Filed On 9/28/00 3:53pm ET · SEC File 1-02275 · Accession Number 950123-0-8939
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
9/28/00 Seagram Co Ltd 10-K405 6/30/00 27:427 Bowne of NY City...01/FA
Annual Report -- [X] Reg. S-K Item 405 · Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 The Seagram Company Ltd. 71 322K
2: EX-3.A Articles of Amalgamation 2 20K
3: EX-10.A Amended & Restated Stockholders' Agreement 87 294K
4: EX-10.B Amended & Restated Stockholders' Agreement 49 207K
5: EX-10.C Stockholders' Agreement Dated 12/9/98 47 202K
6: EX-10.D Subscription & Redemption Agreement 13 37K
7: EX-10.T Management Incentive Plan 11 36K
8: EX-10.X 1988 Stock Option Plan 10 45K
9: EX-10.Y 1992 Stock Incentive Plan 10 56K
10: EX-10.AA Senior Executive Basic Life Insurance Agreement 6 28K
11: EX-10.BB Retirement Salary Continuation Plan 5 25K
12: EX-10.CC Benefit Equalization Plan 7 29K
13: EX-10.DD Senior Executive Group Life 14 52K
14: EX-10.EE Personal Excess Liability Insurance Policy 9 53K
15: EX-10.FF Flexible Perquisite Program for Senior Executives 9 29K
16: EX-10.GG Senior Executive Disability Salary Continuation 1 16K
17: EX-10.HH Post Retirement Consulting Plan 5 27K
18: EX-10.II Canadian Executive Pension Plan 9 36K
19: EX-10.MM Letter to Brian Mulligan 21 87K
20: EX-10.VV Agreement Effective 6/15 With Edgar Bronfman Jr. 11 53K
21: EX-10.WW Agreement Effective 6/16 With Samuel Bronfman Ii 12 52K
22: EX-12.A Statement of Ratios: the Seagram Company Ltd. 1 17K
23: EX-12.B Statement of Ratios:Joseph E. Seagram & Sons, Inc. 1 17K
24: EX-21 List of Subsidiaries 12 54K
25: EX-23 Consent of Pricewaterhousecoopers Llp 1 15K
26: EX-24 Power of Attorney 2 19K
27: EX-27 Financial Data Schedule 1 16K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-2275
THE SEAGRAM COMPANY LTD.
------------------------
(Exact name of registrant as specified in its charter)
Canada None
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Peel Street, Montreal, Quebec, Canada H3A 1S9
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (514) 987-5200
Securities registered pursuant to Section 12(b) of the Act: --------------
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Title of each class Name of each exchange on which registered
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Common shares without nominal New York Stock Exchange London Stock Exchange
or par value Toronto Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common shares held by non-affiliates of the
registrant as of August 31, 2000 (65.18% of the outstanding common shares) was
approximately $17.4 billion. At August 31, 2000, there were 443,663,363 common
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference from The
Seagram Annual Meeting Information to be included in the joint proxy
statement-prospectus to be contained in the Registration Statement on Form F-4
to be filed by Vivendi Universal, which will be filed with the Securities and
Exchange Commission not later than 120 days after June 30, 2000.
PART I
RECENT DEVELOPMENTS
On June 20, 2000, the Company, Vivendi S.A. ("Vivendi") and Canal Plus
S.A. ("Canal+") announced that they had entered into a merger agreement and
related agreements providing for a strategic business combination among the
three companies. The combined entity will be named "Vivendi Universal". Under
the agreements, the Company's shareholders will receive a number of Vivendi
Universal American Depositary Shares (ADSs) based on an exchange ratio. Each
Vivendi Universal ADS will represent one Vivendi Universal ordinary share.
Canadian resident shareholders of the Company may elect to receive exchangeable
shares of a Canadian subsidiary of Vivendi Universal that 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. The exchange ratio is
equal to U.S. $77.35 divided by the U.S. dollar equivalent of the average of the
closing prices on the Paris Bourse of Vivendi's ordinary shares during a
measuring period prior to the closing of the transactions. However, the exchange
ratio will equal 0.8000 if that average is equal to or less than U.S. $96.6875
and 0.6221 if that average is equal to or exceeds U.S. $124.3369. The merger is
expected to close by the end of the calendar year and is subject to customary
closing conditions, including shareholder approval and all necessary regulatory
approvals. There is no assurance that such approvals will be obtained.
In connection with the proposed combination with Vivendi and Canal+, the
Spirits and Wine business is to be sold. However, there can be no assurance
that the Spirits and Wine business will be sold, nor can the particular terms
and conditions of any such sale be predicted.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Seagram was organized under Canadian federal law on March 2, 1928, and
operates in four global business segments: music, filmed entertainment,
recreation and other and spirits and wine. The music business is conducted
through Universal Music Group, which is the largest recorded music company in
the world. Universal Music Group produces, markets and distributes recorded
music throughout the world in all major genres. Universal Music Group also
manufactures, sells and distributes video products in the United States and
internationally, and licenses music copyrights. The filmed entertainment and
recreation and other businesses are conducted through Universal Studios Group.
The filmed entertainment business produces and distributes motion picture,
television and home video products, operates and has ownership interests in a
number of international cable channels and engages in the licensing of
merchandising and film property rights. The recreation and other business
operates theme parks and retail stores and is also involved in the development
of entertainment software. At June 30, 2000, Matsushita Electric Industrial Co.,
Ltd. had an approximate 7.7% ownership interest in the entities that own
Universal's music, filmed entertainment and recreation and other businesses. The
spirits and wine business, directly and through affiliates and joint ventures,
produces, markets and distributes distilled spirits, wines, Ports and Sherries,
coolers, beers, other low-alcohol beverages and mixers. In addition to marketing
owned brands, the spirits and wine business also distributes distilled spirits,
wine, champagne and beer brands owned by others. For information as to revenues,
operating income and identifiable assets by business segment, see Note 10 of
Notes to Consolidated Financial Statements included in this Annual Report on
Form 10-K. We use the term "Seagram" or "we" to refer to The Seagram Company
Ltd. and its subsidiaries and affiliates unless otherwise specified. All dollar
amounts are stated in U.S. currency unless otherwise specified.
Our executive offices are located at 1430 Peel Street, Montreal, Quebec,
Canada H3A 1S9 and our registered office is located at 592 Colby Drive,
Waterloo, Ontario, Canada N2V 1A2.
Note that throughout this 10-K Report, we "incorporate by reference"
certain information in parts of other documents filed or to be filed with the
Securities and Exchange Commission ("SEC"). The SEC allows us to disclose
important information by referring to it in that manner. Please refer to that
information.
BUSINESS SEGMENTS
MUSIC
Universal Music Group, the largest recorded music company in the world,
was formed in December 1998 when we completed the acquisition of PolyGram N.V.
and combined the music businesses of Universal and PolyGram.
Universal Music Group develops, acquires, produces, markets and
distributes recorded music through a network of subsidiaries, joint ventures and
licensees in 63 countries around the world. We also produce, sell and distribute
music videos in the United States and internationally and publish music.
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In fiscal 2000, Universal Music Group held the number one market position
in every major region of the world. We also had 65 albums that reached worldwide
sales in excess of one million units and 5 albums that sold over five million
units. We have the largest music catalogue in the world and hold the leading
position in the classical music market, accounting for approximately 40% of
worldwide classical music sales in fiscal 2000. Our labels include:
- popular labels such as A&M, Blue Thumb, Def Jam, Geffen,
Interscope, Island, MCA, MCA Nashville, Mercury, Mercury
Nashville, Motown, Polydor and Universal;
- leading classical labels Decca/London, Deutsche Grammophon and
Philips; and
- leading jazz labels Verve, GRP and Impulse! Records.
ARTISTS. The success of a music company depends to a significant degree
on its ability to sign and retain artists who will appeal to popular tastes over
a period of time. We believe that the scope and diversity of our popular music
labels, repertoire and catalogues allow us to respond to shifts in audience
tastes. The United States and the United Kingdom continue to be the source of
approximately 60% of international popular repertoire. From time to time certain
national acts, such as Andrea Bocelli from Italy, Aqua from Denmark and Bjork
from Iceland, appeal to a wider international market. Including the United
States and the United Kingdom, however, sales of locally-signed artists in their
home territories still represent 70% of worldwide recorded music sales. Our
leading local market position in almost every major region provides a critical
competitive advantage.
Artists who are currently under contract with Universal Music Group,
directly or through third parties, for one or more important territories
include, among others:
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Bryan Adams Sheryl Crow Sir Elton John Spitz
Aqua DMX Diana Krall Sting
Erykah Badu Dr. Dre ERA (Eric Levi) George Strait
Beck Eminem Limp Bizkit E O Tchan
The Bee Gees Melissa Etheridge LL Cool J Shania Twain
Bjork Kirk Franklin Reba McEntire Texas
Mary J. Blige Vince Gill Metallica McCoy Tyner
Blink 182 Charlie Haden Nine Inch Nails U2
Blues Traveler Johnny Hallyday 98 Degrees Caetano Veloso
Andrea Bocelli Herbie Hancock Florent Pagny Stevie Wonder
Bon Jovi Hanson Luciano Pavarotti Trisha Yearwood
Boyz II Men Joe Henderson Andre Rieu Rob Zombie
Boyzone Dru Hill The Brian Setzer Orchestra
The Cardigans Enrique Iglesias Sisqo
The Cranberries Jay-Z Wayne Shorter
In addition to recently released recordings, we also market and sell
recordings from our catalogue of prior releases. Sales from this catalogue
account for a significant and stable part of our recorded music revenues each
year. We own the largest catalogue of recorded music in the world, with
legendary performers from the United States, the United Kingdom and around the
world, such as:
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ABBA John Coltrane Billie Holliday Diana Ross and the Supremes
Louis Armstrong Ella Fitzgerald Buddy Holly Lord Andrew Lloyd Webber
Jimmy Buffett Marvin Gaye Bob Marley and the Wailers The Who
Patsy Cline Jimi Hendrix The Rolling Stones
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ARTIST CONTRACTS, PRODUCTION, MARKETING AND DISTRIBUTION. We seek to
contract with our popular artists on an exclusive basis for the marketing of
their recordings (both audio and audio-visual) in return for a percentage
royalty on the wholesale or retail selling price of the recording. We generally
seek to obtain rights on a worldwide basis, although certain of our artists have
licensed rights for certain countries or regions to other record companies.
While exclusive classical artist contracts are common, and can extend over a
long period, many artists and orchestral contracts are short in duration and
refer only to specific recordings. Established artists command higher advances
and royalty rates and it is not unusual for a recording company to renegotiate
contract terms with a successful artist.
A contract either provides for the artist to deliver completed recordings
to us or for Universal Music Group to undertake the recording with the artist.
For artists without a recording history, we are often involved in selecting
producers, recording studios, additional musicians, and songs to be recorded,
and we may supervise the output of recording sessions. For established artists,
we are usually less involved in the recording process.
Marketing involves advertising and otherwise gaining exposure for our
recordings and artists through magazines, radio, television, Internet, other
media and point-of-sale material. Public performances are also considered an
important element in the marketing process, and we provide financing for concert
tours by certain artists. Television marketing of both specially compiled
products and new albums is becoming increasingly important. Marketing is carried
out on a territory-by-territory basis, although global priorities and strategies
for certain artists are set centrally.
We employ sales representatives who obtain orders from wholesalers and
retailers. In all major territories except Japan and Brazil we have our own
distribution services for the storage and delivery of finished product to
wholesalers and retailers. In certain territories we have entered into
distribution joint ventures with other record companies.
We also sell music product directly to the consumer, principally through
two direct mail club organizations: Britannia Music in the United Kingdom and
D.I.A.L. in France.
E-COMMERCE AND ELECTRONIC DELIVERY. Universal Music Group is at the
forefront of the development of music distribution through e-commerce and
electronic delivery, which will permit consumers to sample music on the Web,
order it, have it delivered and pay for it electronically. Universal Music Group
has a long-term agreement with InterTrust Technologies Corporation to establish
standards for the secure and convenient electronic delivery of music directly to
the home, and we are actively participating in the Secure Digital Music
Initiative (SDMI), a program which was created jointly by an extensive group of
content, consumer electronics, hardware, software and internet companies to
develop and define worldwide standards for the protection of music and other
digitizeable intellectual property. Universal Music Group and BMG Entertainment
formed GetMusic, a joint venture designed to create online communities of music
fans, promote artists and sell CDs online through genre-based music channels. We
expect GetMusic will have access to a combined database of 50 million customers
worldwide, and will offer, among other features, exclusive artist information,
exclusive interviews and the ability to chat online with artists and their
fans. Universal Music Group has also entered into a joint agreement with AT&T,
BMG Entertainment and Matsushita Electric Industrial Co. to develop and test
technology for large-scale, secure music and media distribution.
MUSIC PUBLISHING. Music publishing involves the acquisition of rights to,
and licensing of, musical compositions (as compared to recordings). Our
publishing catalogue includes more than 600,000 titles that we own or control,
making Universal Music Group one of the world's largest music publishers. We
enter into agreements with composers and authors of musical compositions for the
purpose of licensing the compositions for use in sound recordings, films, videos
and by way of live performances and broadcasting. In addition, we license
compositions for use in printed sheet music and song folios. We also license and
acquire catalogues of musical compositions from third parties such as other
music publishers and composers and authors who have retained or re-acquired
rights. In August 2000, we purchased Rondor Music International, Inc., an
independent music publisher for approximately $350 million in stock.
MANUFACTURING AND OTHER FACILITIES. In connection with our music
entertainment activities, we own manufacturing facilities in the United States,
Germany and the United Kingdom and office buildings and warehouse facilities in
various countries. In addition to our wholly-owned facilities, we also own a
manufacturing facility in the United States through a joint venture. Where we do
not own property, we lease warehouses and office space.
COMPETITION. The music entertainment industry is highly competitive. The
profitability of a company's recorded music business depends on its ability to
attract and develop recording artists, the public acceptance of those artists
and the recordings released in a particular period. Universal Music Group
competes for creative talent both from new artists and those artists who have
already established themselves through another label. Following a pattern
established in the United States, European retailers have begun to consolidate,
with increasing quantities of product being sold through multinational retailers
and buying groups and other
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discount chains. This has increased competition for shelf space among the
recorded music companies. The recorded music business continues to be adversely
affected by counterfeiting, piracy and parallel imports, primarily in Eastern
Europe, Asia and Latin America, and may be affected by the ability to download
quality sound reproductions from the Internet without authorization.
FILMED ENTERTAINMENT
Universal Studios' filmed entertainment business:
- produces and distributes films worldwide in the theatrical, home
video and television markets;
- produces and distributes episodic television and
made-for-television programming;
- operates and has ownership interests in a number of international
channels which reach approximately 22 million households,
including:
- The Sci-Fi Channel U.K., reaching approximately 6 million
subscribers in the U.K. and South Africa;
- USA Network Latin America, which is distributed in 18 Latin
American countries and reaches approximately 10 million
subscribers;
- 13th Street, The Action and Suspense Channel, launched in
France, Germany and Spain, reaching approximately 4 million
subscribers and featuring Universal television programming;
and
- Studio Universal, a movie channel launched in Italy,
Germany and Spain, with approximately 2 million subscribers
and featuring popular Universal theatrical titles;
- engages in the licensing of merchandising rights and film property
publishing rights; and
- engages in certain other activities through its ownership of the
joint venture and equity interests described below.
PRODUCTION, MARKETING AND DISTRIBUTION. Universal Studios produces
feature-length films intended for initial theatrical exhibition and television
programming. Major motion pictures produced over the past several years include
The Lost World: Jurassic Park, Liar, Liar, The Mummy and Notting Hill, and more
recently, such box office hits as Erin Brockovich starring Julia Roberts, U-571
starring Matthew McConaughey, The Gladiator starring Russell Crowe, The Green
Mile starring Tom Hanks and American Pie. In addition, we produce animated and
live action children's and family programming for networks, basic cable and
local television stations as well as home video.
The arrangements under which we produce, distribute and own theatrical
films vary widely. Other parties may participate in varying degrees in revenues
or other contractually defined amounts. We control worldwide distribution of our
theatrical product, except where we act as a subdistributor in specified
territories or contract for specified territories or for specifically defined
distribution rights.
Generally, we distribute theatrical films in the theatrical, home video
and pay television markets. Subsequently, we make theatrical films available for
broadcast on network and basic cable distribution throughout the world. The
theatrical license agreements with theater operators are on an individual
picture basis, and fees under these agreements are generally a percentage of the
theater's receipts with, in some instances, a minimum guaranteed amount.
The production/distribution cycle represents the period of time from
acquisition of a property through distribution. The length of the cycle varies
depending upon such factors as type of product and release pattern. Production
generally includes four steps: acquisition of story rights, pre-production,
principal photography and post-production. Production activities for theatrical
films are generally based at Universal City, California. These production
facilities are also leased to outside parties. Some motion picture films and
television products are produced, in whole or in part, at other locations both
inside and outside of the United States.
We distribute our theatrical product in the United States and Canada to
motion picture theaters. Theatrical distribution throughout the rest of the
world is primarily conducted by United International Pictures, which is equally
owned by Universal Studios, Metro-Goldwyn-Mayer Inc. and Paramount Pictures
Corporation. Television distribution of our 24,000 episode library in the United
States is handled by USANi LLC, a subsidiary of USA Networks, Inc. ("USA
Networks"), and throughout the rest of the world primarily by Universal Studios.
Universal Studios distributes television product produced by USANi LLC in
international markets. Videocassettes and DVDs are distributed in the United
States and Canada by wholly owned subsidiaries of Universal Studios. Outside of
the United States and Canada, videocassettes are primarily distributed by
Universal Pictures International, a wholly owned
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subsidiary of Universal Studios, while DVDs are primarily distributed by
Columbia/Tri-Star Home Video under a short term sub-distribution arrangement
that ends in 2002. Some DVD rights revert to Universal before then.
The rights to use the characters, titles and other material and rights
from television and theatrical films and other sources are licensed to
manufacturers, retailers and others by Universal Studios.
USA NETWORKS, OTHER EQUITY INTERESTS AND CERTAIN JOINT VENTURES.
Universal Studios holds an effective 43% equity interest in USA Networks through
its ownership of common stock and Class B common stock of USA Networks and
shares of USANi LLC, which Universal can exchange for common stock and Class B
common stock of USA Networks. USA Networks primarily engages in electronic and
online retailing, network and first-run syndication television production,
domestic distribution of its and Universal Studios' television productions and
the operation of the USA Network and Sci-Fi Channel Cable Networks.
Universal Studios also has an approximate 26% interest in Loews Cineplex
Entertainment Corporation, which exhibits theatrical films principally in the
United States and Canada, and a 49% interest in United Cinemas International
Multiplex B.V. and Cinema International Corporation, which operate motion
picture theaters outside of the United States and Canada.
In addition to the wholly owned channels discussed above, Universal
Studios has equity interests in a number of international joint venture
channels, including:
- USA Network Brazil, a joint venture with Globosat in Brazil. This basic
service channel reaches approximately 2 million subscribers and features
primarily the same programming as USA Network Latin America;
- HBO Asia, a pan-regional joint venture in Asia with Time Warner, Sony and
Paramount. The channels included under this joint venture reach
approximately 6 million subscribers and feature the current theatrical
releases from the joint venture partners;
- Latin America Pay TV, a pan-regional joint venture in Latin America with
Paramount, Fox, MGM and Sacsa (an Argentinean holding company). The
channels included under this joint venture reach approximately 10 million
subscribers and feature current theatrical releases of the joint venture
partners; and
- Premiere Movies Partnership, an Australian joint venture with Fox, Sony,
Paramount and TCI.
COMPETITION. Our filmed entertainment business competes with all other
forms of entertainment. We compete with other major film studios and independent
producers for creative talent and story products, which are essential
ingredients of our filmed entertainment products. The profitability of our
filmed entertainment business is dependent upon public taste, which is volatile
and shifts in demand and is affected by economic conditions and technological
developments.
RECREATION AND OTHER
Universal owns and operates Universal City Hollywood, the world's largest
movie studio and theme park, located in Universal City, California. Adjacent to
Universal City Hollywood is CityWalk, an integrated retail/entertainment complex
that offers shopping, dining, cinemas and entertainment. In April 2000, the
expansion of CityWalk was completed, doubling its size with the addition of over
30 new venues, including a 3-D Imax movie screen, a multi-media bowling alley
and a NASCAR virtual racing experience.
Universal has a 50% interest in Universal City Development Partners, a
joint venture in Orlando, Florida, which resulted from the January 2000 merger
of Universal City Florida Partners and Universal City Development Partners. The
joint venture owns Universal Studios, a theme park based on Universal Studios'
filmed entertainment business, Islands of Adventure, a second theme park with
five unique islands, and CityWalk, a complex that offers shopping, dining,
cinemas and entertainment. Universal City Development Partners also has a 50%
interest in a joint venture, which is currently developing three hotels adjacent
to the Orlando theme parks. The first hotel, the Portofino Bay Hotel, a Loews
hotel, opened in September 1999. The second hotel, the Hard Rock Hotel, also a
Loews hotel, is expected to open in Winter 2000, and the third hotel is in the
final design phase. The two theme parks, CityWalk and hotels together comprise
Universal Orlando, the newest Orlando multi-day entertainment resort. Universal
Orlando is developed on approximately 825 acres. Universal also owns Wet n'
Wild, a water park which is adjacent to Universal Orlando.
Since October 1998, construction has been underway for Universal Studios
Japan in Osaka. Universal Studios Japan is owned by USJ Co., in which Universal
own a 24% interest, and will be located on 133 acres of land leased by certain
USJ Co. shareholders. Opening is scheduled for Spring 2001.
Universal also owns a 37% interest in, and manages, Universal Studios
Port Aventura, a theme park located on the Mediterranean coast of Spain near
Barcelona.
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In October 1998, Universal opened Universal Studios Experience Beijing, a
permanent exhibit featuring Universal Studios branded properties.
Universal owns approximately 27% of SEGA GameWorks L.L.C., which designs,
develops and operates location-based entertainment centers. SEGA GameWorks
currently owns and operates twelve such centers throughout the United States.
Universal Studios New Media, Inc. develops entertainment software
including the Crash Bandicoot and Spyro game series, is responsible for the
development and maintenance of Universal's websites and manages our approximate
16% interest in Interplay Entertainment Corp., an entertainment software
developer.
Universal owns, develops and manages commercial buildings with
approximately 2.4 million rentable square feet of office space in Universal
City, including Universal Studios CityWalk and the 10 Universal City Plaza
office building, which are occupied by Universal Studios or leased to outside
tenants, and Universal owns the Sheraton-Universal Hotel. Universal also owns a
100,000 square foot office building adjacent to the Universal City property.
In addition, Universal is involved in other businesses including the
operation of retail gift stores and the development of entertainment software.
They own Spencer Gifts, Inc. which operates approximately 630 retail gift stores
throughout North America through three groups of stores: Spencer, DAPY and Glow
gift shops. Spencer, DAPY and Glow sell novelties, electronics, accessories,
books and trend driven products. In connection with the activities of Spencer
Gifts, Inc., Universal owns a building in New Jersey and lease approximately 570
stores in various cities in the United States and a warehouse in North Carolina.
COMPETITION. Our theme parks compete with other theme parks in their
respective geographic regions and other leisure-time activities. The
profitability of the leisure-time industry is influenced by various factors that
are outside of our control such as economic conditions, amount of available
leisure time, transportation prices and weather patterns.
The Spencer, DAPY and Glow stores compete with numerous retail firms of
various sizes throughout the United States, including department and specialty
niche-oriented gift stores.
SPIRITS AND WINE
Our spirits and wine business produces, markets and/or distributes more
than 225 brands of distilled spirits, more than 180 brands of wines, Ports and
Sherries, and more than 40 brands of coolers, beers and other low-alcohol adult
beverages and mixers. Our products are sold in over 190 countries and
territories.
The spirits and wine business is comprised of three operating units: The
Seagram Spirits And Wine Group (SSWG), Seagram Chateau & Estate Wines Company
(C&E) and The Seagram Beverage Company (SBC). SSWG produces and markets many of
the world's best-known spirits brands, including:
- Crown Royal and Seagram's V.O. Canadian Whiskies
- Seagram's 7 Crown American Blended Whiskey
- Four Roses Bourbon
- Chivas Regal, Royal Salute, Windsor Premier and Passport Scotch
Whiskies
- The Glenlivet and Glen Grant Single Malt Scotch Whiskies
- Martell Cognacs
- Seagram's Extra Dry Gin
- Captain Morgan, Montilla, Cacique and Myers's Rums
- Don Julio and Margaritaville Tequila
- Mumm Sekt
- Sandeman Ports and Sherries
SSWG also distributes ABSOLUT VODKA, owned by V&S Vin & Sprit Aktiebolag,
in the United States and most major international markets, as well as Mumm and
Perrier-Jouet Champagnes, owned by Hicks, Muse, Tate and Furst Incorporated and
other investors, in most international markets.
C&E produces and markets the wines of Sterling Vineyards, Tessara and The
Monterey Vineyard and the sparkling wines of Mumm Curvee Napa, under license
from G.H. Mumm. The group is the exclusive importer in the United States of Mumm
and Perrier-Jouet Champagnes, Barton & Guestier wines, Brancott Vineyards wines
from New Zealand and Sandeman Ports and
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Sherries and is also the largest importer of classified Bordeaux in the United
States. C&E's agency portfolio is completed by distribution rights for Dominus
and Napanook from the Napa Valley, a collections of Burgundy estate-bottled
wines, F.E. Trimbach wines from Alsace, Catello d' Albola in Chianti and
several other European wines.
SBC is responsible for the development, production and/or marketing of
our premium lower- and non-alcohol beverages. The principal brands include
Seagram's Coolers, Rick's Spiked Lemonade and Seagram's Mixers. SBC is also the
exclusive importer in the United States for Grolsch (a Dutch beer, owned by
Royal Grolsch N.V.) and Steinlager (a New Zealand beer, owned by Lion Nathan
Limited).
Our spirits and wine business operates distilleries and bottling
facilities in 18 countries in North America, Latin America, Europe and Asia. Our
spirits aggregate daily distillation capacity approximates 253,000 U.S. proof
gallons and aggregate daily bottling capacity approximates 275,000 standard
cases. We maintain large inventories of aging spirits in warehousing facilities
located primarily in Canada, France, the United Kingdom and the United States.
Such inventories aggregated approximately 500 million U.S. proof gallons at June
30, 2000. Additionally, our bulk wine inventory aggregated approximately 28
million wine gallons at June 30, 2000.
We purchase commodity raw materials, such as molasses and base wine for
German sparkling wines on the open market at prices determined by market
conditions. Grains (corn, rye and malt) are sourced from a variety of channels,
including annual contracts with a number of third-party providers. We also
participate in the bulk supply market as a buyer and seller of malt and grain
spirits. Our wines and cognacs are produced primarily from grapes grown by
others. Cognac grapes are purchased based on a multi-year contract with
flexibility for wines and new distillates. Grapes are, from time to time,
adversely affected by weather and other forces, which occasionally limit
production. Rolling contracts to secure a continued supply of oak casks also
exist. We acquire substantially all of our American white oak barrels (used for
the storage of whisky during the aging period) from one supplier in the United
States. Key packaging components such as glassware are purchased based on
long-term agreements with strategic suppliers. Other packaging components are
generally based on annual contracts with key suppliers. Fluctuations in the
prices of these commodities have not had a material effect upon operating
results. We believe that our relationships with our various suppliers are good.
MARKETING AND DISTRIBUTION. Spirits and wine has developed sales and
distribution networks appropriate for each of its markets, including affiliate
and joint venture distribution operations in 38 countries and territories and
third-party distribution arrangements in other key markets.
In the United States, we generally sell spirits, wines, coolers, beers
and other low-alcohol beverages to two categories of customers. In 32 states and
the District of Columbia, sales are made to approximately 335 wholesale
distributors who also purchase and market other brands of distilled spirits,
wines, coolers, beers and other low-alcohol beverages. In 18 "control" states
(where the state government engages in distribution), sales are made to state
and local liquor boards and commissions; in certain of these states, sales of
wines, coolers, beers and other low-alcohol beverages are also made to
approximately 275 wholesale distributors.
In Canada, sales are made exclusively to ten provincial and three
territorial government liquor boards and commissions.
In addition to the United States and Canada, our affiliates and joint
ventures are located in: Argentina, Belgium, Brazil, Chile, the People's
Republic of China, Colombia, Costa Rica, the Czech Republic, the Dominican
Republic, France, Germany, Greece, Hong Kong, Hungary, India, Israel, Italy,
Jamaica, Japan, Mexico, the Netherlands, Poland, Portugal, Romania, Singapore,
the Slovak Republic, South Africa, South Korea, Spain, Switzerland, Thailand,
Turkey, the Ukraine, the United Kingdom, Uruguay and Venezuela.
A significant portion of spirits and wine revenues come from sales
outside of North America. In addition to economic and currency risks, our
foreign operations involve risks including governmental regulation, embargoes,
expropriation, export controls, burdensome taxes, government price restraints
and exchange controls.
COMPETITION. The spirits and wine industry is highly competitive. Due to
ongoing formation of multinational retailers and buying groups in Europe, all
marketers in the industry have confronted severe pricing pressure across Europe.
This has been heightened as a result of Wal-Mart's recent acquisitions in
Germany and the United Kingdom. Euro-based multinational retailers and buying
groups have also expanded into certain markets in Asia and Latin America.
Additionally, the expansion of non-traditional distribution channels, e.g.
eBusiness, has added a new dimension to the global marketplace. Diageo PLC,
which resulted from the merger of two of the largest spirits and wine companies,
Grand Metropolitan PLC and Guinness PLC, continues to be the largest global
player. However, the spirits and wine industry has continued to evolve through
mergers and the formation of alliances, e.g. Maxxium, and with the reemergence
of strong local and regional brand owners.
7
We continue to address these competitive challenges by investing in
brand equity building behind our core brands in key established and development
markets. We use magazine, newspaper and outdoor advertising, as well as
interactive marketing, to maintain and improve our brands' market position. We
also utilize radio and television advertising, although the use of such
advertising in connection with the sale of beverage alcohol is restricted by law
or commercial practice in certain countries, including the United States.
REGULATION AND TAXES. Our beverage alcohol business is subject to strict
governmental regulation covering virtually every aspect of operations, including
production, marketing, pricing, labeling, packaging and advertising. In the
United States, we must file or publish prices for our beverage alcohol products
in some states as much as three months before they go into effect.
In the United States, Canada and many other countries, beverage alcohol
products are subject to substantial excise taxes or custom duties and additional
taxation by governmental subdivisions.
INTEREST IN DUPONT
At June 30, 2000, we owned approximately 16.4 million shares of common
stock of E.I. du Pont de Nemours and Company which had a market value of
approximately $719 million as of such date.
EMPLOYEES
As of June 30, 2000, we employed approximately 34,000 people. The number
of employees is subject to seasonal fluctuations.
ITEM 3. LEGAL PROCEEDINGS
On May 30, 1995, a purported retailer class action was filed in the
United States District Court for the Central District of California, entitled
Digital Distribution Inc. d/b/a Compact Disc Warehouse v. CEMA Distribution,
Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal
Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.),
Bertelsmann Music Group, Inc. and PolyGram Group Distribution, Inc., No. 95-3596
JSL. The plaintiffs brought the action on behalf of direct purchasers of compact
discs alleging that defendants, including Universal Music & Video Distribution,
Inc. (formerly known as UNI Distribution Corp.), and PolyGram Group
Distribution, Inc., violated the federal and/or state antitrust laws and unfair
competition laws by engaging in a conspiracy to fix prices of compact discs, and
seek an injunction and treble damages. The defendants' motion to dismiss the
amended complaint was granted and the action was dismissed, with prejudice, on
January 9, 1996. Plaintiffs filed a notice of appeal on February 12, 1996. By an
order filed July 3, 1997, the Ninth Circuit reversed the District Court and
remanded the action. Upon reinstatement of this litigation by the Ninth Circuit,
a number of related actions were filed, which all arise out of the same claims
and subject matter. These related actions are captioned: Chandu Dani d/b/a
Compact Disc Warehouse and Record Revolution, et al., v. EMI Music Distribution
(formerly known as CEMA Distribution), Sony Music Entertainment, Inc.; Warner
Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc.
(formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and
PolyGram Group Distribution, Inc., No. CV 97-7226 (JSL), filed on September 30,
1997 in the U.S. District Court for the Central District of California; Third
Street Jazz and Rock Holding Corporation, et al., v. EMI Music Distribution
(formerly known as CEMA Distribution), Sony Music Entertainment, Inc., Warner
Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc.
(formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and
PolyGram Group Distribution, Inc., No. CV 97-8864 JSL (VAPx), filed on October
21, 1997 in the U.S. District Court for the Central District of California; T.
Obie, Inc. d/b/a/ Chestnut Hill Compact Disc v. EMI Music Distribution (formerly
known as CEMA Distribution), Sony Music Entertainment, Inc., Warner Elektra
Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known
as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group
Distribution, Inc., No. 97 Civ. 7764 LMM, filed on October 21, 1997 in the U.S.
District Court for the Southern District of New York; Nathan Muchnick, Inc., et
al., v. Sony Music Entertainment, Inc., PolyGram Group Distribution, Inc.,
Bertelsmann Music Group, Inc., Universal Music & Video Distribution, Inc.
(formerly known as UNI Distribution Corp.), Warner Elektra Atlantic Corporation,
and EMI Music Distribution, Inc./Capitol Records, Inc., No. 98 Civ. 0612, filed
on January 28, 1998 in the U.S. District Court for the Southern District of New
York. The Digital Distribution, Chandu Dani, and Third Street Jazz matters have
been set for trial on February 15, 2000. On February 17, 1998, a purported
consumer class action was filed in the Circuit Court for Cocke County,
Tennessee, Civil Action No., 24,885 II, entitled Doris D. Ottinger, et al., v.
EMI Music Distribution, Inc., Sony Music Entertainment, Inc., Warner Elektra
Atlantic Corp., Universal Music & Video Distribution, Inc. (formerly known as
UNI Distribution Corp.), Bertelsmann Music Group, Inc., and
8
PolyGram Group Distribution, Inc. A motion to dismiss was filed on May 11, 1998,
and is pending. The trial date of February 15, 2000 was vacated and no new trial
date has been set.
On or about July 25, 1996, Universal Music & Video Distribution, Inc.
and PolyGram Group Distribution, Inc. were served with an antitrust civil
investigation demand from the Office of the Attorney General of the State of
Florida that calls for the production of documents in connection with an
investigation to determine whether there "is, has been or may be" a "conspiracy
to fix the prices" of compact discs or conduct consisting of "unfair methods of
competition" or "unfair trade practices" in the sale and marketing of compact
discs. No allegations of unlawful conduct have been made against Universal
Musical & Video Distribution, Inc. or PolyGram Group Distribution, Inc.
By letter dated April 11, 1997, the Federal Trade Commission ("FTC")
advised Universal Music and Video Distribution Corp. (formerly Universal Music &
Video Distribution, Inc.) ("UMVD") and PolyGram Group Distribution, Inc.
("PGDI") that it is conducting a preliminary investigation to determine whether
minimum advertised pricing ("MAP") policy used by major record distributors
constitute an unfair method of competition in violation of Section 5 of the
Federal Trade Commission Act. UMVD and PGDI received a subpoena dated September
19, 1997 for the production of documents. No allegations of unlawful conduct
have been made against UMVD or PGDI. On May 1, 2000 UMVD (PGDI has merged into
UMVD) and UMG Recordings, Inc. ("UMGR") (which owns substantially all of the
Company's record labels) signed a Consent Agreement with the staff of the FTC.
The Company anticipates that the Consent Agreement will resolve the FTC's
investigation of the MAP policy. Among other things, UMVD and UMGR have agreed
that (i) for seven years they shall not make the receipt of any cooperative
advertising funds for their prerecorded music product contingent upon the price
or price level at which such product is advertised or promoted, (ii) for twenty
years they shall not make the receipt of any cooperative advertising funds for
their prerecorded music product contingent upon the price or price level at
which such product is advertised or promoted where the dealer does not seek any
contribution from UMVD or UMGR for the cost of the advertisement or promotion,
and (iii) for five years they shall not announce resale or minimum advertised
prices of their prerecorded music product and unilaterally terminate those who
fail to comply because of such failure.
On August 30, 1999, the Australian Competition and Consumer Commission
("ACCC") commenced proceedings against Universal Music Australia Pty Limited
(formerly PolyGram Pty Limited) and three former employees of PolyGram, alleging
violations of the Australian Trade Practices Act, the statute which governs
competition law in Australia. The ACCC alleges that Universal has taken certain
unlawful steps to restrict parallel imports into Australia to reduce price
competition in the sale of sound recordings. Separate proceedings making similar
allegations have also been commenced against certain other record companies in
Australia and their current or former employees, and against two industry trade
associations in Australia. The ACCC seeks injunctive relief to eliminate any
unlawful restrictions on parallel imports into Australia and the imposition of
fines against Universal and the three individuals who were employees of
PolyGram. Universal and the three individuals are vigorously defending these
proceedings. Universal has received Answers to its Request for Particulars from
the ACCC along with an amended Statement of Claim. Universal and the three
individuals continue to vigorously defend these proceedings.
On February 4, 1999, the Antitrust Division issued a civil investigative
demand to Universal as well as to a number of other motion picture film
distributors and exhibitors as part of a civil investigation into compliance
with the consent decrees entered in U.S. v. Paramount Pictures, et al. and
various other practices in the motion picture distribution and exhibition
industry. The civil investigative demands require the distributors and
exhibitors to provide documents and other information to the Antitrust Division.
The scope of the investigation and the extent, if any, to which it may relate to
Universal is not known at this time. Universal has responded to the government's
demand.
On December 15, 1999, an action was filed in the Superior Court for the
County of Los Angeles entitled KirchMedia GmbH & Co. KGaA v. Universal Studios,
Inc. and Universal Studios International B.V., case no. BC 221645. The plaintiff
is a German company that entered into several agreements with Universal in 1996
involving the licensing of film and television programming. The contracts also
required the plaintiff to allocate to Universal two channels on its German pay
television service. Plaintiff alleges that it is entitled to terminate its
agreements with Universal on the ground that certain decisions by European
regulatory authorities have materially impaired its business and constitute
events of "force majeure." Plaintiff also alleges that Universal has breached
its obligations under the parties' licensing agreements by allegedly failing to
provide plaintiff with the quality and/or quantity of film and television
programming anticipated by plaintiff. Plaintiff asserts claims for declaratory
relief, breach of contract, breach of the implied covenant of good faith and
fair dealing, and breach of fiduciary duty. Plaintiff seeks an order requiring
the return of all monies paid by plaintiff under the parties' agreements, as
well as purported damages in excess of $500,000,000. Plaintiff also seeks
punitive damages on its breach of fiduciary duty claim. Universal has denied the
allegations of the complaint and intends vigorously to defend this action. On
February 3, 2000, Universal filed a cross-complaint in this action alleging that
KirchMedia had breached certain of its obligations under the parties' Channel
Carriage Agreement and that certain entities related to KirchMedia were
obligated to indemnify Universal for all damages sustained as a result of
KirchMedia's breech of that agreement. On August 11, 2000, the Court granted
Universal's motion for judgment on the pleadings on the ground that plaintiff's
complaint did
9
not state facts sufficient to constitute a claim. The Court granted the
plaintiff leave to file an amended complaint that identified specific films that
Universal supposedly should have licensed to plaintiff under the parties'
agreements. The Court ruled that its grant of leave to amend did not extend to
plaintiff's other purported claims. An amended complaint has not yet been filed.
No trial date has been set.
In May, June, and July of 2000, ninety-four purported consumer class
action law suits were filed in various state and federal courts across the
country against Universal Music & Video Distribution Corp., UMG Recordings, Inc.
and PolyGram Group Distribution, Inc. as well as Sony Music Entertainment Inc.,
Time Warner Inc., Bertelsmann Music Group, and Capitol Records Inc. (along with
companies affiliated with these defendants). Certain recorded music retailers
are also named as defendants in some of these actions. Plaintiffs in each of
these actions allege that the defendants violated the federal and/or state
antitrust laws and unfair competition laws by conspiring to fix the wholesale
and/or retail prices of compact discs. Plaintiffs in each of these actions
further allege that the purported conspiracy was related in some fashion to the
minimum advertised price ("MAP") policies adopted by each of the record
distributor defendants, including Universal Music & Video Distribution Corp. and
PolyGram Group Distribution, Inc. Plaintiffs in these cases seek treble damages
and/or restitution as well as attorney's fees and costs. With respect to the
federal cases, there is currently pending before the Judicial Panel for
Multi-District Litigation a motion to consolidate and transfer. The Judicial
Panel will hear the motion on September 22, 2000. With respect the eighteen
state cases pending in California, on September 11, 2000, the Court ordered that
these cases be coordinated for pretrial proceedings. With respect to the five
state cases pending in Florida, on August 31, 2000, the Circuit Court of the
11th Judicial Circuit dismissed them with leave to amend for failure to state a
claim upon which relief may be granted.
In addition to the consumer actions, on August 8, 2000, the Attorneys
General for 28 states and 2 territories filed a parens patriae action in the
federal district court in the Southern District of New York entitled State of
Florida, et al. v. BMG Music, Bertelsmann Music Group Inc., Capitol Records,
Inc. dba EMI Music Distribution, Virgin Records America, Inc., Priority Records,
LLC, MTS Inc. dba Tower Records, Musicland Stores Corporation, Sony Music
Entertainment Inc., Trans World Entertainment Corporation, Universal Music &
Video Distribution Corp., UMG Recordings, Inc., Warner-Elektra-Atlantic
Corporation, Warner Music Group, Inc., Warner Bros. Records, Inc., Atlantic
Recording Corporation, Elektra Entertainment Group, Inc. and Rhino Entertainment
Company. The Attorneys General brought this suit on behalf of consumers in their
respective states or territories, and they allege that the defendants violated
the federal and state antitrust laws and unfair competition laws by conspiring
to fix the retail prices of compact discs. The Attorneys General seek treble
damages, civil penalties, attorney's fees, and costs.
Cleveland, et al. v. Viacom, et al., Civil Action No. SA-99-CA-0783-EP,
in the United States District Court for the Western District of Texas, San
Antonio Division. In July 1999, a small video retailer located in San Antonio,
Texas filed a lawsuit in the federal district court in San Antonio alleging that
the home video divisions of the major movie studios, including Universal Studios
Home Video, Inc., had conspired with one another and with Blockbuster Inc., a
video rental retailer, and with Viacom, Inc., in violation of the federal
antitrust laws. The action was filed on behalf of a proposed class of all
"independent" video retailers that compete with Blockbuster.
Since its original filing, the complaint has gone through several
substantive changes, including the substitution of new proposed class
representatives, and the addition of claims arising under California law. The
core allegation, however, has remained the same: plaintiffs allege that the
studios have entered direct revenue sharing agreements with Blockbuster that
include terms that are unavailable to independent video retailers, and that give
Blockbuster an unfair competitive advantage. Plaintiffs seek monetary and
injunctive relief.
Plaintiffs have filed a motion asking that the court certify the
proposed class. Universal and the other defendants have opposed the motion,
arguing that the case is not amenable to class treatment. Under the current
scheduling order, all briefing regarding whether a class should be certified
should be complete by October 2, 2000.
Seagram and its subsidiaries and affiliates are defendants or
respondents in a number of other actions arising in the ordinary course of
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common shares are listed on the New York, Toronto and
London Stock Exchanges. The following sets forth the high and low closing prices
for the fiscal periods indicated:
[Enlarge/Download Table]
Fiscal Years Ended June 30,
2000 1999 1998
---------------------------- ---------------------------- ----------------------------
High Low High Low High Low
---- --- ---- --- ---- ---
New York Stock Exchange
First Quarter U.S.$ 57.19 U.S.$ 43.00 U.S.$ 41.94 U.S.$ 28.69 U.S.$ 41.13 U.S.$ 33.94
Second Quarter 49.94 36.63 38.38 25.13 37.63 30.25
Third Quarter 65.19 43.06 51.25 37.81 39.75 31.44
Fourth Quarter 63.13 43.69 65.00 48.81 46.69 36.81
Toronto Stock Exchange
First Quarter C$ 85.40 C$ 63.35 C$ 62.25 C$ 43.80 C$ 56.70 C$ 46.45
Second Quarter 73.40 54.50 59.50 38.65 52.30 43.25
Third Quarter 94.95 63.05 77.35 58.00 56.50 44.70
Fourth Quarter 92.60 65.90 98.00 72.00 67.50 52.65
The Company had 6,053 registered shareholders at August 31, 2000. In
the fiscal years ended June 30, 2000, 1999 and 1998, the Company paid dividends
of $0.165 per share per quarter.
Payment of dividends to our shareholders who are not residents of
Canada is subject under Canadian law to Canadian withholding tax. Dividends paid
to shareholders residing in the United States is subject to 15% withholding
pursuant to currently existing treaty arrangements between the United States and
Canada. For shareholders who are residents of other countries, the withholding
rate varies depending upon the existence and terms of applicable treaties
between each such other country and Canada.
11
ITEM 6. SELECTED FINANCIAL DATA
[Enlarge/Download Table]
Transition Fiscal
Period Ended Year Ended
Fiscal Years Ended June 30, June 30, January 31,
U.S. dollars in millions, except per share amounts 2000 1999 1998 1997 1996 1996
-------------------------------------------------- ----------- ---------- ---------- ---------- ---------- ----------
INCOME STATEMENT
Revenues $ 15,686 $ 12,312 $ 9,474 $ 10,354 $ 4,112 $ 7,787
Operating income (loss) $ 753 $ (250) $ 553 $ 719 $ 93 $ 435
Interest, net and other expense $ 661 $ 457 $ 228 $ 147 $ 99 $ 195
Gain on sale of businesses $ 98 $ - $ - $ - $ - $ -
Gain on USA transactions $ - $ 128 $ 360 $ - $ - $ -
Gain on sale of Time Warner shares $ - $ - $ 926 $ 154 $ - $ -
Income (loss) from continuing operations before
cumulative effect of accounting change $ 124 $ (383) $ 880 $ 445 $ 67 $ 144
Income (loss) from discontinued Tropicana
operations, after tax - (3) 66 57 18 30
Gain on sale of discontinued Tropicana operations,
after tax - 1,072 - - - -
Discontinued DuPont activities, after tax - - - - - 3,232
----------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of accounting change 124 686 946 502 85 3,406
Cumulative effect of accounting change, after tax (84) - - - - -
----------- ---------- ---------- ---------- ---------- ----------
Net income $ 40 $ 686 $ 946 $ 502 $ 85 $ 3,406
=========== ========== ========== ========== ========== ==========
FINANCIAL POSITION
Current assets $ 7,799 $ 8,881 $ 6,971 $ 6,131 $ 6,307 $ 6,194
Common stock of DuPont 719 1,123 1,228 1,034 651 631
Common stock of USAi 529 501 306 - - -
Common stock of Time Warner - - - 1,291 2,228 2,356
Other noncurrent assets 23,761 24,506 11,940 10,257 10,328 10,230
Net assets of discontinued Tropicana operations - - 1,734 1,734 1,693 1,549
----------- ---------- ---------- ---------- ---------- ----------
Total assets $ 32,808 $ 35,011 $ 22,179 $ 20,447 $ 21,207 $ 20,960
=========== ========== ========== ========== ========== ==========
Current liabilities $ 6,722 $ 8,146 $ 4,709 $ 3,087 $ 4,383 $ 3,557
Long-term debt $ 7,378 $ 7,468 $ 2,225 $ 2,478 $ 2,562 $ 2,889
Total liabilities before minority interest $ 18,697 $ 20,245 $ 10,948 $ 9,174 $ 10,163 $ 9,788
Minority interest 1,882 1,878 1,915 1,851 1,839 1,844
Shareholders' equity 12,229 12,888 9,316 9,422 9,205 9,328
----------- ---------- ---------- ---------- ---------- ----------
Total liabilities & shareholders' equity $ 32,808 $ 35,011 $ 22,179 $ 20,447 $ 21,207 $ 20,960
=========== ========== ========== ========== ========== ==========
CASH FLOW DATA
Cash flow provided by (used for) operating activities $ 798 $ 935 $ (241) $ 664 $ 315 $ 222
Capital expenditures $ (607) $ (531) $ (410) $ (393) $ (245) $ (349)
Other investing activities, net $ 327 $ (5,605) $ 1,109 $ 2,101 $ (346) $ 2,260
Dividends paid $ (287) $ (247) $ (231) $ (239) $ (112) $ (224)
PER SHARE DATA
EARNINGS (LOSS) PER SHARE - BASIC
Continuing operations $ 0.28 $ (1.01) $ 2.51 $ 1.20 $ 0.18 $ 0.38
Discontinued Tropicana operations, after tax - (0.01) 0.19 0.16 0.05 0.08
Gain on sale of discontinued Tropicana operations,
after tax - 2.83 - - - -
Discontinued DuPont activities, after tax - - - - - 8.67
----------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of accounting change 0.28 1.81 2.70 1.36 0.23 9.13
Cumulative effect of accounting change, after tax (0.19) - - - - -
----------- ---------- ---------- ---------- ---------- ----------
Net income $ 0.09 $ 1.81 $ 2.70 $ 1.36 $ 0.23 $ 9.13
=========== ========== ========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE - DILUTED
Continuing operations $ 0.28 $ (1.01) $ 2.49 $ 1.20 $ 0.18 $ 0.38
Discontinued Tropicana operations, after tax - (0.01) 0.19 0.15 0.05 0.08
Gain on sale of discontinued Tropicana operations,
after tax - 2.83 - - - -
Discontinued DuPont activities, after tax - - - - - 8.54
----------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of accounting change 0.28 1.81 2.68 1.35 0.23 9.00
Cumulative effect of accounting change, after tax (0.19) - - - - -
----------- ---------- ---------- ---------- ---------- ----------
Net income $ 0.09 $ 1.81 $ 2.68 $ 1.35 $ 0.23 $ 9.00
=========== ========== ========== ========== ========== ==========
Dividends paid $ 0.66 $ 0.66 $ 0.66 $ 0.645 $ 0.30 $ 0.60
Shareholders' equity $ 27.97 $ 29.80 $ 26.84 $ 25.79 $ 24.67 $ 24.91
End of year share price
New York Stock Exchange (U.S.$) $ 58.00 $ 50.38 $ 40.94 $ 40.25 $ 33.63 $ 36.38
Toronto Stock Exchange (C$) $ 87.00 $ 73.35 $ 59.95 $ 55.50 $ 45.75 $ 49.75
Average shares outstanding (thousands) 434,544 378,193 349,874 369,682 373,858 373,117
Shares outstanding at year end (thousands) 437,227 432,555 347,132 365,281 373,059 374,462
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Our Company operates in four global business segments: music, filmed
entertainment, recreation and other and spirits and wine. The music business is
conducted through Universal Music Group, which is the largest recorded music
company in the world. Universal Music Group produces, markets and distributes
recorded music throughout the world in all major genres. Universal Music Group
also manufactures, sells and distributes video products in the United States and
internationally, and licenses music copyrights. The filmed entertainment and
recreation and other businesses are conducted through Universal Studios Group.
Our filmed entertainment business produces and distributes motion picture,
television and home video products worldwide, operates and has ownership
interests in a number of international cable channels and engages in the
licensing of merchandising and film property rights. The recreation and other
business operates theme parks and retail stores and is also involved in the
development of entertainment software. The spirits and wine business, directly
and through affiliates and joint ventures, produces, markets and distributes
distilled spirits, wines, ports and sherries, coolers, beers, mixers and other
low-alcohol beverages. In addition to marketing owned brands, the spirits and
wine business also distributes distilled spirits, wine, champagne, and beer
brands owned by others.
Management's discussion and analysis of our results of operations and liquidity
should be read in conjunction with the accompanying financial statements.
VIVENDI UNIVERSAL
On June 20, 2000, Seagram, Vivendi and Canal+ announced that they had entered
into a merger agreement and related agreements providing for the combination of
the three companies into Vivendi Universal. The agreements provide for the
completion of a series of transactions, under which our shareholders will
receive a number of Vivendi Universal American Depositary Shares (ADSs) based
on an exchange ratio. Each Vivendi Universal ADS will represent one Vivendi
Universal ordinary share. Our Canadian resident shareholders may elect to
receive exchangeable shares of a Canadian subsidiary of Vivendi Universal that
are substantially the economic equivalent of the Vivendi Universal ADSs. The
exchange ratio is equal to U.S. $77.35 divided by the U.S. dollar equivalent of
the average of the closing prices on the Paris Bourse of Vivendi's ordinary
shares during a measuring period prior to the closing of the transactions.
However, the exchange ratio will equal 0.8000 if that average is equal to or
less than U.S. $96.6875 and 0.6221 if that average is equal to or exceeds U.S.
$124.3369. The merger is expected to close by the end of the calendar year and
is subject to customary closing conditions, including shareholder approval and
all necessary regulatory approvals. There is no assurance that such approvals
will be obtained.
COMPARABILITY
The discussion presented below includes an analysis of total Seagram and
business segment results prepared in accordance with U.S. generally accepted
accounting principals (GAAP), which conforms in all material respects to
Canadian GAAP. The supplemental financial data includes modified EBITDA
(EBITDA). As defined by Seagram, EBITDA consists of operating earnings (losses)
before depreciation, amortization, corporate expenses and restructuring
activities. Because of the significant assets and goodwill associated with our
acquisitions, we believe EBITDA is an appropriate measure of operating
performance. However, you should note that EBITDA is not a substitute for
operating income, net income, cash flows and other measures of financial
performance as defined by GAAP and may be defined differently by other
companies. Investments in companies that are not consolidated with the results
of Seagram are reported as "equity earnings from unconsolidated companies". This
discussion includes, as supplemental financial data, information about our share
of the results of revenues and EBITDA related to these investments.
As several significant transactions have realigned our businesses and impacted
the comparability of our financial statements, financial information for the
1999 and 1998 fiscal years is also presented on a pro forma basis. We believe
that pro forma results represent meaningful information for assessing earnings
trends because the pro forma results include comparable operations in each year
presented. The discussion of the recreation and other and spirits and wine
business segments does not include pro forma comparisons, since the pro forma
adjustments did not impact those segments. The pro forma results are not
necessarily indicative of the combined results that would have occurred had the
following transactions actually occurred at the beginning of our 1998 fiscal
year. We believe this information will help you to better understand our
business results.
ACQUISITION OF POLYGRAM -- On December 10, 1998, we acquired 99.5 percent of the
outstanding shares of PolyGram N.V. (PolyGram), a global music and entertainment
company, for $8,607 million in cash and approximately 47.9 million common shares
of Seagram. Substantially all of the common shares were issued to Koninklijke
Philips Electronics N.V., which had owned 75 percent of the PolyGram shares. The
results of the operations of PolyGram are included in the results of our music
and filmed entertainment segments from the date of acquisition.
DISPOSITION OF TROPICANA -- On August 25, 1998, we completed the sale of
Tropicana, consisting of Tropicana Products, Inc. and our global juice business
(Tropicana) for $3,288 million in cash, which resulted in a pre-tax gain of
$1,445 million ($1,072 million after tax). As a result of this disposal, we
reported the results of Tropicana as discontinued operations for all periods
presented.
13
USA TRANSACTIONS -- On October 21, 1997, Universal acquired the remaining 50
percent interest in the USA Networks partnership from Viacom Inc. for $1.7
billion in cash. On February 12, 1998, Universal sold its acquired 50 percent
interest in USA Networks to USA Networks, Inc. (USAi) and contributed its
original 50 percent interest in USA Networks, the majority of its television
assets and 50 percent of the international operations of USA Networks to USANi
LLC. As a result of this transaction, Universal received $1,332 million in cash,
a 10.7 percent interest in USAi and a 45.8 percent exchangeable interest in
USANi LLC. Universal recognized a gross gain of $583 million, before taking into
consideration the effect of the transactions, which impaired certain remaining
television assets and transformed various related contractual obligations into
adverse purchase commitments. The impairment losses and adverse purchase
commitments arising from the transactions aggregated $223 million and were
reflected in the net gain of $360 million ($222 million after tax). In fiscal
1999, we recognized an $128 million pre-tax gain from the USA transactions
reflecting the reversal of accrued costs due to the favorable settlement of
certain contractual obligations and adverse purchase commitments.
14
RESULTS OF OPERATIONS
EARNINGS SUMMARY
[Enlarge/Download Table]
Actual Pro Forma
Twelve Months Ended June 30, Twelve Months Ended June 30,
U.S. dollars in millions, except per share amounts 2000 1999 1998 1999 1998
-------------------------------------------------- ---- ---- ---- ---- ----
REVENUES $ 15,686 $ 12,312 $ 9,474 $ 15,344 $ 14,587
======== ======== ======== ======== ========
OPERATING INCOME (LOSS) $ 753 $ (250) $ 553 $ 281 $ 274
Interest, net and other expense 661 457 228 682 598
Gain on sale of businesses 98 - - - -
Gain on USA transactions - 128 360 128 360
Gain on sale of Time Warner shares - - 926 - 926
Provision (benefit) for income taxes 158 (33) 638 61 493
Minority interest 17 (26) 48 4 16
Equity earnings (losses) from unconsolidated companies 109 137 (45) 130 (6)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 124 (383) 880 (208) 447
Income (loss) from discontinued Tropicana operations, after tax - (3) 66 - -
Gain on sale of discontinued Tropicana operations, after tax - 1,072 - - -
Cumulative effect of change in accounting principle, after tax (84) - - - -
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 40 $ 686 $ 946 $ (208) $ 447
======== ======== ======== ======== ========
EARNINGS PER SHARE - BASIC
Income (loss) from continuing operations $ 0.28 $ (1.01) $ 2.51 $ (0.52) $ 1.12
Income (loss) from discontinued operations, after tax - (0.01) 0.19 - -
Gain on sale of discontinued operations, after tax - 2.83 - - -
Cumulative effect of accounting change, after tax (0.19) - - - -
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 0.09 $ 1.81 $ 2.70 $ (0.52) $ 1.12
======== ======== ======== ======== ========
EARNINGS PER SHARE - DILUTED
Income (loss) from continuing operations $ 0.28 $ (1.01) $ 2.49 $ (0.52) $ 1.11
Income (loss) from discontinued operations, after tax - (0.01) 0.19 - -
Gain on sale of discontinued operations, after tax - 2.83 - - -
Cumulative effect of accounting change, after tax (0.19) - - - -
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 0.09 $ 1.81 $ 2.68 $ (0.52) $ 1.11
======== ======== ======== ======== ========
Net cash provided by (used for) operating activities $ 798 $ 935 $ (241)
Net cash (used for) provided by investing activities $ (280) $ (6,136) $ 699
Net cash (used for) provided by financing activities $ (821) $ 5,563 $ 159
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 15,686 $ 12,312 $ 9,474 $ 15,344 $ 14,587
Unconsolidated companies 2,644 2,202 1,722 2,202 2,081
-------- -------- -------- -------- --------
$ 18,330 $ 14,514 $ 11,196 $ 17,546 $ 16,668
======== ======== ======== ======== ========
EBITDA
Consolidated companies $ 1,872 $ 1,028 $ 1,142 $ 1,478 $ 1,555
Charge for Asia - - (60) - (60)
-------- -------- -------- -------- --------
1,872 1,028 1,082 1,478 1,495
Unconsolidated companies 504 449 220 449 326
-------- -------- -------- -------- --------
2,376 1,477 1,302 1,927 1,821
Adjustment for unconsolidated companies (504) (449) (220) (449) (326)
Depreciation and amortization (1,067) (773) (416) (1,097) (1,108)
Corporate expenses (111) (100) (113) (100) (113)
Restructuring (charge) credit 59 (405) - - -
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) $ 753 $ (250) $ 553 $ 281 $ 274
======== ======== ======== ======== ========
15
2000 VERSUS 1999
Actual
In addition to the significant transactions discussed above, several other items
also affect the comparability of our annual results. In fiscal 1999, these items
included a $405 million pre-tax restructuring charge associated with the
integration of PolyGram into our existing music and film operations (discussed
in Note 3 to the consolidated financial statements), and a $128 million pre-tax
gain from the USA transactions reflecting the reversal of accrued costs due to
the favorable settlement of certain contractual obligations and adverse purchase
commitments. In the current fiscal year, these items include the reversal of $59
million of the restructuring accruals due to the favorable settlement of certain
contractual and employee severance obligations, the sale of our concert
operations for a pre-tax gain of $98 million, the sale of our Champagne
operations for $310 million in cash, an amount which approximated the book value
of those operations, and an $84 million non-cash after-tax cumulative effect of
a change in accounting principle related to start-up activities. In addition to
these one-time items, our results are impacted on a ongoing basis by foreign
exchange rate fluctuations, particularly in our music and spirits and wine
businesses where a significant portion of sales are transacted in local
currencies. In fiscal 1999, the impact of foreign currency exchange was not
significant, however, our fiscal 2000 results were negatively impacted by
foreign exchange rate fluctuations as illustrated in the discussion of operating
results, presented below.
Revenues increased 27 percent (30 percent on a constant U.S. dollar basis) to
$15.7 billion, primarily due to our reporting of a full twelve-month results of
the acquired PolyGram operations in the current year, combined with improved
sales in all business segments. Operating income was $753 million compared with
an operating loss of $250 million in the prior year. The significant improvement
reflects the impact of the PolyGram acquisition, the restructuring activities
discussed above and improved earnings in all business segments. EBITDA from
consolidated companies increased 82 percent (89 percent on a constant U.S.
dollar basis) to $1.9 billion.
Interest, net and other expense included net interest expense of $684 million,
offset by $23 million of dividend income from DuPont. The increase of $204
million primarily reflects the increased interest costs associated with funding
the PolyGram acquisition.
The effective tax rate was 83 percent in fiscal 2000, compared with six percent
in the prior year. The provision for 2000 includes $38 million of taxes on the
sale of Universal Concerts, Inc. and $21 million for the restructuring charge
reversal. The 1999 tax provision included $45 million of taxes on the USA
transactions and a $140 million benefit for the restructuring charge. The tax
rate for continuing operations, excluding these items, increased largely due to
the increased goodwill expense for which there is no associated tax benefit.
Minority interest was an expense of $17 million compared to income of $26
million in 1999, which included $21 million associated with the restructuring
charge. The equity in earnings of unconsolidated companies decreased to $109
million from $137 million in 1999. The decrease primarily reflects increased
depreciation and interest expense at Universal Orlando since the opening of
Islands of Adventure, pre-opening development costs at Universal Studios Japan,
partially offset by improved operating results at USANi LLC.
Net income from continuing operations of $124 million or $0.28 per share (basic
and diluted) was earned in fiscal 2000, compared to a net loss from continuing
operations of $383 million or $1.01 per share (basic and diluted) in 1999. The
net income from continuing operations, excluding the restructuring activities,
the gain on the sale of Universal Concerts, Inc. and the impact of the USA
transactions, was $34 million or $0.08 per share (basic and diluted) in fiscal
2000, compared with a loss of $215 million or $0.57 per share (basic and
diluted) in 1999.
Pro Forma
Revenues increased two percent (five percent on a constant U.S. dollar basis),
as growth in the film, recreation and other and spirits and wine businesses was
partially offset by a slight decline in music revenues. Operating income,
excluding restructuring activities, more than doubled, while EBITDA from
consolidated companies increased 27 percent year-on-year (31 percent on a
constant U.S. dollar basis). These increases reflect a significant improvement
in the performance of all our business segments. Interest, net and other expense
declined three percent, primarily as a result of the lower average debt
outstanding during the current year. The effective income tax rate was 83
percent compared to 22 percent in the prior year. The minority interest charge
increased $13 million primarily due to the improved performance of our film
business. Equity in earnings of unconsolidated companies declined 16 percent for
the reasons discussed above.
Net income of $40 million or $0.09 per share (basic and diluted) was earned in
fiscal 2000, compared with a net loss of $208 million or $0.52 per share (basic
and diluted) in 1999. Excluding the restructuring activities, the gain on the
sale of Universal Concerts, Inc., the impact of the USA transactions and the
cumulative effect of a change in accounting principle, net income was $34
million or $0.08 per share (basic and diluted), a significant improvement over
the prior year when a pro forma net loss of $284 million or $0.71 per share
(basic and diluted) was incurred.
16
1999 VERSUS 1998
Actual
Our fiscal 1999 results compared favorably to fiscal 1998 results, which were
severely impacted by the economic and currency crises in Asia which hampered
business performance and resulted in a $60 million charge to spirits and wine
operations. Revenues increased 30 percent to $12.3 billion, primarily due to the
PolyGram acquisition and improved sales in all business segments. Operating
income declined from $553 