at a rapid pace, increasing competition in the industry and potentially
increasing costs of acquiring licenses to provide telecommunications services,
among other factors, may prevent these expectations from being realized.
OPERATING EXPENSES
Our total operating expenses amounted to E 39.3 billion in 1999, a 29.4%
increase over 1998. On a comparable basis (excluding the effects of changes in
the scope of consolidation, and changes in currency exchange rates), the
increase was 8.6%, compared to an increase of revenue of 9.7%. This performance
is mainly attributable to the Communications division, where, on a comparable
basis, net operating expenses grew by 17% and revenue by 22.9%. This development
results primarily from the fact that costs associated with the rapidly-growing
telecommunications business in France are largely fixed.
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The Environment division's operating expenses grew by 7.5% on a comparable
basis in 1999, close to the 7.7% growth in revenue. Productivity gains in our
French operations were partially offset by increased development costs
associated with our international expansion.
OPERATING INCOME
Operating income amounted to E 2.28 billion in 1999, a 71.3% increase over
1998 (33.5% on a comparable basis). Revenue grew 9.7% on a comparable basis,
causing a 1.3% improvement (to 5.5%) in our operating margin of 1.3% to 5.5% in
1999. The remainder of the operating income increase is attributable primarily
to the acquisitions described above.
The table below summarizes the contributions of our business segments to
our 1999 and 1998 operating income:
<TABLE>
<CAPTION>
1999 OPERATING INCOME 1999 1998
--------------------- ------- -------
(E MILLION)
<S> <C> <C>
Telecommunications.......................................... 350.6 22.5
Multimedia and Publishing................................... 354.5 252.2
Audiovisual and Pay Television.............................. (102.7) (4.8)
Internet.................................................... (50.8) (6.4)
SUBTOTAL COMMUNICATIONS..................................... 551.6 263.5
Water....................................................... 792.7 405.0
Waste....................................................... 277.7 225.8
Energy Services............................................. 297.3 290.5
Transportation.............................................. 96.1 75.2
FCC......................................................... 190.5 74.5
SUBTOTAL ENVIRONMENT........................................ 1,654.3 1,071.0
Construction................................................ 175.7 82.4
Real Estate................................................. 36.8 (3.0)
SUBTOTAL CONSTRUCTION AND REAL ESTATE....................... 212.5 79.4
Other....................................................... (137.9) (82.6)
TOTAL....................................................... 2,280.5 1,331.3
</TABLE>
Operating income generated by our Communications division doubled to E
551.6 million (and grew by a factor of 2.4 on a comparable basis), representing
24% of our total operating income, compared to less than 20% in 1998. This
growth came primarily from our telecommunications business, where operating
income rose from E 22.5 million to E 350.6 million. This increase was primarily
a consequence of the increased profitability of our French mobile business,
which had operating income of E 581 million, up from E 291 million in 1998, and
improved its operating margin to 16% from 11% in 1998. In addition, Cegetel's
fixed telephony business start-up losses were materially reduced, from E 264
million in 1998 to E 215 in 1999. Finally, the multimedia and publishing sector
generated a 40% increase in operating income, a gain that resulted equally from
the integration of our acquisitions and from an improvement in Havas'
profitability. These increases were partially offset by CANAL+'s operating loss
of E 92.8 million, and by start-up losses of E 50.8 million generated by our
Internet businesses.
Operating income generated by our environmental businesses reached E 1.7
billion in 1999, up from E 1.1 billion in 1998. This 54.4% increase is
attributable primarily to the consolidation of United States Filter Corporation,
which contributed approximately E 339.1 million to our 1999 operating
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income. Internal growth, primarily resulting from new environmental contracts
such as those described above, was 9.8%.
Our environmental businesses contributed 73% of our operating income in
1999, compared to slightly over 80% in 1998.
Construction and real estate's contribution to our operating income nearly
tripled to E 212.5 million, compared to E 79.4 million in 1998. On a comparable
basis, operating income grew 61%, primarily resulting from a general improvement
in European construction markets, the refocusing of our businesses on higher
margin segments (particularly road building and engineering as opposed to pure
construction works), and the general recovery of the French real estate market.
FINANCIAL EXPENSES/INCOME
Our net financial expense was E 220.1 million in 1999, as compared with a
profit of E 9.3 million in 1998. This decline was due largely to an increase of
E 463.9 million in our financing costs, which grew as a result of our 1999
acquisitions. As a result of the hedging policy we put in place at the end of
1998, our average cost of debt fell from 5.45% to 5.13% between 1998 and 1999
despite rising interest rates. Allowances for financial provisions were E 162.9
million in 1999, down from E 298 million in 1998. This decrease was caused
principally by lower allowances for financial risks due to the cancellation of
certain real estate risks. We recognized E 450.6 million in capital gains in
1999 (down from E 553.2 million in 1998), primarily in connection with the sale
of portfolio securities, including the sale of treasury shares and shares of
Alcatel and Saint-Gobain. We recorded a E 102.6 million exchange profit
primarily as a result of the increase in the value of the U.S. dollar against
the euro, compared to a loss of E 10.4 million in 1998.
INCOME FROM OPERATIONS BEFORE EXCEPTIONAL ITEMS AND TAXES
Our income from operations before exceptional items and taxes reached E 2.1
billion in 1999, up 53.7% from 1998. This growth resulted from the improvement
of the operating income described above.
EXCEPTIONAL ITEMS, DEPRECIATION, AMORTIZATION AND PROVISION FOR EXCEPTIONAL
ITEMS
In 1999, we recorded a net exceptional loss of E 837.8 million, compared to
a E 249.3 million profit in 1998. The following items explain the 1999 net
exceptional loss:
- E 650.8 million in capital gains, of which E 575.4 million was realized
in connection with Havas' billboard advertising business sale; E 275.2
million in connection with the sale of our 18.7% interest in Audiofina;
and E 148.7 million in connection with the sale of 9% of Havas
Advertising. These gains were partially offset by a pre-tax capital loss
of E 386.7 million incurred in connection with the sale of CGIS's real
estate assets;
- E 1.42 billion in exceptional charges, of which nearly E 800 million
consisted of provisions related to real estate assets, particularly the
multi-year construction programs, which we revalued to facilitate the
process of selling them; E 318.5 million in provisions related to the
accelerated write-off of CANAL+ digital set-top boxes that must be
replaced sooner than expected by a new generation of equipment made
necessary by the development of multi-access portals; and
- E 95.1 million in restructuring expenses, net of allowances and releases,
which break down by business as follows:
-- E 34.5 million related to the water business. Cost cutting measures
consist of a rationalized and unified policy of purchases, a unified
human resources policy, and the reorganization of
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the international activities of certain entities (as a result of the
purchase accounting principles, the United States Filter Corporation
restructuring provisions have no effect on the income statement);
-- E 28.1 million attributable to the energy services businesses, mainly
in connection with the reorganization of our U.K. operations;
-- E 25.1 million incurred in the construction businesses in connection
with rationalization programs, especially in France and Germany, and
with the implementation of new technology by our civil engineering
business. The European construction markets were affected by the
global recession and required rationalization programs at the end of
the 1990's. At the beginning of 2000, we sold our majority stake in
Vinci; consequently, there will be no additional restructuring costs
and provisions accounted for in our financial statements; and
-- E 7.4 million attributed to our multimedia and publishing businesses
(as a result of our use of the purchase accounting treatment, the
Anaya and Medimedia restructuring provisions have no effect on the
income statement).
Vivendi implemented these plans in order to improve its operating margin
ratio (operating income divided by revenue), restore the profitability of
loss-making entities and integrate newly acquired companies. They consist of
cost cutting programs, rationalization of administrative and commercial
structures and development of new synergies. Vivendi expects these plans to have
a significant positive effect on its operating income for year 2000 and the
years thereafter.
INCOME TAXES
Our income taxes and deferred tax result for 1999 is a profit of E 0.8
billion, compared to an expense of E 90 million in 1998. As noted above, the E
0.8 billion profit is due to the fact that we recognized in 1999 a deferred tax
asset of E 1 billion.
GOODWILL
Goodwill amortization increased significantly in 1999. This increase is due
primarily to strategic acquisitions, particularly of United States Filter
Corporation (goodwill amortization of E 30 million) and Havas Interactive
(goodwill amortization of E 28 million) as well as from Vivendi Environnement
(goodwill amortization of E 45 million). As a result of the United States Filter
Corporation acquisition, and as part as of the restructuring of our activities
in the United States, we wrote down the goodwill related to Aqua Alliance (E 92
million) and its subsidiaries (E 90 million).
EQUITY IN EARNINGS OF AFFILIATES
Our share in the net income of affiliated companies accounted for by the
equity method amounted to E 32.9 million in 1999, compared with E 42.5 million
in 1998. As in 1998, this category consisted primarily of the net income
generated by Cofiroute (E 26 million compared with E 21.4 million in 1998),
Havas Advertising (E 11.3 million compared with E 13.6 million in 1998) and
General Utilities' U.K. subsidiaries (E 21.3 million compared with E 17.4
million in 1998).
CANAL+, which was fully consolidated during the last quarter of 1999, was
accounted for using the equity method for the first nine months of 1999. CANAL+
and its subsidiaries contributed a negative E 20 million to our net income,
compared with a negative E 9.6 million in 1998. BSkyB contributed a negative
income of E 13.7 million.
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NET INCOME
Our consolidated net income rose 27.7% to E 1,431.4 million in 1999. This
corresponds to net earnings per share of E 2.7, as compared with E 2.46 in 1998,
a 10% increase. In 1999, due to a capital increase, the average number of shares
grew from 455.6 million to 529.6 million.
As noted above, the impact of our real estate business on our total 1999
net income was negative E 240 million.
SEGMENT OPERATIONS: 1999 VS. 1998
The following discussion explains in more detail developments within each
of our divisions in terms of revenue, expenses and operating income.
COMMUNICATIONS
TELECOMMUNICATIONS -- REVENUE: E 4.1 BILLION (+42.7%) -- OPERATING INCOME:
E 350.6 MILLION (VERSUS E 22.5 MILLION IN 1998)
Cegetel's revenue increased by 42% to E 4.0 billion. This growth was due in
part to the performance of SFR, whose revenue increased by 37% to E 3.7 billion
in 1999, largely as a result of a 73% increase in its user base, from 4.25
million customers at the end of 1998 to 7.34 million at the end of 1999. The
volume increase was in line with the French mobile market growth, where
penetration grew from 19% at the end of 1998 to 34% at the end of 1999. Monthly
usage per customer increased from 210 minutes in 1998 to 240 minutes in 1999.
Cegetel's growth was partially offset by a 16% decrease in its average
revenue per customer, from E 63 to E 53, which resulted primarily from lowered
prices. Price declines were caused by intense competition in the French market
and of the increased popularity of prepaid, rather than contract, arrangements.
Prepaid customers represented 32.8% of SFR's total customer base at the end of
1999, up from 14.5% at the end of 1998. Prepaid customers generated average
monthly revenue of E 23, compared to E 59 for the average contract customer.
Moreover, SFR suffered from an increase in non-revenue generating
mobile-to-mobile calls, and from a 20% decline in fixed-to-mobile rates
implemented in September 1999 at the request of the ART.
Our fixed telephony business revenue more than doubled to E 317 million in
1999, compared to E 147 million in 1998. Cegetel 7's revenue almost tripled to E
143 million. This growth is due largely to a 700,000 increase in Cegetel 7's
subscriber base, from 400,000 in 1998 to 1.1 million in 1999 (traffic tripled to
1.6 billion minutes as well), partially offset by an average 25% price decrease,
principally the result of the intense competition in this segment of the French
telecommunications market. Cegetel 7 was able to win a market share of
approximately 7% in 1999, half of the market share relinquished by France
Telecom to its competitors. Cegetel Entreprises' revenue doubled to E 175
million, coming from a sharp increase in traffic (which almost quadrupled to 1.1
billion minutes), mitigated by significant price pressure on voice products.
Finally, in 1999, we increased our ownership interest from 40% to 100% in
the Hungarian fixed telephony operator Magyar Telecom, and therefore
consolidated it for the first time. Revenue generated by Magyar Telecom totaled
E 24 million.
In 2000, we expect significant growth in Cegetel's revenue as a result of
increasing mobile phone usage in France, but we expect this growth to be
partially offset by continued price pressure. Price pressure could relent,
however, with the introduction of new mobile data services. On the fixed
telephony side, we also expect strong growth in 2000.
Expenses rose 31.5% to E 3.7 billion, compared to an increase in revenue of
42.7% on an approximately comparable basis. The change is mainly attributable to
the fact that SFR's average
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customer acquisition cost increased by 7% to E 276 due to intense competition,
particularly in the last quarter of the year. Other cost items per gross
customer materially decreased, especially technical and information technology
costs. Overall, the total cash cost per new customer declined by 13% to E 47.
Cegetel expects a sharp increase in its revenue in 2000, and consequently a
significant increase in its acquisition costs, which should be offset by
decreases in other cost items per customer.
Operating income for our telecommunications businesses increased to E 350.6
million from E 22.5 million in 1998. Cegetel accounted for E 366 million of the
1999 total, having contributed E 27 million in 1998. Cegetel's contribution was
partially offset by a E 15 million operating loss generated by the international
operations of VTI, particularly the newly consolidated Magyar Telecom, and
development and overhead expenses.
Within Cegetel, SFR's operating income doubled to E 550 million, while its
revenue increased by 37% to E 3.7 billion. This performance was due to the
decline in the average cost per marginal mobile phone user, explained above,
which resulted in an improvement in operating margin from 11% to 16%.
Cegetel 7's operating loss significantly decreased to E 58 million,
compared to a E 102 million loss in 1998, due to a leaner cost structure and a
30% drop in customer acquisition and customer care costs.
Cegetel Entreprises' operating loss decreased from E 193 million to E 148
million in 1999, due to a cost control program put in place in early 1999 and
network restructuring. These efforts were partially offset by continued high
interconnection costs to France Telecom's network.
MULTIMEDIA AND PUBLISHING -- REVENUE: E 3.3 BILLION (+15.3%) -- OPERATING
INCOME: E 355 MILLION (+40%)
Our multimedia and publishing businesses generated revenue of E 3.3 billion
in 1999, up from E 2.9 billion in 1998. This 15.3% increase is principally
attributable to our acquisition of Havas Interactive, which accounted for E 536
million in revenue. The increase on a comparable basis was 3%. Forty percent of
the revenue was generated outside France, compared to 27% in 1998, reflecting
the integration of Havas Interactive (which generated 80% of its revenue in the
United States), Medimedia, the world leader in drug information (75% of revenue
outside France) and Anaya, the leading Spanish publisher of educational
publications (revenue of E 188 million in 1999). Seventeen percent of the
revenue in this segment came from electronic media (mostly educational and game
CD-ROMs) compared to 5% in 1998.
Havas accounts for the bulk of the revenue in this category, with two main
divisions:
- the Business and Professional division recorded revenue of E 1.3 billion,
up 9% from 1998, mostly due to an outstanding advertising market for
professional publications in France and in the United Kingdom, and to the
integration of MediMedia for six months.
- the General Public division's revenue amounted to E 1.5 billion, up 60%
on 1998, mostly due to the integration of Havas Interactive. The
performance of the general literature and the education and reference
segments were offset by the adverse performance of the France Loisirs
book club.
In 2000, we expect total revenue of the multimedia and publishing segment
to be fairly stable, with the continued growth of Havas Interactive being offset
by the deconsolidation of the advertising billboard business (which generated E
274 million in revenue over six months in 1999). Moreover, despite the
refocusing of Havas on publishing and multimedia, its revenue remains
approximately 30% dependent (down from 50% in 1997) on the advertising market,
which may not be as strong as it was in 1999. Finally, Havas Interactive's
multimedia revenue could be adversely affected by continued price pressure in
educational and games computer software, particularly in the United States, or
by possible delays in the launch of new products.
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Expenses rose 12.9% to E 3.0 billion. On a comparable basis, expenses rose
1.7% and revenue rose 3%. This improvement is due primarily to the restructuring
plan implemented in 1998 following our acquisition of Havas. It has resulted in
strong growth in operating margin, from 3% in 1997 (based on the accounts of the
former Havas group) to 9% in 1998 and 11% in 1999. Going forward, we will
continue to pursue restructuring efforts in newly acquired companies,
particularly Havas Interactive and Anaya.
The multimedia and publishing businesses contributed E 354.5 million to our
operating income in 1999, an increase of E 102.3 million from 1998, largely
because of the acquisitions described above. On a comparable basis, operating
income increased by 25%, mainly because of a E 22 million reversal of operating
provisions linked to cancellation of expected risks. Internal growth was 3%, and
resulted largely from productivity enhancements in our French operations.
AUDIOVISUAL -- REVENUE: E 1.15 BILLION -- OPERATING LOSS: E 102.7 MILLION
Our audiovisual segment contributed E 1.15 billion to our total revenue in
1999, including CANAL+'s October through December contribution of E 951 million.
Until September 30, we accounted for CANAL+ using the equity method; before that
date, we did not include CANAL+ revenue in our total revenue. One-third of
CANAL+'s 1999 revenue was generated outside of France, mainly in other European
countries.
Expenses amounted to E 1.0 billion, due in part to the fact that CANAL+ was
consolidated only for the fourth quarter when customer acquisition costs are
typically high.
Our audiovisual operating loss of E 102.7 million, up from a E 4.7 million
loss in 1998, was largely the product of CANAL+'s loss of E 92.8 million. The
CANAL+ loss was due in part to its consolidation in Vivendi's 1999 accounts only
for the last quarter of the year, and in part to the integration of its
subsidiary Telepiu, which contributed a E 65 million operating loss in the
fourth quarter 1999. This loss came from the need to invest heavily in customer
acquisition in order to maintain Telepiu's leadership in the very competitive
Italian pay-television market.
INTERNET
Our Internet businesses expanded rapidly in 1999. However, revenue is still
not significant, as many operations are still in the early stages of their
development. Due primarily to marketing costs and the undeveloped nature of the
Internet industry in general, these businesses generated an operating expense of
E 50.8 million in 1999, up from a E 6.4 million loss in 1998. The increase
results from the costs of developing a larger number of new operations.
We expect to incur losses of greater magnitude for the next several years
in accordance with our strategy of building leading European Internet brands.
ENVIRONMENTAL SERVICES
Total revenue in our environmental services sector amounted to E 22.4
billion in 1999, representing an increase of 39.8% over 1998, of which 29% was
due to acquisitions, 7.7% to internal growth and the remainder due to the effect
of changes in currency exchange rates, particularly the U.S. dollar/euro rate
(3.0%). Outside of France, sales increased by 88%, of which 13% was related to
internal growth. International sales amounted to E 12.5 billion in 1999.
Expenses increased by 38.7% to E 20.8 billion in 1999. On a comparable
basis, the increase was 7.5%, which is in line with the increase in revenue.
Operating income from our environmental services sector increased by 54% to
E 1.7 billion in 1999. This increase is primarily attributable to the
acquisitions of United States Filter Corporation,
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Superior Services, hazardous waste-related assets from Waste Management and our
interest in FCC. On a comparable basis and excluding changes in accounting
policies, growth was 9.8%, an increase attributable primarily to new contracts
in the water, waste management and transportation segments.
WATER
In 1999, our water business generated revenue of E 10.7 billion, an
increase of 58.9% over 1998. This increase results principally from the
acquisition of United States Filter Corporation, which contributed E 3.6 billion
between May 1 and December 31, 1999. Internal growth for water as a whole was
4.7%.
In France, revenue increased by 5.3% to E 5.5 billion. French water
distribution accounted for revenue of E 5.3 billion, an increase of 2.6% over
1998. Approximately one-third of this increase resulted from an increase in the
volume of water distribution and two-thirds from price increases. Works
contractors (mainly in OTV) generated consistent revenue despite increasing
competition. In fiscal 2000, we expect a similar competitive environment, but we
expect that the integration of the French operations of United States Filter
Corporation will help us increase our market share.
Internationally, net revenue was E 5.1 billion in 1999 compared to E 1.5
billion in 1998, an increase mostly due to the consolidation of United States
Filter Corporation. Internal growth reached 14.8%, due largely to the ramp-up of
existing contracts and to newly acquired contracts, particularly the Berlin
water contract, which contributed revenue of E 103 million for a two month
period.
Operating expenses rose to E 9.9 billion, an increase of 4.5% on a
comparable basis. This increase was slightly less than the internal revenue
growth due to cost cutting efforts in France, partially offset by increased
international development costs.
Our water business contributed operating income of E 793 million to our
total for 1999, an increase of 95.7%, largely due to United States Filter
Corporation, which contributed operating income of E 339.1 million. Growth on a
comparable basis stood at 9.2%, compared to an internal revenue growth of 4.7%.
This performance was due to continued cost cutting efforts in the French water
business. Our overall operating margin rose from 6.2% to 7.4% in 1999.
In 2000, we expect net revenue to grow significantly as a result of the
integration for the full year of United States Filter Corporation and of the
Berlin contract. However, this growth could be affected by possible divestitures
of certain business units of United States Filter Corporation. We also intend to
pursue cost cutting efforts in France and in the United States as part of the
integration of United States Filter Corporation. However, labor regulations,
particularly in France, could prevent or delay the implementation of
cost-cutting measures.
WASTE MANAGEMENT
Our waste businesses generated revenue of E 3.5 billion in 1999,
representing an increase of 24.1% from 1998. Internal growth was 9.3%, resulting
primarily from a number of new contracts. Outside France, revenue growth was
51%, approximately 30% from acquisitions, particularly of the Waste Management
assets (which were consolidated over six months and contributed E 181 million),
and Superior Services (which was consolidated over five months and contributed E
176 million). An additional 13.5% came from internal growth, and 9.1% from the
effect of changes in exchange rates.
Operating expenses reached E 3.2 billion, up 10% on a comparable basis,
slightly more than revenue internal growth, due to higher than expected
international development costs.
Operating income generated by the waste management sector totaled E 277.7
million, an increase of 23%. On a comparable basis, the increase was 11%. The
bulk of the growth came from the
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acquisitions of Superior Services and Waste Management, which contributed E 25
million and E 13 million, respectively, to our operating income.
In 2000, while we do not expect internal revenue growth to increase
materially, revenue should benefit from the full year integration of the
acquisitions mentioned above, in addition to smaller acquisitions we expect to
make in the United States as part of our strategy to consolidate the position of
Superior Services in the solid waste market.
ENERGY
Our energy-related revenue increased 10.7% in 1999 to E 3.9 billion (E 2.8
billion from operations conducted within Vivendi Environnement and E 1.1 billion
from Sithe). Internal growth was 6%.
Within Vivendi Environnement, Dalkia's revenue increased 5.2%, primarily
(3.5%) due to internal growth caused by the ramp-up of cogeneration contracts in
France and Eastern Europe.
Sithe's contribution to our revenue increased by 14.7%, reflecting the
inclusion of the Boston Edison power plants for the full year and the GPU power
plants for more than one month.
Operating expenses for the energy segment reached E 3.6 billion, an
increase of 7% on a comparable basis over 1998, compared to a 6% internal
growth. While Dalkia's operating expenses grew by a modest 2.4% (versus 3.5%
internal growth) due to cost containment measures, Sithe's operating expenses
increased by 21.3% as a result of higher than expected development costs,
particularly those associated with the acquisition of GPU power plants.
Energy-related operating income was up 2.3% to E 297.3 million in 1999 (E
170.6 million from Dalkia and E 126.7 million from Sithe). Overall growth on a
comparable basis stood at 23%.
Dalkia's operating income growth rose 25.7% as a result of favorable
weather conditions in France, cost control measures, particularly in connection
with purchasing and overhead expenses, and the impact of new contracts won in
Moravia.
Operating income contributed by Sithe declined by 29.5% at constant
exchange rates. This decline is due to Sithe's assignment to Niagara Mohawk
("Nimo") of certain long-term contracts in 1998. The termination of these
contracts was the result of a restructuring required by Nimo, which paid Sithe a
E 329 million indemnity in 1998. Excluding the effect of the assigned contracts,
Sithe's contribution to our operating income grew 23.3% in 1999, mainly because
of the full contribution of the Boston Edison power plants, which benefited from
the opening of the New England Power Pool and the non-recurrence of adverse 1998
events at one of its plants.
In 2000, we expect Sithe's contribution to our revenue to decline as a
result of the completed sale of the GPU power plants. We expect substantial
growth in Dalkia's revenue, however, as a result of its recent acquisitions in
Eastern Europe and increasing demand for cogeneration and its facilities
management services.
TRANSPORTATION
Our transportation business generated E 2.5 billion in revenue in 1999, up
23.3% from 1998. Growth as a result of acquisitions was approximately 2% and
internal growth was 15.2%, the latter resulting primarily from new contracts
such as the Stockholm metro contract and the Melbourne contract. The remainder
resulted from changes in exchange rates, chiefly the appreciation of the British
pound against the euro.
Operating expenses reached E 2.4 billion, up 16% on a comparable basis, in
line with internal revenue growth.
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Operating income was E 96.1 million, an increase of 27.7% on 1998 (a 20%
increase on a comparable basis). This increase was primarily the result of
increased passenger traffic in the United Kingdom, which led to higher
productivity in our operations there.
In 2000, we expect Connex to achieve substantial growth, primarily as a
result of its purchase of urban transit assets from Via-GTI. The integration of
the new contracts won should improve our operating performance. Our performance
could, however, be affected by factors including higher staff costs and/or the
results of bidding for renewals of Connex's South Central contract in the United
Kingdom.
FCC
FCC generated revenue of almost E 4 billion in 1999, of which our 49% share
was E 1.9 billion, compared with E 0.8 billion for 6 months of 1998.
Approximately E 1.3 billion of our share came from FCC's construction and other
businesses and E 0.6 billion from its water and waste operations. Revenue for
the second half of 1999 was E 1.0 billion, against E 848 million for the same
period of 1998.
FCC's contribution to our operating income was E 190.5 million in 1999,
compared to E 74.5 million for the second half of 1998. Operating income for the
same period in 1999 was E 104 million.
CONSTRUCTION AND REAL ESTATE
Our construction and real estate businesses generated E 10.6 billion in
revenue in 1999, up from E 9.7 billion in 1998, a 9.1% increase of which 5.1%
came from internal growth. The main acquisitions were Teerbau (which contributed
E 457 million in revenue over 6 months), Sogeparc (E 89 million of revenue over
6 months) and Terre Armee International (E 112 million of revenue for the full
year). These increases were offset by a E 350 million reduction in revenue that
resulted from disposals of real estate assets.
Internal growth was 3.4% in the construction business and 14.5% in the real
estate business, primarily as a result of a general improvement in the French
real estate market.
Our construction and real estate businesses accounted for 9.3% of our total
1999 operating income (E 212.4 million, compared to E 79.4 million in 1998). On
a comparable basis, growth was 60.9%.
CONSTRUCTION
The construction segment consists primarily of our 49.2% interest in Vinci.
Construction's contribution to our total revenue was E 8.9 billion in 1999, up
12.9% from 1998, 3.4% on a comparable basis. In France, revenue was E 5.4
billion, up 5%, largely as a result of a cyclical recovery in European
construction markets and a greater emphasis on higher margin contracts with
commercial and industrial customers. Revenue outside France was E 3.5 billion in
1999, up 27.4% over 1998, principally due to the Teerbau and Terre Armee
acquisitions.
Operating expenses increased by 2.9% to E 8 billion (on a comparable
basis), slower than revenue growth, reflecting continued cost cutting efforts.
Construction added E 175.7 million to our 1999 operating income, double its
1998 contribution, and up 45.5% on a comparable basis. This increase is due to a
sharp recovery in the building and civil engineering businesses in France, a
significant increase in road construction contracts and the Sogeparc
acquisition.
In February 2000, Vivendi sold a 32% stake in Vinci, reducing its interest
to 16.9%.
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REAL ESTATE
Real estate contributed E 1.7 billion to our 1999 revenue, down from E 1.8
billion in 1998. This 7.3% decrease resulted from the fact that we disposed of
assets representing revenue of more than E 350 million during the year. On a
comparable basis, property revenue increased 14.5% due to cyclical growth in
demand for new housing and commercial real-estate services after several years
of weakness in volume and prices.
Operating expenses increased by 13.3% to E 1.5 billion on a comparable
basis, slower than revenue growth, reflecting the significant cost containment
program initiated in 1996.
CONSOLIDATED OPERATIONS: COMPANY RESULT 1998 VS. 1997
REVENUE
Our consolidated revenue reached E 31.7 billion in 1998, compared with E
25.5 billion in 1997. Of this 24.6% increase, 16.8% resulted from acquisitions,
primarily of Havas. A further 9% was caused by internal growth, principally due
to increased demand for our telecommunications services. These factors more than
offset the effect of changes in exchange rates (-1%).
Communications had revenue of E 5.9 billion in 1998, compared to E 1.7
billion in 1997. Of this 257% increase, 76.9% was the result of internal growth
in the telecommunication sectors, caused primarily by a significant increase in
demand for our mobile telephony services. The remaining 180.1% resulted from
acquisitions, principally of Havas, which added E 2.9 billion of revenue.
Our environmental businesses recorded revenue of E 16 billion in 1998,
nearly 50.5% of our total revenue for the year. In 1997, revenue generated by
those businesses was E 14.3 billion, 56.2% of our total. Of the more than 12%
increase in 1998, 8% was due to external growth, principally caused by the FCC
acquisition. Approximately 5.6% was due to internal growth, largely in our waste
management operations and Sithe.
Construction and real estate accounted for E 9.7 billion of our total
revenue in 1998, compared to E 9.4 billion in 1997. Increases in our housing and
hotel revenue caused by improvements in general economic conditions were partly
offset by our adoption of a more conservative development strategy in our
construction business.
The table below summarizes the relative contribution of our business
divisions to our 1998 revenue and a breakdown between revenue generated in
France and elsewhere.
<TABLE>
<CAPTION>
FRANCE OUTSIDE FRANCE TOTAL
------------ -------------- ------------
VALUE % VALUE % VALUE %
----- --- ------ ---- ----- ---
(IN E BILLION)
<S> <C> <C> <C> <C> <C> <C>
Communications.............................. 5.1 24% 0.8 8% 5.9 19%
Environment................................. 9.4 44% 6.7 64% 16.1 51%
SUBTOTAL ENVIRONMENT AND COMMUNICATIONS..... 14.5 68% 7.5 72% 22.0 70%
Construction & Real Estate.................. 6.9 32% 2.8 28% 9.7 30%
TOTAL....................................... 21.4 100% 10.3 100% 31.7 100%
</TABLE>
Our revenue in France totaled E 21.4 billion, compared to E 17.3 billion in
1997, or a 24% increase (10% of which was internal). This growth came primarily
from the Communications division, in which revenue increased threefold to E 5.1
billion. Communications had internal growth of 77% due to continued strong
growth in the French telecommunication business (which generated revenue of E
2.9 billion, up 78% from 1997). The publishing and multimedia business benefited
from the integration of Havas, generating revenue of E 2.2 billion in France.
Meanwhile, revenue generated by our French
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environmental businesses increased 4.5%, of which 3.2% was due to internal
growth. Construction and real estate revenue increased by 3.9% to E 6.9 billion.
In total, revenue generated in France accounted for 67% of our 1998 revenue.
Revenue outside France rose to E 10.3 billion from E 8.2 billion in 1997,
primarily as a result of the FCC and Havas acquisitions. Internal growth,
largely the product of new contracts in the environment sector, was
approximately 7.2% (10.3% for our environmental businesses). Revenue generated
outside France constituted 32% of our 1998 total revenue (41% for our
environmental businesses).
The breakdown of our 1998 revenue outside France by geographic area is as
follows:
<TABLE>
<CAPTION>
EURO
ZONE EUROPE
OUTSIDE OUTSIDE THE
FRANCE EURO ZONE AMERICAS OTHER TOTAL 1997
------- ----------- -------- ----- ----- ----
(IN E BILLION)
<S> <C> <C> <C> <C> <C> <C>
Communications.................... .4 .2 .1 .1 .8
Environment....................... 1.3 3.4 1.4 .6 6.7 5.4
SUBTOTAL ENVIRONMENT AND
COMMUNICATIONS.................. 1.7 3.6 1.5 .7 7.5 5.4
Construction & Real Estate........ 2.2 .2 -- .4 2.8 2.8
TOTAL............................. 3.9 3.8 1.5 1.1 10.3 8.2
38% 37% 15% 10% 100% 100%
1997.............................. 5.4 1.9 .9 8.2
</TABLE>
In Europe, revenue increased 37.4% to E 7.7 billion, an increase
principally attributable to the Havas acquisition (Havas contributed E 334.6
million to our revenue in this category) and the FCC acquisition (which
contributed E 847.2 million over a six month period). Internal revenue growth in
Europe was 5.2%.
Revenue generated in the euro zone outside France increased 55% in 1998 to
E 4 billion, due primarily to the Havas and FCC acquisitions. Almost
three-quarters of the revenue in this category was generated in Germany (E 1.5
billion) and Spain (E 1.4 billion).
In European countries outside of the euro zone, revenue increased 21% to E
3.7 billion in 1998, largely due to the Leigh Interest, Linjebuss and Havas
acquisitions (which together contributed E 412 million). Our 1998 U.K. revenue
was E 2.9 billion, up 8.5% from 1997. The bulk of the increase was caused by the
Leigh Interest and Havas acquisitions. Internal growth in this category was
1.5%.
In the Americas, our revenue dropped slightly in 1998 to E 1.5 billion,
down from E 1.7 billion in 1997. This decline was principally due to our sales
of Research Cotrell and Williard and Limbach. On a comparable basis, revenue
increased by 15% in this area.
OPERATING EXPENSES
Our total operating expenses amounted to E 30.4 billion in 1998, a 22.2%
increase over 1997. On a comparable basis, the increase was 8%, compared to a 9%
increase in revenue. This performance is mainly attributable to our
Communications division, where, on a comparable basis, net operating expenses
grew by 57% versus 77% for revenue. As in 1999, this improvement resulted from
strong internal growth and the fixed nature of costs in the French
telecommunications business.
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In the Environment division, operating expenses grew by 5.2% on a
comparable basis, close to the 5.6% growth in revenue. Productivity gains in
France were partially offset by increased development costs outside France
incurred as a result of our international expansion.
OPERATING INCOME
Our operating income in 1998 was E 1.3 billion, a 123% increase over 1997.
This increase is principally attributable to the Havas and FCC acquisitions, the
adoption of new accounting principles for capital leases, pensions and long-term
construction contracts (changes that added E 70 million to our 1998 operating
income), and improvements in the profitability of our telecommunications,
construction and property businesses. On a comparable basis, the increase was
52.3%.
The table below summarizes the contributions of our business segments to
our 1998 and 1997 operating income:
<TABLE>
<CAPTION>
1998 OPERATING INCOME 1998 1997
--------------------- ------- ------
(E MILLIONS)
<S> <C> <C>
Telecommunications.......................................... 22.5 (187.8)
Multimedia and Publishing................................... 252.2 --
Audiovisual................................................. (4.8) (10.9)
Internet.................................................... (6.4) --
SUBTOTAL COMMUNICATIONS..................................... 263.5 (198.7)
Water....................................................... 405.0 383.2
Waste....................................................... 225.8 158.3
Energy Services............................................. 290.5 261.1
Transportation.............................................. 75.2 45.4
FCC......................................................... 74.5 --
SUBTOTAL ENVIRONMENT........................................ 1,071.0 848.0
Construction................................................ 82.4 (3.5)
Real Estate................................................. (3.0) (55.3)
SUBTOTAL CONSTRUCTION & REAL ESTATE......................... 79.4 (58.8)
Other....................................................... (82.6) 5.0
TOTAL....................................................... 1,331.3 595.5
</TABLE>
Operating income was E 1.33 billion in 1998, up from E 590 million in 1997.
This 123.4% increase is attributable primarily to the Havas acquisition (which
contributed E 252.2 million to our 1998 operating income) and an increased
contribution from our telecommunications businesses (E 22.5 million in 1998
compared to an operating loss of E 187.8 million in 1997).
Communications contributed E 263.5 million to our operating income in 1998,
20% of our total, up from an operating loss of E 198.7 million in 1997. The
growth in Communications income resulted mainly from the Havas acquisition and
growth in our mobile telephony operations.
Our environmental businesses had operating income of E 1,071 million in
1998, up 26% from 1997. This increase mainly results from the acquisitions of
FCC, Leigh Interest, Linjebuss and Moravskoslezke Teplarny, a Czech energy
services company. Excluding changes in the scope of consolidation and at
constant exchange rates, growth was 12.7%, primarily due to growth in our waste,
energy services and transportation businesses. Our environmental businesses
contributed 80% of our operating income in 1998, compared with 142% in 1997.
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Our construction and real estate segments significantly increased their
operating income in 1998. Operating income in construction increased to E 82.4
million in 1998 from negative E 3.5 million in 1997 due to a general improvement
in the electrical works and road construction markets in France. Real estate had
an operating loss of E 3 million in 1998, compared to a E 55.3 million loss in
1997. This change resulted from a general improvement in housing markets in
France.
FINANCIAL EXPENSE/INCOME
Our net financial income was E 9.3 million in 1998, up from negative E
301.1 million in 1997. The change was due largely to a E 439.7 million increase
in capital gains, associated primarily with sales of shares of Saint Gobain and
treasury stock. Financing costs increased to E 408 million from E 334 million,
largely because of changes in our accounting policies regarding capital leases.
Despite an increased level of debt (E 6.5 billion as the end of 1997 compared to
E 4.2 billion at the end of 1997), financing costs remained stable because of a
decrease in the average cost of our debt, which fell from 5.88% to 5.43% in
1998. Allowances for financial provisions were E 298 million, up from E 81
million in 1997. This increase was caused principally by higher allowances for
provisions for financial risks related to real estate properties. Other
financial income increased from E 6.4 million to E 162.1 million in 1998 as a
result of income from call options and swaps, partially offset by the hedging
costs associated with the debt hedging policy described above.
INCOME FROM OPERATIONS BEFORE EXCEPTIONAL ITEMS AND TAXES
Our income from operations before exceptional items and taxes amounted to E
1.3 billion in 1998, up 356% from 1997. This growth resulted from the increase
in operating income and from the reduction of the net financial expense
described above.
EXCEPTIONAL ITEMS/DEPRECIATION, AMORTIZATION AND PROVISIONS FOR EXCEPTIONAL
ITEMS
In 1998, we recorded net exceptional income of E 249.3 million, down from E
878.6 million in 1997. Our net exceptional income for 1998 consisted primarily
of capital gains of E 398.7 million recognized in connection with the General
Cable and Electrafina sales. A further E 329 million came as an indemnity from
Nimo in connection with the assignment of contracts from Sithe. These
exceptional profits were partly offset by exceptional expenses of E 346.2
million, including the accelerated write-off of obsolete installations in our
telecommunications and waste-to-energy businesses. We also recorded E 68 million
in restructuring costs, principally related to cost control measures adopted by
our construction business; and provisions of E 64.3 million principally related
to changes in tax regulations applicable to our real estate business.
GOODWILL
Goodwill amortization decreased significantly in 1998, primarily due to the
restructuring that we implemented in 1997 in certain foreign subsidiaries of our
water business. This restructuring led us to record allowances mainly for Aqua
Alliance (E 105 million) and Mariani (E 31 million) as well as for some of our
activities in France (E 67 million).
EQUITY IN EARNINGS OF AFFILIATES
Our share in net income of affiliated companies accounted for by the equity
method amounted to E 42.5 million in 1998, compared with E 103.6 million in
1997. This category consisted primarily of the net income generated by Cofiroute
(E 21.4 million compared to E 19.1 million in 1997), TD (a net loss of E 17.1
million compared to a net loss of E 14 million in 1997) and General Utilities'
U.K. subsidiaries (E 7.4 million in both 1997 and 1998). As a result of the
merger with Havas, we consolidated E 13.6 million in net income earned by Havas
Advertising, E 10.4 million earned by
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Audiofina and a E 9.6 million net loss generated by CANAL+. The net income of
affiliated companies was reduced by the Electrafina and General Cable sales, as
well as the sale of J.C. Decaux, an urban services company that earned E 13.7
million in net income in 1997.
NET INCOME
Our consolidated net income increased 36.3% to E 1,120.8 million in 1998.
This corresponds to a net basic earnings per share of E 2.46, up from E2.10 in
1997, a 17% increase. In 1998, due to a capital increase, the average number of
shares grew to 455.6 million from 392.2 million.
SEGMENT OPERATIONS: 1998 VS. 1997
The following paragraphs explain in more detail developments within each of
our divisions in terms of revenue, expenses and operating income.
COMMUNICATIONS
Communications revenue was E 5,952.1 in 1998, up 257% from 1997. This
growth resulted both from acquisitions (180.1%) and from strong internal growth
(76.9%).
Telecommunications revenue was E 2,875.2 million in 1998, up 74.1% from
1997. Cegetel contributed E 2,872.4 million to the total, 83.8% more than it had
the previous year on a comparable basis. Cegetel's growth is principally
attributable to continued growth in the French mobile phone business.
Multimedia and publishing revenue was E 2,876.3, resulting from the
integration of Havas. Estimated internal growth was 28.5%.
Expenses rose 205% to E 5.7 billion. On a comparable basis, the increase
was 57%, compared with an increase in revenue of 76.9%. The increase in the
profit margin is mainly attributable to continued growth in the French
telecommunications business.
Operating income for Communications amounted to E 263.5 million in 1998,
compared to a loss of E 198.7 million in 1997. The improvement is due largely to
the Havas acquisition (which added E 252.2 million to operating income in 1998)
and to increased demand for mobile telephony services (responsible for E 268
million in operating income in 1998, compared to a E 40 million operating loss
in 1997).
TELECOMMUNICATIONS -- REVENUE: E 2.9 BILLION (UP 74.1%) -- OPERATING
INCOME: E 22.5 MILLION (COMPARED TO AN OPERATING LOSS OF E 187.8 MILLION IN
1997)
Cegetel revenue increased by 78% to E 2.9 billion. SFR's revenue increased
by 74% to E 2.7 billion, primarily as a result of a 90.5% increase in its
customer base, from 2,230,000 customers at the end of 1997 to 4,250,000
customers at the end of 1998, partially offset by a 19% decrease in the monthly
average revenue per customer, from E 77 to E 63. The volume increase was in line
with growth in the French mobile telephony market, in which penetration rates
increased from 9.8% at the end of 1997 to 18% at the end of 1998. SFR maintained
its market share at 38% in this rapidly-growing market. SFR's monthly usage per
customer increased from 186 minutes to 210 minutes in 1998. Due to intense
competition, the trend towards prepaid charges and an increase in mobile-to-
mobile calls, however, revenue per customer fell.
Our fixed telephony businesses, Cegetel Entreprises and Cegetel 7, had
revenue of E 143.5 million in 1998, compared to E 28.5 million in 1997. Cegetel
7's national and international long distance fixed telephony services began
operations on February 1, 1998 and generated revenue of E 51 million over the
remainder of the year, primarily as a result of recruiting 401,000 subscribers.
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Cegetel Entreprises had revenue of E 92.5 million in 1998, compared to E
26.8 million in 1997. This growth resulted primarily from strong growth in
traffic, partially offset by price pressure on voice products.
Expenses rose 58% to E 2.8 billion, compared to a 78% increase in revenue
on an approximately comparable basis. The improvement in profit margin is mainly
attributable to the fact that SFR's average customer acquisition cost decreased
by 20% to E 299, and the fact that other cost items per gross customer decreased
33% to E 17.5.
Operating income for our telecommunications businesses rose to E 22.5
million following a E 187.8 million loss in 1998. Within Cegetel, SFR's
operating income reached E 268 million, compared to a E 40 million loss in 1997.
This performance is due to the decline in the average cost per customer, which
led to a significant improvement in the operating margin, which reached 13% in
1998.
Cegetel had an operating loss that increased to E 102 million from E 35
million in 1997. The increased loss was due to expenses incurred in launching
the service in February 1998 and price pressure in the last months of the year.
Cegetel Entreprises' operating loss also increased, from E 83 million in
1997 to E 193 million in 1998, as a result of the increased expenses associated
with developing and marketing the business and increased competition in the
voice and data transmission markets.
MULTIMEDIA AND PUBLISHING
Our multimedia and publishing businesses generated revenue of E 2.9 billion
and contributed E 252.2 million to our operating income in 1998. It is not
possible to make a useful comparison between the 1997 and 1998 results of our
multimedia and publishing sector due to major changes in the scope of the
business: In 1998, we sold operations of Havas that accounted for two-thirds of
its 1997 revenues.
AUDIOVISUAL
Our audiovisual generated revenue of E 200.6 million and a net loss of E
4.8 million in 1998. The financial results of our audiovisual operations prior
to 1998 were not material.
INTERNET
The financial results of our Internet operations prior to 1999 were not
material.
ENVIRONMENT
Our environmental businesses experienced revenue growth of 12% in 1998, due
to acquisitions (8%) and internal growth (5.6%), partially offset by the adverse
effect of currency exchange rate changes (-1.7%).
Operating expenses were E 15 billion, up 11%. Excluding changes in the
scope of consolidation, the increase was 5.2%, slightly below revenue internal
growth of 5.6%.
Operating income of our environmental businesses increased by 26% to E
1,071 million in 1998. This increase is primarily attributable to the FCC
acquisition (11.9%) and the integration of Leigh Interest, Linjebuss and
Moravskoslezke Teplarny. Excluding changes in the scope of consolidation,
currency exchange and accounting policies, growth was 12.7%. This increase was
due to the waste, energy services and transportation sectors. Overall, the
operating margin of our environmental businesses rose from 6.0% to 6.7%.
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WATER
Water revenue increased 4.3% to E 6.8 billion in 1998. Revenue in France
increased by 2.5% to E 5.3 billion. International revenue, mainly generated in
North America and the United Kingdom, increased 12.6% on a comparable basis to E
1.6 billion, largely due to a new contract in Gabon, which generated revenue of
E 144 million (over 18 months), offsetting reductions attributable to our sale
of Research Cotrell. The contribution of this sector to our overall operating
income was E 405 million, an increase of 5.7%, or 5.1% on a comparable basis and
at constant exchange rates.
WASTE MANAGEMENT
Waste revenue increased 28.7% to E 2.8 billion in 1998. Internal growth was
9.2%, principally because of new contracts in the United Kingdom and Australia.
Our French operations grew 7.7% to E 1.8 billion, principally as a result of our
commercial development efforts. Internationally, revenue growth exceeded 63%,
largely as a result of the acquisition of Leigh Interest, which contributed E
237 million.
The contribution of the waste sector to our operating income was E 225.8
million, an increase of 42.6% over 1997. Internal growth was more than 20%, the
remainder being due to the Leigh Interest acquisition. The strong improvement of
the profitability of the waste sector in 1998 resulted from a cost cutting
program in France, including the restructuring of the toxic waste treatment
segment, as well as to the restructuring measures taken in some previously
loss-making international operations.
ENERGY
Energy-related revenue in 1998 declined 8.6% to E 3.5 billion. This
decrease is mainly due to our sale of Williard & Limbach and Sithe's assignment
of the Nimo contracts (which together reduced revenue by 12.7%). These
dispositions more than offset growth caused by the integration of the Boston
Edison power plants (6.9%) and the positive effect of currency exchange rate
changes (2%).
Energy-related operating income was up 11.3% to E 290.5 million in 1998.
Internal growth in operating income, resulting largely from significant
productivity gains in French operations and reductions in fixed costs in Vivendi
Environnement's energy services operations, was 10.2%. The effect of changes in
currency exchange rates was negative 3.8%. Changes in the scope of consolidation
caused a 4.9% increase in operating income.
TRANSPORTATION
Our 1998 transportation revenue was E 2 billion, an increase of 17.9% over
1997. The principal cause of this increase was the acquisition of Linjebuss,
which generated 1998 revenue of E 305 million. Internal growth was 1.8%.
Operating income for our transportation business was E 75.2 million in
1998, an increase of 65.6% over 1997. Again, the increase was caused primarily
by the inclusion of results of Linjebuss, which contributed E 16.3 million to
our operating earnings.
FCC
FCC generated revenue of E 1.7 billion in the second half of 1998 (of which
our 49% share was E 848 million). FCC's operating income was E 74.5 million for
the second half of 1998. FCC is not included in our financial statements prior
to 1998.
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CONSTRUCTION AND REAL ESTATE
Our construction and real estate businesses generated E 9.7 billion in
revenue in 1998, up from E 9.5 billion in 1997. This 2.8% increase consisted
primarily of internal growth (2.0%), which more than offset the effect of a more
conservative business policy adopted by our construction business, which reduced
growth by approximately 1%.
Our real estate business experienced internal growth of 18.9%, primarily
due to a general recovery in the French housing sector. The delivery of two
significant office buildings in La Defense business district near Paris had a
positive impact on revenue of E 69 million. Our hotel management business also
performed well, in line with the general recovery of the sector in France.
Our construction and real estate businesses accounted for 6% (or E 79.4
million) of our total 1998 operating income, having generated a loss of E 58.8
million in 1997. The improvement is due to the 1995-97 restructuring of our
construction operations in France, Germany and the United Kingdom, and our real
estate segment (which had also recorded significant provisions to cover the loss
of value of its properties).
CONSTRUCTION
Construction's contribution to our total revenue was E 7.9 billion in 1998,
down 1.5% from 1997. In France, revenue was E 5.1 billion, down 2.9% as a result
of our more selective business policy pursuant to which we focused more on
higher margin electrical engineering and road building contracts at the expense
of pure construction works. Revenue outside France was E 2.8 billion in 1998, up
3% over 1997. This increase reflected a general improvement in construction
markets in Germany, the United Kingdom and parts of Africa.
Construction added E 82.4 million to our 1998 operating income after
generating a loss of E 3.5 million in 1997. A change in accounting
policy -- from the use of the completed contracts method to the percentage
completion method -- caused E 25 million of this increase. The remainder (E 60.9
million) was due to the recovery of our German operations following a drastic
restructuring in 1996.
REAL ESTATE
Real estate contributed E 1.8 billion to our 1998 revenue, up from E 1.4
billion in 1997. This 25.8% increase resulted largely from increased volumes
experienced by our housing and hotel businesses and from the acquisition of
Maeva, a real estate company focusing on vacation homes.
Real estate generated a E 3 million operating loss in 1998, down from a
loss of E 55 million in 1997. All its operations improved, particularly housing,
which benefited from the recovery of the French market and the positive effect
of past restructuring measures.
LIQUIDITY
We satisfied our needs for working capital, expenditures and acquisitions
over the last three years primarily through a combination of cash generated from
operations, cash received from the issue of debt in the capital markets and
committed bank facilities and disposition of non-core assets and businesses.
Net cash flow from operating activities reflects funds generated from
operations and changes in operating assets and liabilities. Net cash from
operating activities was E 1.4 billion in 1999, E 2.9 billion in 1998 and E 1.6
billion in 1997. The decrease from 1998 to 1999 was mainly due to rising debt
costs (which increased by E 0.5 billion in 1999) and sales of real estate
assets. These factors more than offset increases in cash generated by our
telecommunications and multimedia and publishing segments. In 1998, the
improvement in our net cash flow from operating activities was mainly
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attributable to our telecommunications, construction and real estate businesses.
In the near future, we expect net cash provided by operating activities to
increase as a result of the continuing development of our Communications
division and from reduction of interest costs resulting from planned disposals.
Net cash flow from financing activities was E 13.7 billion in 1999, E 0.2
billion in 1998 and E 1.7 billion in 1997. The increase from 1998 to 1999 was
mainly due to increased proceeds from the issuance of common stock (E 3.3
billion), principally in connection with the United States Filter Corporation
acquisition. The net increase in debt (E 10.6 billion) resulted primarily from
the issue of two series of convertible bonds that together generated proceeds of
E 4.55 billion. The remainder, E 6.0 billion, consisted of additional credit
facilities. In the next few years, we expect our net cash provided by financing
activities to increase as a result of reduced indebtedness.
Net cash flow from investing activities consists of acquisitions and
divestitures of intangible and tangible assets, acquisitions of businesses,
investments in companies accounted for using the equity method and net
differences of other investments and marketable securities. Net cash used in
investing activities was E 13.6 billion in 1999, E 2.9 billion in 1998 and E 3.1
billion in 1997. The change between 1998 and 1999 was primarily the consequence
of the increase in strategic acquisitions paid for in cash to E 9.7 billion (net
of cash and cash equivalents of the acquired companies). Our main acquisitions
were of United States Filter Corporation, Superior Services, Havas Interactive,
Elektrim, Medimedia and Sogeparc (representing, in the aggregate, a total cash
investment of E 12 billion). We also invested E 5.6 billion in property and
equipment, an increase of 44% over 1998, principally to finance Sithe's
acquisition of GPU power generation plants and to strengthen Cegetel's mobile
telephony network. In order to stabilize the market price of our shares and to
cover stock option commitments, we acquired treasury shares for E 1.4 billion.
These investments more than offset the E 2.9 billion generated through the 1999
real estate sales, the billboard advertising sale, the Audiofina sale, the Havas
Advertising sale and sales of shares and marketable securities.
We expect net cash flow from operating activities to increase as a result
of the Seagram transactions: First, we expect the addition of Seagram's array of
content assets to increase demand for our access services, and therefore to
increase the net cash generated by our access operations; second, we believe
that Seagram's businesses -- particularly its recorded music business -- will
generate strong cash flow, consistent with their historical performance. We
intend to acquire Seagram common shares through a capital increase; the
acquisition, therefore, will not affect our indebtedness. We plan to dispose of
Seagram's spirits and wines business operations, and we believe that the
proceeds from this disposal will be sufficient to eliminate Seagram's current
indebtedness, and therefore its need for cash to meet debt repayment
obligations. The Seagram transactions may trigger change of control provisions
in certain debt agreements to which Seagram is a party that entitle the holders
to accelerate the indebtedness under those agreements. However, there are no
amounts outstanding under those agreements.
We expect that we will be able to satisfy our cash requirements for the
next 12 months without raising additional funds. Vivendi Environnement, the
subsidiary to which we have contributed our direct and indirect interests in
environmental management operations, intends to use the proceeds of its recent
public offering and private placement to repay a portion of the debt it owes to
our company. We expect Vivendi Environnement to meet its need for liquidity, and
to repay the debt it owes to us, from net cash provided by operations from the
public offering and private placement. As to our communications division, and
our company as a whole, we expect cash flow from operations, combined with
proceeds from disposals of non-core assets, to meet our need for liquidity. Cash
flow from these sources, however, may not be sufficient to finance capital
expenditures in our telecommunications and Internet segments, in which case we
would incur some additional debt, likely in the form of bank loans.
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CAPITAL RESOURCES
Vivendi meets its long term financing needs through the issuance of bonds
and convertible debt and adapts to changes in those needs through the issuance
of commercial paper and through short term credit facilities.
Vivendi's material capital resources as of December 31, 1999 were as
follows:
- E 10.9 billion in total shareholders' equity (up from E 7.8 billion in
1998);
- E 19 billion in long term debt (up from E 9.8 billion in 1998 and E 6.7
billion in 1997); and
- E 15 billion in short term debt (up from E 5.1 billion in 1998 and E 3.4
billion in 1997).
Vivendi's ratio of net financial debt (short-term and long-term debt, net
of short-term loans, cash and cash equivalents and marketable securities) to
total equity (shareholders' equity and minority interests) was 152.8% in 1999
(up from 63.3% in 1998 and 48.6% in 1997).
At the end of 1999, Vivendi financial debt is as follows:
- about three-quarters relates to Vivendi Environnement. We expect to fund
Vivendi Environnement's capital expenditures requirements from its net
cash inflows and existing external financing.
- the remainder relates to our Communications operations and other
activities. We expect to reduce our indebtedness through planned
disposals of Vinci shares, GPU assets and Nexity. We expect to fund
future capital expenditure requirements of our publishing and multimedia
activities from future net cash inflows generated by these activities.
Regarding our telecommunication and Internet activities, we expect to
fund our future substantial capital expenditure requirements through
additional incurrence of debt or through an IPO of our Internet
activities.
CAPITAL EXPENDITURES
Our total capital expenditures were E 5.6 billion in 1999, up more than 40%
compared to 1998. The increase is mainly due to Sithe's purchase of GPU assets.
Our primary 1999 capital expenditures consisted of the following:
GROWTH OF THE TELECOMMUNICATION UNITS
- Capital expenditures of E 889 million dedicated to expanding the capacity
of our mobile telephone network;
- Capital expenditures of E 75 million dedicated to continued development
of our fixed-line network;
OTHER COMMUNICATION BUSINESSES
- Publishing and multimedia capital expenditures of E 95.5 million;
- Audiovisual capital expenditure of E 182.2 million;
BUILDING, UPGRADING OR MAINTAINING INVESTMENTS IN ENVIRONMENT-RELATED
BUSINESSES
- Expenditures of E 736 million dedicated to water activities, including E
160.5 million for major overhauls and repairs;
- Expenditures of E 413 million dedicated to waste activities;
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- Expenditures of E 407 million dedicated to energy services activities,
including E 187 million for power production installations and E 85.6
million for maintaining investments;
- Expenditures of E 241 million dedicated to transportation activities, in
connection with Connex rail expenditure commitments and new contracts;
- Expenditures of E 108 dedicated to FCC activities; and
- Expenditures of E 2 billion dedicated to independent power production, in
particular to acquire GPU assets (which were sold at the beginning of
2000).
ACQUISITIONS
We invested E 15.9 billion in the acquisition of other companies in 1999.
This amount corresponds to the cash and non-cash investments made by Vivendi and
does not take into account the cash of the acquired companies.
Our main acquisitions can be categorized as follows:
- International expansion -- E 10.7 billion, principally used to acquire
United States Filter Corporation, Superior Services, Havas Interactive,
Elektrim and assets from Waste Management;
- Audiovisual -- E 3.8 billion, relating to our additional stake in CANAL+
and in BSkyB; and
- Others -- E 1.4 billion, including E 598 million used to finance Vinci's
acquisition of Sogeparc.
EFFECT OF INFLATION
Inflation did not have a material effect on our revenue or income from
continuing operations in the 1997-99 period.
RECENT DEVELOPMENTS
Among the developments that have occurred since December 31, 1999 that
could affect our future results of operations, liquidity and capital resources
are the following:
- Communications
-- Seagram transactions. On June 20, 2000, we announced that we had
entered into a series of agreements with Seagram and CANAL+ pursuant
to which, subject to certain conditions, (i) we will merge with a
wholly-owned subsidiary of ours that will subsequently be renamed
"Vivendi Universal," (ii) the subsidiary will acquire all of CANAL+'s
operations other than its French regulated businesses, (iii) CANAL+'s
French regulated businesses will be retained by CANAL+'s existing
shareholders and (iv) the subsidiary will acquire the outstanding
capital stock of Seagram pursuant to a plan of arrangement under
Canadian law. See "Description of Business -- General -- Recent
Developments," page 8.
-- We expect the Seagram transactions to improve our earnings per share
in the medium and long term. In the short term, however, we expect to
experience some dilution in our earnings per share, primarily due to
the acquisition of CANAL+ assets. Because of the significant revenue
and cost synergies we intend to generate as a result of the
transactions, however, we expect to almost completely offset this
dilution by 2002.
-- Revenue synergies. We believe that by featuring Seagram's content
assets on Vizzavi, we will increase Vizzavi's customer base, revenues
per subscriber and customer loyalty, while simultaneously enhancing
the value of the Seagram assets. We also believe that our access
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operations will benefit from enhanced opportunities for
cross-promotion, bundled service offerings and advertising as a result
of the transactions. Finally, we expect that the transactions will put
Vivendi Universal in a position to capitalize upon its distribution
capabilities in Europe and its expertise in creating wireless content
and services as the growth of wireless services accelerates in North
America and around the world.
-- Cost synergies. We also anticipate implementing a cost-cutting
program to eliminate duplicative functions, increase efficiencies in
purchasing and rationalize some of our distribution systems. Although
the benefits achievable through such programs are difficult to
predict, our current estimate is that we will be able to reduce our
costs by approximately E 400 million per year.
-- Vizzavi. On May 16, 2000, we entered into an agreement with Vodafone
to develop Vizzavi, a multi-access portal for European markets.
Vizzavi will provide customers with a seamless operating environment
accessible through various devices (e.g., television, personal
computer, mobile or fixed telephone and PDAs) for Web-based
communications services, e-commerce and leisure.
- Audiovisual -- In February 2000, CANAL+ agreed to create three joint
ventures with Lagardere, a French media company: one to own and operate
three theme channels, one to oversee interactive services for new
channels jointly created by CANALSATELLITE and Lagardere, and one to
create and distribute new theme-based television channels.
- Vivendi Environnement -- Since the beginning of 2000, Vivendi
Environnement has signed several major contracts, in particular for water
and wastewater services with local authorities in Boulogne sur Mer,
France; Berne, Switzerland; Shu Hai, Beijing, Dujiangyan and Hui Yin,
China; and Lattaquie and Tartous, Syria. Vivendi Environnement has also
signed contracts to operate heating networks in Slovakia and Moravia. In
July 2000, Vivendi Environnement sold approximately 37% of its shares to
the French public and to institutional investors in France and elsewhere
in an initial public offering.
- Water -- In March 2000, Vivendi Water signed a major contract with
Hyundai in South Korea. Under this agreement, Vivendi Water will operate
drinking water and industrial water facilities at Hyundai's Daesan
petrochemical complex. This agreement reflects the increasing tendency of
industrial firms to focus on their core business by outsourcing the
management of their facilities to specialist contractors. It also
reflects our growth strategy in the industrial sector, particularly the
acquisition of United States Filter Corporation.
- Energy Services -- Sithe sold to Reliant 21 independent power production
plants for E 2.13 billion in February, 2000. This transaction generated a
capital gain of E 450 million. We entered into an agreement pursuant to
which we reduced our stake in Sithe to approximately 30% in exchange for
approximately $419 million. Because we will no longer consolidate Sithe's
debt on our balance sheet, our indebtedness will decrease by E 3.1
billion as a result of the transaction (E 3.5 billion after we apply the
proceeds of the sale to further reduce our indebtedness) and would reach
almost E 4 billion with the proceeds of the sale of our remaining 30%
stake in Sithe.
- Construction -- Pursuant to our strategy of focusing on our two core
businesses, we reduced our interest in Vinci from 49.3% to 16.9% on
February 10, 2000, receiving in exchange E 570 million (we will recognize
a E 270 million capital gain as a result of this transaction). We intend
to dispose of our remaining stake in Vinci in 2001.
- Real estate -- We sold the principal businesses of CGIS in July 2000 to
institutional investors without major gain or loss.
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REVENUE FOR THE FIRST HALF OF 2000
We present this analysis of our revenues for the first half of 2000 as
compared to 1999 for informational purposes. We have not presented an analysis
for the same period for the other aspects of our income statement due to the
fact that we have not yet completed the closing of our financial records for the
six months ended June 30, 2000. We expect to complete this process and to
release interim unaudited financial statements as of June 30, 2000 in October
2000.
Our revenue for the first half of 2000 totaled E 19.4 billion, compared
with E 17.8 billion for the first half of 1999, representing a 9% increase. The
consolidation of CANAL+ (under French GAAP) and United States Filter Corporation
for the whole six-month period more than made up for our withdrawal from the
construction and property businesses (the disposal of Vinci and Nexity had an
impact of E 3.9 billion and E 0.8 billion, respectively).
Excluding our construction and property businesses, our revenue was E 19.4
billion, amounting to an increase of almost 50% over the E 13 billion generated
in the first half of 1999. Internal growth was over 15%, and net revenue outside
France rose approximately 75% to E 9.2 billion. This amount includes Sithe,
which contributed E 810 million. Following the disposal of General Power
Utilities, we are proceeding with our withdrawal from independent power
production.
Our communications division had revenue of E 6 billion. The 68.2% increase
is a result of the consolidation under French GAAP of CANAL+ for the whole
period, with an impact of E 1.8 billion. The consolidation of MediMedia, Havas
divisions in Latin America, and telephone operations in Hungary had a combined
impact of E 0.25 billion, compensating for the disposal of Avenir, the Havas
billboard advertising business. On a comparable basis and at constant exchange
rates, growth was over 18% and reached 20% in France.
Cegetel's net revenue reached E 2.4 billion, a 28.5% increase. SFR
accounted for E 2.1 billion. SFR had over 8.6 million subscribers at the end of
June compared with 5.2 million one year before, representing an increase in
subscriber numbers of around 65% in 12 months. The fixed-line telephone business
accelerated its sales, with more than 2 million lines in operation at the end of
June for a rise of 125% in one year.
Our audiovisual and Internet activities approached E 2 billion in revenue,
of which E 1.8 billion came from the consolidation under French GAAP of CANAL+
for the entire period. CANAL+ had over 14 million subscribers at the end of
June, including 4.5 million subscribers for its digital package of services (a
44% rise over the previous year).
Revenue for Havas was E 1.6 billion, amounting to growth of 5% on a
comparable basis and at constant exchange rates.
Internal growth for our multimedia activities was over 15%, due to the
first effects of the successful integration of Cendant Software to form Havas
Interactive. The recent launch of Diablo II, with 2 million units sold,
demonstrates this success. Revenue generated outside France reached E 683
million and accounted for over 42% of business. More than 50% of this business
was generated in the United States.
Vivendi Environnement revenue increased 41.3% to E 12.1 billion at June 30,
2000 compared with E 8.5 billion for the first half of 1999. The group also
manages water contracts we held. Including these contracts, total revenue
reached E 12.5 billion, compared with E 8.9 billion for the same period in 1999.
The increase reflects the impact of acquisitions made in 1999 and at the
beginning of 2000. These include United States Filter Corporation in water and
Superior Services in waste management, both of which strengthened the group's
operations in the United States. In total, changes to the scope of consolidation
had an impact on revenue of E 1.8 billion, taking into account the planned
disposal of
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the Kinetics subsidiary in the United States. Exchange rate variations had a
positive impact of E 0.4 billion.
In water, revenue rose 55.3% to reach E 5.6 billion (E 6 billion for total
economic net sales). This strong growth is due both to the acquisition of United
States Filter Corporation and to organic growth of 12.3%, as a result of the
development of business in European countries other than France and in the
United States.
In waste management, revenue increased 56.8% to E 2.4 billion. Internal
growth was 13.4%, and was strong both in and outside France.
In energy, revenue rose from E 1.4 to E 1.6 billion. This 11.9% increase is
mainly due to continued expansion in Eastern Europe and to the commissioning of
cogeneration plants.
In transportation, revenue was E 1.5 billion. Including the impact of the
acquisition of some of the subsidiaries of the GTI group (with effect from
January 1, 2000), the increase was 37.2%. If the impact of this acquisition is
excluded, growth in revenue is around 19%.
The percentage of revenue outside France rose from 46.7% to 57.4% between
the first halves of 1999 and 2000.
GENERAL ACCOUNTING PRINCIPLES: FRENCH GAAP COMPARED TO U.S. GAAP
The consolidated financial statements included elsewhere herein have been
prepared in accordance with accounting principles generally accepted in France
("French GAAP"), which differ in certain significant respects from accounting
principles generally accepted in the United States ("U.S. GAAP").
For the years ended December 31, 1999 and 1998, Vivendi had a net income
under U.S. GAAP of E 246.1 million and E 565.2 million, respectively, compared
to E 1,431 million and E 1,120.8 million under French GAAP. Under U.S. GAAP,
shareholders' equity was E 16,954.5 million and E 10,265.4 for 1999 and 1998,
respectively, compared to E 10,892.2 million and E 7,840.2 million under French
GAAP.
The most significant reconciling item relates to business combination
accounting as described in note 25A of our financial statements. Under French
GAAP goodwill may be recorded as a reduction of shareholders' equity when the
acquisition has been paid for with equity securities, whereas goodwill is
recognized as an asset under U.S. GAAP. Significant mergers that do not meet the
U.S. GAAP criteria for pooling have been accounted for in our consolidated
financial statements using a method pursuant to which goodwill is computed as
the difference between the consideration paid and the net historical book value
acquired. For U.S. GAAP purposes, these transactions are considered purchases.
Business combination reconciling items have the following impact on equity
and net income presented in our consolidated financial statements prepared under
French GAAP:
- an increase of our equity by E 7,876.3 million and E 3,160 million for
the years ended December 31, 1999 and 1998, respectively, and
- a decrease in our net income by E 1,052.7 million and E 191 million for
the years ended December 31, 1999 and 1998, respectively.
Other significant reconciling items relate to intangible assets,
impairment, financial instruments and pension plans and stock based
compensation. These items are further described in note 25A to our consolidated
financial statements.
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ITEM 9.A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our global operating and financing activities, we are
subject to various market risks relating to fluctuations in interest rates,
foreign currency exchange rates and equity market risks relating to investment
securities. We follow a centrally managed risk management policy approved by our
Board of Directors. As part of this policy, we use derivative financial
instruments to manage interest rate risk, primarily related to long-term debt,
and foreign currency risk associated with foreign denominated assets. We
generally do not use derivative or other financial instruments for trading
purposes. Our accounting policy for hedge instruments is described in Note 2 to
our consolidated financial statements.
EXPOSURE TO INTEREST RATE RISK
As a result of our regular borrowing activities, our operating results are
exposed to fluctuations in interest rates. We have short-term and long-term debt
with both fixed and variable interest rates. Short-term debt is primarily
comprised of secured and unsecured notes payable to banks and bank lines of
credit used to finance working capital requirements. Short-term investments are
primarily comprised of cash and equivalents and marketable securities. Long-term
debt represents publicly held unsecured notes and debentures and certain notes
payable to banks used to finance long-term investments such as business
acquisitions. Derivative financial instruments used to manage interest rate risk
relating to long term debt include interest rate swaps and caps.
The following table provides information about our financial instruments
with significant sensitivity to changes in interest rates. The table presents
the outstanding balance, or notional amount for swaps and caps and the related
weighted-average interest rates as of December 31, 1999. Weighted-average
interest rates on variable-rate debt and swaps are based on current rates as of
December 31, 1999. Rates on interest rate caps represent the weighted average
strike rates at December 31, 1999 (in millions of euros).
<TABLE>
<CAPTION>
WEIGHTED
(E MILLIONS) AVERAGE RATE
------------ ------------
<S> <C> <C>
FINANCIAL ASSETS
Loans and financial assets.................................. 4,309.2 3.57%
FINANCIAL LIABILITIES
Short term debt............................................. 15,017.4 3.54%
Long term debt -- variable rate............................. 9,919.4 4.19%
Long term debt -- fixed rate................................ 9,313.6 4.03%
DERIVATIVE FINANCIAL INSTRUMENTS(a)
Interest rate swaps -- fixed rate pay....................... 6,725.9 4.69%
Interest rate swaps -- variable rate pay.................... 1,313.3 6.00%
Interest rate caps and collars(b)........................... 2,759.5 4.40%
</TABLE>
-------------------------
(a) These amounts are the weighted averages of interest rate swaps and caps with
pay features in 2000. In addition, as of December 31, 1999, we had E 396.4
million notional interest fixed rate pay swaps with delayed effective dates
that commence after 12 months.
(b) Interest rate caps consist of contractual agreements under which we receive
payments if and when market rates exceed certain levels. Strike terms are
based on EURIBOR three months. We have E 1.829 million notional amount of
double strike interest caps which start in 2004, ending in 2008 with an
average first strike of 4.5% and an average second strike of 5.5%.
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Based upon the above information, a hypothetical increase in average market
rates of 1% over the year 2000 would result in a decrease (before taxes) in our
annual net income of approximately E 153 million.
EXPOSURE TO FOREIGN CURRENCY RISK
We have worldwide operations that include significant operations in
countries outside of the euro zone. In 1999, 28.6% of our sales were in non-euro
currencies, particularly U.S. dollars and British pounds. Because product and
operating costs are based largely on the currency in which related revenue is
generated, we face limited related foreign exchange exposure in this area. We
consider this risk to be immaterial and have historically not attempted to hedge
our exposure to foreign currency fluctuations.
We do face foreign currency exchange risk to the extent that we plan
disposals of assets denominated in currencies other than the euro and to the
extent that we have non-euro cash needs. We enter into forward contracts to
hedge specific firm commitments and anticipated foreign currency denominated
transactions. As of December 31, 1999, our primary risk related to a planned
disposition of Sithe and the repayment of a U.S. dollar denominated loan related
to the acquisition of GPU. As of December 31, 1999, we maintained a net forward
position of the sale of $1.6 billion linked to the planned disposition and the
repayment of the loan.
EXPOSURE TO EQUITY MARKETS RISK
Our exposure to equity markets risk relates primarily to its investments in
the marketable securities of unconsolidated entities and derivative equity
instruments. As of December 31, 1999, we held equity market securities of E
3,599 million, including E 2,562 million in our own shares. Other significant
equity securities held as of December 31, 1999 were as follows (in millions of
euros):
<TABLE>
<CAPTION>
COMPANY AMOUNT PERCENT
------- ------ -------
<S> <C> <C>
Saint-Gobain................................................ 250 6.9%
Washington Baltimore through Facic.......................... 185 5.1%
Alcatel..................................................... 444 12.3%
Eiffage..................................................... 43 1.2%
Vivendi..................................................... 2,562 71.2%
Other....................................................... 115 3.3%
----- -----
Total equity investments.................................... 3,599 100.0%
</TABLE>
In addition, we have written put options for approximately 2.6 million
shares of our own stock at an average strike price of E 64.1 (the highest strike
price is E 71.55, the lowest is E 50.5) and an average maturity of February
2002. These options were issued in connection with the merger with Pathe. The
price of our stock was E 89.65 as of December 31, 1999. We generally do not use
derivative financial instruments to limit our exposure to equity market risk.
A hypothetical decrease of 10% of overall portfolio share prices in 2000
would result in a decrease in our equity market portfolio of E 360 million.
EXPOSURE TO OTHER MARKET RISKS
We do not consider our exposure to other market risks material.
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ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANT
BOARD OF DIRECTORS
Our board of directors currently consists of 14 directors, including ten
independent directors. There are three non-French directors on the board.
Vivendi nominated all of the directors. Under Vivendi's statuts, shareholders
elect board members for four year renewable terms. Under French law and our
statuts, we may have no fewer than three and no more than 24 directors.
The table below shows the names of our current directors, the dates of
their initial and renewal appointment to the board and the date of expiration of
their respective terms.
<TABLE>
<CAPTION>
YEAR
PRINCIPAL INITIALLY
OCCUPATION OR APPOINTED TO YEAR OF YEAR TERM
NAME EMPLOYMENT BOARD RENEWAL EXPIRES
---- ------------- ------------ ------- ---------
<S> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Jean-Marie Messier. Chairman and CEO of Vivendi 1994 1998 2004
<S> <C> <C> <C> <C>
Eric Licoys................. COO of Vivendi 1999 2005
Bernard Arnault(1).......... Chairman and CEO of LVMH 1996 2002
Jean-Louis Beffa............ Chairman and CEO of 1996 1997 2003
Compagnie de Saint-Gobain
Jean-Marc Espalioux(1)...... Chairman of the executive 1999 2005
board of Accor
Philippe
Foriel-Destezet(1)........ Chairman of Adecco S.A. 1997 2002
Jacques Friedmann(1)........ Chairman of the supervisory 1994 2000 2004
board of AXA
Esther Koplowitz(1)(2)...... Member of the board of 1998 2002
directors of Fomentes de
Construcciones y Contratas
Henri Lachmann(1)........... Chairman and CEO of 1998 2004
Schneider Electric
Thomas Middelhoff(1)(2)..... Chairman of Bertelsmann 1999 2005
Simon Murray(1)(2).......... Chairman of Simon Murray and 1998 2004
Co.
Serge Tchuruk............... Chairman and CEO of Alcatel 1997 2003
Rene Thomas(1).............. Honorary Chairman and 1984 1996 2002
director of Banque
Nationale de Paris
Marc Vienot(1).............. Honorary Chairman and 1992 1998 2004
director of Societe
Generale
</TABLE>
-------------------------
(1) Independent director
(2) Non-French director
Under French law and our statuts, the chairman of the board and chief
executive officer have full authority to manage our company's affairs and broad
powers to act on behalf of our company within its corporate purpose and to
represent it in dealings with third parties, subject only to the powers
expressly reserved to the board of directors or our shareholders by law, our
statuts and the board of directors or the shareholders.
Our board of directors has set up two independent committees -- the Audit
Committee and the Remuneration Committee -- whose members are chosen from among
our directors.
- the Audit Committee met twice in 1999. It is comprised of four members:
Marc Vienot as chairman, Philippe Foriel-Destezet, Henri Lachmann and
Serge Tchuruk. The committee
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reviews the financial statements before they are submitted to our board
of directors. It also examines accounting policies and methods, the
quality of internal control procedures, and the working programs of the
internal and external auditors. As part of its mission, the committee is
entitled to meet -- without the presence of the executive
directors -- the statutory auditors and senior management responsible for
preparing the statements and internal procedures.
- the Remuneration Committee met three times in 1999. It is comprised of
three members: Jean-Louis Beffa as chairman, Bernard Arnault and Rene
Thomas. The committee reviews the remuneration of our executive directors
and senior executives. In addition, it is consulted on stock subscription
and purchase plans, and on the selection of our executive and other
directors.
EXECUTIVE OFFICERS
The table below shows the names of our principal executive officers and
their current responsibilities.
<TABLE>
<CAPTION>
YEAR INITIALLY
APPOINTED
AT CURRENT
NAME RESPONSIBILITY POSITION
---- -------------- --------------
<S> <C> <C>
EXECUTIVE COMMITTEE MEMBERS
Jean-Marie Messier.................. Director, Chairman and Chief 1996
Executive Officer
Daniel Caille....................... Executive Vice President 1999
Philippe Germond.................... Senior Executive Vice President, 1999
Vivendi Communications
Guillaume Hannezo................... Executive Vice President, Finance 1999
Eric Licoys......................... Chief Operating Officer 1999
Henri Proglio....................... Senior Executive Vice President, 1999
Vivendi Environnement
OTHER EXECUTIVE OFFICERS
Jean-Francois Colin................. Executive Vice President, Human 1999
Resources
Jean-Francois Dubos................. Company and Board Secretary 1994
Christine Delavennat................ Vice President, Corporate 1995
Communication
Thierry de Beauce................... Vice President, International 1997
Affairs
Agnes Audier........................ Vice President, Strategy and 1999
Business Development
Sylvie d'Arvisenet.................. Ethical Standards 1998
</TABLE>
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ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation that we paid to our principal
executive officers and directors as a group, which included 24 persons in all,
for services in all capacities during the 1999 fiscal year was approximately E
6.8 million.
The aggregate amount that we set aside or accrued to provide pension,
retirement or similar benefits for our executive officers as a group, which
included 12 persons in all, was approximately E 1.8 million during the 1999
fiscal year.
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ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
We presently have several share subscription, purchase and option plans for
the benefit of our executive officers, management and other staff.
<TABLE>
<CAPTION>
NUMBER OF
MAXIMUM SHARES SUBJECT
NUMBER OF TO OUTSTANDING
SHARES UNEXERCISED EXERCISE
DATE OF DECISION OF SUBJECT OPTIONS AS OF PRICE
BOARD OF DIRECTORS EXERCISE DATES TO PLAN 08/25/00 (E)
------------------- -------------- --------- -------------- --------
<S> <C> <C> <C> <C>
SHARE PURCHASE PLAN
September 1997....... September 17, 2002 to September 17, 2005 1,260,960 1,213,857 30.91
September 1997....... September 17, 2002 to September 17, 2004 1,980,974 1,980,974 50.02
July 1998............ July 3, 2003 to July 3, 2006 2,192,760 2,163,830 50.52
January 1999......... January 23, 2004 to January 22, 2007 42,672 42,672 61.33
April 1999........... April 9, 2004 to April 8, 2007 3,302,569 3,286,831 65.00
May 1999............. May 12, 2004(1) to May 11, 2007 5,729,237 5,729,237 73.01
September 1999....... September 11, 2004 to September 10, 2007 15,000 15,000 61.80
November 1999........ November 26, 2004 to November 25, 2007 9,000 9,000 62.60
November 1999........ November 26, 2002 to November 25, 2007 2,230,500 2,230,500 62.60
March 2000........... March 11, 2005 to March 10, 2008 5,000 5,000 106.35
May 2000............. May 24, 2003 to May 23, 2008 2,782,560 2,782,560 111.44
SHARE SUBSCRIPTION
PLAN
October 1990......... January 1, 1992 to October 22, 2000 859,710 75,432 19.22
November 1991........ January 1, 1993 to November 20, 2001 1,103,685 155,123 21.48
October 1992......... January 1, 1994 to October 28, 2000 1,092,604 74,809 19.23
December 1993........ January 1, 1995 to December 2, 2001 1,262,241 249,333 26.25
October 1994......... January 1, 1996 to October 20, 2002 1,232,453 249,053 19.31
September 1995....... January 1, 1997 to September 13, 2003 700,966 314,993 22.16
September 1995(2).... September 19, 1995 to September 18, 2000 44,998 25,686 36.92
September 1995(2).... September 19, 1995 to September 18, 2000 79,327 50,256 36.45
June 1996............ January 1, 1998 to June 24, 2004 964,898 769,912 22.06
May 1996(2).......... May 7, 1996 to May 6, 2001 27,484 24,161 33.81
December 1996(2)..... December 17, 1996 to December 16, 2001 77,297 68,770 26.55
June 1997(2)......... June 26, 2002 to June 25, 2004 569,550 569,550 38.80
September 1996(3).... September 11, 1997 to September 10, 2004 93,015 86,365 41.91
September 1997(3).... September 11, 2002 to September 10, 2005 111,150 111,150 37.67
December 1998(3)..... December 11, 2003 to December 10, 2006 285,840 285,840 37.40
</TABLE>
-------------------------
(1) Anticipated exercise possible in certain conditions.
(2) Following our merger with Havas in May, 1998, we substituted the following
plans of Havas and certain of its subsidiaries with our plans.
(3) Following the merger with Pathe in September, 1999, we substituted the
following plans of Pathe with our plans.
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Among the stock option plans we introduced in 1999 is one that covers
3,302,569 options for 818 beneficiaries at an exercise price of E 65 per share.
Options are awarded under this plan based on employees' responsibility,
performance and potential. Another plan -- called the "outperformance"
plan -- covers 5,729,237 options granted to our 53 principal managers at an
exercise price of E 73.01, exercisable in full after five years if our shares
outperform those of our main competitors by at least 25%.
On January 1, 2000, we announced a "stock options for all" program in which
all 220,000 employees in our communications and environment divisions received
options to purchase 10 shares of our stock at an exercise price of E 62.60 per
share.
On April 27, 2000, our board of shareholders authorized the board of
directors to grant, on one or more occasions, until April 29, 2003, share
purchase options to our executive directors, senior executives and other
employees with a value of up to 3.5% of our total capital as of the day the
options are granted.
As of August 25, 2000, pursuant to our existing share purchase and stock
subscription plans, our directors and officers as a group held options to
purchase 8,816,892 of our shares. We do not grant options to members of the
board of directors in their capacity as board members.
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ITEM 13: INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Since January 1, 1997, except as described below, no material transactions
have been entered into between us and any of our directors or officers or any
relative or spouse (or any relative of such spouse) of any of our directors or
officers.
In October 1998, we acquired from Ms. Esther Koplowitz, a member of our
board of directors, a 49% interest in the holding company that owns 56.5% of
FCC. The parties made the economic effect of the transaction retroactive to July
1, 1998. Ms. Koplowitz owns the remaining 51% of the holding company.
The same month, we and Ms. Koplowitz signed a shareholder's agreement
providing for shared control of the economic activity of the holding company,
FCC and FCC's subsidiaries (the "FCC group"). Specifically, the agreement
provides that we and Ms. Koplowitz are to be equally represented in the main
executive bodies of the FCC group, i.e., the board of directors and executive
committees of FCC and its subsidiaries.
At the same time, we entered into an option agreement under which Ms.
Koplowitz has an option to sell us, at any time between April 18, 2000 and
October 6, 2008, her 51% interest in the holding company at a price based on the
average market value of FCC's shares during the three months preceding the
exercise of the option, up to seven times FCC's EBITDA or 29.5 times FCC's
earnings per share for the previous year, whichever is lower.
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PART II
ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED
AMERICAN DEPOSITARY RECEIPTS
The securities we are listing are American depositary shares ("ADSs"), each
of which represents one-fifth of a share of our capital stock. The Bank of New
York, as depositary, will issue the ADSs, which will be evidenced by American
depositary receipts ("ADRs"). Shares may be deposited with BNP Paribas, as
custodian, pursuant to the deposit agreement among us, the depositary and you as
an ADR holder. Each ADS will also represent any securities, cash or other
property deposited with the depositary but not distributed by it directly to
you.
The depositary's corporate trust office is located at 101 Barclay Street,
New York, NY 10286. Its principal executive office is located at One Wall
Street, New York, NY 10286.
You may hold ADSs either directly or indirectly through your broker or
other financial institution. If you hold ADSs directly, by having an ADS
registered in your name on the books of the depositary, you are an ADR holder.
This description assumes you hold your ADSs directly. If you hold the ADSs
through your broker or financial institution nominee, you must rely on the
procedures of such broker or financial institution to assert the rights of an
ADR holder described in this section. You should consult with your broker or
financial institution to find out what those procedures are.
Because the depositary will actually hold the shares, you must rely on it
to exercise the rights of a shareholder on your behalf. The obligations of the
depositary and its agents are set out in the deposit agreement. The deposit
agreement and the ADSs are governed by New York law.
The following is a summary of the material terms of the deposit agreement.
For more complete information, you should read the entire deposit agreement and
the form of ADR which contains the terms of your ADSs. Copies of the deposit
agreement are on file with the depositary and the custodian and will be open for
inspection by ADR holders during business hours.
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
HOW WILL I RECEIVE DIVIDENDS AND OTHER DISTRIBUTIONS ON THE SHARES
UNDERLYING MY ADSS?
We may make various types of distributions with respect to our securities.
The depositary has agreed to pay to you the cash dividends or other
distributions it or the custodian receives on shares or other deposited
securities, after deducting its fees and expenses. You will receive these
distributions in proportion to the number of underlying shares your ADSs
represent.
- Cash. The depositary is responsible for ensuring that it or the
custodian, as the case may be, receives all dividends and distributions
in respect of our shares deposited under the deposit agreement. The
depositary will convert any cash dividend or other cash distribution we
pay on our shares into U.S. dollars, if it can do so on a reasonable
basis and can transfer the U.S. dollars to the United States. If that is
not possible, or if any approval from any government is needed and cannot
be obtained, the agreement allows the depositary to distribute the
foreign currency only to those ADR holders to whom it is possible to do
so. The depositary will hold the foreign currency it cannot convert for
the account of the ADR holders who have not been paid. It will not invest
the foreign currency and it will not be liable for the interest.
Before making a distribution, any withholding taxes that must be paid
under French law will be deducted. The depositary will distribute only
whole U.S. dollars and cents and will round fractional cents to the
nearest whole cent. IF THE EXCHANGE RATES FLUCTUATE DURING A TIME WHEN
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THE DEPOSITARY CANNOT CONVERT THE FOREIGN CURRENCY, YOU MAY LOSE SOME OR
ALL OF THE VALUE OF THE DISTRIBUTION.
- Shares. The depositary may distribute new ADRs representing any shares
we may distribute as a dividend or free distribution, if we promptly
furnish it with satisfactory evidence that it is legal to do so. The
depositary will only distribute whole ADRs. It will sell shares that
would require it to use a fractional ADR and distribute the net proceeds
in the same way it does with cash. If the depositary does not distribute
additional ADRs, each ADR will also represent the new shares.
- Rights to receive additional shares. If we offer holders of our shares
any rights to subscribe for additional shares or any other rights, the
depositary may, after consultation with us, make these rights available
to you. We must first instruct the depositary to do so and furnish it
with satisfactory evidence that it is legal to do so. If we do not
furnish this evidence and/or give these instructions, and the depositary
decides it is practical to sell the rights, the depositary will sell the
rights and distribute the proceeds, in the same way it does with cash.
The depositary may allow rights that are not distributed or sold to
lapse. If so, you would receive no value for them.
If the depositary makes rights available to you, upon instruction from
you, it will exercise the rights and purchase the shares on your behalf.
The depositary will then deposit the shares and issue ADRs to you. It
will exercise rights only if you pay it the exercise price and any other
charges the rights require you to pay.
U.S. securities laws may restrict the sale, deposit, cancellation and
transfer of the ADRs issued after exercise of rights. For example, you
may not be able to trade the ADRs freely in the United States. In this
case, the depositary may issue the ADRs under a separate restricted
deposit agreement that will contain the same provisions as the agreement,
except for the changes needed to put the restrictions in place.
- Other Distributions. The depositary will send to you anything else we
distribute on deposited securities, after deduction or upon payment of
any fees and expenses of the depositary or any taxes or other
governmental charges, by any means it thinks is legal, fair and
practical. If it cannot make the distribution in that way, the depositary
has a choice. It may decide to sell what we distributed and distribute
the net proceeds in the same way it does with cash or it may decide to
hold what we distributed, in which case the ADRs will also represent the
newly distributed property.
We have no obligation to register ADRs, shares, rights or other securities
under the Securities Act. We also have no obligation to take any other action to
permit the distribution of ADRs, shares, rights or anything else to ADR holders.
This means that you may not receive the distribution we make on our shares or
any value for them if it is illegal or impractical for us to make them available
to you.
The depositary may choose any practical method of distribution for any
specific ADR holder, including the distribution of foreign currency, securities
or property, or it may retain such items, without paying interest on or
investing them, on behalf of the ADR holder as deposited securities.
The depositary is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any ADR holders.
There can be no assurance that the depositary will be able to convert any
currency at a specified exchange rate or sell any property, rights, shares or
other securities at a specified price, or that any of such transactions can be
completed within a specified time period.
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DEPOSIT, WITHDRAWAL AND CANCELLATION
HOW DOES THE DEPOSITARY ISSUE ADSS?
The depositary will issue ADSs if you or your broker deposits shares or
evidence of rights to receive shares with the custodian.
Shares deposited in the future with the custodian must be accompanied by
certain documents, including instruments showing that such shares have been
properly transferred or endorsed to the person on whose behalf the deposit is
being made.
The custodian will hold all deposited shares for the account of the
depositary. The custodian will also hold any additional securities, property and
cash received on or in substitution for the deposited shares. The deposited
shares and any such additional items are referred to as "deposited securities."
Upon each deposit of shares, receipt of related delivery documentation and
compliance with the other provisions of the deposit agreement, including the
payment of the fees and expenses and any charges of the depositary and any taxes
such as stamp taxes or stock transfer taxes or other fees or charges owing, the
depositary will issue an ADR or ADRs in the name of the person entitled thereto
evidencing the number of ADSs to which such person is entitled. Certificated
ADRs will be delivered at the depositary's corporate trust office to the persons
you request.
HOW DO I CANCEL AN ADS AND OBTAIN DEPOSITED SECURITIES?
When you turn in your ADS at the depositary's corporate trust office, the
depositary will, upon payment of certain applicable fees and expenses, charges
and taxes, and upon receipt of proper instructions, deliver the underlying
shares to an account designated by you and maintained by us, in the case of
shares in registered form, or transfer the shares to an account of an accredited
financial institution on your behalf in the case of shares in bearer form. At
your risk, expense and request, the depositary may deliver deposited securities
to such other place as you may request.
The depositary may close its transfer books or we may close our transfer
books, at any time or from time to time. This may cause temporary delays in your
ability to receive ADRs against deposits of shares, cancel ADSs and obtain
deposited securities, or transfer ADRs.
However, even in the situation described in the previous paragraph, you
have the right to cancel your ADRs and withdraw the underlying shares at any
time subject only to:
- temporary delays caused by closing of the depositary's transfer books or
our transfer books or the deposit of shares in connection with voting at
a shareholders' meeting, or the payment of dividends (we are not aware of
any statutory or regulatory limit to the length of time during which we
or the depositary can close our respective transfer books in connection
with these activities; however, as indicated, we expect that any delay in
canceling ADRs and withdrawing the underlying shares to be temporary);
- the payment of fees, taxes, and similar charges; and
- compliance with any laws or governmental regulations relating to ADRs or
to the withdrawal of underlying shares.
Your right of withdrawal may not be limited by any other provision of the
agreement.
VOTING RIGHTS
HOW DO I VOTE?
If you are an ADR holder and the depositary asks you to provide it with
voting instructions, you may instruct the depositary how to exercise the voting
rights for the shares which underlie your
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ADSs. Upon receipt of notice of any meeting of holders of shares or other
deposited securities sent by us, the depositary will mail, at our expense, the
notice to the ADR holders as soon as practicable. The notice will contain an
English version of the notice received from us and a summary in English of any
materials provided to shareholders and will describe how you, on a certain date,
may instruct the depositary to exercise the voting rights for the shares
underlying your ADSs, including a statement as to how shares for which the
depositary receives incomplete voting instructions will be voted. Voting rights
may be exercised only in respect of five ADSs or integral multiples thereof. For
instructions to be valid, the depositary must receive them on or before the date
specified. The depositary will try, as far as is practical, subject to the
provisions of and governing the underlying shares or other deposited securities,
to vote or to have its agents vote the shares or other deposited securities as
you instruct. The depositary will vote or attempt to vote only as you instruct.
The depositary will not itself exercise any voting discretion. Neither the
depositary nor its agents are responsible for any failure to carry out any
voting instructions, for the matter in which any vote is cast or for the effect
of any vote.
There is no guarantee that you will receive voting materials in time to
instruct the depositary to vote and it is possible that you, or persons who hold
their ADSs through brokers, dealers or other third parties, will not have the
opportunity to vote. The depositary will not charge ADS holders for taking any
action in connection with shareholders' meetings. Our statuts adjust the rights
of shareholders who own in excess of 2% of the total voting power of our company
through the application of a formula designed to limit the voting power of those
shareholders to that which they would possess if 100% of the shareholders were
present or represented at the meeting at which the vote in question takes place.
See "Legal Proceedings," page 59. Because holders of Vivendi ADSs hold their
Vivendi ordinary shares through a single depositary, all such holders, other
than those who withdraw their shares from the depositary and vote the shares
directly, are accordingly treated as a single shareholder for purposes of this
provision. For instructions concerning how to withdraw your shares from the
depositary so that you may vote them directly, see "-- Deposit, Withdrawal and
Cancellation," page 118.
RECORD DATES
The depositary will fix the dates for determining of the ADR holders who
will be entitled:
- to receive a dividend distribution or rights, or
- to give instructions for the exercise of voting rights at a meeting of
holders of ordinary shares or other deposited securities,
all subject to the provisions of the deposit agreement.
REPORTS AND OTHER COMMUNICATIONS
WILL I BE ABLE TO VIEW REPORTS AND COMMUNICATIONS FROM THE COMPANY?
The depositary will make available for inspection by ADR holders at its
corporate trust office any communications or reports, including any proxy
soliciting materials, from us that are both received by the custodian or its
nominee as a holder of deposited securities and made generally available to the
holders of deposited securities, including annual reports, corporate statuts,
copies of minutes of shareholders' meetings and reports of statutory auditors.
The depositary will notify the ADR holders of any meeting of our shareholders or
ADS holders, or of any adjourned meeting, provided that the depositary receives
notice of such meeting from us. The depositary will also arrange for the
mailing, at our request and at our expense, of copies of the notices, reports
and communications, including any proxy soliciting materials, to all ADR
holders. These communications will be furnished by us in English when so
required by any rules or regulations of the SEC.
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The depositary will make available for inspection at its corporate trust
office books, including the list of holders of receipts, for the registration of
receipts by the ADR holders, provided that such inspection is not for the
purpose of communicating with ADR holders in the interest of a business or
object other than our business of a matter related to the deposit agreement or
the receipts.
FEES AND EXPENSES
WHAT FEES AND EXPENSES WILL I BE RESPONSIBLE FOR PAYING?
ADR holders will be charged a fee for each issuance of ADSs, including
issuances resulting from distributions of shares, rights and other property, and
for each surrender of ADSs, including if the agreement terminates. The fee in
each case shall not be in excess of $5.00 for each 100 ADSs (or any portion
thereof) issued or surrendered. ADR holders or persons depositing shares may
also be charged for the following expenses:
- stock transfer and other taxes and governmental charges;
- cable, telex and facsimile transmission and delivery charges;
- transfer or registration fees for the registration or transfer of
deposited securities on any applicable register in connection with the
deposit or withdrawal of deposited securities;
- expenses of the depositary in connection with the conversion of foreign
currency into U.S. dollars; and
- a fee not in excess of $0.02 per ADS (or portion thereof) for any cash
distribution, except for distributions of cash dividends.
We will pay all other charges and expenses of the depositary and any agent
of the depositary (except the custodian) pursuant to agreements entered into
from time to time by us and the depositary. The fees described above may be
amended from time to time.
PAYMENT OF TAXES
ADR holders will be required to pay any tax or other governmental charge
payable by the custodian or the depositary on any ADS or ADR, deposited security
or distribution. If an ADR holder owes any tax or other governmental charge, the
depositary may deduct the amount thereof from any cash distribution or sell
deposited securities and deduct the amount owing from the net proceeds of such
sale. In either case, the ADR holder will remain liable for any shortfall.
Additionally, if any tax or governmental charge is unpaid, the depositary may
refuse to effect any transfer of an ADR, or withdrawal of deposited securities
(except under limited circumstances mandated by securities regulations) until
such payment is made. If the depositary sells the deposited securities, it will,
if appropriate, reduce the number of ADRs to reflect the sale and pay to you any
proceeds, or send to you any property, remaining after it has paid the taxes.
RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
If we take certain actions that affect the deposited securities, including
(i) any change in par value, split-up, consolidation, cancellation or other
reclassification of deposited securities or (ii) any recapitalization,
reorganization, merger, consolidation, liquidation, or sale of all or
substantially all of our assets, then the cash shares or other securities
received by the depositary will become deposited securities. Each ADR will
automatically represent its equal share of the new deposited securities, unless
additional ADRs are distributed pursuant to the following sentence. The
depositary may execute and deliver additional ADRs, as in the case of a
distribution of shares, or ask you to surrender your outstanding ADRs in order
to provide you with new ADRs specifically describing the new deposited
securities.
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AMENDMENT AND TERMINATION
HOW MAY THE DEPOSIT AGREEMENT BE AMENDED?
We may agree with the depositary to amend the deposit agreement and the
ADSs without your consent for any reason. ADR holders must be given at least 30
days notice of any amendment that imposes or increases any fees or charges
(except for taxes and other charges or registration fees, cable, telex or
facsimile transmission costs, delivery costs or other such expenses), or affects
any substantial existing right of ADR holders. If an ADR holder continues to
hold ADRs after being so notified, such ADR holder will be deemed to have agreed
to such amendment. Notwithstanding the foregoing, an amendment can become
effective before notice is given if this is necessary to ensure compliance with
a new law, rule or regulation.
No amendment will impair your right to surrender your ADSs and receive the
underlying securities, except in order to comply with an applicable law, rule or
regulation.
HOW MAY THE DEPOSIT AGREEMENT BE TERMINATED?
The depositary will terminate the agreement if we ask it to do so. The
depositary may also terminate the agreement if the depositary has told us that
it would like to resign and we have not appointed a new depositary bank within
90 days. In both cases, the depositary is required to notify you at least 90
days before termination.
After termination, the depositary and its agents will be required only to
collect dividends and other distributions on the deposited securities and
deliver shares and other deposited securities upon cancellation of ADRs. After
one year from the date of termination, the depositary may sell any remaining
deposited securities by public or private sale. After that, the depositary will
hold the proceeds of the sale, as well as any other cash it is holding under the
agreement, for the pro rata benefit of the ADR holders that have not surrendered
their ADRs. It will not invest the money and will have no liability for
interest. The depositary's only obligations will be to account for the proceeds
of the sale and other cash. After termination our only obligations will be with
respect to indemnification and to pay certain amounts to the depositary.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO ADR HOLDERS
LIMITS ON OUR OBLIGATIONS AND THE OBLIGATIONS OF THE DEPOSITARY; LIMITS ON
LIABILITY TO ADR HOLDERS AND HOLDERS OF ADSS
The deposit agreement expressly limits the obligations and liability of the
depositary and its agents. Neither the depositary nor its agents will be liable
if it:
- is prevented or hindered in performing any obligation by circumstances
beyond its control, including, without limitation, requirements of law,
rule, regulation, the terms of the deposited securities, and acts of God;
- exercises or fails to exercise discretion under the deposit agreement;
- performs its obligations without negligence or bad faith;
- takes any action based on advice or information provided by legal
counsel, accountants, any person presenting shares for deposit, any
holder or any other qualified person; or
- relies on any documents it believes in good faith to be genuine and to
have been properly executed.
The deposit agreement limits our liability and obligations, and those of our
agents, in the same way.
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Neither the depositary nor its agents have any obligation to appear in,
prosecute or defend any action, suit or other proceeding in respect of any
deposited securities or the ADRs. We and our agents shall be obligated only to
appear in, prosecute or defend any action, suit or other proceeding in respect
of any deposited securities or the ADRs that in our opinion may lead us to incur
expense or liability, if indemnity satisfactory to us against all expenses
(including fees and disbursements of counsel) and liability is furnished as
often as we require.
The depositary will not be responsible for failing to carry out
instructions to vote the ADSs, the manner in which the ADSs are voted or the
effect of the vote.
The depositary may own and deal in any class of securities of our company.
DISCLOSURE OF INTEREST IN ADSS
We may from time to time request ADR holders to provide information as to
the capacity in which such holders own or owned receipts and regarding the
identity of any other persons then or previously interested in such ADRs as to
the nature of such interest and various other matters. The depositary uses
reasonable efforts to comply with written instructions received from us
requesting that the depositary forward any such requests to the ADR holders and
to forward to us any responses to such requests received by the depositary.
Each ADR holder must comply with our statuts, as they may be amended from
time to time, and French law, if applicable, with respect to the disclosure
requirements regarding ownership of our shares, all as if such ADRs were, for
this purpose, the shares represented thereby.
In order to facilitate compliance with the notification requirements, ADR
holders will deliver any notification to the depositary and us with respect to
ADSs, and we will, as soon as practicable, forward such notification if
applicable, to the Conseil des Bourses de Valeurs or other French authorities.
French company law provides that any individual or entity, acting alone or
in concert with others, that becomes the owner, directly or indirectly, of more
than 5%, 10%, 20%, 33 1/3%, 50%, or 66 2/3% of the outstanding shares or voting
rights of a listed company in France, such as us, or that increases or decreases
its shareholding or voting rights above or below any of those percentages, must
notify the company within 15 calendar days of the date it crosses such
thresholds of the number of shares it holds and their voting rights. The
individual or entity must also notify the Conseil des Marches Financiers
("CMF"), within five trading days of the date it crosses the threshold.
French law and COB regulations impose additional reporting requirements on
persons who acquire more than 10% or 20% of the outstanding shares or voting
rights of a listed company. These persons must file a report with the company,
the COB and the CMF within fifteen days of the date they cross the threshold. In
the report, the acquiror must specify its intentions for the following 12-month
period, including whether or not it intends to continue its purchases, to
acquire control of the company in question or to nominate candidates for the
board of directors. The CMF makes the notice public. The acquiror must also
publish a press release stating its intentions in a financial newspaper of
national circulation in France. The acquiror may amend its stated intentions,
provided that it does so on the basis of significant changes in its own
situation or that of its shareholders. Upon any change of intention, it must
file a new report.
Under CMF regulations, and subject to limited exemptions granted by the
CMF, any person or persons acting in concert that own in excess of 33 1/3% of
the share capital or voting rights of a French listed company must initiate a
public tender offer for the balance of the share capital of such company.
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To permit holders to give the required notice, we must publish in the BALO
no later than 15 calendar days after the annual ordinary general meeting of
shareholders information with respect to the total number of voting rights
outstanding as of the date of such meeting. In addition, if the number of
outstanding voting rights changes by 5% or more between two annual ordinary
general meetings, we must publish in the BALO, within 15 calendar days of such
change, the number of voting rights outstanding and provide the CMF with written
notice of such information. The CMF publishes the total number of voting rights
so notified by all listed companies in a weekly notice (avis), noting the date
each such number was last updated.
If any person fails to comply with the legal notification requirement, the
shares or voting rights in excess of the relevant threshold will be deprived of
voting rights for all shareholders' meetings until the end of a two-year period
following the date on which their owner complies with the notification
requirements. In addition, any shareholder who fails to comply with these
requirements may have all or part of its voting rights suspended for up to five
years by the Commercial Court at the request of the chairman, any shareholder or
the COB, and may be subject to a FF 120,000 fine.
In addition, our statuts provide that any person or group that fails to
notify us within 15 days of acquiring or disposing of 0.5% or any multiple of
0.5% of our shares will be deprived of voting rights for shares in excess of the
unreported fraction.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before the depositary will issue or register transfer of an ADR, make a
distribution on an ADR, or make a withdrawal of shares, the depositary may
require:
- payment of stock transfer or other taxes or other governmental charges
and transfer or registration fees charged by third parties for the
transfer of any shares or other deposited securities;
- production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
- compliance with regulations it may establish, from time to time,
consistent with the agreement, including presentation of transfer
documents.
The depositary may refuse to deliver, transfer, or register transfers of
ADRs generally when the books of the depositary or our company are closed, or at
any time if the depositary or our company deems it advisable to do so.
You will have the right to cancel your ADRs and withdraw the underlying
shares at any time except in circumstances in which the depositary may restrict
the withdrawal of deposited securities. See "-- Deposit, Withdrawal and
Cancellation -- How do I cancel an ADS and obtain deposited securities?," page
118.
PRE-RELEASE OF ADSS
In certain circumstances, subject to the provisions of the agreement, the
depositary may issue ADRs before deposit of the underlying shares. This is
called a pre-release of the ADRs. The depositary may also deliver shares upon
cancellation of pre-released ADRs (even if the ADRs are cancelled before the
pre-release transaction has been closed out). A pre-release is closed out as
soon as the underlying shares are delivered to the depositary. The depositary
may receive ADRs instead of
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shares to close out a pre-release. The depositary may pre-release ADRs only
under the following conditions:
- before or at the time of the pre-release, the party to whom the
pre-release is being made must represent to the depositary in writing
that it or its customer owns the shares or ADRs to be deposited;
- the pre-release must be fully collateralized with cash or other
collateral that the depositary considers appropriate; and
- the depositary must be able to close out the pre-release on not more than
five business days' notice.
In addition, the depositary will limit the number of ADRs that may be
outstanding at any time as a result of pre-release, although the depositary may
disregard the limit from time to time, if it deems it appropriate to do so.
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PART III
ITEM 15: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable.
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DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
Registration Statement, which means that we can disclose important information
to you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Registration
Statement. This Registration Statement incorporates by reference the documents
set forth below that have been previously filed with the SEC:
(1) The audited consolidated financial statements of The Seagram
Company Ltd. included in Seagram's Annual Report on Form 10-K for the year
ended June 30, 1999;
(2) The unaudited interim consolidated financial statements of The
Seagram Company Ltd. included in Seagram's Quarterly Report on Form 10-Q,
dated March 31, 2000;
(3) The audited consolidated financial statements of The Seagram
Company Ltd. included in Seagram's Current Report on Form 8-K, dated August
17, 2000.
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PART IV
VIVENDI INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Public Accountants................... 129
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 131
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.......................... 133
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1999, 1998, 1997 and
1996...................................................... 134
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... 135
Notes to Consolidated Financial Statements.................. 137
</TABLE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Vivendi:
We have audited the accompanying consolidated balance sheet of Vivendi and
subsidiaries (together the "Company"), as of December 31, 1999 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended, expressed in Euros. We have also audited the
information presented in Note 22 and 23 and Note 25, which includes the
approximate effect of the differences between accounting principles generally
accepted in France and the United States on the consolidated net income and
shareholders' equity of Vivendi as of December 31, 1999 and 1998 and for the
years then ended. 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 audit. Barbier Frinault & Cie did not audit
the financial statements of the Company as of and for the year ended December
31, 1998. Those statements were audited by RSM Salustro Reydel whose report has
been furnished to Barbier Frinault & Cie and whose opinion, insofar as it
relates to amounts included in Note 22, 23 and 25 that are based on accounting
principles generally accepted in France for 1998, is based on that report.
We conducted our audit in accordance with auditing standards generally accepted
in France and the United States. 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 (including the conversion of certain
financial information of Vivendi as of December 31, 1999 and 1998 and for the
years then ended to accounting principles generally accepted in the United
States) 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, (a) the financial position of Vivendi and subsidiaries as
of December 31, 1999 and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in France and (b) the information with respect to accounting principles
generally accepted in the United States as of and for the years ended December
31, 1999 and December 31, 1998 set forth in the Note 25.
The accounting practices of the Company used in preparing the accompanying
financial statements vary in certain respects from accounting principles
generally accepted in the United States. A description of the significant
differences between the Company's accounting practices and accounting principles
generally accepted in the United States and the approximate effect of those
differences on consolidated net income and shareholders' equity for the two
years ended December 31, 1999 is set forth in Note 25 to the consolidated
financial statements.
Barbier Frinault & Cie, RSM Salustro Reydel
a member firm of Arthur Andersen
/s/ Barbier Frinault & Cie /s/ RSM Salustro Reydel
Paris, France
March 10, 2000
(Except with respect to the matters discussed in Note 25 as to which the date is
September 6, 2000)
129
<PAGE> 130
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Vivendi:
We have audited the accompanying consolidated balance sheet of Vivendi and
subsidiaries (together "the Company"), as of December 31, 1998 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the two years in the two year period ended December 1998.
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 audit.
We conducted our audits in accordance with auditing standards generally accepted
in France which are substantially similar to those generally accepted in the
United States. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Vivendi and subsidiaries as of
December 31, 1998 and the results of their operations and their cash flows for
each of the two years in the two year period ended December 31, 1998 in
conformity with accounting principles generally accepted in France.
The accompanying financial statements include changes in accounting policies
relating to pension commitments that were adopted by certain subsidiaries of the
Company as of January 1, 1997 and as of January 1, 1998 for the remaining
subsidiaries of Vivendi. The Company also changed its accounting policies
relating to capital leases and the use of the percentage of completion method as
of January 1, 1998. These changes are described in Note 2.
RSM Salustro Reydel
/s/ RSM Salustro Reydel
Paris, France
March 10, 2000
(Except with respect to the matters discussed in Note 25 as to which the date is
September 6, 2000)
130
<PAGE> 131
VIVENDI
CONSOLIDATED BALANCE SHEETS -- ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
NOTES 1999 1999 1998
----- ------------ --------- --------
($ MILLIONS) (E MILLIONS)
<S> <C> <C> <C> <C>
GOODWILL, NET................................ 3 10,436.4 10,388.6 4,514.9
OTHER INTANGIBLE ASSETS, NET................. 4 8,721.8 8,681.9 3,282.7
Property plant and equipment................. 26,691.3 26,569.1 18,641.1
Publicly-owned utility networks.............. 4,004.1 3,985.8 1,206.3
Accumulated depreciation..................... (10,626.1) (10,577.5) (7,605.3)
--------- --------- --------
PROPERTY, PLANT AND EQUIPMENT, NET........... 6 20,069.3 19,977.4 12,242.1
Investments accounted for using the equity
method..................................... 5 785.5 781.9 1,738.1
Investments accounted for using the cost
method..................................... 7 2,426.7 2,415.6 668.6
Portfolio investments held as fixed assets
(securities)............................... 7 536.9 534.4 876.3
Portfolio investments held as fixed assets
(others)................................... 7 2,572.9 2,561.1 2,749.9
--------- --------- --------
FINANCIAL ASSETS............................. 6,322.0 6,293.0 6,032.9
--------- --------- --------
TOTAL LONG-TERM ASSETS....................... 45,549.5 45,340.9 26,072.6
Inventories and work-in-progress............. 8 4,922.8 4,900.3 2,996.0
Accounts receivable.......................... 9 22,494.7 22,391.7 13,369.2
Short-term loans............................. 3,049.6 3,035.6 2,078.8
Cash, cash equivalents and marketable
securities................................. 10 7,141.2 7,108.5 4,465.8
--------- --------- --------
TOTAL CURRENT ASSETS......................... 37,608.3 37,436.1 22,909.8
--------- --------- --------
TOTAL ASSETS................................. 83,157.8 82,777.0 48,982.4
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E 1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
131
<PAGE> 132
VIVENDI
CONSOLIDATED BALANCE SHEETS -- LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
NOTES 1999 1999 1998
----- ------------ -------- --------
($ MILLIONS) (E MILLIONS)
<S> <C> <C> <C> <C>
Share capital................................. 3,291.2 3,276.1 2,431.0
Additional paid-in capital.................... 4,370.8 4,350.8 3,429.1
Retained earnings............................. 3,280.3 3,265.3 1,980.1
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.................... 11 10,942.3 10,892.2 7,840.2
MINORITY INTERESTS............................ 12 4,071.0 4,052.4 2,423.0
DEFERRED INCOME............................... 1,312.4 1,306.4 715.4
RESERVES AND ALLOWANCES....................... 14 6,915.0 6,883.3 5,931.7
SUBORDINATED DEBT............................. 13 179.1 178.3 174.0
Non-recourse project financing................ 13 1,198.5 1,193.0 1,059.7
Other financial long-term debt................ 13 17,943.9 17,861.7 8,722.8
-------- -------- --------
LONG-TERM DEBT................................ 13 19,142.4 19,054.7 9,782.5
OTHER LONG-TERM LIABILITIES................... 1,567.4 1,560.2 987.7
-------- -------- --------
TOTAL LONG-TERM LIABILITIES................... 44,129.6 43,927.5 27,854.5
Accounts payable.............................. 15 23,941.7 23,832.1 16,077.3
Bank overdrafts and other short-term
borrowings.................................. 15,086.5 15,017.4 5,050.6
-------- -------- --------
TOTAL CURRENT LIABILITIES..................... 39,028.2 38,849.5 21,127.9
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... 83,157.8 82,777.0 48,982.4
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E 1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
132
<PAGE> 133
VIVENDI
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
NOTES 1999 1999 1998 1997
----- ------------ --------- ------------ ---------
(E
($ MILLIONS) MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE................................ 41,814.0 41,622.5 31,737.1 25,476.6
Other revenue.......................... 1,960.2 1,951.3 1,516.8 954.6
Purchases and external costs........... (23,822.0) (23,712.9) (18,575.3) (14,810.9)
Personnel costs........................ (10,415.0) (10,367.3) (8,165.8) (6,760.5)
Taxes.................................. (662.2) (659.2) (627.9) (475.7)
Other operating expenses............... (3,829.3) (3,811.8) (2,662.5) (2,434.3)
Depreciation and amortization.......... (2,690.6) (2,678.3) (1,831.7) (1,314.0)
Employee profit-sharing................ (64.1) (63.8) (59.3) (40.3)
OPERATING INCOME....................... 2,291.0 2,280.5 1,331.4 595.5
--------- --------- --------- ---------
Financial (expenses) income............ (57.5) (57.2) 307.3 (180.5)
Financial provisions................... (163.6) (162.9) (298.0) (120.8)
NET FINANCIAL (EXPENSES) INCOME........ (221.1) (220.1) 9.3 (301.3)
--------- --------- --------- ---------
INCOME FROM OPERATIONS BEFORE
EXCEPTIONAL ITEMS AND INCOME TAXES... 2,069.9 2,060.4 1,340.7 294.2
--------- --------- --------- ---------
Exceptional items...................... (918.6) (914.3) 42.7 1,777.5
Depreciation, amortization and
provisions on exceptional items...... 76.9 76.5 206.6 (898.9)
INCOME BEFORE INCOME TAXES, GOODWILL
AMORTIZATION, EQUITY INTEREST AND
MINORITY INTEREST.................... 1,228.2 1,222.6 1,590.0 1,172.8
--------- --------- --------- ---------
Income taxes and deferred tax.......... 16 796.9 793.2 (90.0) (194.7)
INCOME BEFORE GOODWILL AMORTIZATION,
EQUITY INTEREST AND MINORITY
INTEREST............................. 2,025.1 2,015.8 1,500.0 978.1
--------- --------- --------- ---------
Goodwill amortization.................. (614.8) (612.0) (209.5) (374.7)
INCOME BEFORE EQUITY INTEREST AND
MINORITY INTEREST.................... 1,410.3 1,403.8 1,290.5 603.4
--------- --------- --------- ---------
EQUITY IN NET INCOME OF AFFILIATES..... 33.0 32.9 42.5 103.6
Minority interest...................... (5.3) (5.3) (212.2) 115.1
NET INCOME............................. 1,438.0 1,431.4 1,120.8 822.1
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E 1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
133
<PAGE> 134
VIVENDI
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARE ADDITIONAL PAID- RETAINED NET SHAREHOLDERS'
NOTES CAPITAL IN CAPITAL EARNINGS INCOME EQUITY
----- ------- ---------------- -------- -------- -------------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996....................... 1,869.2 2,358.3 609.6 297.7 5,134.8
Net income for the year
1997....................... 822.1 822.1
Foreign currency translation
adjustment................. 208.4 208.4
Dividends paid and net income
appropriation.............. 71.9 (297.7) (225.8)
Goodwill..................... (31.9) (31.9)
Capital increase............. 11 174.3 910.9 1,085.2
Release of revaluation
surplus and other.......... (146.1) (146.1)
------- -------- ------- -------- --------
BALANCE AT DECEMBER 31,
1997....................... 2,043.5 3,237.3 743.8 822.1 6,846.7
Changes in accounting
methods.................... 11 (226.8) (226.8)
------- -------- ------- -------- --------
RESTATED NET TOTAL AT
DECEMBER 31, 1997.......... 2,043.5 3,237.3 517.0 822.1 6,619.9
Net income for the year
1998....................... 1,120.8 1,120.8
Foreign currency translation
adjustment................. (168.7) (168.7)
Dividends paid and net income
appropriation.............. 516.2 (822.1) (305.9)
Goodwill..................... 11 (579.0) (579.0)
Capital increase............. 11 387.5 770.8 1,158.3
Release of revaluation
surplus and other.......... (5.2) (5.2)
------- -------- ------- -------- --------
BALANCE AT DECEMBER 31,
1998....................... 2,431.0 3,429.1 859.3 1,120.8 7,840.2
Net income for the year
1999....................... 1,431.4 1,431.4
Foreign currency translation
adjustment................. 383.3 383.3
Dividends paid and net income
appropriation.............. 707.3 (1,120.8) (413.5)
Goodwill..................... 3&11 (4,310.3) (4,310.3)
Capital increase............. 11 845.1 5,232.0 6,077.1
Release of revaluation
surplus and other.......... (116.0) (116.0)
------- -------- ------- -------- --------
BALANCE AT DECEMBER 31,
1999....................... 3,276.1 4,350.8 1,833.9 1,431.4 10,892.2
======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E 1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
134
<PAGE> 135
VIVENDI
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
U.S. $ EUROS
------------ -----------------------------------
1999 1999 1998 1997
------------ --------- ------------ --------
($ MILLIONS) (E MILLIONS)
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income............................... 1,438.0 1,431.4 1,120.8 822.1
Adjustments to reconcile net income to
net cash provided by operating
activities............................
Depreciation and amortization......... 3,505.8 3,489.7 2,125.0 2,822.3
Financial provisions.................. 163.6 162.9 298.0 120.8
Gains on sale on property and
equipment and financial assets,
net................................. (673.1) (670.0) (297.9) (2,120.7)
Undistributed earnings of affiliate,
net................................. 51.0 50.8 38.8 (27.4)
Deferred taxes........................ (1,026.8) (1,022.1) (279.4) 53.9
Minority interests.................... 5.3 5.3 212.2 (115.1)
Net changes in current assets and
liabilities:
Prepaid, deferrals and accruals..... (1,099.3) (1,094.3) (536.1) (423.5)
Other working capital............... (948.6) (944.3) 216.5 468.8
--------- --------- -------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.......................... 1,415.9 1,409.4 2,897.9 1,601.2
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment............................. (5,723.5) (5,697.3) (3,942.1) (2,289.9)
Proceeds from sale of property, plant and
equipment............................. 1,097.1 1,092.1 191.7 289.1
Purchase of investments.................. (12,026.8) (11,971.7) (2,229.0) (3,139.4)
Sales of investments..................... 2,716.9 2,704.5 2,532.7 2,950.0
Purchase of portfolio investments........ (719.7) (716.4) (168.1) (169.4)
Sales of portfolio investments........... 676.4 673.3 579.3 283.6
Disbursement on notes receivables........ (1,126.2) (1,121.0) (522.1) (576.6)
Principal payment on notes receivables... 1,850.2 1,841.8 192.1 600.0
Net (increase) decrease in short-term
financial receivables................. (121.2) (120.7) 1,421.2 (491.9)
Purchase of treasury shares held as
marketable securities................. (1,408.2) (1,401.8) (288.7) (252.1)
Sales (purchases) of other marketable
securities............................ 1,166.2 1,161.0 (692.8) (309.8)
--------- --------- -------- --------
NET CASH USED IN INVESTING
ACTIVITIES.......................... (13,618.8) (13,556.2) (2,925.8) (3,106.4)
</TABLE>
135
<PAGE> 136
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
U.S. $ EUROS
------------ -----------------------------------
1999 1999 1998 1997
------------ --------- ------------ --------
($ MILLIONS) (E MILLIONS)
<S> <C> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term
borrowings............................ 9,316.1 9,273.4 (1,384.2) (1,675.3)
Proceeds from insurance of borrowings and
other long-term debt.................. 11,749.4 11,695.6 2,850.7 1,868.3
Principal payment on borrowings and other
long-term debt........................ (9,945.1) (9,899.5) (1,042.4) (853.2)
Net proceeds from issuance of common
stock................................. 3,310.7 3,295.5 146.8 2,381.4
Purchase of treasury stock............... (135.9) (135.3) -- --
Cash dividends paid...................... (486.0) (483.8) (348.3) (56.8)
--------- --------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.......................... 13,809.2 13,745.9 222.6 1,664.4
Effect of foreign currency exchange rate
changes on cash and cash equivalents..... (1.5) (1.5) 89.3 36.1
--------- --------- -------- --------
CHANGE IN CASH AND CASH EQUIVALENTS........ 1,604.8 1,597.6 284.0 195.3
========= ========= ======== ========
CASH AND CASH EQUIVALENTS:
Beginning................................ 1,270.1 1,264.2 980.2 784.9
Ending................................... 2,874.9 2,861.8 1,264.2 980.2
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments for:
Interest.............................. 875.9 871.9 408.0 334.0
Income taxes.......................... 371.2 369.5 140.8 181.4
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition:
Purchase of affiliates by issuance of
common stock........................ 2,236.4 2,225.2 923.1 41.9
Issuance of common stock in settlement
of note payable..................... 622.5 619.6 150.0 768.5
Issuance of common stock in settlement
of dividends........................ 162.4
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
For periods presented prior to January 1, 1999, the Consolidated Financial
Statements have been prepared in French francs and translated into euros using
the official fixed exchange rate E 1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the Consolidated Financial Statements).
136
<PAGE> 137
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BUSINESS DESCRIPTION
Vivendi, together with its subsidiaries and investees ("Vivendi" or the
"Company"), a French corporation (Societe Anonyme) provides a broad range of
services mainly in three primary business sectors: Communication and
Environmental Services, which are the two core business sectors of the Company,
and Construction and Real Estate, whose activities the Company has been
reducing.
Incorporated in 1853, where it originally supplied water in French cities,
the Company experienced mostly internal growth until the early 1980s, when it
significantly diversified its environmental activities by entering the waste
management, energy and transportation businesses. The Company entered into the
communication sector, through its participation in the establishment of the
first French pay television service, Canal+, in 1983, and in 1987 by launching
Societe Francaise du Radiotelephone ("SFR"), the first private mobile telephony
operator in France. In addition, the Company entered the multimedia and
publishing sector through the acquisition of Havas (1998) and Cendant Software
(1998). In 1988, the Company reinforced operations in the construction sector
through the purchase of Societe Generale d'Entreprises ("Vinci"), a French
building and civil engineering company.
Following is a brief description of the operating activities in each of the
business sectors:
COMMUNICATION (TELECOMMUNICATION, MULTIMEDIA AND PUBLISHING, AUDIOVISUAL AND
INTERNET SEGMENTS):
The Company provides a wide variety of communication, entertainment and
educational products and services, from mobile telephony and Internet services
to film production and publishing. The primary focus of the communication
business is on developing integrated telecommunication and multimedia services
for the European market and establishing and developing Internet websites and
services.
ENVIRONMENTAL SERVICES (WATER, WASTE MANAGEMENT, ENERGY, TRANSPORTATION, AND
FOMENTO DE CONSTRUCCIONES Y CONTRACTES ("FCC") SEGMENTS):
The Company is a provider of environmental management services to a wide
range of public authorities and industrial, commercial and residential
customers. The Company offers a variety of integrated services, including water
treatment and system operation, waste management, energy services and power
generation, and transportation services. The Company also jointly controls FCC,
a Spanish publicly listed multi-services environmental and construction company.
CONSTRUCTION AND REAL ESTATE SEGMENTS:
As part of the on-going strategy of the Company of focusing on
Communication and Environmental services, the Company decided in 1999 to reduce
its activities in the real estate and construction businesses. The Company will
retain certain real estate assets consisting primarily of investments arising
out of past real estate development projects. In January 2000, the Company has
reduced its stake in the Construction Group, Vinci to 16.9% and in July 2000 the
Company has sold Nexity to institutional investors.
137
<PAGE> 138
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated financial statements of Vivendi have been prepared in
accordance with accounting principles generally accepted in France ("French
GAAP"). The financial statements of foreign subsidiaries have, when necessary,
been adjusted to comply with French GAAP. French GAAP differs in certain
respects from accounting principles generally accepted in the United States. A
description of these differences and their effects on net income and
shareholders' equity is set forth in Note 25. The financial statements have been
formatted in the original French GAAP financial statements presentation and
where necessary have been modified to include certain additional disclosures in
order to conform more closely with the content of financial statements required
by the generally accepted accounting principles in the United States ("US
GAAP").
CONVENIENCE TRANSLATIONS
The consolidated balance sheet and consolidated statements of income and
cash flows include amounts as of and for the year ended December 31, 1999
denominated in millions of U.S. dollars. These amounts are presented as
permitted convenience translations under Rule 3-20 of Regulation S-X of the U.S.
Securities and Exchange Commission and have been prepared using an exchange rate
of US$1 to E 0.995, which was the exchange rate as of December 31, 1999.
Convenience translations are presented solely for the convenience of the reader
of these financial statements and should not be construed as representations
that the local currency has been, could have been, or could in the future be
converted into U.S. dollars at this or any other rate of exchange.
PRINCIPLES OF CONSOLIDATION
All material companies in which Vivendi has legal or effective control are
consolidated. The Company consolidates Cegetel and Canal+, in which it owns less
than 50% of the voting shares. The Company has a direct and indirect ownership
interest in Cegetel totaling 44%. Cegetel is consolidated because, through a
shareholders' agreement, the Company has a majority of the shareholder voting
rights. The Company has a 49% ownership interest in Canal+. With respect to
Canal+, the Company has the ability to control major decisions through its Board
representatives and through its participation on the Compensation Committee of
the Board. The Company has a direct and indirect ownership interest in Societe
Generale d'Entreprises ("S.G.E.," renamed Vinci in 2000) totaling 49.2%.
Pursuant to a decision of a general meeting of the shareholders of S.G.E.,
double voting rights were granted to all shares held by the same shareholder for
at least two years. As a result of this decision, the Company controls S.G.E. as
of December 31, 1999 through its holding of 62.97% of the voting rights. In
addition, the Company only consolidates the subsidiary if no other shareholder
or group of shareholders exercise substantive participating rights, which would
allow those shareholders to veto or block decisions taken by the Company. The
Company uses the equity method of accounting for its investments in certain
subsidiaries in which it owns less than 20% of the voting shares. In these
situations, the Company exercises significant influence over the operating and
financial decisions of the subsidiary either (a) through a disproportionate
representation on the subsidiary's board of directors, e.g., the percentage of
directors appointed to the board by the Company is greater than the percentage
of its shareholding interest and those directors allow the Company to exercise
significant influence, and (b) because there is no other shareholder with a
majority voting ownership in the subsidiary, which is a consideration under
French accounting principles to determine whether significant influence exists,
or (c) because the Company exercises substantive participating rights, through
shareholders agreements, that allow the Company to veto or block decisions taken
by the subsidiary board. Significant investments in which Vivendi has 20% to 50%
ownership or otherwise exercises significant influence are accounted for under
the equity method. The proportionate method of consolidation is used for
investments in jointly controlled companies,
138
<PAGE> 139
where Vivendi and outside shareholders have agreed to exercise joint control
over significant financial and operations policies. For such entities, the
Company records its proportionate interest in the balance sheet and income
statement accounts. All other investments in affiliates which are not
consolidated are accounted for at cost. Subsidiaries acquired are included in
the consolidated financial statements as of the acquisition date or the most
recent balance sheet date. All material intercompany transactions have been
eliminated. In the case of proportionally consolidated companies, intercompany
transactions are eliminated on the basis of Vivendi interest in the company
involved.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and the disclosures of contingent assets and
liabilities. Actual results could differ significantly from these estimates.
Significant estimates made by management in the preparation of these
financial statements include amounts for pension liabilities, deferred taxes,
valuation estimates for long-lived assets, total gross revenue on film and
television rights, as well as recorded and disclosed amounts for certain
financial instruments.
INTRODUCTION OF THE EURO
Since the introduction of the euro on January 1, 1999, the functional and
reporting currency of the Company has been the euro. Prior to this date, the
functional and reporting currency of the Company was the French franc.
Consequently, prior periods have been restated from French francs into euros
using the official fixed exchange rate E 1 = FF 6.55957. These restated
financial statements depict the same trends as the financial statements
previously prepared using the French franc. Further, the restated financial
statements will not be comparable to financial statements of other companies
that report in euros and have restated prior periods from currencies different
than the French franc.
TRANSLATION OF FOREIGN SUBSIDIARIES' FINANCIAL STATEMENTS
Balance sheets, statements of income and cash flows of subsidiaries whose
functional currency is different from that of the parent are translated into the
reporting currency at the applicable year-end exchange rates. Translation gains
and losses are recorded in retained earnings. The exchange rates of the
significant currencies of non-euro countries used in the preparation of the
consolidated financial statements were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
US dollar............................................... 0.995 0.857 0.913
Pound sterling.......................................... 1.608 1.418 1.512
</TABLE>
For subsidiaries operating in countries where the local currency is deemed
to be highly inflationary, balance sheets and statements of income and cash
flows are translated into a stable currency of a country that has a similar
economy. Related translation gains or losses are recorded in current period
earnings. These financial statements are then translated from the stable
currency into the reporting currency using year-end exchanges rates, and related
translation gains or losses are recorded in retained earnings.
Subsequent to December 31, 1998, balance sheets, statements of income and
cash flows of subsidiaries located in countries that have adopted the Euro as
their official currency are translated from the former national currencies to
the Euro at the official fixed exchange rates that have been established as of
January 1, 1999 and are no longer subject to fluctuation.
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<PAGE> 140
REVENUE RECOGNITION
Revenue is recorded when title passes to the customer or when services are
rendered in accordance with contracts. Title passes to the customer when goods
are shipped. Revenues relating to specific sectors are discussed in applicable
sections of this footnote.
GOODWILL AND BUSINESS COMBINATIONS
All business combinations are accounted for as purchases or mergers. Under
the purchase accounting method, assets acquired and liabilities assumed are
recorded at fair value. The excess of the purchase price over the fair value of
net assets acquired, if any, is capitalized as goodwill and amortized over the
estimated period of benefit on a straight-line basis. The amortization periods
for goodwill range from 10 to 40 years.
Certain significant acquisitions have been accounted for as mergers as
permitted under French GAAP. Under this method, the assets and liabilities of
the acquired company are accounted for at historical cost. Goodwill corresponds
to the difference between the value of shares issued and the equity of ownership
interests acquired, valued at historical cost.
In accordance with French GAAP, for transactions where acquisitions are
completed through issuance of capital, the portion of goodwill attributable to
such proceeds may be charged to shareholders' equity, up to the amount of the
related share premium.
OTHER INTANGIBLE ASSETS
Market share and editorial resources (see accounting policies specific to
the communication sector) are not amortized.
Start-up costs relating to the implementation of new activities including
pre-operating costs and film development rights, are amortized over their
estimated useful life.
Other intangible assets include costs incurred to obtain contracts, such as
mobile subscribers acquisition costs and fees paid to local authorities for
public services contracts. Subscribers acquisition costs are amortized over the
contract period of 12 months. Fees paid to local authorities are amortized over
the duration of the contract, which is up to 30 years.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
following useful lives:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES IN YEARS
----------------
<S> <C>
Buildings................................................... 20 to 50
Equipment and machinery..................................... 3 to 15
</TABLE>
Assets financed by leasing contracts that include a purchase option (known
in France as "credit-bail") are capitalized and amortized over the shorter of
the lease term or the estimated useful lives of the assets. Amortization expense
on assets acquired under such leases is included with depreciation and
amortization expense.
VALUATION OF LONG-LIVED ASSETS
The carrying value of long-lived assets, including goodwill and other
intangible assets, is reviewed on a regular basis for the existence of facts or
circumstances, both internally and externally, that may
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<PAGE> 141
suggest impairment. Should impairment be indicated, a valuation allowance is
established, based on estimated fair value.
FINANCIAL ASSETS
Investments accounted for using the cost method
Investments in unconsolidated affiliates are carried at cost. Any negative
difference between carrying value and fair value that is determined to be other
than temporary is reserved.
Portfolio investments held as fixed assets
Portfolio and other investments include unlisted and listed equity
securities of unconsolidated subsidiaries and long-term loans that are recorded
at cost. When fair value is less than cost and is determined to be other than
temporary, a valuation allowance may be provided. Estimated fair value is
determined on the basis of Vivendi's share of the equity of the companies
concerned adjusted to market value in the case of listed securities, and of
their earnings growth prospects.
INVENTORIES AND WORK-IN-PROGRESS
The Company values inventories according to the provisions of the French
Commercial Code, either on a first-in-first-out or a weighted average cost
basis. Inventories are stated at the lower of cost or net realizable value.
Work-in-progress consists primarily of long-term contracts incurred in the
Construction and Real Estate sector.
DEFERRED TAXES
Deferred tax assets are recognized for deductible timing differences, net
tax operating loss carryforwards and tax credit carryforwards. Deferred tax
liabilities are recognized for taxable timing differences. Deferred tax assets
are recorded at their estimated net realizable value. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
enactment date.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash and cash equivalents include all cash balances and short-term highly
liquid investments with original maturities of three months or less at the time
of purchase and are stated at cost which approximates their fair value.
Marketable securities include Vivendi treasury shares and other highly
liquid investments. Vivendi treasury shares are classified as marketable
securities when they are acquired to stabilize the market price of Vivendi
shares or in connection with stock options granted to directors and employees.
Treasury shares held for other reasons are recorded as an offset to
shareholders' equity. Marketable securities are carried at cost, and a valuation
allowance is provided if the fair value is less than the carrying value.
PENSION PLANS
Vivendi has several pension plans that cover substantially all employees.
Vivendi determines its pension obligations using the projected unit credit
method. This method considers the probability of personnel remaining with
Vivendi until retirement, the foreseeable changes in future compensation, and
the appropriate discount rate for each country in which Vivendi maintains a
pension plan. This results in the recognition of pension-related assets or
liabilities, and the recognition of the related net expenses over the estimated
term of service of the employees.
141
<PAGE> 142
Vivendi's employees in France and most other European countries are
eligible, for severance pay pursuant to applicable law immediately upon
termination. Vivendi reserves for such employee termination liabilities using
the projected unit credit method.
Prior to 1998, Vivendi only recorded the benefits paid to retired employees
and the premiums paid for insurance contracts that covered pension benefits and
retirement indemnities for employees in service at that time as pension
expenses.
STOCK BASED COMPENSATION
Vivendi has adopted stock option incentive plans that grant options on its
common shares to certain directors and officers. The purpose of these stock
option plans is to align the interest of management with the interest of
shareholders by providing certain officers and other key employees with
additional incentives to increase the Company's performance on a long-term
basis. Shareholders' equity is credited for the cumulative strike price to
reflect the issuance of shares upon the exercise of options. Treasury shares
that are held by the Company to fulfill its obligations under stock options
granted have been recorded in the balance sheet as marketable securities and are
carried at the lower of their historical cost or fair value. Vivendi recognizes
any resulting holding gain or loss in the period that the shares are sold to the
plan.
The Company also maintains employee stock purchase plans that allow
substantially all full-time employees of Vivendi and certain of its subsidiaries
to purchase shares of Vivendi. Shares purchased by employees under these plans
are subject to certain restrictions over the sale or transfer of the shares by
employees for a five-year period. The shares are sold to employees at a discount
of 20% from the average market price of Vivendi stock over the last 20 business
days prior to the date that the share grant is authorized by the Board of
Directors.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company manages certain of its financial risks by using derivative
financial instruments that qualify as hedges.
The Company primarily uses interest rate swaps and caps to manage interest
rate risks relating to its funding costs. The goal of these swaps is, depending
on the circumstances involved, to modify from fixed to floating rates and from
floating to fixed as well as to modify the underlying index on floating rate
debt. The goal of the interest caps is to limit the upside risk relating to
floating rate debt. Interest rate swaps that modify borrowings or designated
assets are accounted for on an accrual basis. Premiums paid for interest rate
caps are expensed as incurred.
The Company uses currency swaps and forward exchange contracts to manage
its foreign currency risk. Forward exchange contracts are used to hedge firm and
anticipated transactions relating to assets denominated in foreign currencies.
Currency rate swaps are used to modify the interest rate and currency of foreign
denominated debt. Gains and losses arising from the change in the fair value of
currency instruments that qualify for hedge accounting treatment are deferred
until related gains or losses on hedged items are realized.
Other derivative financial instruments are used by the Company to hedge a
part of public debt with principal repayment terms based on the value of Vivendi
stock. These instruments effectively modify the principal terms to a fixed
amount and the rates to floating rates.
Any financial instruments that do not qualify as hedges for financial
reporting purposes are recorded at the lower of cost or fair value in other
current assets or liabilities and the profit or loss relating to the periodic
change in fair value is recorded as income or expense in the current period.
142
<PAGE> 143
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are converted into euros at the exchange rate
on the transaction date. At year-end, receivables and payables denominated in
foreign currencies are translated into euros at the year-end exchange rates. The
resulting exchange losses are expensed in the current period earnings and
unrealized gains are deferred.
Exchange losses on borrowings denominated in foreign currencies that
qualify as hedges of net investments in foreign subsidiaries are included as
translation adjustments as a separate component of shareholders' equity.
RESEARCH AND DEVELOPMENT
The Research and Development costs are expensed as incurred. Research and
Development costs were E 121 million, E 62 million and E 46 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
ACCOUNTING FOR INTERNAL USE SOFTWARE
Direct internal and external costs incurred to develop computer software
for internal use are capitalized during the application development stage and
otherwise expensed. Such costs are amortized over their useful life. Policies
applied by specific sectors are discussed in applicable sections of this
footnote.
ACCOUNTING FOR COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE
MARKETED
All costs incurred to establish the technological feasibility of a computer
software product to be sold, leased, or otherwise marketed are research and
development costs. Such costs are charged as expenses as they are incurred. The
technological feasibility of a computer software product is established when the
Company has completed all planning, designing, coding, and testing activities
that are necessary to establish that the product can be produced to meet its
design specifications. The period between establishing the technological
feasibility and the generation of a working model of the software to be marketed
is not material; therefore, the Company expenses all costs relating to external
use software.
ADVERTISING COSTS
The cost of advertising is expensed as incurred; however, certain costs
specifically related to the change of Company corporate name have been
capitalized and amortized over 3 years.
EARNINGS PER SHARE
Earnings per share is based on net income after taxes divided by the
weighted average number of common shares outstanding.
ACCOUNTING POLICIES SPECIFIC TO THE COMMUNICATION SECTOR
Audiovisual segment
Revenue from broadcast advertising is recognized when commercials are
aired. Revenue from television subscription services related to cable and
satellite programming services is recognized as the services are provided.
Revenue from the theatrical distribution of motion pictures is recognized when
the motion pictures are exhibited.
Film and television rights are stated at the lower of cost, less
accumulated amortization, or net realizable value. Television broadcast
programming licenses and rights and related liabilities are
143
<PAGE> 144
recorded at contractual price when the screening certificate is obtained or from
the signature date of the contract, if later. Films and television production
costs are expensed based on the ratio of the current period's gross revenue to
estimated total gross revenue from all sources on an individual production
basis. Revenue estimates are reviewed periodically and amortization is adjusted
accordingly.
Television network and station rights for theatrical movies and other
long-term programming are charged to expense primarily on the usage of programs.
Multi-year sports rights are charged to expense over the term of the contract.
Estimates of total gross revenue can change significantly due to a variety
of factors, including the level of market acceptance of the film and television
products, advertising rates and subscriber fees. Accordingly, revenue estimates
are reviewed periodically and the related asset amortization is adjusted
prospectively, if necessary. Such adjustments could have a material effect on
results of operations in future periods.
Telecommunication segment
Revenue from the telecommunication segment are recognized when the services
are provided. Telecommunication subscription revenue fees are deferred and
recognized over the contract term, generally 12 months. Prepaid
telecommunication fees are deferred and recognized when minutes are used.
Discounts granted to customers represent mobile purchase incentives
(service credit for 12 months) and discounts on packs (mobile granted access to
an SFR flat-rate tariff including connection). These discounts are treated as a
reduction in revenue, and are spread over 12 months from the date the line is
put into service.
Internet segment
Website development costs are expensed as incurred.
Multimedia and publishing segment
Revenue in the publishing segment is comprised of magazine advertising
revenue which is earned when the advertisement runs and publication subscription
revenue which is recognized over the term of the subscription on a straight-line
basis. In addition, revenue in this segment is generated from book and software
sales, which is recognized when legal title to goods transfers upon shipment to
the retailer.
ACCOUNTING POLICIES SPECIFIC TO THE ENVIRONMENTAL SERVICES SECTOR
Contractual Environment
Vivendi holds public service contracts relating to its operations in water
distribution and treatment, district heating networks, urban transportation and
waste collection and treatment. Under the French legal system, there are three
primary types of public service contracts: "Affermage" (public service
management) where the operator is granted the obligation to manage and maintain
facilities owned and financed by local authorities, "Concession", facility
management contracts which are similar to a BOT (Build Operate Transfer
agreements) and contracts presenting mixed characteristics of "Affermage"
(public service management) and "Concession" contracts.
In France, Vivendi mainly operates "Affermage" (public service management)
contracts.
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<PAGE> 145
Revenue Recognition
Revenue is recognized when services are rendered.
Facilities
Facilities operated by the Company are generally financed by local
authorities and remain their property throughout the contract period. Individual
facilities financed by the Company as a consequence of specific contractual
terms are recorded as fixed assets and depreciated to their estimated residual
value, if any, on the shorter of their economic useful lives or the contract's
term. Wherever the contract's term is shorter than the economic useful life of
the asset, such depreciation is classified as a liability as a financial
depreciation.
Commitments to maintain and repair assets
Vivendi generally assumes a contractual obligation to maintain and repair
facilities managed through public service contracts. Corresponding repair and
maintenance costs are expensed as incurred, except for some investments in joint
ventures where these costs are accrued in advance.
Fees paid to local authorities
Vivendi does not have any obligation for compensation payments to local
authorities during the contract period, except for fees that have been agreed by
both parties and formally defined by the contract.
Vivendi's policy is to expense as incurred fees that are paid to local
authorities when these fees are paid annually and to amortize these costs on a
straight-line basis when the fees consist of payments at the beginning of the
contract.
Landfill capitalization and depletion
Landfill sites are carried out at cost and amortized ratably using the
units of production method over the estimated useful life of the site as the
airspace of the landfill is consumed.
Landfill costs include capitalized engineering and other professional fees
paid to third parties incurred to obtain a disposal facility permit.
When the Company determines that the facility cannot be developed or the
likelihood of grant of the permit cannot be documented before its final
authorization, as it is the case in France and the UK, these costs are expensed
as incurred.
Landfill closure and post-closure costs
The Company has financial obligations relating to closure and post-closure
costs and the remediation of disposal facilities it operates or is otherwise
responsible for. The Company accrues a reserve for these estimated future costs
pro rata over the estimated useful life of the facilities.
ACCOUNTING POLICIES SPECIFIC TO THE CONSTRUCTION AND REAL ESTATE SECTOR
Real Estate segment
Real estate companies recognize revenue on real estate development projects
using the percentage-of-completion method when certain criteria are met or upon
consummation of the sales contract and delivery of the real estate. Unsold units
are included in work-in-progress at the lower of carrying value or estimated
fair value at completion less cost to sell.
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<PAGE> 146
For rental properties, the difference between rental income and operating
costs is charged to earnings. Provisions are made, as appropriate, to reduce
rental properties to the lower of cost or fair value.
Construction contracts
Construction companies recognize margin using the percentage of completion
method. The percentage of completion method was adopted on January 1, 1998 by
companies operating in the Construction and Real Estate business segments for
contracts in excess of six months in duration. Contracts in these sectors with
an anticipated duration of less than six months are accounted for under the
completed contract method. For building and civil engineering and road works,
the Company recognizes percentage of completion based upon the unit of work
performed method. This "technical progress" is measured by Company engineers
based upon procedures approved by management. For other activities where the
measurement of technical progress is not practicable, progress is measured by
the ratio of costs incurred in the period to the total estimated costs of the
contracts.
The Company determines substantial completion of a contract whenever work
has been accepted by clients. This approval is materialized by the signature by
the client of a specific report.
The Company recognizes costs related to claims as incurred whereas revenues
are recognized when they are approved by the customer. If the additional costs
are not the result of deficiencies in the contractor's performance, such
revenues are nevertheless recognized if assessed by management as having a legal
basis in the contract, were unforeseen at the contract date, are based on
reasonable, identifiable, verifiable costs which are probable to result in
additional revenue.
Over the period of construction costs and revenues at completion are
periodically revised to take into account identified modifications of the terms
of the contract. Impacts of such changes in estimated gross profit are
recognized in the income of the period if the Company becomes aware of them
prior to the issuance of the financial statements. In addition, whenever a loss
at completion becomes probable due to these changes, a provision to cover the
loss is made.
CHANGE IN ACCOUNTING PRINCIPLES
As of January 1, 1997, for certain subsidiaries of the Company and as of
January 1, 1998, for the remaining other subsidiaries, Vivendi adopted new
accounting principles pursuant to changes in French GAAP for pensions. As of
January 1, 1998 and pursuant to recommendations made by the "Conseil National de
la Comptabilite" on June 18, 1997, Vivendi adopted new accounting principles
pursuant to changes in French GAAP for capital leases and long-term construction
contracts. These changes were made to more closely align the Company's
accounting practices to International Accounting Standards. The cumulative
effects of these changes in accounting principles were to increase 1998 net
income by E 10.3 million and to decrease retained earnings by E 226.8 million.
NEW ACCOUNTING PRONOUNCEMENTS IN FRANCE
A new set of accounting standards set forth by the "Comite de la
Reglementation Comptable" in April 1999, covering the consolidation
methodologies applicable to consolidated financial statements will be effective
for fiscal years beginning on or after January 1, 2000. The Company does not
expect that the adoption of these new standards will have any material impact on
the Company's financial position or results of operations.
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<PAGE> 147
3) GOODWILL AND BUSINESS COMBINATIONS
Goodwill by segment is detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1999 1998
------------------------------------ -------
ACCUMULATED
GROSS AMORTIZATION NET NET
-------- ------------ -------- -------
<S> <C> <C> <C> <C>
Telecommunication........................... 1,866.2 (153.5) 1,712.7 1,566.5
Multimedia and Publishing................... 650.5 (55.6) 594.9 309.7
Audiovisual................................. 2,307.5 (142.3) 2,165.2 456.2
Internet.................................... -- -- -- --
-------- -------- -------- -------
COMMUNICATION............................... 4,824.2 (351.4) 4,472.8 2,332.4
-------- -------- -------- -------
Water....................................... 2,779.6 (352.7) 2,426.9 336.2
Waste management............................ 1,317.1 (115.1) 1,202.0 423.3
Energy...................................... 875.4 (190.3) 685.1 352.8
Transportation.............................. 196.0 (51.6) 144.4 93.5
FCC......................................... 734.7 (75.9) 658.8 627.6
-------- -------- -------- -------
ENVIRONMENTAL SERVICES...................... 5,902.8 (785.6) 5,117.2 1,833.4
-------- -------- -------- -------
Construction................................ 1,015.4 (313.1) 702.3 236.7
Real Estate................................. 255.9 (166.2) 89.7 111.7
-------- -------- -------- -------
CONSTRUCTION & REAL ESTATE.................. 1,271.3 (479.3) 792.0 348.4
-------- -------- -------- -------
OTHER....................................... 139.7 (133.1) 6.6 0.7
-------- -------- -------- -------
TOTAL....................................... 12,138.0 (1,749.4) 10,388.6 4,514.9
======== ======== ======== =======
</TABLE>
Total goodwill amortization expense for the years ended December 31, 1999,
1998 and 1997 was E 612.0 million, E 209.5 million and E 374.7 million,
respectively.
The following is a summary of the most significant acquisitions during the
periods presented in the accompanying financial statements:
HAVAS
Effective January 1, 1998, Vivendi acquired the remaining 70.6% of Havas, a
publishing and multimedia company. In exchange for these shares, Vivendi issued
69,236,562 shares of common stock to Havas shareholders. Cumulated with the
shares acquired in 1997 the total goodwill related to Havas is detailed as
follows being considered that the 1998 transaction is accounted for as a merger
(in millions of Euros):
<TABLE>
<S> <C>
Book value of net tangible and intangible assets acquired... 1,336
Purchase price.............................................. 2,595
-----
Goodwill.................................................... 1,259
-----
Goodwill recorded as an asset............................... 680
Goodwill charged to shareholders' equity.................... 579
</TABLE>
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
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FCC
In October 1998, Vivendi acquired 49% and obtained joint control of a
Spanish holding company whose only asset is a 56.5% ownership interest in FCC, a
publicly listed company in Spain active in the environmental services sector.
Vivendi paid E 794 million in cash in exchange for the interest in the holding
company. The holding company, which fully consolidates FCC, is reflected in the
Company's financial statements on the proportionate consolidation method. The
details of the acquisition are as follows (in millions of Euros):
<TABLE>
<S> <C>
Fair value of net tangible and intangible assets acquired... 240
Purchase price.............................................. 794
---
Goodwill.................................................... 554
---
Goodwill recorded as an asset............................... 554
</TABLE>
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
HAVAS INTERACTIVE
In January 1999, Vivendi acquired 100% of the outstanding shares of Cendant
Software (renamed Havas Interactive), a US based software development company
which produces games and educational CD-ROM. The transaction was accounted for
as a purchase. Vivendi made a payment of E 678 million in exchange for the
shares of Havas Interactive. The details of the acquisition are as follows (in
millions of Euros):
<TABLE>
<S> <C>
Fair value of net tangible and intangible assets acquired... 396
Purchase price.............................................. 678
---
Goodwill.................................................... 282
---
Goodwill recorded as an asset............................... 282
</TABLE>
Goodwill recorded as an asset arising from this transaction is being
amortized over 10 years.
USFILTER
In April 1999, Vivendi acquired 100% of the outstanding shares of USFilter,
a US based water treatment and equipment manufacturing company. The transaction
was accounted for as a purchase. Vivendi paid E 5,801 million in cash and
financed through issuance of bonds and issuance of Vivendi common shares. The
details of the acquisition are as follows (in millions of Euros):
<TABLE>
<S> <C>
Fair value of net tangible and intangible assets acquired... 1,224
Purchase price.............................................. 5,801
-----
Goodwill.................................................... 4,577
-----
Goodwill recorded as an asset............................... 1,801
Goodwill charged to shareholders' equity.................... 2,776
</TABLE>
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
CANAL+
In September 1999, Vivendi acquired control of Canal+, a pay television
service company located in Europe, through the acquisition of an additional 15%
of the outstanding shares and increased its ownership percentage from 34% at
December 31, 1998 to 49% at December 31, 1999.
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<PAGE> 149
The Company's control is derived (i) from the fact that Vivendi had majority of
the Board of Directors, as well as the committees of the Board which are
responsible for key operating and financial decisions, (ii) from the French law,
which stipulates that no individual entity can own, either directly or
indirectly, more than 49% of a television broadcaster, and (iii) from the
absence of any other significant shareholder of Canal+. Indeed, no other
shareholder holds rights that allow him to substantially participate in the
management of Canal+. To acquire the 15% interest, Vivendi issued 17,500,000
shares of common stock to third parties in exchange for the shares of Canal+.
The details of the acquisition are as follows (in millions of Euros):
<TABLE>
<S> <C>
Fair value of net tangible and intangible assets acquired... 215
Purchase price.............................................. 1,374
-----
Goodwill.................................................... 1,159
-----
Goodwill recorded as an asset............................... --
Goodwill charged to shareholders' equity.................... 1,159
</TABLE>
BRITISH SKY BROADCASTING (BSKYB)
During 1999, the Company acquired an interest and met criteria of
significant influence in BSkyB through the purchase of shares held by Granada
and Pearson (11.8%) for E 1,203.3 million, and through the merger with Pathe
(12.7%).
Vivendi issued 4,254,300 shares of common stock and paid E 873.8 million in
cash in exchange for the shares of BSkyB.
Vivendi subsequently disposed of substantially all of the Pathe operating
activities and retained Pathe's 12.7% interest in BSkyB. E 383.0 million of the
original goodwill has been allocated to the disposed activities.
The related goodwill was determined after allocation of the purchase price
to the former Pathe's activities disposed of in 1999 and amounts to E 1,604
million among which E 306 million was charged to shareholder's equity.
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
The following summary, prepared on a pro forma basis, combines the results
of operations as if all entities acquired in purchase business combinations
during 1999 had been completed as of the beginning of the periods presented (in
millions of Euros, except per share amounts):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Pro forma sales............................................ 45,414.5 38,935.9
Pro forma net income....................................... 1,385.6 655.9
Pro forma earnings per share............................... 2.44 1.26
</TABLE>
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<PAGE> 150
The following summary, prepared on a pro forma basis, combines the results
of operations as if all entities acquired in purchase business combinations
during 1998 had been completed as of the beginning of the periods presented (in
millions of Euros, except per share amounts):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Pro forma sales............................................ 32,450.4 29,588.6
Pro forma net income....................................... 1,106.5 957.7
Pro forma earnings per share............................... 2.5 2.08
</TABLE>
4) OTHER INTANGIBLE ASSETS
Intangible assets other than goodwill are detailed as follows (in millions
of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
NET NET
------- -------
<S> <C> <C>
Fees paid to local authorities.............................. 516.9 554.7
Trademarks, market share, editorial resources............... 5,395.7 1,453.9
Software.................................................... 459.0 335.3
Prepaid expenses............................................ 1,192.0 668.9
Audiovisual and musical rights.............................. 823.6 --
Other....................................................... 294.7 269.9
------- -------
TOTAL....................................................... 8,681.9 3,282.7
======= =======
</TABLE>
Fees paid to local authorities relating to public service contracts, which
are located primarily in France, amounted to E 516.9 million and E 554.7 million
for the years ending December 31, 1999 and 1998, respectively. These are
amortized over the term of the contracts.
Trademarks, market share and editorial resources mostly relate to Vivendi's
water, waste management and transportation, media and audiovisual activities, in
the amounts of E 2,059.2 million, E 318.8 million, E 1,726.4 million and E
1,067.7 million, respectively, at December 31, 1999 and E 26 million, E 281
million, E 1,087 million and E 0 million, respectively, at December 31, 1998.
The carrying value of market share is reviewed for realization each year on the
same basis of criteria used to assess its initial value, such as the market
position, net sales, and gross operating surplus or deficit. If the review
indicates an other than temporary reduction in value, a valuation allowance is
recorded.
Prepaid expenses of E 1,192 million at December 31, 1999 and E 668.9
million at December 31, 1998, primarily relate to the difference between the
contractual amounts of debt servicing payments to municipalities and the expense
charged to income over the period of public service contracts, and to the
balance of mobile subscriber acquisition costs.
Total amortization expense for other intangible assets for the years ended
December 31, 1999, 1998 and 1997 was E 367.2 million, E 195.7 million and E
138.0 million, respectively.
Accumulated amortization amounted to E 2,563.4 million and E 875.8 million
as of December 31, 1999 and 1998, respectively.
150
<PAGE> 151
5) INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Investments accounted for using the equity method are detailed as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
PROPORTIONATE PROPORTIONATE SHARE
INTEREST SHARE OF EQUITY OF NET INCOME (LOSS)
-------------- ----------------- -----------------------
1999 1998 1999 1998 1999 1998 1997
----- ----- ------ ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Canal+.......................... (1) N/A 33.94% N/A 524.0 N/A (9.6) N/A
Telecom Developpement........... 49.90% 49.90% 241.4 238.5 (1.1) (17.1) (13.9)
Havas Advertising............... (2)(8) 19.71% 29.85% 127.8 155.6 11.3 13.6 --
Cofiroute....................... 31.13% 31.13% 105.0 105.5 26.0 21.4 19.0
UGC............................. 39.34% 38.04% 71.1 63.1 0.4 0.6 1.6
AOL CompuServe France SAS....... (3) 55.00% -- 59.3 -- (8.6) -- --
Philadelphia Suburban........... (8) 15.87% 13.18% 55.0 26.5 5.4 3.2 2.8
UGC CineCite.................... 19.44% -- 52.0 -- 0.3 -- --
South Staffordshire............. (8) 32.71% 33.17% 47.0 37.3 10.1 7.7 7.5
Bristol Waterworks Co........... (8) 24.14% 24.19% 36.3 29.1 5.1 4.7 4.2
Midkent......................... (8) 23.82% 24.00% 27.2 20.7 6.1 4.9 5.2
British Sky Broadcasting........ (4)(8) 23.36% -- (250.0) -- (13.7) -- --
Audiofina....................... (5) -- 18.36% -- 229.4 -- 10.4 --
Canal+ DA....................... (6) N/A 25.00% N/A 50.0 -- (0.2) --
Magyar Telecom.................. (6) N/A 39.92% N/A 37.4 -- (1.5) (0.2)
Consumers Water................. N/A 22.62% N/A 22.2 -- 2.5 1.9
Other........................... (7) N/A N/A 209.8 198.8 (8.4) 1.9 75.4
------ ------- ----- ----- -----
TOTAL........................... 781.9 1,738.1 32.9 42.5 103.6
====== ======= ===== ===== =====
</TABLE>
-------------------------
1) Vivendi acquired an additional 15% of the capital stock of Canal+ in
September 1999, bringing Vivendi's total equity interest to 49%. Canal+ was
consolidated beginning October 1, 1999, due to the acquisition of effective
control.
2) At the end of 1999, Vivendi sold 9% of Havas Advertising.
3) The rights granted to minority shareholders limit Vivendi's role to that of
significant influence, and not control.
4) As described in note 13, the Company has assumed a debt obligation which is
convertible into shares of BSkyB in a business combination. The Company owns
24.43% of the BSkyB common shares outstanding, but considers 1.07% of the
total shares to be held for the repayment of the convertible debt.
Accordingly, the Company applies the equity method to the percentages
presented above.
5) During 1999, Audiofina was disposed of.
6) Magyar Telecom and Canal+ DA were fully consolidated in 1999.
7) Other investment consists of various entities accounted for using the equity
method as of December 31, 1997, all of which were sold or consolidated in
1998.
151
<PAGE> 152
8) The December 31, 1999 quoted market price for these investments, which are
publicly listed, is as follows: Havas Advertising: E 633 million,
Philadelphia Suburban: E 142 million, South Staffordshire: E 98 million,
Bristol Waterworks Co: E 31 million, Midkent: E 25 million, British Sky
Broadcasting: E 6,766 million.
Dividends received from the equity affiliates amount to E 83.7 million in
1999, E 81.3 million in 1998, and E 76.2 million in 1997.
Summarized financial information for equity method investees is as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
BALANCE SHEET DATA
Long-term assets................................. 6,472.1 10,303.1
Current assets................................... 3,911.7 5,470.5
Total assets..................................... 10,383.8 15,773.6
Shareholders' equity............................. 1,294.7 5,055.5
Minority interests............................... 111.6 191.8
Financial debt................................... 3,719.7 4,650.6
Reserves and other liabilities................... 5,257.8 5,875.7
Total liabilities and shareholders' equity....... 10,383.8 15,773.6
INCOME STATEMENT DATA
Net revenue...................................... 12,086.3 11,232.2 9,290.6
Operating income................................. 173.8 755.6 590.5
Net income (loss)................................ (308.2) 209.1 519.5
</TABLE>
6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment by segment are detailed as follows (in
millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1999
---------------------------------------------------------- 1998
PROPERTY, PUBLICLY- --------
PLANT OWNED ACCUMULATED NET NET
AND UTILITY DEPRECIATION/ TANGIBLE TANGIBLE
EQUIPMENT NETWORKS(a) AMORTIZATION ASSETS ASSETS
--------- ------------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Telecommunication............ 3,642.3 7.2 (1,012.6) 2,636.9 2,104.4
Multimedia and publishing.... 511.4 -- (246.5) 264.9 301.8
Audiovisual activities....... 2,338.4 0.9 (1,696.8) 642.5 20.6
Internet..................... -- -- -- -- --
-------- ------- --------- -------- --------
COMMUNICATION................ 6,492.1 8.1 (2,955.9) 3,544.3 2,426.8
-------- ------- --------- -------- --------
Water........................ 4,397.1 2,652.0 (1,587.4) 5,461.7 2,152.3
Waste Management............. 3,988.6 12.5 (1,770.8) 2,230.3 1,505.7
Energy....................... 5,442.1 575.1 (1,196.4) 4,820.8 2,730.7
Transportation............... 1,425.3 200.9 (658.0) 968.2 533.9
FCC.......................... 1,130.0 -- (484.1) 645.9 462.8
-------- ------- --------- -------- --------
ENVIRONMENTAL SERVICES....... 16,383.1 3,440.5 (5,696.7) 14,126.9 7,385.4
-------- ------- --------- -------- --------
</TABLE>
152
<PAGE> 153
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1999
---------------------------------------------------------- 1998
PROPERTY, PUBLICLY- --------
PLANT OWNED ACCUMULATED NET NET
AND UTILITY DEPRECIATION/ TANGIBLE TANGIBLE
EQUIPMENT NETWORKS(a) AMORTIZATION ASSETS ASSETS
--------- ------------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Construction................. 2,239.9 529.2 (1,560.1) 1,209.0 786.7
Real Estate.................. 1,331.8 8.0 (341.6) 998.2 1,585.6
-------- ------- --------- -------- --------
CONSTRUCTION & REAL ESTATE... 3,571.7 537.2 (1,901.7) 2,207.2 2,372.3
-------- ------- --------- -------- --------
OTHER........................ 122.2 -- (23.2) 99.0 57.6
-------- ------- --------- -------- --------
TOTAL........................ 26,569.1 3,985.8 (10,577.5) 19,977.4 12,242.1
======== ======= ========= ======== ========
</TABLE>
-------------------------
(a) See applicable section of Note 2.
The break-out of property, plant and equipment net is as follows (in
millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Land....................................................... 1,773.2 1,427.9
Buildings.................................................. 2,680.2 2,602.1
Equipment and machinery.................................... 8,352.4 5,225.9
Construction in progress................................... 1,323.0 905.7
Other...................................................... 2,253.6 995.4
-------- --------
PROPERTY, PLANT AND EQUIPMENT.............................. 16,382.4 11,157.0
-------- --------
PUBLICLY OWNED UTILITY NETWORKS............................ 3,595.0 1,085.1
-------- --------
TOTAL...................................................... 19,977.4 12,242.1
======== ========
</TABLE>
Tangible assets financed by leasing contracts, including purchase options,
amount to E 1,139.2 million and E 1,258.0 million at December 31, 1999 and 1998,
respectively. Accumulated amortization related to these assets financed under
capital leases was E 379.9 million and E 456.8 million at December 31, 1999 and
1998, respectively.
As of December 31, 1999 and 1998, property plant and equipment totaling E
2.1 billion and E 1.5 billion were pledged as collateral for borrowings from
banks. See note 13.
Depreciation expense for the years ended December 31, 1999, 1998 and 1997
was E 1,898.1 million, E 1,385.7 million and E 883.8 million, respectively.
153
<PAGE> 154
7) FINANCIAL ASSETS
Investments accounted for using the cost method
Investments accounted for using the cost method are detailed as follows (in
millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1999 1998
------------------------------- -----
GROSS ALLOWANCE NET NET
------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
Elektrim Telekomunikacja SP Zoo........... (1) 1,209.2 -- 1,209.2 --
Canal Satellite........................... (2) 304.0 -- 304.0 --
Mediaset SpA.............................. 143.6 -- 143.6 --
Television Holding SA..................... (4) 85.7 -- 85.7 --
Domino.................................... 59.3 -- 59.3 --
Csatorna Uzemeltetesi Holding
Reszvenyta.............................. 40.0 -- 40.0 --
Fovarosi Csatomazasi Muvek
Reszvenytarsasag........................ 37.8 -- 37.8 37.8
Mitteldeutsche Wasserversorgungsgeselt.... (3) 34.2 -- 34.2 --
Coprim.................................... 31.5 (31.5) -- 4.1
Norsk Gjenvinning......................... 29.2 -- 29.2 --
CGEA Bresil............................... (3) 23.7 -- 23.7 --
Misrfone.................................. 22.5 -- 22.5 22.5
@viso..................................... (3) 20.1 -- 20.1 --
Le Vidal.................................. -- -- -- 86.6
Sanepar................................... -- -- -- 59.3
Other..................................... (5) 676.5 (270.2) 406.3 458.3
------- ------ ------- -----
TOTAL..................................... 2,717.3 (301.7) 2,415.6 668.6
======= ====== ======= =====
</TABLE>
-------------------------
1) Elektrim Telekomunikacja SP Zoo was accounted for using the cost method as of
December 31, 1999 because the acquisition was consummated in December, 1999,
and significant "suspensive" conditions were not fulfilled before the
beginning of year 2000.
2) Vivendi acquired additional shares through Pathe merger in 1999. These shares
are accounted for using the cost method as they are deemed to be temporary
due to their expected sale, which is expected to occur in 2000.
3) Companies acquired or set up at the end of 1999.
4) Equity stakes disposed of in 2000.
5) As of December 31, 1998, "Other" includes Lucia (E 11.6 million), and
Editions Gallimard (E 15.1 million), which were sold in 1999 and l'Etudiant
(E 26.5 million), Severoceske Vodovody Akanalizace AS (E 23.1 million), Terre
Armee Internationale (E 20.7 million), which are consolidated in 1999, and
other investments whose gross book value is under E 20 million.
154
<PAGE> 155
PORTFOLIO INVESTMENTS
Portfolio investments securities held as fixed assets are detailed as
follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
----- ---------- ---------- --------- ----- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Saint-Gobain............ 119.2 130.7 -- 249.9 341.9 333.4 -- 675.3
Facic*.................. 185.1 -- -- 185.1 185.1 -- -- 185.1
Alcatel................. 145.1 298.8 -- 443.9 167.3 86.3 -- 253.6
Eiffage................. 56.6 -- (14.0) 42.6 56.6 -- (15.6) 41.0
Societe Generale........ -- -- -- -- 21.8 12.7 -- 34.5
Others (with unit book
value of under E 40
million).............. 49.0 64.3 (6.6) 106.7 127.5 14.3 (8.3) 133.5
----- ----- ----- ------- ----- ----- ----- -------
TOTAL GROSS AMOUNT...... 555.0 493.8 (20.6) 1,028.2 900.2 446.7 (23.9) 1,323.0
Valuation allowance..... (20.6) -- 20.6 0.0 (23.9) -- 23.9 0.0
----- ----- ----- ------- ----- ----- ----- -------
TOTAL NET AMOUNT........ 534.4 493.8 0.0 1,028.2 876.3 446.7 0.0 1,323.0
===== ===== ===== ======= ===== ===== ===== =======
</TABLE>
-------------------------
* One of the parent companies of Washington Baltimore.
Other portfolio investments held as fixed assets are detailed as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Unlisted investments........................................ 417.8 338.8
Long term loans............................................. 1,350.5 2,025.9
Other....................................................... 918.8 492.2
------- -------
2,687.1 2,856.9
Valuation allowance......................................... (126.0) (107.0)
------- -------
TOTAL NET AMOUNT............................................ 2,561.1 2,749.9
======= =======
</TABLE>
Unlisted investments consist of bonds, equity investments in start-up companies,
and mutual fund shares, of E 111.4 million, E 114.2 million and E 35.7 million,
respectively, at December 31, 1999.
Long term loans relate mainly to Real Estate operations for an amount of E 776
million as of December 31, 1999 and to environment companies, for an amount of E
301 million as of December 31, 1999.
Other investments consist mainly of loans by Canal+ and US Filter and bond
discount related to Vivendi Environnement.
155
<PAGE> 156
8) INVENTORIES AND WORK IN PROGRESS
Inventories are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
ENVIRONMENTAL SERVICES, INCLUDING:.......................... 2,214.9 799.6
Water....................................................... 1,525.4 311.4
FCC......................................................... 230.3 190.7
Sithe Energies.............................................. 80.0 20.8
COMMUNICATION, INCLUDING:................................... 1,172.3 431.9
Pay TV...................................................... 769.6 --
CONSTRUCTION................................................ 347.9 321.0
PROPERTY.................................................... 1,823.0 2,106.1
TOTAL....................................................... 5,558.1 3,658.6
Less valuation allowance.................................... (657.8) (662.6)
NET VALUE................................................... 4,900.3 2,996.0
======= =======
</TABLE>
At December 31, 1999 inventories related to the water segment include net
amounts of E 613 million and E 595 million due to the consolidation of USFilter
and Berliner Wasser Betriebe, respectively.
Inventory and work in progress related to pay TV are comprised of the
Company's television broadcasting rights.
For Compagnie Generale d'Immobilier et de Services, inventories and
construction in process include in particular:
-- E 814.9 million of assets recorded as "Vivendi Valorisation" net of a E
335.9 million provision of which E 586.5 million, net of E 193.9 million
of provisions, represent multi-year development projects in the Greater
Paris region (in the La Defense business district), in other parts of
France and in Babelsberg near Postdam in Germany.
-- E 606.3 million for assets pooled in a new legal structure called
"Nexity" scheduled for disposal in 2000.
156
<PAGE> 157
9) ACCOUNTS RECEIVABLE
Accounts receivable are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Trade accounts receivable.................................. 18,082.4 11,567.8
Valuation allowance........................................ (1,068.3) (706.2)
TOTAL TRADE ACCOUNTS RECEIVABLE............................ 17,014.1 10,861.6
VAT and other taxes........................................ 2,644.0 1,802.5
Other including deferred tax............................... 2,733.6 705.1
-------- --------
TOTAL ACCOUNTS RECEIVABLE.................................. 22,391.7 13,369.2
======== ========
</TABLE>
The developments in the allowance for doubtful accounts for the years ended
December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1999 1998
------- ------
<S> <C> <C>
Balance at beginning of period.............................. 706.2 472.4
Amount charged to expense................................... 514.3 290.2
Deductions of reserve....................................... (248.1) (137.2)
Other adjustments*.......................................... 95.9 80.8
Balance at end of period.................................... 1,068.0 706.2
</TABLE>
-------------------------
* Other adjustments reflect changes in the scope of consolidation.
10) CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash, cash equivalents and marketable securities are detailed as follows
(in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Cash and cash equivalents (net)............................. 2,857.2 1,259.0
Marketable securities....................................... 4,251.3 3,206.8
------- -------
Total cash, cash equivalents and marketable securities...... 7,108.5 4,465.8
------- -------
</TABLE>
11) SHAREHOLDERS' EQUITY
During 1997, the Company issued 2,310,588 shares with a value of E 110.4
million in connection with its obligations under the employee stock purchase
plan and stock option plans. In addition, the Company issued 23,565,648 shares
with a value of E 768.5 million relating to the conversion of bonds, and
4,749,207 shares with a value of E 162.3 million relating to the conversion of
cash dividends to shares of the Company. In 1997, the Company also issued
1,295,676 shares valued at E 41.8 million in exchange for outstanding shares of
Water companies, and 6,354 shares valued at E 0.3 million, relating to the
exercise of warrants.
157
<PAGE> 158
During 1998, the Company issued 6,370,689 shares with a value of E 205.5
million in connection with its obligations under the employee stock purchase
plan and stock option plans, and 647,139 shares valued at E 29.6 million in
connection with conversion of bonds and exercise of warrants. In addition, the
Company issued 69,236,562 shares valued at E 923.2 million in connection with
the acquisition of Havas. Goodwill of E 579.0 million arising from this
transaction was recorded in additional paid-in capital. The cumulative effect
due to the change in accounting principles as of January 1, 1998 was E (226.8)
million. This net amount includes E (170.6) million due to the change in
accounting related to capital leases and E (56.2) million due to the change in
pension accounting.
During 1999, the Company issued 45,505,197 shares for a total of E 2,681.0
million for the exercise of subscription options. In addition, the Company
issued 25,747,392 shares with a value of E 522.0 million relating to the
acquisition of Pathe. The Company also issued 4,254,300 shares with a value of E
325.0 million relating to the acquisition of BSkyB, and 17,500,000 shares with a
value of E 1,373.0 million relating to the acquisition of Canal+ shares from
Richemont. Lastly, the Company issued 9,813,432 shares with a value of E 524.0
million in connection with its obligations under the employee stock purchase
plan and stock option plans, and issued 19,712,100 shares valued at E 652.0
million relating to the conversion of bonds and warrants. Goodwill totaling E
4,310.3 million arising from business combinations was recorded in additional
paid-in capital in 1999.
The Company's consolidated and unconsolidated subsidiaries have certain
restrictions on the distribution of net equity. These restrictions mainly
concern French companies where, pursuant to French law, they are legally
required to reserve a minimum of 5% of its annual net income within the retained
earnings account. This minimum contribution is not required once the reserve
equals 10% of the aggregate nominal share capital. The legal reserve is
distributable only upon liquidation. At December 31, 1999, the parent company
has reserved a total of E 223.1 million, which represents 7% of the aggregate
share capital of E 3,276.1 million.
On May 2, 1997, the Company issued 130,359,688 warrants to the Company's
shareholders. The warrants grant the holder the right to receive shares of the
Company at a predetermined price, originally denominated in French francs, upon
exercise of 40 warrants. In May 1999, the Company adjusted the terms of the
warrants consistent with the Company's stock-split and the redenomination of its
capital into Euros. As a result of the adjustment, holders of these warrants may
receive 3.05 new common shares at a price of E 137.2 for the exercise of 40
warrants. As of December 31, 1999, 116,485,647 of these warrants remain
outstanding.
The share capital of the Company consisted of 595,648,168 shares as at
December 31, 1999 and 478,389,918 as of December 31, 1998. All shares have one
voting right and may be registered upon request by the owners. Registered shares
held by shareholders of the European Union for at least two years have two
voting rights. The treasury shares have no voting rights. The number of voting
rights outstanding was 624,506,807 as of December 31, 1999 and 522,009,171 as of
December 1998.
158
<PAGE> 159
12) MINORITY INTERESTS
Minority interests are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
MINORITY INTERESTS AT JANUARY 1,............................ 2,423.0 1,742.3
------- -------
Changes in consolidation.................................... 1,596.9 534.1
Minority interests in income of consolidated subsidiaries... 5.3 212.2
Dividends paid by consolidated subsidiaries................. (70.3) (37.2)
Impact of foreign currency fluctuations on minority
interests................................................. 84.1 (21.0)
Other changes............................................... 13.4 (7.4)
------- -------
MINORITY INTERESTS AT DECEMBER 31,.......................... 4,052.4 2,423.0
======= =======
</TABLE>
Changes in consolidation in 1999 primarily result from the impact of the
full consolidation of Canal+ beginning in October 1999 of E 784.9 million, from
the impact of the increase in Sithe's capital issued to third parties of E 173.0
million, and the impact of the acquisition of Berliner Wasser Betriebe of E
545.8 million, whose consolidated financial statements included minority
interests.
In 1998, the acquisition of 49% of the Spanish holding company that
consolidates FCC had an impact of E 370.2 million on change in scope of
consolidation.
13) DEBT
The table below presents an analysis of the consolidated long-term debt
balances by type of debt instrument (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Subordinated debt(a)........................................ 178.3 174.0
Non-recourse project financing(b)........................... 1,193.0 1,059.7
Other financial long-term debt:
Capital leases............................................ 818.0 892.9
Vivendi convertible 1.25%(c).............................. 1,700.0 --
Vivendi Environnement 1.5%(d)............................. 3,028.8 --
BSkyB 3%(e)............................................... 155.1 --
Mediaset Spa 3.5%(f)...................................... 181.9 --
Other..................................................... 11,977.9 7,829.9
-------- -------
Total....................................................... 19,233.0 9,956.5
======== =======
</TABLE>
-------------------------
(a) Subordinated debt consists primarily of:
-- a loan of E 244 million to finance the wastewater treatment plant in
Zaragoza, Spain, underwritten by OTV on December 27, 1991 and repayable
over 15 years
159
<PAGE> 160
-- $70 million of securities repayable over 15 years, issued on January 29,
1991 by Energies USA.
(b) This is non-recourse financing, i.e., it is guaranteed solely by the
projects which it finances. It concerns the Sithe Energies power plants (E
1,193 million). The corresponding assets are primarily included under the
heading "property, plant and equipment".
(c) On January 1999, Vivendi issued bonds that bear interest at 1.25%, with a
maturity in January 2004 and that are convertible at the option of the
bondholder, into Vivendi shares at a conversion rate of 1 bond to 3.047
shares. The maturity is January 1, 2004.
(d) On April 1999, Vivendi Environnement, a wholly owned subsidiary, issued
bonds that bear interest at 1.5%, with a maturity in January 2005, and that
are convertible, at the option of the bondholder, into Vivendi shares at a
conversion rate of 1 bond to 3.047 shares. If there is an initial offering
of Vivendi Environnement shares, the bonds may be converted into shares of
Vivendi Environnement at a predetermined conversion rate.
(e) In connection with its acquisition of Pathe in September 1999, Vivendi
assumed bonds that bear interest at 3%, with a maturity in November 2003,
and that are exchangeable into BSkyB shares. Each bond may be exchanged at
the option of the bondholder for 188.5236 BSkyB shares. Vivendi currently
owns an adequate number of BSkyB shares to meet its maximum conversion
obligation.
(f) On April 1997, Canal+ issued bonds that bear interest at 3.5%, with a
maturity in March 2002, and that are exchangeable into Mediaset Spa shares.
Each bond may be exchanged at the option of the bondholder for 341.74 shares
per bond. Canal+ currently owns an adequate number of Mediaset to meet its
maximum conversion.
Long-term debt listed according to the currency in which it is denominated
is as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Euros....................................................... 15,032.4 7,014.8
US Dollar................................................... 3,604.8 1,765.2
Pound Sterling.............................................. 247.4 42.8
Australian Dollar........................................... 166.6 179.6
Canadian Dollar............................................. 82.0 82.4
Other....................................................... 99.8 871.7
-------- -------
Total....................................................... 19,233.0 9,956.5
======== =======
</TABLE>
160
<PAGE> 161
The table below presents a summary of the repayment schedules of the
long-term debt excluding subordinated securities (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Due between one and two years............................... 4,781.0 2,435.6
Due between two and five years.............................. 8,080.4 2,485.5
Due after five years........................................ 6,193.3 4,861.4
-------- -------
Total....................................................... 19,054.7 9,782.5
======== =======
</TABLE>
At the end of 1999, E 2.1 billion in bank borrowings was supported by
collateral guarantees, including E 1.5 billion for the financing of power plants
in the United States and E 90 million for the financing of the water treatment
plants of Wyuna Water in Australia.
14) RESERVES AND ALLOWANCES
Reserves and allowances are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Litigation including social and fiscal...................... 1,081.8 808.6
Warranties and customer care................................ 376.7 418.7
Financial depreciation*..................................... 525.8 489.6
Maintenance and repair costs accrued in advance............. 432.7 320.4
Reserves related to fixed assets............................ 152.1 182.7
Valuation allowance on Real Estate.......................... 1,255.7 1,607.4
Valuation allowance on Work in progress and losses on long
term contracts............................................ 684.8 490.2
Closure and post closure costs.............................. 259.1 142.4
Pensions.................................................... 591.6 458.7
Restructuring costs......................................... 434.1 267.0
Losses on investments in unconsolidated companies........... 376.0 294.7
Others...................................................... 712.9 451.3
------- -------
Total reserves and allowances............................... 6,883.3 5,931.7
======= =======
</TABLE>
-------------------------
* Financial depreciation of fixed assets relating to public service contracts.
161
<PAGE> 162
The developments in the reserve for restructuring costs for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Balance at beginning of period.............................. 267.0 244.7
Amount charged to expenses.................................. 94.3 103.5
Deductions of reserve
Utilization (cash)........................................ (125.4) (114.1)
Reversal (change in estimate)............................. (39.6) (26.7)
Other adjustments*.......................................... 237.8 59.6
Balance at end of period.................................... 434.1 267.0
</TABLE>
-------------------------
* Other adjustments reflect changes in the scope of consolidation.
Provisions for restructuring by segment analyses are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS OF
EUROS)
<S> <C> <C>
Telecommunication........................................... 19.1 34.2
Publishing and Multimedia................................... 53.5 56.1
Audiovisual................................................. 37.3 --
Internet.................................................... -- --
Water....................................................... 182.9 24.2
Waste Management............................................ 20.0 2.9
Energy...................................................... 5.3 10.7
Transportation.............................................. 0.9 1.2
FCC......................................................... -- --
Construction................................................ 107.4 128.3
Real Estate................................................. 7.7 9.4
Total....................................................... 434.1 267.0
</TABLE>
The changes in the scope of consolidation in 1999 are mainly explained by
the acquisitions of US Filter and Medimedia, whereas the changes in the scope of
consolidation in 1998 are mainly explained by the acquisition of Anaya.
162
<PAGE> 163
15) ACCOUNTS PAYABLE
Accounts payable are detailed as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Trade accounts payable..................................... 17,637.6 11,788.0
Social costs payable....................................... 4,613.3 3,761.2
Other...................................................... 1,581.2 528.1
-------- --------
TOTAL ACCOUNTS PAYABLE..................................... 23,832.1 16,077.3
======== ========
</TABLE>
16) INCOME TAXES
ANALYSIS OF INCOME TAX EXPENSE (BENEFIT)
Components of the income tax provision (benefit) are as follows (in
millions of euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998 1997
-------- ------ -----
<S> <C> <C> <C>
France............................................ 56.8 96.6 67.7
Other countries................................... 172.0 273.4 73.1
Current income tax expense.......................... 228.8 370.0 140.8
France............................................ (926.3) (394.5) 7.9
Other countries................................... (95.7) 114.5 46.0
Deferred income tax (benefit)....................... (1,022.0) (280.0) 53.9
-------- ------ -----
Total income tax expense (benefit).................. (793.2) 90.0 194.7
======== ====== =====
</TABLE>
DEFERRED TAX ASSETS AND LIABILITIES
The timing differences which give rise to significant deferred tax assets
and liabilities are as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
-- Employee benefits..................................... 118.1 96.4
-- Provisions for risks and liabilities.................. 931.1 745.9
-- Tax loss including Real Estate operations............. 3,645.0 1,317.9
-- Other timing differences.............................. 520.0 253.5
</TABLE>
163
<PAGE> 164
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
GROSS DEFERRED TAX ASSETS.................................. 5,214.2 2,413.7
DEFERRED TAX ASSETS NOT RECORDED IN THE BOOKS(a)........... (2,480.5) (1,708.6)
-------- --------
Deferred tax assets recorded in the books.................. 2,733.7 705.1
======== ========
Deferred tax liabilities:
-- Depreciation............................................ 606.6 359.2
-- Reevaluation of assets.................................. 656.5 10.1
-- Other taxable timing differences........................ 318.0 158.7
-------- --------
Gross deferred tax liabilities............................. 1,581.1 528.0
======== ========
</TABLE>
-------------------------
(a) The evolution of tax assets not recorded in the books between 1998 and 1999
is mainly due to the consolidation of Canal+.
Deferred tax assets are recorded in the consolidated balance sheets in the
caption Accounts Receivable. Deferred tax liabilities are recorded in the
caption Accounts Payable.
Undistributed earnings of subsidiaries are indefinitely reinvested in
operations and will be remitted substantially free of additional tax.
TAX RATE RECONCILIATION
A reconciliation of the French statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Statutory tax rate................................. 40.0% 41.6% 41.6%
Goodwill amortization not deductible for tax
purpose....................................... 38.4% 7.2% 15.4%
Permanent differences............................ (79.1)% 7.1% (93.0)%
Lower tax rate on long-term capital gains and
losses........................................ (22.3)% (6.1)% 0.0%
Tax losses including real estate operations...... (93.9)% (36.9)% 63.0%
Other, net....................................... (7.4)% (5.5)% (7.9)%
------ ----- -----
Effective tax rate(a).............................. (124.3)% 7.4% 19.1%
====== ===== =====
</TABLE>
-------------------------
(a) The effective tax rate is computed by dividing "Income taxes and deferred
taxes" by "Net income before income taxes and deferred taxes."
NET OPERATING TAX LOSS SAVING
At December 31, 1999, the Company has tax losses which represent a
potential tax saving of E 3,645.0 million (computed with the enacted tax rate).
164
<PAGE> 165
Tax losses expire as follows:
<TABLE>
<CAPTION>
YEARS AMOUNT
----- ------------
(E MILLIONS)
<S> <C>
2000........................................................ 119.3
2001........................................................ 83.4
2002........................................................ 144.1
2003........................................................ 315.4
2004........................................................ 579.4
2005 and thereafter......................................... 1,511.2
Unlimited................................................... 892.2
-------
Total....................................................... 3,645.0
=======
</TABLE>
17) PENSION PLANS AND POST RETIREMENT BENEFITS OTHER THAN PENSION PLANS
In accordance with the laws and practices of each country, the Company
participates in employee benefit pension plans offering death and disability
healthcare, retirement and special termination benefits. Those plans provide
various benefits including flat payments per year of service and final pay plans
that are integrated with local social security and multi-employer plans.
Most of the pension plans are funded with investments made in various
instruments such as insurance contracts and equity and debt investment
securities. These pension plans do not hold investments in the Company's shares.
For defined contribution plans and multi-employer plans, the Company
records expense equal to the contributions paid. For defined benefit pension
plans, accruals and prepaid expenses are determined using the projected unit
credit method.
Special termination benefits are recorded on an accrual basis at the time
the offer is accepted by the employees or their representatives.
18) DERIVATIVE FINANCIAL INSTRUMENTS AND RELATED COUNTERPARTY RISK
Vivendi is subject to various market risks in connection with its
operations. Derivative financial instruments are used to manage interest rate
risk, primarily related to financing activities, and foreign currency risk
associated with foreign denominated assets and liabilities.
Credit risk associated with the derivative financial instrument portfolio
is managed through credit approvals, investment limits and credit monitoring
procedures. Counterparties are limited to large highly rated financial
institutions.
INTEREST RATE SWAPS AND CAPS
Interest rate swaps are generally used to modify the interest rate terms of
long-term debt. This includes, depending on the circumstances involved, the
modification from fixed to floating rates and from floating to fixed, as well as
the modification of the underlying index on floating rate debt. Certain of the
interest rate swaps employed by the Company have delayed start dates. Interest
rate caps are used to limit the upside risk relating to floating rate debt.
165
<PAGE> 166
CURRENCY FORWARD CONTRACTS, OPTIONS AND RATE SWAPS
Currency options and forward contracts are used to hedge firm and
anticipated transactions relating to assets denominated in foreign currencies.
Currency rate swaps are used to modify the interest rate and currency of foreign
denominated debt.
OTHER DERIVATIVE FINANCIAL INSTRUMENTS
Other derivative financial instruments may be used by the Company to hedge
other specifically identified risks. As of December 31, 1999 the Company had
instruments that were used to modify the terms of its public debt, with
principal repayment terms based on the value of Vivendi stock. These instruments
effectively modify the principal terms to a fixed amount and the rates to
floating rates.
Derivative financial instruments held by the Company as of December 31,
1999 and 1998 are summarized below. Notional amounts represent the levels of
involvement by the Company and are not indicative of gains or losses. Interest
rates for variable instruments are based on contractual rates as of the end of
the period (in millions of Euros).
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
------------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------
<S> <C> <C> <C> <C>
INTEREST RATE HEDGING ACTIVITY
Interest rate swaps -- pay fixed rate
Notional amount 7,368.0 323.4 3,337.9 3,706.7
Average received rate (as of 12.31.99) 3.68%
Average paid rate 4.77%
Interest rate swaps -- pay variable rate
Notional amount 1,888.7 84.8 1,386.0 417.9
Average received rate 6.55%
Average paid rate (as of 12.31.99) 3.77%
Cross currency interest rate swap(a)
Notional amount 172.6 -- 172.6 --
Average received rate (as of 12.31.99) 3.34%
Average paid rate (as of 12.31.99) 2.29%
Interest rate caps
Notional amount 4,705.2 1,042.4 1,810.9 1,851.9
Guarantee rate 4.89%
FOREIGN CURRENCY HEDGING ACTIVITY
Forward exchange contracts 1,626.0 1,626.0 -- --
Notional amount
OTHER DERIVATIVE FINANCIAL INSTRUMENTS
Specialized indexed swaps(b)
Notional amount 377.0 -- 177.8 199.2
</TABLE>
166
<PAGE> 167
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
------------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------
<S> <C> <C> <C> <C>
INTEREST RATE HEDGING ACTIVITY
Interest rate swaps -- pay fixed rate
Notional amount 8,425.5 1,051.5 2,443.5 4,930.5
Average received rate (as of 12.31.98) 3.76%
Average paid rate 4.87%
Interest rate swaps -- pay variable rate
Notional amount 2,234.3 -- 900.5 1,333.8
Average received rate 6.69%
Average paid rate (as of 12.31.98) 3.69%
Cross currency interest rate swap(a)
Notional amount 172.6 -- 172.6 --
Average received rate (as of 12.31.98) 3.25%
Average paid rate (as of 12.31.98) 2.34%
Interest rate caps
Notional amount 6,869.9 487.8 3,615.6 2,766.5
Guarantee rate 4.60%
Interest rate floors
Notional amount 152.5 152.5 -- --
Guarantee rate 3.60%
FOREIGN CURRENCY HEDGING ACTIVITY
Forward exchange contracts 516.9 516.9 -- --
Notional amount
OTHER DERIVATIVE FINANCIAL INSTRUMENTS
Specialized indexed swaps(b)
Notional amount 324.0 -- 177.8 146.2
</TABLE>
-------------------------
(a) Cross currency swaps primarily consist of financial instruments that
exchange floating rates between Yen and Euro.
(b) Specialized indexed swaps consist of financial instruments that receive an
amount indexed to Vivendi's share performance and pay based on a variable
interest rate. These swaps are used as an economic hedge of certain
equity-linked bonds issued by Vivendi.
167
<PAGE> 168
19) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following information is provided in order to meet the US GAAP
requirements for disclosures of the fair value of certain types of financial
instruments. A summary of the assumptions used by management to estimate the
fair value of each financial instrument is listed below:
INVESTMENTS ACCOUNTED FOR USING THE COST METHOD AND PORTFOLIO INVESTMENTS
The fair value of publicly traded equity securities is estimated using
quoted market prices, where available. If a quoted market price is not
available, fair value is estimated by management based on net carrying value.
LOANS
The fair value of loans, which have been included in portfolio investments
held as fixed assets (others) in the balance sheet, is estimated by discounting
the future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. These cash flow assumptions include adjustments to reflect estimates
of uncollectable amounts. Management has determined that the book value of loans
with variable rates or with maturities less than one year reasonably approximate
fair value.
LONG TERM DEBT
The fair value of the Company's long term debt is estimated by discounting
the future cash flows using the current rates at which similar loans have been
offered to the Company for debt of the same remaining maturity. For exchange
traded debt, fair value is estimated using quoted market prices. Long term debt
included in the table below includes amounts relating to the short term portion
that are classified as short term debt for balance sheet purposes.
FINANCIAL DERIVATIVE
The fair value of financial derivative financial instruments generally
reflects the estimated amounts that the Company would expect to pay or receive
to terminate these contracts. Dealer quotes or valuation models have been used
to estimate the fair value of these contracts as of the reporting date (in
millions of Euros).
168
<PAGE> 169
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1999 1998
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET
FINANCIAL ASSETS
Investments.................................. 2,415.6 2,896.7 668.6 668.7
Portfolio investments held as fixed assets
(securities)............................... 534.4 1,028.2 876.3 1,205.3
Other investments and loans.................. 2,561.1 2,550.9 2,749.9 2,969.5
Treasury shares.............................. 2,020.0 2,562.0 628.7 728.3
FINANCIAL LIABILITIES
Long-term debt............................... 19,233.0 20,020.6 9,956.5 11,185.7
OFF-BALANCE SHEET
TREASURY MANAGEMENT
Interest rate swaps.......................... -- 171.0 -- (263.0)
Interest caps and floors..................... -- 86.6 -- 31.0
Cross currency interest rate swaps........... -- 43.6 -- 0.2
Other specialized swaps...................... -- 56.7 -- 35.9
Forward currency exchange contacts........... -- 6.6 -- (1.8)
Calls and puts on marketable securities...... -- (48.9) -- (213.0)
</TABLE>
Financial instruments including cash and cash equivalents, accounts
receivable, short-term loans, accounts payable and bank overdrafts and
short-term borrowings are excluded from the above table. For these instruments,
fair value was estimated to be the carrying amount due to the short maturity.
20) COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENT LIABILITIES
Vivendi's contingent liabilities relating to certain performance guarantees
by segments are as follows (in millions of Euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Construction................................................ 1,213.1 960.2
Water....................................................... 847.3 604.0
Waste-management............................................ 369.5 341.4
Audiovisual................................................. 393.0 --
Property and other activities............................... 1,271.6 566.0
------- -------
TOTAL....................................................... 4,094.5 2,471.6
======= =======
</TABLE>
169
<PAGE> 170
Under the Berlin water contract, the Company may be obligated to pay
approximately E 613 million to previous land owners, not indemnified by the
Berlin government, who present claims for payments.
The Company has given specific guarantees that cover both prepayments
received by the Company and performance obligations relating to construction
contracts of the Company. These guarantees typically represent 20-30% of the
value of a contract, and in some cases can be 100% of the contract amount.
Contingent liabilities in the real estate segment consist of pledges in the
amounts of E 211 million, E 188 million and E 104 million, and guarantees to
banks in the amounts of E 52 million, E 72 million and E 127 million as at
December 31, 1999, 1998 and 1997, respectively. In 1999, they include
commitments given of E 500 million regarding certain environmental and
regulatory warranties, in connection with the sale of property assets.
CAPITAL LEASES AND OTHER LONG TERM LEASES
Vivendi finances certain operating assets and investment properties through
capital leases (including a purchase option (known in France as "credit bail")).
Minimum future payments under these capital lease obligations at December 31,
1999 and December 31, 1998 represent E 1.1 billion and E 1.3 billion.
At year end there is a long term lease back arrangement concluded with the
owner of the La Villette tower block representing an annual charge amounting to
E 9.5 million.
In addition, the disposal of three office building in April 1996 was
accompanied by a 30-year lease back arrangement effective upon completion of the
building (two of the buildings were completed in April 1998 and the third is to
be handed over in April 2000).
In 1996, three buildings were sold in Berlin. The transaction comprises
lease back arrangements for periods ranging from ten to thirty years. The annual
rental charge is E 21.9 million. The difference between Vivendi's rental
obligation under the leases and the market rent is reserved when unfavorable.
OTHER COMMITMENTS
The Company has entered into a contract to purchase exclusive broadcasting
rights for films and sporting events, under various agreements expiring through
2009. As described in Note 2, under certain public service contracts, the
Company has assumed fees obligation with local authorities. At
170
<PAGE> 171
December 31, 1999, the minimum future payments of these other commitments are
summarized as follows (in millions of Euros):
<TABLE>
<CAPTION>
BROADCASTING PUBLIC SERVICE
RIGHTS CONTRACTS TOTAL
------------ -------------- -------
<S> <C> <C> <C>
2000........................................ 1,706.1 46.3 1,752.4
2001........................................ 1,351.8 43.2 1,395.0
2002........................................ 1,023.8 38.7 1,062.5
2003........................................ 894.7 34.5 929.2
2004........................................ 761.6 30.8 792.4
2005 and thereafter......................... 797.0 134.5 931.5
------- ----- -------
Total minimum future payments............... 6,535.0 328.0 6,863.0
======= ===== =======
</TABLE>
LITIGATION
The Company is subject to various litigation in the normal course of
business. Although it is not possible to predict the outcome of such litigation
with certainty, based on the facts known to the Company and after consultation
with counsel, management believes that such litigation will not have a material
adverse effect on the Company's financial position or results of operations.
ENVIRONMENTAL MATTERS
Vivendi's operations are subject to evolving and increasingly stringent
environmental regulations in a number of jurisdictions. Vivendi's operations are
covered by insurance policies. At December 31, 1999, there are no significant
environmental losses.
21) INVESTMENTS ACCOUNTED FOR USING THE PROPORTIONATE CONSOLIDATION METHOD
Investments accounted for using the proportionate consolidation method
represent companies in which Vivendi and other shareholders have agreed to
exercise joint control over significant financial and operating policies.
171
<PAGE> 172
Summarized financial information for major subsidiaries consolidated under
the proportionate consolidation method is as follows (in millions of euros):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -----
<S> <C> <C> <C>
BALANCE SHEET DATA
Non-current assets................................... 4,324.6 988.4
Current assets....................................... 2,835.7 1,637.6
Total assets......................................... 7,160.3 2,626.0
Shareholders' equity................................. 1,878.6 436.4
Minority interests................................... 244.1 220.9
Financial debt....................................... 1,557.4 310.7
Reserves and other liabilities....................... 3,480.2 1,658.0
Total liabilities and shareholders' equity........... 7,160.3 2,626.0
INCOME STATEMENT DATA
Net sales............................................ 2,508.5 1,401.7 620.5
Operating income..................................... 222.8 103.8 17.1
Net income........................................... 80.2 46.1 2.5
</TABLE>
22) SEGMENT INFORMATION
In accordance with the provision of FAS 131, the Company has identified 11
reportable segments which include: Telecommunication, Multimedia and Publishing,
Audiovisual, Internet, Water, Waste Management, Energy, Transportation, FCC,
Construction and Real Estate. These segments are consistent with the basis on
which management evaluates investments and results.
The Telecommunication segment offers mobile telephony and fixed telephony
services.
The Multimedia and Publishing segment includes book publishing, business
and professional press, education material and games.
The Audiovisual segment produces and distributes subscription television
services.
The Internet segment develops internet websites and services.
The Water segment integrates water and wastewater activities such as water
distribution, water and wastewater treatment, industrial process water,
manufacturing of water treatment equipment and systems.
The Waste Management segment collects, processes and disposes of household
and industrial waste.
The Energy segment includes independent power production and energy
optimization and related services.
The Transportation segment focuses on the operation of passenger
transportation services, both road and rail networks.
172
<PAGE> 173
FCC is a separate segment that operates in construction, urban sanitation
and water services, cement production and urban related activities in Spain and
Latin America.
The Construction segment is organized into concession and services,
mechanical and electrical, road works, building and civil engineering.
The Real Estate segment develops, sells and finances property, targeting
both individual and corporate clients.
REVENUE FROM EXTERNAL CUSTOMERS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication....................................... 4,102.2 2,875.2 1,618.3
Publishing and multimedia............................... 3,316.9 2,876.3 --
Audiovisual............................................. 1,151.8 200.6 47.3
Internet................................................ 2.0 -- --
-------- -------- --------
COMMUNICATION........................................... 8,572.9 5,952.1 1,665.6
Water................................................... 10,683.7 6,857.7 6,577.6
Waste management........................................ 3,520.5 2,836.5 2,214.8
Energy.................................................. 3,891.2 3,514.0 3,844.9
Transportation.......................................... 2,456.8 1,991.8 1,688.7
FCC..................................................... 1,876.0 847.2 --
-------- -------- --------
ENVIRONMENTAL SERVICES.................................. 22,428.2 16,047.2 14,326.0
Construction............................................ 8,903.0 7,886.2 8,009.0
Real Estate............................................. 1,686.0 1,818.7 1,444.6
-------- -------- --------
CONSTRUCTION AND REAL ESTATE............................ 10,589.0 9,704.9 9,453.6
OTHERS.................................................. 32.4 32.9 31.4
-------- -------- --------
TOTAL REVENUE FROM EXTERNAL CUSTOMERS................... 41,622.5 31,737.1 25,476.6
======== ======== ========
</TABLE>
173
<PAGE> 174
REVENUE BETWEEN SEGMENTS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication........................................... 68.3 64.9 44.3
Publishing and multimedia................................... 12.7 2.6 --
Audiovisual................................................. 1.0 3.2 0.2
Internet.................................................... -- -- --
----- ----- -----
COMMUNICATION............................................... 82.0 70.7 44.5
Water....................................................... 528.6 598.9 228.1
Waste management............................................ 30.5 60.7 60.2
Energy...................................................... 44.4 36.9 52.1
Transportation.............................................. 10.1 5.1 2.3
FCC......................................................... -- -- --
----- ----- -----
ENVIRONMENTAL SERVICES...................................... 613.6 701.6 342.7
Construction................................................ 42.8 46.0 44.6
Real Estate................................................. 66.1 67.2 88.6
----- ----- -----
CONSTRUCTION AND REAL ESTATE................................ 108.9 113.2 133.2
OTHERS...................................................... 58.7 4.5 12.7
----- ----- -----
TOTAL REVENUE BETWEEN SEGMENTS.............................. 863.2 890.0 533.1
===== ===== =====
</TABLE>
174
<PAGE> 175
AMORTIZATION EXPENSE
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication.......................................... 1,022.5 651.6 518.4
Publishing and multimedia.................................. 62.9 104.3 --
Audiovisual................................................ 178.9 6.4 --
Internet................................................... -- -- --
------- ------- -------
COMMUNICATION.............................................. 1,264.3 762.3 518.4
Water...................................................... 373.4 225.8 187.7
Waste management........................................... 315.5 240.2 184.4
Energy..................................................... 196.8 199.6 59.4
Transportation............................................. 85.6 69.2 51.1
FCC........................................................ 80.3 44.5 --
------- ------- -------
ENVIRONMENTAL SERVICES..................................... 1,051.6 779.3 482.6
Construction............................................... 248.4 186.7 224.3
Real Estate................................................ 64.7 34.0 (61.8)
------- ------- -------
CONSTRUCTION AND REAL ESTATE............................... 313.1 220.7 162.5
OTHERS..................................................... 49.3 69.4 150.5
------- ------- -------
TOTAL AMORTIZATION EXPENSE(1).............................. 2,678.3 1,831.7 1,314.0
======= ======= =======
</TABLE>
-------------------------
(1) Amortization expense includes both tangible and intangible assets.
175
<PAGE> 176
OPERATING INCOME
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998 1997
------- ------- ------
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication........................................... 350.6 22.5 (187.8)
Publishing and multimedia................................... 354.5 252.2 --
Audiovisual................................................. (102.7) (4.7) (10.9)
Internet.................................................... (50.8) (6.4) --
------- ------- ------
COMMUNICATION............................................... 551.6 263.6 (198.7)
Water....................................................... 792.6 405.0 383.2
Waste management............................................ 277.7 225.8 158.3
Energy...................................................... 297.3 290.5 261.1
Transportation.............................................. 96.1 75.2 45.4
FCC......................................................... 190.5 74.5 --
------- ------- ------
ENVIRONMENTAL SERVICES...................................... 1,654.2 1,071.0 848.0
Construction................................................ 175.7 82.4 (3.5)
Real Estate................................................. 36.8 (3.0) (55.3)
------- ------- ------
CONSTRUCTION AND REAL ESTATE................................ 212.5 79.4 (58.8)
OTHERS...................................................... (137.8) (82.6) 5.0
------- ------- ------
TOTAL OPERATING INCOME...................................... 2,280.5 1,331.4 595.5
======= ======= ======
Net financial income (expense)(1)........................... (220.1) 9.3 (301.3)
Net exceptional income (expense)(2)......................... (837.8) 249.3 878.6
Income tax benefit (expense)(3)............................. 793.2 (90.0) (194.7)
Goodwill amortization(4).................................... (612.0) (209.5) (374.7)
NET INCOME AFTER GOODWILL AMORTIZATION AND BEFORE EQUITY AND
MINORITY INTERESTS........................................ 1,403.8 1,290.5 603.4
======= ======= ======
</TABLE>
-------------------------
(1) The Company manages financial income (expense) on a corporate basis.
Accordingly, an allocation of financial income (expense) would not present
meaningful information.
(2) Exceptional items primarily relate to losses incurred on sales of real
estate and gains on sales of financial assets managed on a corporate basis.
(3) The Company has established tax consolidation groups in order to maximize
its tax efficiency. These groups are comprised of companies in different
segments within a particular tax jurisdiction.
(4) Goodwill amortization is allocated to segments in the following table.
176
<PAGE> 177
SIGNIFICANT NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1999 1998 1997
------ ------ --------
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication.......................................... 5.8 27.7 931.3
Publishing and multimedia.................................. (3.1) 45.3 --
Audiovisual................................................ (335.3) (1.2) --
Internet................................................... -- -- --
------ ------ --------
COMMUNICATION.............................................. (332.6) 71.8 931.3
Water...................................................... (88.5) (20.3) (127.1)
Waste management........................................... 7.2 (58.8) (20.5)
Transportation............................................. 3.1 (1.9) 5.7
Energy..................................................... 45.3 (188.7) 249.8
FCC........................................................ 0.2 (11.3) --
------ ------ --------
ENVIRONMENTAL SERVICES..................................... (32.7) (281.0) 107.9
Construction............................................... 22.2 76.2 (66.7)
Real Estate................................................ 503.9 194.1 (1,052.3)
------ ------ --------
CONSTRUCTION AND REAL ESTATE............................... 526.1 270.3 (1,119.0)
OTHERS..................................................... (78.6) 211.8 274.7
------ ------ --------
TOTAL NON-CASH TRANSACTIONS(1)............................. 82.2 272.9 194.9
====== ====== ========
</TABLE>
-------------------------
(1) Significant non-cash transactions have been included as exceptional items,
dilution results, depreciation, amortization and provision on exceptional
items, and dilution result.
177
<PAGE> 178
TOTAL ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
(E MILLIONS)
<S> <C> <C>
Telecommunication........................................... 9,158.6 6,429.1
Publishing and multimedia................................... 5,206.1 3,740.7
Audiovisual................................................. 8,749.0 1,336.4
Internet.................................................... 34.5 11.6
-------- --------
COMMUNICATION............................................... 23,148.2 11,517.8
Water....................................................... 22,510.1 5,697.6
Waste management............................................ 5,793.5 3,560.8
Transportation.............................................. 2,012.5 1,377.0
Energy...................................................... 9,122.1 5,535.3
FCC......................................................... 2,973.2 2,531.6
-------- --------
ENVIRONMENTAL SERVICES...................................... 42,411.4 18,702.3
Construction................................................ 7,802.7 6,326.7
Real Estate................................................. 5,451.8 5,920.6
-------- --------
CONSTRUCTION AND REAL ESTATE................................ 13,254.5 12,247.3
OTHERS...................................................... 3,962.9 6,515.0
-------- --------
TOTAL ASSETS................................................ 82,777.0 48,982.4
======== ========
</TABLE>
178
<PAGE> 179
EXPENDITURES FOR LONG-LIVED ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(E MILLIONS)
<S> <C> <C> <C>
Telecommunication.......................................... 1,053.3 1,220.6 752.1
Publishing and multimedia.................................. 95.5 141.8 --
Audiovisual................................................ 205.9 14.4 1.2
Internet................................................... 6.1 0.4 0.0
------- ------- -------
COMMUNICATION.............................................. 1,360.8 1,377.2 753.3
Water...................................................... 736.0 430.4 425.9
Waste management........................................... 412.5 385.1 355.0
Transportation............................................. 241.4 183.6 62.3
Energy..................................................... 2,407.7 1,104.0 319.3
FCC........................................................ 107.9 68.5 --
------- ------- -------
ENVIRONMENTAL SERVICES..................................... 3,905.5 2,171.6 1,162.5
Construction............................................... 242.8 219.8 163.9
Real Estate................................................ 96.1 76.9 65.2
------- ------- -------
CONSTRUCTION AND REAL ESTATE............................... 338.9 296.7 229.1
OTHERS..................................................... 23.1 63.4 0.4
------- ------- -------
TOTAL EXPENDITURES......................................... 5,628.3 3,908.9 2,145.3
======= ======= =======
</TABLE>
179
<PAGE> 180
EQUITY METHOD INVESTMENTS
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
SHARE IN NET SHARE IN NET SHARE IN NET
INVESTMENT EARNINGS INVESTMENT EARNINGS INVESTMENT EARNINGS
---------- ------------ ---------- ------------ ---------- ------------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Telecommunication.......... 237.8 0.2 270.2 (20.5) 431.2 (15.1)
Publishing and
multimedia............... 134.6 9.8 391.0 14.1 811.5 35.8
Audiovisual................ (87.7) (42.5) 652.8 (3.4) 54.0 (40.9)
Internet................... 28.0 (8.6) -- -- -- --
----- ----- ------- ----- ------- -----
COMMUNICATION.............. 312.7 (41.1) 1,314.0 (9.8) 1,296.7 (20.2)
Water...................... 200.5 31.8 177.2 25.3 162.2 23.7
Waste management........... 6.1 0.7 4.2 0.6 47.3 2.0
Energy..................... 5.7 1.7 18.0 1.3 789.9 64.4
Transportation............. 7.8 0.3 6.9 0.3 3.6 0.7
FCC........................ 124.5 10.9 91.8 4.4 -- --
----- ----- ------- ----- ------- -----
ENVIRONMENTAL SERVICES..... 344.6 45.4 298.1 31.9 1,003.0 90.8
Construction............... 121.2 27.5 118.9 20.3 104.6 19.1
Real Estate................ 10.4 (0.2) 14.3 1.3 11.3 0.4
----- ----- ------- ----- ------- -----
CONSTRUCTION AND REAL
ESTATE................... 131.6 27.3 133.2 21.6 115.9 19.5
OTHERS..................... (7.0) 1.3 (7.2) (1.2) 94.7 13.5
----- ----- ------- ----- ------- -----
TOTAL...................... 781.9 32.9 1,738.1 42.5 2,510.3 103.6
===== ===== ======= ===== ======= =====
</TABLE>
GEOGRAPHICAL BREAKDOWN OF NET SALES
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------------------------------------------------
UNITED
STATES
UNITED REST OF OF REST OF
FRANCE KINGDOM EUROPE AMERICA THE WORLD TOTAL
-------- ------- ------- -------- --------- --------
(E MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Communication...................... 6,833.0 188.6 822.2 517.8 211.3 8,572.9
Environmental Service.............. 9,952.8 2,569.8 4,169.4 4,420.9 1,315.3 22,428.2
Construction and Real Estate....... 6,967.0 706.6 2,378.1 75.4 461.9 10,589.0
Others............................. 32.4 -- -- -- -- 32.4
-------- ------- ------- ------- ------- --------
TOTAL.............................. 23,785.2 3,465.0 7,369.7 5,014.1 1,988.5 41,622.5
======== ======= ======= ======= ======= ========
</TABLE>
180
<PAGE> 181
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
---------------------------------------------------------------
UNITED
STATES
UNITED REST OF OF REST OF
FRANCE KINGDOM EUROPE AMERICA THE WORLD TOTAL
-------- ------- ------- --------- --------- --------
(E MILLION)
<S> <C> <C> <C> <C> <C> <C>
Communication...................... 5,111.2 168.9 451.9 49.0 135.2 5.916.2
Environmental Service.............. 9,413.6 2,230.9 2,475.7 1,215.8 711.2 16,047.2
Construction and Real Estate....... 6,866.8 547.6 1,865.6 3.0 457.7 9,740.7
Others............................. 32.4 -- 0.1 -- 0.4 32.9
-------- ------- ------- ------- ------- --------
TOTAL.............................. 21,424.0 2,947.4 4,793.3 1,267.8 1,304.5 31,737.0
======== ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------------------------------------------------
UNITED
STATES
UNITED REST OF OF REST OF
FRANCE KINGDOM EUROPE AMERICA THE WORLD TOTAL
-------- ------- ------- --------- --------- --------
(E MILLION)
<S> <C> <C> <C> <C> <C> <C>
Communication...................... 1,642.1 -- 23.5 -- -- 1,665.6
Environmental Service.............. 8,967.8 2,178.1 922.3 1,700.2 557.6 14,326.0
Construction and Real Estate....... 6,630.7 538.9 1,778.7 7.3 498.0 9,453.6
Others............................. 31.2 0.1 0.0 -- 0.1 31.4
-------- ------- ------- ------- ------- --------
TOTAL.............................. 17,271.8 2,717.1 2,724.5 1,707.5 1,055.7 25,476.6
======== ======= ======= ======= ======= ========
</TABLE>
GEOGRAPHICAL BREAKDOWN OF LONG LIVED ASSETS
<TABLE>
<CAPTION>
UNITED
STATES
UNITED REST OF OF REST OF
FRANCE KINGDOM EUROPE AMERICA THE WORLD TOTAL
-------- ------- ------- -------- --------- --------
(E MILLION)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998........... 17,186.5 1,931.0 4,829.5 1,726.6 399.0 26,072.6
As of December 31, 1999........... 18,994.8 3,748.0 9,656.4 12,268.2 673.5 45,340.9
</TABLE>
181
<PAGE> 182
23) RELATED PARTY TRANSACTIONS
The main transactions with related parties (principally all the investments
carried under the equity method and subsidiaries excluded from consolidation)
and amounts receivable from and payable to them were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1999 1998
------ ------
(E MILLIONS)
<S> <C> <C>
Receivables
Trade accounts............................................ 174.3 120.0
Loans..................................................... 241.1 205.9
Payables
Trade accounts............................................ 581.2 392.9
Loans..................................................... 281.1 426.1
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1999 1998
------ ------
(E MILLIONS)
<S> <C> <C>
Sales....................................................... 630.6 501.8
Purchases................................................... 604.2 409.0
Net interest income/(expense)............................... 7.8 (15.1)
</TABLE>
In addition to the items above, the Company has entered into certain
related party transactions described below:
-- on April 30, 1999, Compagnie de Saint-Gobain acquired from Vivendi 3
million Saint-Gobain shares at a price of E 482.7 million (E 160.91 per
share), and Vivendi acquired from Compagnie de Saint-Gobain 4.7 million
Vivendi shares at a price of E 807.5 million (E 171.81 per share, before
the three-for-one stock split). These purchases were made through the
exercise of Saint-Gobain's and Vivendi's respective call options
mutually granted in 1998 under the plan for the reduction of their
cross-holdings;
-- Telecom Developpement ("TD") owned by Cegetel (49.9%) and Societe
Nationale des Chemins de Fer Francais (50.1%), the leading French
railway company, is linked by a commercial agreement with Cegetel. It
gives TD the exclusive right to carry Cegetel's long distance calls,
subject to competitive pricing.
182
<PAGE> 183
24) LISTING OF MAIN COMPANIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS IN
1999
Vivendi Group consolidated in 1999 more than 4,600 companies compared with
3,371 in 1998. The principal companies are:
<TABLE>
<CAPTION>
CONSOLIDATION INTERESTS %
COMPANIES METHOD HELD
--------- ------------- -----------
<S> <C> <C>
VIVENDI (1) 100.00
Vivendi Environnement (1) 100.00
1. WATER
VIVENDI WATER (1) 100.00
Generale des Eaux -- Sahide and its subsidiaries (1) 100.00
IN FRANCE:
Compagnie des Eaux et de l'Ozone (1) 100.00
Compagnie des Eaux de Paris (1) 100.00
Societe Francaise de Distribution d'Eau (1) 95.35
Compagnie Fermiere de Services Publics (1) 99.13
Compagnie Mediterraneenne d'exploitation des Services
d'Eau (1) 98.67
Societe des Eaux de Melun (1) 98.66
Societe des Eaux de Marseille and its subsidiaries (2) 48.79
Societe des Eaux du Nord (2) 49.53
Societe des Eaux de Versailles et de Saint-Cloud (1) 50.00
Sade-Compagnie Generale de Travaux d'Hydraulique and its
subsidiaries (1) 97.98
Omnium de Traitements et de Valorisation (OTV) and its
subsidiaries (1) 100.00
Bonna Sabla (1) 98.23
Sainte-Lizaigne SA (1) 100.00
OUTSIDE FRANCE:
General Utilities PLC and its subsidiaries (1) 100.00
USFilter Corporation and its subsidiaries (1) 100.00
Berliner Wasser Betriebe (2) 22.50
Servitec KFT (1) 100.00
Operacion y Mantenimiento de Sistemas de Agua S.A. and its
subsidiaries (2) 50.00
CGE Utilities (Malaisie) (2) 45.00
Coget (1) 100.00
Compagnie Generale des Eaux Portugal (1) 100.00
CGE Australia PTY Limited and its subsidiaries (1) 100.00
OEWA Wasser und Abwasser (1) 99.50
</TABLE>
183
<PAGE> 184
<TABLE>
<CAPTION>
CONSOLIDATION INTERESTS %
COMPANIES METHOD HELD
--------- ------------- -----------
<S> <C> <C>
2. ENERGY
ENERGY -- SERVICES
Dalkia and its subsidiaries (1) 99.47
INDEPENDENT POWER PRODUCTION
Energies USA (1) 100.00
Sithe Energies Inc. (1) 61.41
3. WASTE MANAGEMENT
Compagnie Generale d'Entreprises Automobiles and its
subsidiaries (CGEA) (1) 100.00
Societe d'Assainissement Rationnel et de Pompage and its
subsidiaries (S.A.R.P.) (1) 98.20
SARP-Industries and its subsidiaries (1) 99.37
Societe d'Equipements Manutentions et Transports (SEMAT) (1) 99.66
Sedibex (1) 99.67
Onyx Environmental Group Plc (1) 100.00
Onyx North America Corp. (1) 100.00
Superior Services (1) 100.00
Collex Waste Management Pty Ltd (1) 97.00
Onyx Umweltservice Gmbh (1) 51.00
4. TRANSPORTATION
CGEA Transport (Compagnie Generale d'Entreprises
Automobiles) and its subsidiaries (1) 100.00
Aktiebolaget Linjebuss (1) 100.00
Connex Rail Ltd (1) 100.00
5. F.C.C.
F.C.C. and its subsidiaries (F.C.C.) (2) 27.70
6. TELECOMMUNICATION
CEGETEL AND ITS SUBSIDIARIES(A) (1) 44.00
Including:
-- Societe Francaise du Radiotelephone (S.F.R.)
-- Cegetel 7
-- Cegetel Entreprises
-- Telecom Developpement
Compagnie Transatlantique de Telecommunications (Transtel) (1) 70.00
Vivendi Telecommunications International and its
subsidiaries (1) 100.00
</TABLE>
184
<PAGE> 185
<TABLE>
<CAPTION>
CONSOLIDATION INTERESTS %
COMPANIES METHOD HELD
--------- ------------- -----------
<S> <C> <C>
7. MEDIA AND PUBLISHING
HAVAS AND ITS SUBSIDIARIES (1) 100.00
Including:
Havas Interactive Inc.
U.G.C. and its subsidiaries (3) 39.34
8. AUDIOVISUAL
British Sky Broadcasting Group (BskyB) (3) 23.36
Canal+ and its subsidiaries (1) 49.00
Antennes Tonna (2) 49.00
9. CONSTRUCTION AND REAL ESTATE
Societe Generale d'Entreprises and its subsidiaries
(S.G.E.) (1) 49.21
Compagnie Generale d'Immobilier et de Services (C.G.I.S.) (1) 100.00
10. MULTIPLE ACTIVITY AND HOLDING COMPANIES
Vivendi North America Company Inc. (1) 100.00
Vivendi Asia Pacific Pte Ltd (1) 100.00
Vivendi U.K (1) 100.00
Gelgin Limited (1) 100.00
</TABLE>
-------------------------
(1) = Consolidation
(2) = Proportionate consolidation
(3) = Equity method
(a) Vivendi has majority voting rights and control of the Board of Directors of
Cegetel.
25) SUPPLEMENTAL DISCLOSURES
The following information has been prepared to present supplemental
disclosures required under US GAAP and SEC regulations applicable to the
Company.
25A) SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES GENERALLY
ACCEPTED IN THE UNITED STATES AND FRANCE
The consolidated financial statements of Vivendi have been prepared in
accordance with French GAAP, which differs in certain significant respects from
US GAAP. The principal differences between French GAAP and US GAAP as they
relate to Vivendi are discussed in further detail below.
CONSOLIDATION OF LESS THAN MAJORITY OWNED ENTITIES
Under French GAAP, if a shareholder has substantive and effective control
of a less than 50% owned entity, consolidation is appropriate.
185
<PAGE> 186
Under US GAAP, control is normally defined as voting control (over 50%)
although there may be facts and circumstances that permit consolidation in other
cases. In the case of the Company's 49% interest in Canal+, consolidation is
considered appropriate under French GAAP while under US GAAP equity accounting
would be considered appropriate.
There is no difference in net income or shareholder's equity that results
from this difference in treatment. See 25H for additional disclosures.
USE OF THE PROPORTIONATE CONSOLIDATION METHOD
Under French GAAP, it is appropriate to use the proportionate consolidation
method for subsidiaries over which the Company and other shareholders have
agreed to exercise joint control over significant financial and operating
policies. Under the proportionate consolidation method, the Company recognizes
the assets, liabilities, equity, revenue and expenses of subsidiaries to the
extent of its interest in the Company ownership.
Under US GAAP, when the Company controls a subsidiary based on majority
ownership or voting or other rights, the subsidiary is fully consolidated. When
the Company does not exercise control over a subsidiary, but has significant
influence over the entity, the Company uses the equity method to account for its
investment.
This difference in accounting policy has no effect on either net income or
shareholders' equity.
USE OF EQUITY METHOD
Under French GAAP, there are several criteria to be met which result in the
presumption that equity accounting should be used. For investments under 20%,
equity accounting is followed if the investor is determined to have significant
influence due to the relative level of ownership, board of directors
representation, and other contractual relationships; another consideration is
the level of ownership by others in the investee. In determining its significant
influence in such subsidiaries, the Company applies the criteria described in
Note 2.
Under US GAAP, equity accounting is generally required when an investor's
ownership interest is equal to or greater than 20% of the investee's total
voting securities. In unusual situations where the ownership interest is less
than 20%, equity accounting may be appropriate if significant influence exists
as the result of other contractual relationships and board representation.
CURRENCY TRANSLATION ADJUSTMENTS
TRANSLATION OF FINANCIAL STATEMENTS
The balance sheets and related statements of income of subsidiaries whose
functional currency is different from that of the parent are translated into the
reporting currency at the applicable year-end exchange rate which is permitted
under French GAAP. Translation gains and losses are recorded as a component of
shareholders' equity, or in minority interest as appropriate.
Under US GAAP, when subsidiaries' financial statements are denominated in a
currency different from the parent, assets and liabilities are translated at the
year-end exchange rates, which is consistent with French GAAP, however, revenue
and expenses are translated at the average exchange rate during the year.
Under French GAAP, the balance sheets and statements of income and cash
flows of subsidiaries operating in countries where the local currency is deemed
to be highly inflationary are
186
<PAGE> 187
translated into a stable currency of a country that has a similar economy.
Related translation gains or losses are recorded in current period earnings.
These financial statements are then translated from the stable currency into the
reporting currency using year-end exchange rates, and translation gains or
losses are recorded in retained earnings.
Under US GAAP, for subsidiaries operating in countries where the functional
currency is deemed to be highly inflationary, the functional currency is
considered to be the Company's reporting currency. Accordingly, balance sheets
and statements of income and cash flows are remeasured for the functional
currency into the reporting currency, and translation gains or losses are
recorded in current period earnings.
FOREIGN CURRENCY TRANSACTIONS
Under French GAAP, foreign currency transactions are converted into
reporting currency at the exchange rate on the transaction date. At year-end,
receivables and payables denominated in foreign currencies are translated into
reporting currency at the year-end exchange rate. The resulting exchange losses
are expensed in the current period earnings and unrealized gains are deferred.
Under US GAAP, both the resulting exchange gains and losses are recorded in
the current period earnings.
BUSINESS COMBINATIONS -- GOODWILL
Under both US and French GAAP, goodwill arising from purchase business
combinations is determined as the excess of the consideration paid by the
acquirer over the fair value of the identifiable assets acquired and liabilities
assumed as of the acquisition date.
Certain significant acquisitions, particularly Havas and Pathe, have been
accounted for as mergers as permitted under French GAAP. Under this method, the
assets and liabilities of the acquired company are accounted for at historical
cost. Goodwill is recorded to the extent that there is a difference between the
value of shares issued and the equity of ownership interests acquired valued at
historical cost.
Under US GAAP, these mergers that did not meet criteria for pooling are
considered as purchase business combinations. Accordingly, the assets acquired
and liabilities assumed are recorded at fair value. The consideration paid is
determined to be equal to the fair value of the shares issued to effect the
transaction. The excess of the consideration paid over the fair value of net
assets acquired is recorded as goodwill, as described above.
Under French GAAP, the tax benefit of acquired deductible temporary
differences and carry forwards may be recognized in financial statements
subsequent to the acquisition date when previously reserved through a valuation
allowance. Under US GAAP, this tax benefit is applied to reduce any goodwill
related to that acquisition.
In accordance with French GAAP, the Company recognizes goodwill as an asset
and amortizes it over the estimated useful life. However, if the acquisition has
been paid in equity securities of the Company, the resulting goodwill may be
recorded as a reduction of shareholders' equity. Furthermore, trademarks, market
share and editorial resources acquired in a business combination are not
required to be amortized.
Under US GAAP, goodwill is recorded as an asset and amortized over the
estimated useful life, not to exceed 40 years. Market share and editorial
resources would not be considered as a separately identifiable intangible asset,
but as a component of goodwill, and would be recorded as an asset and amortized
over the estimated useful life not to exceed 40 years. All other separately
identifiable intangible assets acquired are recognized on the balance sheet and
amortized over their useful lives.
187
<PAGE> 188
In connection with its acquisition of Pathe, the Company assumed debt that
is payable in common shares of BSkyB. In addition, the Company acquired common
shares of BSkyB, a portion of which has been designated as a portfolio
investment to be used for the redemption of the debt. Accordingly, under French
GAAP, both portfolio investment and related convertible debt are accounted for
at historical cost. Under US GAAP the investment in BSkyB is accounted for using
the equity method. With respect to convertible debt, a repayment liability equal
to the fair value of underlying stock must be recorded when the bondholder has
the option and is likely to redeem the debt in stock. This liability may be
recorded as an adjustment to the debt obligation or as a separate accrual and
would have been recorded at the acquisition date. Changes in the fair value of
the underlying shares are recognized in current period net income.
INTANGIBLE ASSETS
Under French GAAP, certain costs, such as subscriber acquisition costs,
start-up and certain types of advertising costs, are capitalized and amortized
over their useful lives or the duration of the contract, if applicable.
Under US GAAP, subscriber acquisition costs, start-up and advertising costs
are charged to expense in the period they are incurred.
Under French GAAP, the costs of television and station rights relating to
theatrical movies and other long-term programming of a film is expensed upon
first broadcast or showing of the film. Under US GAAP, these costs are expensed
over the estimated number of times shown.
LEASE CONTRACTS
The Company recognizes assets and debts corresponding to certain types of
lease contracts including a purchase option (known in France as "credit-bail").
Under French GAAP, lease payments corresponding to all other types of loans are
expensed as incurred.
Under US GAAP, leases are classified as capital or operating leases. Leases
that meet the criteria of capital leases are recognized as assets with a
corresponding amount presented as debt on the balance sheet. Recorded assets are
depreciated over their estimated useful lives.
IMPAIRMENT/REAL ESTATE OPERATIONS
French GAAP requires the carrying value of such assets to be reviewed for
impairment but does not request a methodology as detailed as under US GAAP. The
resulting impairment, if any, is recorded as a reserve which may be reversed in
later periods if there is a recovery in the value of the assets.
Under US GAAP, assets to be reviewed for impairment are grouped at an
appropriate level when groups of assets generate joint cash flows. US GAAP also
requires that assets are classified as either held for use or to be disposed,
with the appropriate accounting based on this classification. An asset held for
use is evaluated for impairment when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of those assets.
Assets determined to be impaired are valued at fair value. The resulting
impairment, if any, is recorded as a reduction of the asset carrying value, and
may not be reversed in a later period.
188
<PAGE> 189
The Company's impairment of long-lived assets primarily relates to its real
estate assets. During 1990 to 1996, the Company disposed of certain real estate
properties in which it maintained a continued involvement.
In the French GAAP financial statements, these transactions were treated as
sales and therefore removed from the balance sheet, and the profit and loss
included in net income. Provisions relating to the sale arrangements were
provided as necessary.
The transactions do not meet the sales criteria under US GAAP and therefore
are considered as financial arrangements. The related real estate assets which
would have been recorded under US GAAP must also be considered for impairment.
Accordingly, sales provisions were reversed.
PUBLIC SERVICE CONTRACTS
COMMITMENTS TO MAINTAIN AND REPAIR ASSETS
Under French GAAP, a few consolidated subsidiaries, being generally jointly
controlled, apply the accrue in advance method to account for repair costs.
Under US GAAP, the Company applies the expensed as incurred method for
maintenance and repair expenditures.
PAYMENT TO LOCAL AUTHORITIES
Under French GAAP, payments specifically related to the remaining debt
service on facilities are capitalized and charged to income on a straight-line
basis over the contract period. The difference between cash payments and the
expense recorded is capitalized as a prepaid expense.
Under US GAAP, the present value of the obligation corresponding to debt
service payments is recognized as a liability.
CONSTRUCTION CONTRACTS
Under French GAAP, the Company records the percentage of completion for
buildings, civil engineering and road works contracts according to its earned
status method which is based upon the unit of work performed method and can
differ from US GAAP percentage of completion method measured on cost incurred to
date to total estimated cost. In addition, as allowed under French GAAP, the
Company segments contracts and therefore income of the period is recognized
without reference to the total gross profit ratio of the contract. However, when
gross profit ratio of the period is greater than the gross profit ratio of the
contract, the Company books a reserve for deferred income. This method can
differ from US GAAP which requires that certain specific criteria be met in
order for a contract to be segmented.
RESERVES
Under French GAAP, certain reserves and allowances may be provided,
including reserves for repairs and replacement, restructuring charges and Year
2000 compliance costs, when it is possible that those costs will be incurred or
when management decisions are taken, but not yet documented.
Under US GAAP, contingent losses are accrued only if it is probable that a
liability had been incurred at the date of the financial statements and the
amount of loss can be reasonably estimated. In addition, for certain reserves,
such as restructuring charges, additional criteria must be met. If these
criteria are not met, the provision for these reserves and allowance may not be
recognized.
189
<PAGE> 190
INCOME TAXES
Vivendi recognizes deferred taxes on the basis of timing differences
between accounting and taxable income. The Company does not recognize deferred
tax assets on net operating loss carry forwards and on timing differences when
the recovery of the related deferred tax asset is not probable.
Under US GAAP, deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and net
operating loss and tax credit carryforward and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
FINANCIAL INSTRUMENTS
INVESTMENT SECURITIES
Under French GAAP, investments in debt and non-consolidated equity
securities are recorded at acquisition cost and an allowance is provided if
management deems that there has been an other-than-temporary decline in fair
value. Unrealized gains and temporary unrealized losses are not recognized.
Under US GAAP, investments in debt and equity securities are classified
into three categories and accounted for as follows: Debt securities that the
Company has the intention and ability to hold to maturity are carried at cost
and classified as "held-to-maturity." Debt and equity securities that are
acquired and held principally for the purpose of sale in the near term are
classified as "trading securities" and are reported at fair value, with
unrealized gains and losses included in earnings. All other investment
securities not otherwise classified as either "held-to-maturity" or "trading"
are classified as "available-for-sale" securities and reported at fair value,
with unrealized gains and losses excluded from earnings and reported in
shareholders' equity.
TREASURY SHARES
Under French GAAP, shares of the Company's own stock owned by the Company
and its subsidiaries are recorded as marketable securities in the consolidated
financial statements if those shares are acquired to stabilize the market price
or in connection with stock options granted to directors and employees.
Under US GAAP, treasury shares are recorded as a reduction of shareholders'
equity. Profit and loss on the disposal of treasury shares is recognized as an
adjustment to shareholders' equity.
DERIVATIVE FINANCIAL INSTRUMENTS
Under French GAAP, the criteria for hedge accounting for derivative
financial instruments does not require documentation of specific designation to
the hedged item, nor the documentation of ongoing effectiveness of the hedge
relationship. Derivative financial instruments that meet hedge criteria under
French GAAP are not recorded on the consolidated balance sheet. The impact of
the derivative financial instruments on the statement of income is recorded upon
settlement or the payment or receipt of cash.
Under US GAAP, derivative financial instruments for which the Company has
not specifically designated or has not assessed effectiveness do not meet hedge
accounting criteria. Such instruments
190
<PAGE> 191
are recorded on the consolidated balance sheet at fair value and related changes
in fair value are recognized in current period net income.
During 1998, in connection with the acquisition of 49% of the Spanish
holding company that owns 56.5% of FCC, the Company has granted an option to the
primary shareholder of that holding company. This option grants the primary
shareholder the right to sell to the Company, at any time between April 18, 2000
and October 6, 2008, her remaining 51% in the holding company at a price based
on the average market value of FCC's shares during the three months preceding
the exercise of the option. Under French GAAP, the option is not recorded in the
financial statements until it is exercised. Under US GAAP, a liability is
recorded equal to the fair value of the put option and changes in the fair value
of the option are recorded as a charge to current period earnings.
STOCK-BASED COMPENSATION
Under French GAAP, common shares issued upon the exercise of options
granted to employees and directors are recorded as an increase to share capital
at the cumulative exercise price. Vivendi shares sold to employees through
qualified employee stock purchase plans are reclassified from marketable
securities to share capital. The difference between the carrying value of the
treasury shares and the cumulative exercise price by the stock purchase plan is
recognized as a gain or loss in the period that the shares are sold. In
accordance with French GAAP, the Company has not recorded compensation expense
on stock-based plans with a discounted strike price up to 20% from the fair
value of the common shares at the date of grant.
Under US GAAP, APB Opinion No. 25 defines plans that grant or sell common
shares to employees as compensatory if such plans are not open to substantially
all employees and do not require the employee to make a reasonable investment in
the shares, usually defined as no less than 85% of the market value at the grant
date. If a plan is deemed to be compensatory, APB Opinion 25 requires that
compensation arising from such plans is to be measured based on the intrinsic
value of the shares granted or sold to employees. For fixed plans, the
compensation expense is calculated as the difference between the fair value at
the grant date and the employee strike price. Compensation expense for
compensatory stock based plans is recognized in the period benefited.
PENSION PLANS
As described further in Note 2, prior to its change in accounting policy in
January 1998, the Company recorded as pension expense the benefits paid to
retired employees and the premiums paid for insurance contracts for employees in
service at that time. In January 1998, the Company changed its accounting policy
to record pension obligations, covering all eligible employees, using the
projected unit credit method.
Under US GAAP, the projected unit credit method is required to be applied
as of January 1, 1989. The transition obligation or fund excess determined as of
January 1, 1989 is amortized over the average remaining service period of the
population that was covered under the plan at that date.
Under French GAAP, postretirement benefits other than pensions are recorded
as expense when amounts are paid.
Under US GAAP, the Company must recognize an obligation for amounts to be
paid under postretirement plans, other than pensions. A postretirement
transition obligation may be determined as of January 1, 1995 and amortized over
the average remaining service period of employees covered by the plan. Current
period charges are based on estimated future payments to expected retirees.
191
<PAGE> 192
NEW ACCOUNTING PRONOUNCEMENTS IN THE UNITED STATES
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and
requires companies to recognize all derivative instruments as assets or
liabilities in the balance sheet and to measure those instruments at fair value.
SFAS No. 137 extends the effective date to all fiscal years beginning after June
15, 2000. The Company has not yet determined the timing of adoption of SFAS No.
133 and has not yet quantified the accounting consequences of this new standard.
Staff Accounting Bulletin No. 101, issued in December 1999, summarizes
certain of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company has not
determined the impact that this Bulletin would have under US GAAP on its
consolidated financial statements.
In March of 2000 the Emerging Issues Task Force ("EITF") of the FASB
reached a consensus in EITF Issue 00-2 Accounting for Website Development Costs
which is effective for fiscal quarters beginning after June 30, 2000. Management
does not believe that the adoption of this EITF will have a material effect on
the Company's accounting policies or results of operations.
In June of 2000 the Accounting Standards Executive Committee (AcSEC) of the
AICPA issued SOP 00-2 "Accounting by Producers or Distributors of Films" and the
FASB issued FASB Statement No. 139 "Recission of FASB Statement No. 53 and
amendments to FASB Statements Nos. 63, 89 and 121." These statements establish
new accounting and reporting standards for all producers and distributors that
own or hold the rights to distribute or exploit films. The statement of position
provides that the cumulative effect of changes in accounting principles caused
by adoption of the provisions of the statement of position should be included in
the determination of net income in conformity with Accounting Principles Board
Opinion No. 20, "Accounting Changes." The statements are simultaneously
effective for fiscal years beginning after December 15, 2000 and could have a
material impact on the Company's results of operations and financial position.
The Company is currently quantifying the impact of such adoption.
25B) RECONCILIATION OF EQUITY AND NET INCOME TO US GAAP
The following is a summary reconciliation of shareholders equity, as
reported in the consolidated balance sheet to shareholders' equity as adjusted
for the approximate effects of the application of US GAAP for the periods ended
December 31, 1999 and 1998, and net income as reported in the consolidated
statement of income to net income as adjusted for the approximate effects of the
application of US GAAP for the periods ended December 31, 1999 and 1998 (in
millions of Euros).
192
<PAGE> 193
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Shareholders' equity as reported in the consolidated
balance sheet............................................ 10,892.2 7,840.2
Adjustments to conform to US GAAP:
Currency translation adjustments...................... (35.0) 3.0
Business combinations/Goodwill........................ 7,876.3 3,160.0
Intangible assets..................................... (460.9) (269.4)
Leasing contracts..................................... (14.2) (15.3)
Impairment/Real Estate................................ (64.9) (586.0)
Public service contracts.............................. 113.9 105.2
Construction contracts................................ (29.8) 8.3
Reserves for restructuring liabilities................ 146.2 104.5
Other reserves........................................ 33.5 42.8
Financial instruments................................. (1,532.8) (266.8)
Pension plans and stock-based compensation............ (8.9) 11.6
Others................................................ (36.4) (46.7)
Tax effect on the above adjustments................... 75.3 174.0
-------- --------
US GAAP Shareholders' equity............................... 16,954.5 10,265.4
======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net income as reported in the consolidated statements of
income................................................... 1,431.4 1,120.8
Adjustments to conform to US GAAP:
Currency translation adjustments...................... 13.0 25.0
Business combinations/Goodwill........................ (1,052.7) 191.0
Intangible assets..................................... (191.5) (118.5)
Leasing contracts..................................... 1.1 1.4
Impairment/Real Estate................................ 521.1 74.9
Public service contracts.............................. 8.7 (8.7)
Construction contracts................................ (38.1) (1.8)
Reserves for restructuring liabilities................ 26.0 1.7
Other reserves........................................ 6.4 (31.6)
Financial instruments................................. (208.0) (325.8)
Pension plans and stock-based compensation............ (240.5) (58.2)
Others................................................ 9.9 (11.8)
Tax effect on the above adjustments................... (40.7) 88.8
-------- --------
US GAAP net income......................................... 246.1 565.2
======== ========
</TABLE>
193
<PAGE> 194
BASIC AND DILUTED EARNINGS PER SHARE
For US GAAP purposes, basic earning per share is computed in the same
manner as earnings per share under French GAAP by dividing net income by the
weighted average number of shares outstanding. Diluted earnings per share
reflects the potential dilution that would occur if all securities and other
contracts to issue ordinary shares were exercised or converted (see Note 13).
Net income represents the earnings of the Company after minority interests. The
computation of diluted earnings per share is as follows (in millions of Euros or
millions of shares, except earnings per share):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1999 1998
------ ------
<S> <C> <C>
Net income.................................................. 246.1 565.2
----- -----
Income before extraordinary items -- diluted................ 275.9 565.2
===== =====
Weighted average number of shares
Outstanding -- basic...................................... 511.3 438.3
===== =====
Dilutive effect of:
Shares issuable on exercise of dilutive options........... 2.3 2.9
Shares attributable to stock purchase plans............... 2.7 1.0
Shares applicable to warrants............................. 8.9 9.3
----- -----
Weighted average number of shares
Outstanding -- diluted.................................... 525.2 451.5
===== =====
Earnings per share:
Basic..................................................... 0.48 1.29
===== =====
Diluted................................................... 0.47 1.25
===== =====
</TABLE>
Debt convertible into Vivendi shares (see Note 13) was not included in the
computation of diluted Earning per share because to do so would have been
antidilutive for the period presented.
25C) PRESENTATION OF THE BALANCE SHEET AND INCOME STATEMENT IN US GAAP FORMAT
For purposes of presenting a consolidated condensed balance sheet as of
December 31, 1999 and 1998 and consolidated condensed income statements for the
years ended December 31, 1999 and 1998 in a format consistent with US GAAP, the
Company has reflected the financial statement impact of those reconciling
differences between French GAAP and US GAAP presented in Note 25B. The
subsidiaries consolidated using the proportionate method under French GAAP are
still consolidated under the same method. In addition, due to the significance
of Canal+, the 1999 consolidated condensed US GAAP format financial statements
reflect the deconsolidation of Canal+ and the application of the equity method
for the Company's investment in Canal+.
OPERATING INCOME
French GAAP defines exceptional items in a manner that differs from the
definition of extraordinary items under US GAAP. As a consequence, items
classified as exceptional for French
194
<PAGE> 195
GAAP purposes have been reclassified to the appropriate income statement
captions determined under US GAAP. With the exception of gains and losses on
sales of shares of affiliated companies, exceptional items relating to the
operations of Vivendi have been included in the determination of operating
income.
OTHER INCOME
Capital gains or losses on sale of consolidated entities or equity
affiliates are considered for French GAAP purposes as extraordinary income,
whereas they are classified for US GAAP purposes as other income (loss).
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1999 1998
--------- ---------
(E MILLIONS)
<S> <C> <C>
NET SALES(*)............................................. 39,052.5 29,745.0
Costs of sales........................................... (28,898.0) (23,084.3)
Selling, general and administrative costs................ (8,467.3) (5,589.2)
OPERATING MARGIN......................................... 1,687.2 1,071.5
Goodwill amortization.................................... (770.8) (295.0)
Other operating expenses and revenue..................... (1,437.1) (194.9)
OPERATING INCOME......................................... (520.7) 581.6
Financial income......................................... (401.8) (361.2)
Other income............................................. 535.4 473.3
NET INCOME BEFORE TAXES, MINORITY INTEREST AND EQUITY
INTEREST............................................... (387.1) 693.7
Taxes.................................................... 675.0 41.7
NET INCOME BEFORE MINORITY INTEREST AND EQUITY
INTEREST............................................... 287.9 735.4
Equity interest.......................................... (65.6) (0.3)
Minority interest........................................ 23.8 (169.9)
NET INCOME............................................... 246.1 565.2
</TABLE>
-------------------------
(*) included excise taxes and contribution collected on behalf of local
authorities for an amount of E 2,112 million and E 2,023 million for 1999
and 1998, respectively.
195
<PAGE> 196
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
----------------------------------------------- -----------------------------
FRENCH RECONCILING CANAL+ US FRENCH RECONCILING US
GAAP ITEMS DECONSOLIDATION GAAP GAAP ITEMS GAAP
------ ----------- --------------- ------ ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets........... 37,436 (1,913) (2,511) 33,012 22,910 (18) 22,892
Long term assets......... 45,341 8,301 (3,917) 49,725 26,072 4,560 30,632
Total assets............. 82,777 6,388 (6,428) 82,737 48,982 4,542 53,524
Current liabilities...... 38,850 1,411 (3,746) 36,515 21,128 708 21,836
Long term liabilities.... 28,983 (1,503) (1,336) 26,144 17,591 1,489 19,080
Minority interests....... 4,052 418 (1,346) 3,124 2,423 (80) 2,343
Shareholder's equity..... 10,892 6,062 0 16,954 7,840 2,425 10,265
Total liabilities and
shareholder's equity... 82,777 6,388 (6,428) 82,737 48,982 4,542 53,524
</TABLE>
25D) COMPREHENSIVE INCOME
The concept of comprehensive income does not exist under French GAAP. In US
GAAP, SFAS 130, "Reporting comprehensive income," defines comprehensive income
to include, net of tax impact (in million of Euros):
-- minimum pension liability adjustments,
-- unrealized gains and losses on investment securities classified as
"available for sale,"
-- foreign currency translation adjustments.
<TABLE>
<S> <C>
Net income for the year ended December 31, 1998............. 565.2
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... (225.7)
Unrealized losses on equity securities.................... (197.0)
------
Other comprehensive income.................................. (422.7)
------
Comprehensive income for the year ended December 31, 1998... 142.5
------
Net income for year ended December 31, 1999................. 246.1
Other comprehensive income, net of tax
Foreign currency translation adjustment................... 332.3
Unrealized gains on equity securities..................... 110.0
------
Other comprehensive income.................................. 442.3
------
Comprehensive income for the year ended December 31, 1999... 688.4
------
</TABLE>
25E) STOCK-BASED COMPENSATION
VIVENDI STOCK OPTION PLANS
Beginning in 1997, Vivendi adopted stock option incentive plans that grant
options on its common shares to certain directors and officers. The purpose of
the stock option plans is to align the interest of management with the interest
of shareholders by providing certain officers and other key employees with
additional incentives to increase the Company's performance on a long-term
basis. Under the Company's "classic" plan, Vivendi grants options at a strike
price discounted 12.5% to 20%
196
<PAGE> 197
from the fair market value of the stock on the date of grant. These options are
granted with a contractual life of eight to ten years and vest over a five-year
period from the date of grant. Options have been granted under the classic plan
each year since its inception. Vivendi has adopted another fixed stock option
plan in 1997 that grants options to a limited number of senior managers with a
strike price at a premium to the fair market value of the stock on the date of
grant.
Vivendi has adopted a variable stock option plan in 1999 that grants
options to a limited number of senior managers. The number of options granted
under this plan is measured twice over a five-year vesting period. The first
measurement date is after three years, and the second after five years. At each
measurement date, the number of options to be granted is based upon a formula
that measures the performance of Vivendi stock against the performance of a
basket of peer companies. The options then become immediately exercisable. If a
participant leaves the company before either of the measurement dates, he
forfeits eligibility for the award.
In November 1999, the Company granted ten stock options to each of its
employees. These 2,530,200 options have been granted at an exercise prices of E
62.6, which represented a 20% discount from the market price of Vivendi shares
at the grant date. The options vested immediately but are exercisable after a
period up of three years. In certain countries, stock appreciation rights have
been granted in place of stock options due to regulatory reasons.
No compensation expense has been recorded in connection with stock options
granted by the Company under French GAAP. Under US GAAP, the compensation
expense recorded by the Company is E 16.5 million and E 85.8 million for the
years ended 31 December, 1998 and 1999, respectively.
Information relating to Vivendi stock options granted during 1999, 1998 and
1997 is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
December 31, 1996...................................... 6,392,664 E 21.5
---------- ------
Granted.............................................. 3,241,934 42.6
Exercised............................................ (1,151,065) 20.1
Forfeited............................................ (7,069) 9.0
---------- ------
December 31, 1997...................................... 8,476,464 29.8
---------- ------
Granted.............................................. 2,192,760 50.5
Exercised............................................ (1,039,335) 21.4
Forfeited............................................ (36,232) 12.0
---------- ------
December 31, 1998...................................... 9,593,657 35.5
---------- ------
Granted.............................................. 11,628,678 68.4
Exercised............................................ (1,851,063) 22.5
Forfeited............................................ (42,616) 19.7
---------- ------
December 31, 1999...................................... 19,328,656 56.6
========== ======
</TABLE>
197
<PAGE> 198
At December 31, 1999, 1998, and 1997, 2,309,077, 4,162,924 and 4,279,752
options were exercisable at weighted average exercise prices of E 21.9, E 22.0,
and E 21.4 per share, respectively. The options outstanding at December 31, 1999
expire in various years through 2009.
Information about Vivendi stock options outstanding at December 31, 1999 is
summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
EXERCISE WEIGHTED
PRICE NUMBER AVERAGE NUMBER
(E) OUTSTANDING REMAINING LIFE(A) EXERCISABLE
-------------- ----------- ----------------- -----------
<S> <C> <C> <C>
19.2 114,037 0.81 114,037
21.5 176,307 1.89 176,307
19.2 139,944 0.83 139,944
19.3 386,183 2.80 386,183
22.2 342,392 3.70 342,392
22.1 796,691 4.48 796,691
26.3 353,523 1.92 353,523
30.9 1,229,096 5.71 --
50.0 1,980,974 4.71 --
50.5 2,180,831 6.51 --
61.3 42,672 7.06 --
65.0 3,302,569 7.27 --
73.0 5,729,237 7.36 --
61.8 15,000 7.69 --
62.6 9,000 7.90 --
62.6 2,530,200 7.90 --
---------- ---- ---------
56.6 19,328,656 6.43 2,309,077
========== ==== =========
</TABLE>
For the stock option plans adopted prior to January 1, 1998, the Company
intends to settle options through the issuance of new shares. For stock options
plans adopted in 1998 and later, the Company intends to settle options with
treasury shares. As of December 31, 1999 and 1998, the Company has designated
approximately 5.5 million and 1.8 million treasury shares, respectively, to
settle its potential obligation under stock option plans.
In addition to the corporate plans described above, the following
consolidated subsidiaries maintained stock-based plans for their employees which
are denominated in the subsidiary's stock. Following is a description of the
significant plans.
CANAL+ STOCK OPTION PLANS
Canal+ has adopted several fixed stock option plans that are settled in its
own shares. Options granted under most of these plans are granted to employees
at a strike price with a discount between 0% and 10% from the market value of
the shares at the grant date.
For plans adopted prior to January 1, 1998, options that are exercised are
settled through the issuance of new shares. The options vest ratably over a
five-year period and are valid up to five years from the date of grant. For
plans adopted in 1998 and later, options that are exercised are settled with
Canal+ treasury shares. These options vest in a graduated manner over five years
and are valid up to five years from the date of grant. Canal+ manages its
exposure to the price risk associated with
198
<PAGE> 199
the shares required to settle the options through the issuance of put and call
options settled in its own stock.
In 1998, Canal+ adopted a stock option plan that grants options to a
limited number of senior managers. The options, which vest five years after the
date of grant, have a strike price that was significantly higher than the market
price of Canal+ shares at the grant date.
No compensation expense has been recorded in connection with the stock
options granted by Canal+ under French GAAP. Under US GAAP, the compensation
cost recorded by the company is respectively E 1.7 million and E 1.2 million for
the years ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
CANAL+ NUMBER OF SHARES (E)
------ ---------------- -----------------
<S> <C> <C>
December 31, 1996............................... 1,280,000 27.6
--------- ----
Granted....................................... -- --
Exercised..................................... (23,668) 27.3
Canceled...................................... -- --
--------- ----
December 31, 1997............................... 1,256,332 27.6
--------- ----
Granted....................................... 1,946,400 47.3
Exercised..................................... (65,388) 27.3
Canceled...................................... -- --
--------- ----
December 31, 1998............................... 3,137,344 39.8
--------- ----
Granted....................................... 88,000 64.1
Exercised..................................... (397,972) 27.3
Canceled...................................... -- --
--------- ----
December 31, 1999............................... 2,827,372 42.4
========= ====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
EXERCISE ----------------------------------------------
PRICE NUMBER WEIGHTED AVERAGE NUMBER
(E) OUTSTANDING REMAINING LIFE(A) EXERCISABLE
-------------- ----------- ------------------ -----------
<S> <C> <C> <C>
27.3 715,972 0.70 715,972
31.4 37,000 0.93 37,000
33.9 40,000 1.18 32,000
41.3 1,350,400 3.48 135,040
61.0 596,000 3.48 --
64.0 40,000 4.44 --
64.2 48,000 4.73 --
---- --------- ---- -------
42.4 2,827,372 2.75 920,012
==== ========= ==== =======
</TABLE>
At December 31, 1999, 1998 and 1997, 920,012, 926,944 and 736,333 options
were exercisable as weighted average exercise prices of E 29.8, E 27.6 and E
27.6 per share, respectively. The options outstanding at December 31, 1999
expire in years through 2004.
199
<PAGE> 200
VINCI STOCK OPTION PLANS
Vinci has adopted several fixed stock option plans that are settled in its
own shares. Options granted under these plans are granted to employees at a
discount of 20% from the average market price of Vinci shares over the last 20
business days prior to the grant date. These options have a contractual life of
up to ten years and vest from one to five years from the grant date. For plans
adopted prior to January 1, 1998, options that are exercised are settled through
the issuance of new shares. For plans adopted in 1998 and later, options that
are exercised are settled with Vinci treasury shares.
No compensation expense has been recorded in connection with the stock
options granted by Vinci under French GAAP. Under US GAAP, the compensation cost
recorded is respectively E 0.8 million and E 0.5 million for years ended
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
(E)
<S> <C> <C>
December 31, 1996.............................. 1,134,535 24.3
--------- ----
Granted...................................... -- --
Exercised.................................... (99,028) 18.7
Forfeited.................................... (31,961) 24.7
--------- ----
December 31, 1997.............................. 1,003,546 24.8
--------- ----
Granted...................................... 1,059,193 31.8
Exercised.................................... (343,530) 22.5
Forfeited.................................... (33,805) 24.8
--------- ----
December 31, 1998.............................. 1,685,404 29.7
--------- ----
Granted...................................... 3,765,058 42.0
Exercised.................................... (285,963) 26.4
Forfeited.................................... (34,191) 24.8
--------- ----
December 31, 1999.............................. 5,130,308 39.0
========= ====
</TABLE>
200
<PAGE> 201
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
NUMBER WEIGHTED AVERAGE NUMBER
EXERCISE PRICE OUTSTANDING REMAINING LIFE(A) EXERCISABLE
-------------- ----------- ----------------- -----------
(E )
<S> <C> <C> <C> <C>
25.9 41,455 1.93 41,455
16.8 53,259 2.85 53,259
30.9 118,840 3.85 118,840
25.0 116,923 4.84 116,923
25.6 220,403 8.17 220,403
33.7 814,368 5.17 --
38.0 654,068 9.19 --
---- --------- ---- -------
33.8 101,490 5.18 --
---- --------- ---- -------
42.3 1,003,193 9.69 --
---- --------- ---- -------
43.7 2,006,309 9.69 --
---- --------- ---- -------
39.0 5,130,308 8.37 550,880
==== ========= ==== =======
</TABLE>
At December 31, 1999, 1998 and 1997, 550,880, 948,460 and 1,246,038 options
were exercisable as weighted average exercise prices of E 25.8, E 23.7 and E
24.3 per share, respectively. The options outstanding at December 31, 1999
expire in years through 2009.
COFIRA
In January 1994, Cofira, a consolidated subsidiary of Vivendi and
Telecommunication holding company, granted 246,800 stock options for key
employees with an exercise price of E 15.24. As Cofira is not a public company,
the exercise price was fixed to shareholder's equity plus 30% at the date of
grant. These options vest over a five-year period and may be exercised up to
eight years from the grant date.
HAVAS INTERACTIVE
On July 1, 1999 Havas Interactive granted two stock based plans, one
management option plan and one stock appreciation right plan.
<TABLE>
<CAPTION>
MANAGEMENT
SARS OPTIONS PLAN
--------- ------------
<S> <C> <C>
Number of participants.................................. 710 18
Number of shares authorised............................. 4,875,000 2,625,000
Number of shares granted................................ 3,605,600 2,077,106
Number of shares forfeited.............................. 585,500 340,500
--------- ---------
Balance December 31, 1999............................... 3,020,100 1,736,606
</TABLE>
The stock options and appreciation rights granted under the plans vest over
a five-year period from the date of grant and may be exercised up to 10 years
from the grant date. As Havas Interactive is not a public company, the exercise
price and the selling price are determined as a factor of company EBITDA. For
the management option plan, the participant shall have the right to sell to
201
<PAGE> 202
Havas Interactive the shares at the selling price stated in the contract. In
1999, Havas Interactive recorded compensation expense related to these plans of
E 3.6 million.
SITHE
In 1999, pursuant to the 1998 Employee Restricted Stock Ownership Plan
under which certain employees are awarded a portion of their annual incentive
compensation in the form of restricted common stock of the company at a 20%
discount to its fair market value, Sithe purchased for approximately E 4.5
million and held in trust 3,274 shares of the Company's common stock with
respect to the portion of 1998 incentive compensation so awarded.
In July, 1999, pursuant to the 1999 Stock Retention Plan (the "Plan"),
Sithe awarded to certain employees 8,976 shares of unissued restricted common
stock ("RSAs") and 15,615 nonqualified options to purchase the Company's common
stock at the then fair market value of E 1,920 per share.
The participant shall have the right during the one-year period following
vesting to sell to Sithe and Sithe shall have the right upon the one-year
anniversary of vesting to purchase all or any portion of the RSAs at fair market
value. In 1999, Sithe recorded compensation expense related to this plan of E
3.9 million.
EMPLOYEE STOCK PURCHASE PLANS
Vivendi maintains savings plans that allow substantially all full time
employees of Vivendi and its subsidiaries to purchase shares of Vivendi. The
shares are sold to employees at a discount of 20% from the average market price
of Vivendi stock over the last 20 business days prior to the date of
authorization by the management committee. Shares purchased by employees under
these plans are subject to certain restrictions over the sale or transfer of the
shares by employees.
Shares sold to employee stock purchase plans are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Number of shares............................... 6,608,980 1,511,769 936,912
Proceeds on sales (E millions)................. 480.1 156.4 72.9
Average cost of treasury sales (in E )......... 72.6 103.5 77.8
</TABLE>
Under US GAAP, the compensation cost recorded by the Company for the years
ended December 31, 1999 and 1998 is respectively E 160.8 million and E 54.1
million.
Vinci maintains saving plans that allow all full time employees of Vinci
and its subsidiaries to purchase shares of Vinci. The shares are sold at a
discount of 20% from the average market price of Vinci stock over the last 20
business days prior to the date of authorization by the Board of Directors.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Number of shares.................................. 560,350 820,292 417,730
Proceeds on sales (E millions).................... 15.6 14.9 5.4
Average cost of treasury sales (in E )............ 27.9 18.1 12.9
</TABLE>
The compensation cost recorded by the company for years ended December 31,
1999 and 1998 is respectively E 7.5 million and E 14.7 million.
202
<PAGE> 203
Vivendi applies the intrinsic value method to account for compensation cost
associated with options granted to employees. In accordance with French GAAP,
the Company has not recorded compensation expense on options granted with a
discounted strike price up to 20% from the fair value of shares at the date of
grant. Had compensation cost for stock options awarded under these plans been
determined based on the fair value at the dates of grant consistent with the
methodology of SFAS 123, Vivendi's net income and basic earnings per share, as
determined in accordance with US GAAP, would have reflected the following pro
forma amounts (in millions of Euros, except per share amounts):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
US GAAP net income.......................................... 246.1 565.2
Basic earning per share..................................... 0.48 1.29
Impact of fair value method of stock options................ (52.2) (18.0)
Pro forma US GAAP net income................................ 193.9 547.2
Pro forma basic earnings per share.......................... 0.38 1.26
</TABLE>
The fair value of each Vivendi, Vinci and Canal+ option grant is estimated
on the date of grant using the Binomial option pricing model with the following
assumptions for the grants:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
VIVENDI
Expected life (years)................................... 6.53 5.64 5.76
Interest rate........................................... 4.56% 4.70% 5.42%
Volatility.............................................. 6.51% 6.51% 6.51%
Dividend yield.......................................... 1.14% 1.14% 1.14%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
CANAL+
Expected life........................................... 2.74 3.43 2.72
Interest rate........................................... 4.56% 4.70% 5.42%
Volatility.............................................. 12.32% 12.32% 12.32%
Dividend yield.......................................... 0.48% 0.48% 0.48%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
VINCI
Expected life........................................... 8.45 6.14 6.51
Interest rate........................................... 4.56% 4.70% 5.42%
Volatility.............................................. 13.14% 13.14% 13.14%
Dividend yield.......................................... 2.20% 2.20% 2.20%
</TABLE>
203
<PAGE> 204
25F) PENSION PLAN AND OTHER COST RETIREMENT BENEFITS OTHER THAN PENSION PLANS
Disclosures, presented in accordance with SFAS 132, are as follows (in
millions of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ --------------
1999 1998 1999 1998
------- ------- ----- -----
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
BENEFIT OBLIGATION AT BEGINNING OF YEAR............. 1,334.2 1,235.5 9.0 9.2
Service cost........................................ 71.8 69.0 0.1 0.1
Interest cost....................................... 91.3 84.2 0.4 0.5
Plan participants contributions..................... 11.9 10.6 -- --
Business combinations............................... 100.2 42.2 -- --
Disposals........................................... (10.5) (1.1) -- --
Curtailments........................................ (2.8) (0.4) -- --
Actuarial loss (gain)............................... 14.3 5.2 (1.5) (0.1)
Benefits paid....................................... (71.8) (61.3) (0.7) (0.7)
Special termination benefits........................ -- -- -- --
Others (foreign currency translation)............... 107.0 (49.7) -- --
------- ------- ---- ----
BENEFIT OBLIGATION AT END OF YEAR................ 1,645.6 1,334.2 7.3 9.0
======= ======= ==== ====
CHANGE IN PLAN ASSETS
FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR...... 1,155.9 1,093.6 -- --
Actual return on plan assets........................ 232.5 108.7 -- --
Company contributions............................... 45.7 63.4 0.7 0.7
Plan participants contributions..................... 11.9 10.6 -- --
Business combinations............................... 3.9 10.6 -- --
Disposal............................................ (2.0) (0.7) -- --
Benefits paid....................................... (71.8) (61.3) (0.7) (0.7)
Others (foreign currency translation)............... 157.4 (69.0) -- --
------- ------- ---- ----
FAIR VALUE OF PLAN ASSETS AT END OF YEAR......... 1,533.5 1,155.9 -- --
======= ======= ==== ====
FUNDED STATUS OF THE PLAN............................. (112.1) (178.3) (7.4) (9.0)
Unrecognized actuarial loss......................... (154.6) (15.9) (1.6) (0.1)
Unrecognized actuarial prior service cost........... (153.6) (146.6) -- --
Unrecognized actuarial transition obligation........ (26.1) (21.4) -- --
------- ------- ---- ----
ACCRUED BENEFIT COST............................. (446.4) (362.2) (9.0) (9.1)
======= ======= ==== ====
Write off of prepaid on multi-employer scheme
overtime(*)......................................... (24.9) (14.2) -- 0
------- ------- ---- ----
Net (accrued) benefit cost under US GAAP.............. (471.3) (376.4) (9.0) (9.1)
======= ======= ==== ====
</TABLE>
-------------------------
(*) Prepaid arising from multi-employer plans overtime (activities under lease
contract) are written off by since there are serious doubts that they could
be recoverable through future contribution holidays.
204
<PAGE> 205
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligation
in excess of plan assets were E 447 million, E 356 million and E 32 million,
respectively, as of December 31, 1999, E 576 million, E 471 million and E 25
million, respectively, as of December 31, 1998.
Amounts recognized in the balance sheets consist of (in millions of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Accrued benefit liability (including MLA)...... (586.5) (466.4) (9.0) (9.1)
Prepaid benefit cost........................... 114.5 86.9 -- --
------ ------ ---- ----
NET AMOUNT ACCRUED FOR UNDER US GAAP........... (472.0) (379.5) (9.0) (9.1)
====== ====== ==== ====
Intangible assets (MLA)(a)..................... 0.7 3.1 -- --
------ ------ ---- ----
NET AMOUNT RECOGNIZED UNDER US GAAP............ (471.3) (376.4) (9.0) (9.1)
====== ====== ==== ====
</TABLE>
-------------------------
a) Adjustment for US GAAP purpose: The benefit liability accrued under US GAAP
has to be the minimum between the accumulated benefit obligation net of fair
value of plan assets and the net amount recognized under US GAAP.
Net accruals in the accompanying consolidated balance sheet can be compared
with balances determined under US GAAP as follows (in millions of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
NET AMOUNT ACCRUED FOR UNDER US GAAP........... (472.0) (379.5) (9.0) (9.1)
Excess funding of plans recognized in income
only when paid back to the Company........... (3.4) (12.6) -- --
Impacts of transition obligation, of prior
service cost and of actuarial gains
recognized with a different timing under
local regulations............................ (29.7) (6.4) -- 0.1
Minimum liability adjustments (MLA)............ 0.7 3.1 -- --
------ ------ ---- ----
NET AMOUNT ACCRUED FOR UNDER FRENCH GAAP IN THE
ACCOMPANYING CONSOLIDATED BALANCE SHEET...... (504.4) (395.4) (9.0) (9.0)
====== ====== ==== ====
Accrued........................................ (582.6) (449.7) (9.0) (9.0)
Prepaid........................................ 78.2 54.3 -- --
</TABLE>
Net periodic cost under US GAAP was as follows (in millions of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Service cost................................... 71.8 69.0 -- --
Expected interest cost......................... 91.3 84.2 0.1 0.1
Expected return on plan assets................. (93.5) (90.0) 0.5 0.5
</TABLE>
205
<PAGE> 206
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Amortization of unrecognized prior service
cost......................................... (12.1) (11.9) -- --
Amortization of actuarial net loss (gain)...... 0.7 4.8 -- --
Amortization of net transition obligation...... (1.2) (0.9) -- --
Curtailments/Settlements....................... (2.8) (0.4) -- --
Special Termination benefits................... -- -- -- --
------ ------ ---- ----
Net periodic benefit cost...................... 54.2 54.8 0.6 0.6
====== ====== ==== ====
Write-off of prepaid on multi-employer scheme
overtime..................................... 8.2 7.3 -- --
Net periodic benefit cost under US GAAP........ 62.4 62.1 0.6 0.6
</TABLE>
Annual cost under French GAAP was E 80.9 million and E 64.6 million for the
years ended December 31, 1999, and 1998, respectively. The difference between
these amounts and the annual cost under US GAAP primarily results from the
difference in timing of amortization of the initial transition liability and of
actuarial gains and losses. In addition, certain companies do not recognize the
excess funding.
Weighted-average assumptions as of December 31 are as follows (in millions
of Euros):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1998 1999 1998 1999
------ ------ ----- -----
<S> <C> <C> <C> <C>
Discount rate.................................. 6.5% 5.8% 5.0% 5.0%
Rate of compensation increase.................. N/A N/A N/A N/A
Expected return on plan assets................. 8.2% 7.4% 6.0% 6.0%
Expected residual active life (in years)....... 14.4 13.7 15.0 15.0
</TABLE>
Regarding the other benefits plans, a one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
INCREASE DECREASE
------------------ ------------------
<S> <C> <C>
Effect on total of service and interest cost
components................................... 0.0 0.0
Effect on the postretirement benefit
obligation................................... 0.3 (0.2)
</TABLE>
25G) CAPITAL AND OPERATING LEASE
The Company has entered into capital and operating leases. At December
1999, the minimum future payments under these leases, properly classified under
US GAAP, are as follows (in millions of Euros):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASES CAPITAL LEASES
------------------------ ---------------- --------------
<S> <C> <C>
2000............................................... 617.2 219.3
2001............................................... 609.0 214.6
</TABLE>
206
<PAGE> 207
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, OPERATING LEASES CAPITAL LEASES
------------------------ ---------------- --------------
<S> <C> <C>
2002............................................... 541.3 213.1
2003............................................... 519.5 204.6
2004............................................... 415.9 212.6
2005 and thereafter................................ 2,147.6 1,971.3
------- -------
Total minimum future capital lease payments........ 4,850.5 3,035.5
Less amounts representing interest................. -- 1,514.6
------- -------
Present value of net minimum future capital lease
payments......................................... -- 1,520.9
======= =======
</TABLE>
25H) CONSOLIDATION OF LESS THAN MAJORITY OWNED ENTITIES
Canal+ has been consolidated in the financial statements under French GAAP
since the Company gained effective control in October, 1999. Summarized
information concerning Canal+ under French GAAP is presented below:
<TABLE>
<CAPTION>
INCOME STATEMENT INFORMATION 1998 1999
---------------------------- ----- -----
(E MILLIONS)
<S> <C> <C>
Revenues.................................................... 2,475 3,291
Operating Income............................................ 51 (23)
Net financial income (expense).............................. (3) (40)
Net income (loss)........................................... (28) (336)
Net Income applicable to Vivendi ownership(*)............... (10) (167)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
BALANCE SHEET INFORMATION 1998 1999
------------------------- ------------ ------------
(E MILLIONS)
<S> <C> <C>
Goodwill.................................................... 265 252
Other Intangible Assets..................................... 1,669 1,891
Property, Plant and Equipment............................... 746 758
Financial Assets............................................ 908 888
Current Assets.............................................. 1,661 2,779
Total Assets.............................................. 5,249 6,568
Shareholders' Equity........................................ 1,545 1,127
Minority Interests.......................................... 88 61
Reserves and allowances..................................... 705 604
Long term Debt.............................................. 504 1,101
Current Liabilities......................................... 2,407 3,675
Total Liabilities and Equity.............................. 5,249 6,568
Shareholders' equity applicable to Vivendi ownership(*)..... 524 550
</TABLE>
-------------------------
(*) (respectively 34%/49% before/after September 1999)
207
<PAGE> 208
25I) RESTRUCTURING COSTS
Provisions for restructuring by segment details as follows:
<TABLE>
<CAPTION>
BALANCE CHANGE IN BALANCE CHANGE IN
DEC. 31, SCOPE OF DEC. 31, SCOPE OF
EMPLOYEE TERMINATION COSTS 1996 CONSOLIDATION ADDITIONS UTILIZATION REVERSAL 1997 CONSOLIDATION ADDITIONS
----------------------------- -------- ------------- --------- ----------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Publishing and Multimedia.... 47.8 26.0
Water........................
Waste Management............. 2.1
Energy....................... 27.0 11.3 (17.2) 21.1
Construction................. 48.3 64.5 (79.9) 32.9 1.5 61.0
Real Estate.................. 7.2 7.2 0.2 3.4
---- --- ----- ----- --- ---- ---- -----
Total..................... 82.5 0.0 75.8 (97.1) 0.0 61.2 49.5 92.5
==== === ===== ===== === ==== ==== =====
<CAPTION>
BALANCE CHANGE IN BALANCE
DEC. 31, SCOPE OF DEC. 31,
EMPLOYEE TERMINATION COSTS UTILIZATION REVERSAL 1998 CONSOLIDATION ADDITIONS UTILIZATION REVERSAL 1999
----------------------------- ----------- -------- -------- ------------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Publishing and Multimedia.... (34.6) (0.8) 38.4 14.6 18.0 (42.6) (1.4) 27.0
Water........................ 54.2 (11.7) 42.5
Waste Management............. 2.1 2.0 4.1
Energy....................... (10.3) 10.8 (5.5) 5.3
Construction................. (51.8) (1.2) 42.4 44.5 (50.9) (0.3) 35.7
Real Estate.................. (1.5) 9.3 (1.7) 5.7 (5.6) 7.7
------ ---- ----- ---- ----- ------ ---- -----
Total..................... (98.2) (2.0) 103.0 67.1 70.2 (116.3) (1.7) 122.3
====== ==== ===== ==== ===== ====== ==== =====
<CAPTION>
EMPLOYEE TERMINATION COSTS NOTE
----------------------------- ----
<S> <C>
Publishing and Multimedia.... (a)
Water........................ (b)
Waste Management.............
Energy.......................
Construction................. (c)
Real Estate..................
Total.....................
</TABLE>
<TABLE>
<CAPTION>
BALANCE CHANGE IN BALANCE CHANGE IN
DEC. 31, SCOPE OF DEC. 31, SCOPE OF
OTHER RESTRUCTURING COSTS 1996 CONSOLIDATION ADDITIONS UTILIZATION REVERSAL 1997 CONSOLIDATION ADDITIONS
----------------------------- -------- ------------- --------- ----------- -------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telecommunications........... 59.4 59.4 (3.3)
Publishing and Multimedia....
Water........................ 2.7 6.8 19.8 (0.3) 29.0 (1.0) 9.5
Transportation............... 1.2 1.2
---- --- ----- ----- --- ----- ---- -----
Total..................... 3.9 6.8 79.2 (0.3) 0.0 89.6 (4.3) 9.5
---- --- ----- ----- --- ----- ---- -----
Total..................... 86.4 6.8 155.0 (97.4) 0.0 150.8 45.2 102.0
==== === ===== ===== === ===== ==== =====
<CAPTION>
BALANCE CHANGE IN BALANCE
DEC. 31, SCOPE OF DEC. 31,
OTHER RESTRUCTURING COSTS UTILIZATION REVERSAL 1998 CONSOLIDATION ADDITIONS UTILIZATION REVERSAL 1999
----------------------------- ----------- -------- -------- ------------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telecommunications........... (21.7) (0.3) 34.1 (4.1) 1.4 (12.4) 19.0
Publishing and Multimedia.... 6.8 (1.5) 5.3
Water........................ (13.3) 24.2 55.1 28.8 (34.2) 73.9
Transportation............... 1.2 (0.3) 0.9
------ ---- ----- ----- ----- ------ ---- -----
Total..................... (35.0) (0.3) 59.5 57.8 30.2 (48.4) 99.1
------ ---- ----- ----- ----- ------ ---- -----
Total..................... (133.2) (2.3) 162.5 124.9 100.4 (164.7) (1.7) 221.4
====== ==== ===== ===== ===== ====== ==== =====
<CAPTION>
OTHER RESTRUCTURING COSTS NOTE
----------------------------- ----
<S> <C>
Telecommunications........... (d)
Publishing and Multimedia....
Water........................ (b)
Transportation...............
Total.....................
Total.....................
</TABLE>
208
<PAGE> 209
As previously discussed, the Company has grown through significant
acquisitions in the past several years. As a result of these acquisitions and
the need to streamline and integrate the resulting operating entities, the
Company's various business segments have implemented various restructuring
plans, primarily related to the consolidation of facilities. As a result, the
Company has incurred significant costs associated with the elimination of such
facilities and related reductions in employee headcount. These costs include
amounts associated with employee termination and early retirement programs,
asset divestitures, and costs associated with lease and other contract
terminations. These plans are generally completed within one year of initiation.
In addition to restructuring plans initiated by the Company, certain of the
acquired businesses had initiated and were executing restructuring plans at the
time of acquisition. The Company evaluated these restructuring plans at the time
of acquisition to determine whether such plans were consistent with the
Company's integration strategy. If consistent, such reserves were established
through purchase accounting and have been reflected as "Change in scope of
consolidation" in the table above. A description of the Company's various
restructuring plans by business segment is detailed below.
(a) Publishing and Multimedia
As previously indicated, Havas was first consolidated with Vivendi in 1998.
Havas reserves associated with its pre-acquisition restructuring plans consist
primarily of costs associated with headcount reduction programs at several
operating units and have been included in "Change in scope of consolidation" in
1998. The balance of the amount reflected in "Change in scope of consolidation"
relates primarily to the acquisitions of Anaya and Medimedia in 1998 and 1999,
respectively.
During the acquisition of Grupo Anaya in September 1998, the Company
determined that certain sales and administrative offices were redundant. The
Company established a termination plan amounting to E 10.8 million involving
approximately 240 employees (12 management employees and 228 administrative and
sales employees). The Company paid E 8.5 million in severance costs and 167
employees had been terminated as of December 31, 1999.
During the acquisition of Medimedia in August 1999, the Company implemented
a restructuring plan with costs of approximately E 11 million. The plan included
an accrual of E 4.2 million associated with severance costs related to the
termination of approximately 40 employees, and an accrual of E 6.8 million
related to the closure and disposal of several operating facilities. During the
fourth quarter of 1999, E 0.5 million in severance payments were made in
connection with the termination of five employees together with E 1.3 million in
facility exit costs.
The Company's business units comprising the Publishing and Multimedia
segment have implemented certain other restructuring activities during 1998 and
1999. The most significant of these activities is a termination plan relating to
the reduction of administrative headcount at Havas, which resulted in
termination costs of E 5.3 million. These costs were accrued in 1998 and paid in
1999.
(b) Water
Beginning in 1997, the Company implemented a three-year restructuring plan
associated with its water businesses located in France. The primary purpose of
the restructuring plan is to consolidate individual facilities originally
established with the sole purpose of administering municipal water service
contracts. The costs associated with the plan relate primarily to lease
termination and other costs to exit facilities. The plan will result in a
restructuring of the Company's existing operating structure from 334 local
units, 86 intermediary levels and 31 regional agencies to 140 local units, 50
business units and 10 regional agencies. The plan is expected to be completed in
2000.
209
<PAGE> 210
As previously discussed, the Company acquired USFilter in April 1999. In
conjunction with the acquisition, the Company evaluated USFilter's ongoing
restructuring plans. This evaluation resulted in the continuation of certain
restructuring efforts and the implementation of additional restructuring plans
to streamline USFilter's resulting manufacturing and production base and to
redesign its distribution network. The revised restructuring plans identified
certain manufacturing facilities, distribution sites, sales and administrative
offices, retail outlets and related assets that became redundant or
non-strategic upon consummation of the transaction. The costs associated with
the plan totaled E 109.4 million and are reflected in "Change in scope of
consolidation." The costs consisted of E 54.2 million in severance and employee
termination costs related to a reduction of the combined workforce of 1,465
employees (189 management employees, 456 administrative employees, 684
manufacturing employees and 136 sales employees), and E 55.1 million in facility
exit costs, including assets write-downs, lease terminations and other exit
costs. During 1999, the Company incurred costs of E 31.6 million in connection
with the plan, including E 11.7 million in severance payments in connection with
the termination of approximately 350 employees and E 19.9 million in facility
exit costs. As of December 31, 1999, a total accrual of approximately E
77.7 million remained, consisting of E 42.5 million in severance and employee
termination accruals and E 35.2 million in other restructuring costs (primarily
attributable to facility consolidation). The remaining costs are expected to be
incurred during 2000. Additional costs to complete the restructuring plan are
not expected to be material and are expected to be incurred during the current
fiscal year.
(c) Construction
Beginning in 1996, the Company recorded provisions for restructuring plans,
in the amount of E 48.3 million, consisting of severance and employee
termination costs. These plans were executed in 1997, resulting in a headcount
reduction of 1,566 employees (259 management employees and 1,307 construction
employees).
During 1997, the Company established additional restructuring plans,
primarily related to planned headcount reduction, in the amount of E
64.5 million. These plans consisted of accruals associated with the termination
of 2,106 employees (483 management employees and 1,623 construction employees).
During 1997, the Company incurred charges of E 31.6 million in connection
with these plans, which resulted in a reduction of the workforce of 1,028
employees (210 management employees and 818 construction employees). The
remaining portion of these plans were executed in 1998, resulting in charges of
E 31.7 million and a 1,078 decrease in the number of employees (273 management
employees and 805 construction employees).
In 1998, the Company's management continued the review of its activities
and internal organization, a review that prompted the implementation of
additional restructuring plans. These plans resulted in an accrual of E
61.0 million and consisted of severance and employee termination costs for 1,939
employees (194 management employees and 1,745 construction employees). During
this period, the Company incurred costs associated with such plans in an amount
of E 18.6 million for a total of 591 employees (59 management employees and 532
construction employees). The remaining portion of the plan was executed in 1999
for a total cost of E 42.1 million.
In 1999, the Company established a restructuring plan as a result of a
general decline in construction demand in markets serviced by its German
subsidiaries. Additionally, the Company implemented plans in its civil
engineering entities to adapt the business to new technology, including digital
technology related to electrical contracting. These plans resulted in an accrual
of E 44.5 million, in connection with a workforce reduction of 1,460 employees
(277 management employees and 1,183 workers). During 1999, the Company incurred
E 8.8 million in connection with such plans and reduced its number of employees
by 288 (49 management employees and 239 construction employees).
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(d) Telecommunications
In December 1997, SFR decided to discontinue mobile telephone service
operations utilizing analog technology. In connection with this decision, a
reserve of approximately E 60.0 million was provided in connection with the
phasing out of the subscriber base and associated technology.
25J) SUBSEQUENT EVENTS
On February 10, 2000, Vivendi reduced its interest in Vinci from 49.3% to
16.9% by selling 13.8 million shares of Vinci to institutional investors, for E
607.2 million and recognized a gain of E 300 million. Vivendi waived its double
voting rights on the remaining shares as part of this sale. Vivendi has also
agreed not to sell any additional Vinci shares until February 2001, at which
time Vivendi plans to complete its divestiture by selling the remaining shares
on the market.
On February 2000, Vivendi sold to Reliant 21 independent power production
plants for E 2.13 billion and recognized a gain of E 450 million.
Subsequent to the restructuring of the activity of CGIS into two separate
companies, Nexity and Vivendi Valorisation. Vivendi has sold Nexity beginning of
July to institutional investors without major gain or loss.
On May 16, 2000, and following a cooperation agreement signed on January
30, 2000, Vivendi, through its subsidiary Vivendi Net, and Vodafone Air Touch,
entered into an agreement to create an equally owned joint venture called
VIZZAVI, to establish a Multi Access Portal for the European market.
On June 20, 2000, the Company entered into an agreement to combine with The
Seagram Company Ltd. and Canal+. These transactions will be effected through the
Company merging with and into one of its wholly-owned subsidiaries, Sofiee,
which will then acquire all of the non-regulated operations of Canal+. The
non-regulated operations of Canal+ include all Canal+ operations except for the
license to broadcast television in France and the French subscriber base. Sofiee
will then acquire all of the outstanding shares of Seagram pursuant to a plan of
arrangement under Canadian law. Upon completion of these transactions, Sofiee
will be renamed Vivendi Universal.
On June 22, 2000, the Company entered into a memorandum of understanding
with Electricite de France (EDF), the French National Power Utility, in order to
offer an integrated service from power generation to energy services primarily
to large industrial clients throughout the European deregulated market. This
will be accomplished through the sale of 34% in Dalkia's parent company to EDF.
The Company recently completed an initial public offering in France and an
international private placement of its wholly-owned subsidiary, Vivendi
Environnement, which regroups all of the Company's environmental services. The
Company retains an approximately 63% interest in Vivendi Environnement.
In fiscal year 2000, Vivendi disposed of a significant portion of its
investments in the Construction segment. On February 10, 2000, Vivendi reduced
its interest in Vinci from 49.3% to 16.7% by selling 13.8 million shares of
Vinci to institutional investors for E 572 million and recognized a gain of E
308 million. Vivendi has double voting rights on certain of its remaining shares
that allow the Company to exercise a significant influence over Vinci.
Accordingly Vivendi accounts for its investment in Vinci using the equity method
subsequent to the transaction.
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25K) SEAGRAM TRANSACTION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
On June 20, 2000, Vivendi announced that it had entered into a merger
agreement, a plan of arrangement and a number of related agreements with The
Seagram Company Ltd. ("Seagram") and Canal+ S.A. ("Canal+"). Pursuant to the
agreements, subject to certain conditions, (i) Vivendi will merge with and into
Sofiee S.A., a wholly-owned subsidiary, (ii) Canal+ will contribute its
international operations, as well as some of its French pay-TV operations to an
affiliated entity, but will retain its French pay-TV operations that are subject
to a French law that forbids any person or entity from owning more than 49% of a
company holding a television broadcast license (the "French regulated
businesses"), (iii) the entity that receives the operations contributed by
Canal+ will merge with and into Sofiee, and (iv) Sofiee shall acquire the
outstanding capital stock of Seagram pursuant to a plan of arrangement under
Canadian law ((i) -- (iv) collectively, "the transactions"). Following
completion of the transactions expected to be completed during the fourth
quarter of 2000, Sofiee will be renamed "Vivendi Universal."
INTRODUCTION
The following unaudited pro forma consolidated condensed financial
statements have been prepared to present the effects of the fiscal year 2000
disposition, as well as the proposed acquisition by Sofiee of Seagram, described
above. The acquisition of Vivendi by Sofiee is considered to be a reverse
acquisition by Vivendi of Sofiee for accounting purposes. Because Sofiee was a
wholly-owned holding company subsidiary, this business combination has no impact
on the historical Vivendi consolidated financial statements or on the unaudited
pro forma financial statements.
The unaudited pro forma financial statements have been derived from, and
should be read in conjunction with, the historical consolidated financial
statements, including the notes thereto, of both Vivendi and Seagram. The
December 31, 1999 consolidated financial statements of Vivendi are included in
this registration statement. The consolidated financial statements of Seagram as
of June 30, 1999 are included in its Annual Report on Form 10-K and are
incorporated by reference in this registration statement. See "Documents
Incorporated by Reference," page 127.
The unaudited pro forma financial statements are presented for
informational purposes only and are not necessarily indicative of the financial
position or results of operations of Vivendi that would have occurred had the
transaction been consummated as of the dates indicated. In addition, the
unaudited pro forma financial statements are not necessarily indicative of the
future financial condition or operation results of Vivendi.
TERMS OF THE SEAGRAM AND CANAL+ TRANSACTIONS
In the Seagram transactions, holders of Seagram common shares will receive
a number of Vivendi Universal American Depositary Shares ("ADS"), each
representing one share of Vivendi Universal, determined with reference to an
exchange ratio set forth in the plan of arrangement. The exchange ratio will be
equal to US$77.35 divided by the U.S. dollar equivalent of the average of the
closing prices on the Paris Bourse of the Vivendi ordinary shares during a
measuring period preceding the closing, unless the average is equal to or less
than US$96.6875 (in which case the ratio will be 0.8000) or the average is equal
to or greater than US$124.3369 (in which case the exchange ratio will be
0.6221). The measuring period is defined in the acquisition documents as the
twenty consecutive trading days on the Paris Bourse ending on the third complete
trading day prior to the effective date of the transaction.
212
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In connection with Sofiee's combination with Seagram, Vivendi will cause
Canal+, an entity approximately 49% owned by Vivendi and included in its
consolidated financial statements, to split into two legal entities, one
containing the television license as well as the subscriber base in France and
one containing all other operating activities (the "deregulated activities").
Sofiee, following its merger with Vivendi, will then acquire the remaining 51%
of the Canal+ deregulated activities which Sofiee, following its merger with
Vivendi, did not previously own through an exchange of shares in a ratio of 2
Vivendi shares for 1 Canal+ deregulated activities share. Vivendi will remain a
49% shareholder in the entity owning the television license as well as the
subscriber base in France. Accordingly, the pro forma adjustments include the
effects of this acquisition. In addition, the pro forma adjustments recognize
the amortization of the goodwill over 40 years, as well as the revenues and
expenses of Canal+ for the full year ended December 31, 1999. At this time, the
work needed to provide the basis for estimating the fair values of the assets
acquired and liabilities assumed from Canal+, and to determine amortization
periods for intangible assets has not been completed. As a result, the final
allocation of the excess of the purchase price over the book value of the net
assets acquired could differ from that used in the preparation of the unaudited
pro forma financial statements, and that difference could be material. The final
allocation is expected to be completed within one year of the date of the
transactions.
Sofiee intends to account for the transaction with Seagram as an
acquisition using the purchase method of accounting for business combinations.
At this time, the work needed to provide the basis for estimating the fair
values of the assets acquired and liabilities assumed from Seagram, and to
determine amortization periods for intangible assets has not been completed. As
a result, the final allocation of the excess of the purchase price over the book
value of the net assets acquired could differ from that used in the preparation
of the unaudited pro forma financial statements, and that difference could be
material. The final allocation is expected to be completed within one year of
the date of the transactions. Therefore, pro forma adjustments for the Seagram
transactions primarily include the application of purchase accounting, i.e., the
allocation of the purchase price of Seagram to the Spirits and Wine segment to
be sold as described below, the recording of the excess of the purchase price
over the book value of net assets acquired as goodwill, and the related
amortization of this goodwill in the unaudited pro forma statement of income.
Seagram has acquired in purchase business combinations a substantial part
of its music business in 1998 and its film business in 1995. Therefore, no
adjustments have been made to the historical Seagram intangible assets in the
unaudited pro forma financial statements. For pro forma purposes, Vivendi has
allocated the entire excess purchase price to goodwill, which is amortized over
40 years.
The final purchase price allocation may result in different amortization
periods and methods for intangible assets than that presented in these unaudited
pro forma financial statements. Accordingly, a change in the amortization period
would impact the amount of annual amortization expense.
Potential incremental costs or benefits that may result from the
transactions as well as costs incurred to effect such transactions have not been
reflected in the accompanying unaudited pro forma consolidated condensed
statement of income. Furthermore, management has not reflected any adjustments
to income tax provisions which may arise through the inclusion of Seagram and
Canal+ into Vivendi's consolidated tax entities.
PLANS TO DISPOSE OF SEAGRAM'S SPIRITS AND WINE SEGMENT
Seagram and Vivendi have decided to dispose of Seagram's spirits and wine
segment as soon as practicable following consummation of the acquisition of
Seagram. Accordingly, the Company has restated the unaudited pro forma financial
information to exclude this segment and to account for it as a discontinued
operation in accordance with EITF 87-11. The Company estimates that the selling
213
<PAGE> 214
price of the spirits and wine segment will range from $8,000 million to $11,000
million. For the purpose of the unaudited pro forma financial statements, the
purchase price of Seagram has been partially allocated to the assets to be sold
for an amount of $9,500 million, the average of the range. Presently, the
Company is not in a position to compute the tax effect of the disposal which
therefore has not been reflected in the pro forma financial statements.
214
<PAGE> 215
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA DISPOSITION OF PRO FORMA
VIVENDI SEAGRAM ADJUSTMENTS BUSINESS(E) COMBINED
------- ------- ----------- -------------- ---------
(E MILLION)
<S> <C> <C> <C> <C> <C>
December 31, 1999
ASSETS
Accounts receivable, net............ 20,826 2,846 1,204(d) 3,918 20,958
Other current assets, net........... 10,668 2,791 1,308(d) 1,541 13,226
------ ------ ------- ----- -------
Total current assets.............. 31,494 5,637 2,512(d) 5,459 34,184
Investments......................... 8,027 5,926 (1,564)(d) (106) 12,495
Goodwill, net....................... 17,846 11,319 27,876(a) 670 55,371
Other intangible assets, net........ 4,853 4,082 1,850(d) 72 10,713
Property, plant and equipment,
net............................... 16,580 2,252 926 1,184 18,574
Other assets........................ 0 1,051 0 0 1,051
Net assets of discontinued
operations........................ 0 3,833 5,620(f) 0 9,453
------ ------ ------- ----- -------
Total assets...................... 78,800 34,100 36,220 7,279 141,841
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.................... 21,337 3,593 2,063(d) 4,767 22,226
Other current liabilities........... 13,369 3,277 1,682(d) 683 17,645
------ ------ ------- ----- -------
Total current liabilities......... 34,706 6,870 3,745(d) 5,450 39,871
Long-term debt...................... 17,420 7,618 1,336(d) 503 25,871
Other long-term liabilities......... 7,298 4,527 0 1,359 10,466
------ ------ ------- ----- -------
Total liabilities................. 59,424 19,015 5,081(d) 7,312 76,208
Minority interests.................. 2,422 1,870 88(d) 60 4,320
------ ------ ------- ----- -------
Total shareholders' equity.......... 16,954 13,215 44,266(b) (93) 74,622
(13,215)(c) (13,215)
------ ------ ------- ----- -------
Total liabilities and
shareholders' equity........... 78,800 34,100 36,220 7,279 141,841
</TABLE>
-------------------------
(a) Represents the excess of the purchase price for Seagram net of selling price
of assets to be sold over the net book value of net assets acquired for E
13,043 million plus the excess of the purchase price over net book value of
the Canal+ minority interests acquired for E 11,129 million plus the net
effect of the consolidation of CANAL+ for E 2,704 million.
(b) Represents additional paid-in capital of Vivendi common stock to be issued
in the transactions.
(c) Represents elimination of paid-in capital, retained earnings and accumulated
other comprehensive income of Seagram.
(d) Represents the effect of consolidating Canal+'s gross assets and liabilities
under US GAAP as the prior investment was carried under one line equity
method.
(e) Represents the deconsolidation of the assets and liabilities of Vinci,
disposed in the year 2000.
(f) Represents the portion of Seagram's goodwill allocated to Spirit and Wine
Segment (selling price of E 9,453 million to be compared to historical book
value of assets of E 3,833 million).
The accompanying notes are an integral part of these pro forma financial
statements.
215
<PAGE> 216
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED INCOME STATEMENT
<TABLE>
<CAPTION>
PRO FORMA DISPOSITION PRO FORMA
VIVENDI SEAGRAM ADJUSTMENTS(H) OF BUSINESS(I) COMBINED
------- ------- -------------- -------------- ---------
(E MILLION)
<S> <C> <C> <C> <C> <C>
December 31, 1999
Net revenues(*)..................... 36,543 9,637 3,286 8,885 40,581
Cost of revenues(*)................. 26,719 5,814 2,472 7,789 27,216
Selling, general and
administrative.................... 8,293 3,713 790 994 11,802
------ ----- ----- ----- -------
Operating margin.................. 1,531 110 24 102 1,563
Amortization of goodwill............ 766 307 676(g) 46 1,703
Other operating expenses............ 1,442 (55) 120 0 1,507
------ ----- ----- ----- -------
Operating income.................. (679) (142) (772) 56 (1,647)
Interest expense, net............... 371 622 45 (84) 1,122
Other income, net................... 533 212 100 7 838
------ ----- ----- ----- -------
Income (loss) before taxes, minority
interest and equity interest...... (515) (552) (717) 147 (1,931)
Income tax expense (benefit)........ (716) (260) 106 (105) (765)
------ ----- ----- ----- -------
Income (loss) before minority
interest and equity interest...... 201 (292) (823) 252 (1,166)
Equity interest earnings (losses)... 21 127 23 (42) 213
Minority interest................... (24) 10 (17) 70 (101)
------ ----- ----- ----- -------
Income (loss) from continuing
operations........................ 246 (175) (783) 140 (852)
Income (loss) from continuing
operations per share:
Basic............................. 0.48 (0.86)
Diluted........................... 0.47 (0.85)
Average common shares (in millions):
Basic............................. 511.3 991.1
Diluted........................... 525.2 1,005.0
</TABLE>
-------------------------
(*) Includes excise taxes collected on behalf of local authorities for E 2,112
million for Vivendi and E 865 million for Seagram.
(g) Represents the annual amortization of goodwill over 40 years, totaling E 327
million related to goodwill arising from the acquisition of Seagram and E
278 million related goodwill arising from the acquisition of Canal+. The
additional E 71 million is the amortization of goodwill previously recorded
in the Canal+ financial statements.
(h) Represents the consolidation of the operating results of Canal+ for year
ended December 31, 1999 not previously included in the Vivendi income
statement in accordance with US GAAP cumulated with the amortization of
goodwill generated by the transaction as described in footnote (g) above.
(i) Represents the deconsolidation of the operating result of Vinci disposed in
the year 2000.
The accompanying notes are an integral part of these pro forma financial
statements.
216
<PAGE> 217
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE UNAUDITED PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
These unaudited pro forma consolidated condensed financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States ("US GAAP") to illustrate the effects of the business combination
on the historical financial position and operating results of Vivendi and
Seagram. The unaudited pro forma consolidated condensed balance sheets of Sofiee
at December 31, 1999, gives effect to the business combination as if it occurred
at December 31, 1999. The unaudited pro forma consolidated condensed statement
of income for the year ended December 31, 1999, gives effect to the business
combination as if it occurred at January 1, 1999. For purposes of preparing
unaudited pro forma financial statements, Vivendi has been determined to be the
acquirer of Seagram and Canal+'s non-regulated activities.
Historically, Vivendi's fiscal year-end has been December 31, whereas
Seagram's fiscal year-end has been June 30. Consequently, the unaudited pro
forma consolidated condensed balance sheet is based on the historical audited
consolidated balance sheet of Vivendi and the historical unaudited consolidated
balance sheet of Seagram at December 31, 1999. The unaudited pro forma
consolidated condensed statement of income is based on the historical audited
operating results of Vivendi for the year ended December 31, 1999, and the
unaudited historical operating results of Seagram for the six months ended June
30, 1999, and six months ended December 31, 1999.
The unaudited consolidated condensed balance sheet of Seagram was
translated from U.S. dollars to Euros at the year-end exchange rate of US$1: E
0.995. The unaudited consolidated condensed income statement of Seagram was
translated from U.S. dollars to Euros at the average exchange rate for the
twelve-month period ended December 31, 1999 of US$1: E 0.938. Certain Seagram
historical financial statement amounts have been reclassified for pro forma
presentation.
2) CONVERSION OF VIVENDI HISTORICAL FINANCIAL INFORMATION TO US GAAP
Vivendi has prepared its historical consolidated financial statements in
accordance with accounting principles generally accepted in France ("French
GAAP"). French GAAP differs in certain significant respects from US GAAP. A
discussion of the principal differences between French GAAP and US GAAP, as they
relate to Vivendi, is presented in Note 25A. A reconciliation of shareholders'
equity and net income from French GAAP to US GAAP are presented in Note 25B.
217
<PAGE> 218
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the conversion of the condensed unaudited
consolidated balance sheet and consolidated income statement of Vivendi from
French GAAP to US GAAP.
<TABLE>
<CAPTION>
US GAAP adjustments
French ------------------- US
GAAP (A) (B) GAAP
----------- ------ ------- -------
December 31, 1999 (E million)
<S> <C> <C> <C> <C>
ASSETS
Accounts receivable.................. 22,392 317 (1,883) 20,826
Other current assets................. 15,044 (2,230) (2,146) 10,668
------ ------ ------- ------
Total current assets............... 37,436 (1,913) (4,029) 31,494
Investments.......................... 6,293 172 1,562 8,027
Goodwill, net........................ 10,389 10,432 (2,975) 17,846
Other intangible assets, net......... 8,682 (1,880) (1,949) 4,853
Property, plant and equipment, net... 19,977 (423) (2,974) 16,580
Other assets......................... 0 0 0 0
Net assets of discontinued
operations......................... 0 0 0 0
------ ------ ------- ------
Total assets....................... 82,777 6,388 (10,365) 78,800
====== ====== ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................... 23,832 503 (2,998) 21,337
Other current liabilities............ 15,018 908 (2,557) 13,369
------ ------ ------- ------
Total current liabilities.......... 38,850 1,411 (5,555) 34,706
Long-term debt....................... 19,233 759 (2,572) 17,420
Other long-term liabilities.......... 9,750 (2,262) (190) 7,298
------ ------ ------- ------
Total liabilities.................. 67,833 (92) (8,317) 59,424
Minority interests................... 4,052 418 (2,048) 2,422
------ ------ ------- ------
Total shareholders' equity......... 10,892 6,062 0 16,954
------ ------ ------- ------
Total liabilities and shareholders'
equity............................. 82,777 6,388 (10,365) 78,800
====== ====== ======= ======
</TABLE>
218
<PAGE> 219
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) Adjustments and Reclassifications from Implementation of US GAAP -- The
entries that result in an adjustment to total shareholders' equity as determined
under French GAAP are explained in Note 25A. The detail of these entries is
presented in Note 25B. In addition, these entries reflect the recording of those
US GAAP adjustments and reclassification that do not result in an adjustment to
total shareholders' equity as determined under French GAAP. Because they did not
impact shareholders' equity, these differences between French GAAP and US GAAP
have not been discussed elsewhere. These entries are comprised of the following:
i) Capital leases -- The criteria for capital lease classification
under French GAAP are more restrictive than are those under US GAAP.
Accordingly, certain leases that have been classified as operating leases
under French GAAP have been reclassified as capital leases. The adjustments
reflect the recognition of an asset and a corresponding debt obligation.
ii) Transfer of receivables -- Under US GAAP criteria, certain sales
of accounts receivable are not considered to be sales. Accordingly, the
related assets must continue to be recognized along with a corresponding
liability.
iii) Recognition of debt -- A Vivendi subsidiary has entered into an
agreement with its creditors to offset amounts owed against receivables.
Under US GAAP, a liability for the total amount owed would be recorded and
receivable would not be adjusted.
B) Canal+ and Proportionate Consolidation -- These entries reflect the
deconsolidation of Canal+ and of entities proportionally consolidated under
French GAAP and the application of the equity method to account for Vivendi's
investment in these entities. These entries also reflect the adjustment of
assets and liabilities of Canal+ and of proportionately consolidated
subsidiaries to reflect the implementation of US GAAP by those entities.
In Note 25C to the audited consolidated financial statements as of December
31, 1999, Vivendi has presented an income statement in a format consistent with
US GAAP and the provisions of Regulation S-X. The income statement presented
reflects the recording of entries that resulted in an adjustment of net income
determined under French GAAP. This condensed income statement does not reflect
the deconsolidation of entities proportionately consolidated under French GAAP,
as these entries did not result in an adjustment to net income.
219
<PAGE> 220
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below summarizes the following adjustments to the audited
condensed income statement in US GAAP format presented in Note 25C:
<TABLE>
<CAPTION>
US GAAP adjustments
---------------------------------
December 31, 1999 Per Note 25C (X) US GAAP
----------------- ------------ ------ -------
<S> <C> <C> <C>
Net revenues(*)....................................... 39,052 (2,509) 36,543
Cost of revenues(*)................................... 28,898 (2,179) 26,719
Selling, general and administrative................... 8,467 (174) 8,293
------ ------ ------
Operating margin.................................... 1,687 (156) 1,531
Amortization of goodwill.............................. 771 (5) 766
Other operating expenses, net......................... 1,437 5 1,442
------ ------ ------
Operating income.................................... (521) (156) (677)
Interest expense, net................................. 401 (30) 371
Other income, net..................................... 535 (2) 533
------ ------ ------
Income before taxes, minority interest and equity
interest............................................ (387) (128) (515)
Income tax expense (benefit).......................... (675) (41) (716)
------ ------ ------
Income before minority interest and equity
interest......................................... 288 (87) 201
Equity interest (earnings) losses..................... (66) 87 21
Minority interest..................................... (24) 0 (24)
------ ------ ------
Income (loss) from continuing operations............ 246 0 246
====== ====== ======
</TABLE>
-------------------------
(*) Includes excise taxes collected on behalf of local authorities for E 2,112
million.
(X) Proportionate consolidation: The portion of the entities proportionately
consolidated total revenues and expenses equal to Vivendi's ownership
percentage in these entities is deducted from the Vivendi consolidated
income statement, and income in the entities' earnings is recorded equal to
Vivendi's interest in the entities' shareholders' equity.
3) PURCHASE PRICE
With respect to the acquisition of Seagram, the number of shares to be
issued to effect the acquisition are based on a formula that is tied to the
market price of Vivendi shares on the Paris Bourse, as described in "Description
of Business -- General -- Recent Developments," page 8. Therefore, the
measurement date of the purchase price cannot be known until the date that the
formula is finally applied. However, for purposes of these unaudited pro forma
condensed consolidated financial statements, the Company has determined the
purchase price of Seagram as follows.
On July 4, 2000, the average closing price for the 20-day measuring period
defined in the acquisition agreement was $96.18. This was the first day that the
average closing price, upon which the exchange formula is based, went below the
"floor" of $96.6875. Since July 4, 2000 and through the present, the average
closing price of Vivendi shares on the Paris Bourse over a 20-day measuring
period has remained below this floor. Accordingly, application of the formula
resulted in a change in
220
<PAGE> 221
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the number of shares issued to effect the Seagram transaction; because the
20-day average closing price is below the floor of $96.6875 set forth in the
Seagram transaction documents, the exchange ratio is adjusted to 0.8 Vivendi
shares for every 1 Seagram share. The earliest date that this is known and does
not change (as of the date of the registration statement) is July 4, 2000.
Therefore, July 4, 2000 is the measurement date. The prices of Vivendi's shares
a few days before and a few days after July 4, 2000 are used to value the shares
to be issued in the purchase business combination.
Based on this application, the purchase price of Seagram is as follows:
<TABLE>
<S> <C>
Seagram shares outstanding as of May 31,
2000 436,493,537
Contractual exchange ratio 0.8 Vivendi share to 1.0 Seagram share
Measurement date July 4, 2000
Average closing price 5 days before and 5
days after the measurement date E 91.29
Purchase price of Seagram shares E 31,878 million
</TABLE>
The final valuation of Vivendi shares ultimately used to measure the
purchase price of Seagram shares may differ based on market fluctuations. The
Company does not expect these fluctuations to result in a material difference.
With respect to the acquisition of Canal+'s non-regulated activities, the
number of shares to be issued to effect the acquisition are not based on a
formula, and are not subject to change. Therefore the measurement date for this
transaction is June 20, 2000, the date that the terms of the acquisition were
agreed to and announced. The value of the equity securities to be issued by the
Company is then determined based on the market price of Vivendi shares over a
reasonable time before and after the announcement of the transaction.
Based on this application, the purchase price of Canal+'s non-regulated
activities is as follows:
<TABLE>
<S> <C>
Canal+ shares to be acquired 65,281,604
Contractual exchange ratio 2.0 Vivendi shares to 1.0 Canal+ share
Measurement date June 20, 2000
Average closing price 5 days before and 5
days after the measurement date E 94.88
Purchase price of Canal+ shares E 12,388 million
</TABLE>
4) PRELIMINARY PURCHASE PRICE ALLOCATION
Due to the fact that the Seagram transactions have been negotiated in June
2000 and on limits on access to information prior to consummation of the
transactions, a detailed purchase price allocation is in process but has not
been completed. However, on the basis of the review that Vivendi conducted as
part of the acquisition process, management believes that the preliminary
allocation used for our proforma financial information is a reasonable estimate
of the allocation.
With the exception of the Spirits and Wine segment, all of the Seagram
operating units with significant identified and unidentified intangible assets
(i.e. the Music and Film Segments) have been acquired through recent purchase
business combinations. In connection with each of the purchase business
combinations, a detailed purchase price allocation was performed by Seagram in
accordance
221
<PAGE> 222
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
with APB 16. Due to the relatively short time period between these acquisitions
and the Seagram transaction, and based upon our initial due diligence, it is the
opinion of the Company that the book values of these assets and liabilities are
a reasonable approximation of fair value.
The Music Segment was acquired in the acquisition of PolyGram in December
of 1998 and, to a much lesser extent, similar assets acquired in the 1995
acquisition of MCA Universal. The purchase price study relating to the PolyGram
purchase was completed the quarter ended December 31, 1999 and resulted in a
final allocation to intangibles assets of $2.8 billion and to goodwill of $9.6
billion.
The Film Segment was for the most part acquired in the acquisition of MCA
Universal in 1995 and to a much lesser extent in the acquisition of PolyGram.
The purchase price study relating to the MCA Universal purchase was completed
the year ended June 30, 1996 and resulted in a final allocation to intangibles
assets of $0.8 billion and to goodwill of $2.6 billion.
The Spirits and Wine segment is reflected as a business to be sold. A
portion of Seagram's purchase price is therefore allocated to the business to be
sold. As disclosed in page 215 above, for the purpose of the unaudited pro forma
financial statements, this allocated amount has been determined as the average
value of expected selling price range. The tax effect of the disposal is not
reflected in the pro forma.
Based on information currently available, Vivendi has performed a
preliminary allocation of the estimated purchase price of Seagram as follows:
Calculation of estimated purchase price at December 31, 1999 (in millions)
<TABLE>
<S> <C>
Estimated market value of common stock issued to effect
transaction E 31,878
</TABLE>
Allocation of the Seagram purchase price (in millions of Euros):
<TABLE>
<S> <C>
Assets:
Tangible assets............................................. 14,866
Historical goodwill......................................... 11,319
Historical other intangible assets.......................... 4,082
Estimated fair value of Spirits & Wine segment.............. 9,453
New goodwill................................................ 13,043
Liabilities:
Seagram's historical liabilities and minority interest...... (20,885)
Total purchase price (at December 31, 1999 exchange
rates).................................................... 31,878
=======
</TABLE>
The final allocation of the purchase price will be determined after the
completion of the transaction and will be based on a comprehensive final
evaluation of the fair value of the tangible and identifiable intangible assets
acquired and liabilities assumed from Seagram at the time of the transaction, as
well as a final determination of the purchase price.
Vivendi acquired 15% of the shares of Canal+ in September 1999, increasing
its ownership interest from 34% to 49%, which allowed the Company to consolidate
Canal+ under French GAAP. Vivendi accounted for this increase in investment as a
step acquisition. Accordingly, Vivendi evaluated the fair value of the
identifiable assets acquired and liabilities assumed at that time. The excess of
the purchase price for the additional 15% of Canal+ shares over the fair value
of the
222
<PAGE> 223
VIVENDI
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
corresponding percentage of net assets acquired was recorded as goodwill and is
amortized over 40 years.
Vivendi has not yet completed its review of the fair values of the Canal+
identifiable assets in connection with its acquisition of the remaining 51%
ownership of the deregulated activities. Based on the review performed in
connection with the September 1999 transaction, it is the opinion of Vivendi
that the book values of these assets and liabilities are a reasonable
approximation of fair value. Therefore, management believes that the preliminary
allocation used for our pro forma financial information is a reasonable estimate
of the allocation. However, Vivendi does intend to perform another detailed
review of the fair values of the Canal+ identifiable assets and liabilities, and
the final allocation of the purchase price could differ from that presented in
our pro forma financial statements.
Allocation of the purchase price of Canal+ deregulated activities (in
millions of Euros):
<TABLE>
<S> <C>
New goodwill................................................ 11,129
Book value of net assets acquired........................... 1,259
Total purchase price........................................ 12,388
======
</TABLE>
5) PRO FORMA INCOME FROM CONTINUING OPERATIONS PER SHARE
The pro forma basic and diluted income from continuing operations per share
is based on the weighted average number of common and dilutive equivalent shares
outstanding of Vivendi and for pro forma basic and diluted earnings per share,
the average shares include the 349,194,830 Vivendi Universal American Depositary
Shares expected to be issued to holders of Seagram common stock in the
transaction using the exchange ratio of 0.8 for the acquisition of Seagram
shares, and the 130,563,208 Sofiee ordinary shares expected to be issued to
holders of Canal+ common stock using the exchange ratio of 2:1 for the
acquisition of the outstanding Canal+ shares. The computation of pro forma basic
and diluted income from continuing operations per share for the year ended
December 31, 1999 is as follows (in millions of Euros, except for per share
amounts):
<TABLE>
<S> <C>
Pro forma consolidated loss from continuing operations...... (852)
Weighted average number of shares:
Outstanding basic......................................... 991.1
Outstanding -- diluted.................................... 1,005.0
Pro forma income from continuing operations per share:
Basic..................................................... E (0.86)
Diluted................................................... E (0.85)
</TABLE>
223
<PAGE> 224
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be signed
on its behalf by the undersigned thereunto duly authorized.
Dated: September 8, 2000
VIVENDI
By: /s/ JEAN-MARIE MESSIER
------------------------------------
Name: Jean-Marie Messier
Title: Chairman and Chief
Executive Officer
224
<PAGE> 225
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
1 Vivendi Restated Corporate Statuts (English translation).
3.1 Prospectus of Vivendi Environnement, dated April 14, 1999,
for Euro 2,600,000,016 Bonds Convertible and/or exchangeable
into new or existing shares of Vivendi or, if it is listed,
Vivendi Environnement, guaranteed by Vivendi.
3.2 Multi-Access Portal Joint Venture Agreement Between Vodafone
AirTouch Plc, Vodafone European Portal Ltd., Vivendi S.A.,
Canal Plus S.A. and Vivendi Net S.A., dated May 16, 2000.
3.3 Merger Agreement, dated as of June 19, 2000, by and among
Vivendi S.A., Canal Plus S.A., Sofiee S.A., 3744531 Canada
Inc. and The Seagram Company Ltd.
3.4 Form of Plan of Arrangement.
3.5 Option Agreement, dated as of June 19, 2000, by and between
Vivendi S.A. and The Seagram Company Ltd.
3.6 Shareholder Voting Agreement, dated as of June 19, 2000, by
and among Vivendi S.A. and certain shareholders of The
Seagram Company Ltd.
3.7 Shareholder Governance Agreement, dated as of June 19, 2000,
by and among Vivendi S.A., Sofiee S.A. and certain
shareholders of The Seagram Company Ltd.
5 List of Vivendi subsidiaries.
6 Audited consolidated financial statements of The Seagram
Company Ltd. for the period ended June 30, 1999.
7 Unaudited interim consolidated financial statements of The
Seagram Company Ltd. for the period ended March 31, 2000.
8 Audited consolidated financial statements of The Seagram
Company Ltd. for the period ended June 31, 2000.
</TABLE>
225
