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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 2001
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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:
VIVENDI UNIVERSAL
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
-------------------- ------------------------------------------
AMERICAN DEPOSITARY SHARES (AS EVIDENCED BY AMERICAN THE NEW YORK STOCK EXCHANGE
DEPOSITARY RECEIPTS), EACH REPRESENTING ONE ORDINARY
SHARE, NOMINAL VALUE E5.50 PER SHARE
ORDINARY SHARES, PAR VALUE E5.50 PER SHARE*
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:
American Depositary Shares.................................. 122,321,258
Ordinary Shares, nominal value E5.50 per share.............. 1,085,675,856
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 which financial statement item the registrant has elected
to follow:
Item 17 [ ] Item 18 [X]
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* 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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PRESENTATION OF INFORMATION
This Annual Report on Form 20-F (referred to herein as this "annual report"
or this "document") has been filed with the United States Securities and
Exchange Commission.
"Vivendi Universal" refers to Vivendi Universal, S.A. (the "Company"), a
company organized under the laws of France, and its direct and indirect
subsidiaries. "Vivendi" refers to Vivendi, S.A., the predecessor company to
Vivendi Universal. "Shares" refer to the Company's ordinary shares. The
principal trading market for the ordinary shares of Vivendi Universal is
EuroNext Paris S.A. (the "Paris Bourse"). "ADS" or "ADR" refers to the Company's
American Depositary Shares or Receipts, each of which represents the right to
receive one Vivendi Universal ordinary share, which are listed on the New York
Stock Exchange.
This annual report includes Vivendi Universal's consolidated financial
statements for the years ended December 31, 2000, 1999 and 1998 and as at
December 31, 2000 and 1999. Vivendi Universal's consolidated financial
statements, including the notes thereto, are included in "Item 18 -- Financial
Statements" and have been prepared in accordance with generally accepted
accounting principles in France, which we refer to in this annual report as
"French GAAP". Unless notes otherwise, the financial information contained in
this annual report is presented in accordance with French GAAP. French GAAP is
based on requirements set forth in French Law and in European regulations, and
differs significantly from generally accepted accounting principles in the
United States, which we refer to in this annual report as "U.S. GAAP". See Note
16 to the consolidated financial statements for a description of the significant
differences between French GAAP and U.S. GAAP, a reconciliation of net income
and shareholders' equity from French GAAP to U.S. GAAP and condensed
consolidated U.S. GAAP balance sheets and statements of income.
Various amounts in this document are shown in millions for presentation
purposes. Such amounts have been rounded and, accordingly, may not total.
Rounding differences may also exist for percentages.
CURRENCY TRANSLATION
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 12 member states participate in the EMU and have
adopted the euro as their national currency: Austria, Belgium, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg. The Netherlands, Portugal and
Spain. The legal rate of conversion between the French franc and the euro
("Euro", "euro" or E) was fixed on December 31, 1998 at E1.00 = FF 6.55957, and
we have translated French francs into euros at that rate.
Share capital in the Company is represented by ordinary shares with a
nominal value of E5.50 per share. 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.
We publish our consolidated financial statements in Euro. Unless noted
otherwise, all amounts in this annual report are expressed in Euro. The currency
of the United States will be referred to as "U.S. dollars" or "U.S.$" or "$" or
"dollars". For historical exchange rate information, refer to "Item 3 -- Key
Information -- Exchange Rate Information". For a discussion of the impact of
foreign currency fluctuations on Vivendi Universal's financial condition and
results of operations, see "Item 5 -- Operating and Financial Review and
Prospects".
FORWARD-LOOKING STATEMENTS
We make some forward-looking statements in this document. When we use the
words "aim(s)," "expect(s)," "feel(s)," "will," "may," "believe(s),"
"anticipate(s)" and similar expressions in this document, 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
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should not place undue reliance on these forward-looking statements, which speak
only as of the date of this document. Other than in connection with applicable
securities laws, we undertake no obligation to publish revised forward-looking
statements to reflect events or circumstances after the date of this document or
to reflect the occurrence of unanticipated events. All statements that express
forecasts, expectations and projections with respect to future matters,
including the launching or prospective development of new business initiatives
and products, anticipated music or motion picture releases, Internet or theme
park projects and anticipated cost savings or synergies are forward-looking
statements within the meaning of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Such forward-looking statements are not guarantees of
future performance. Actual results may differ materially from our
forward-looking statements as a result of certain risks and uncertainties, many
of which are outside of our control, including but not limited to:
- Changes in global and localized economic and political conditions, which
may affect purchases of our consumer products, the performance of our
filmed entertainment operations and attendance and spending at our theme
parks;
- Changes in financial and equity markets, including significant interest
rate and foreign currency rate fluctuations, which may affect our access
to, or increase the cost of financing for our operations and investments;
- Increased competitive product and pricing pressures and unanticipated
actions by competitors that could impact our market share, increase
expenses and hinder our growth potential;
- Changes in consumer preferences and tastes, which may affect all our
business segments;
- Adverse weather conditions or natural disasters, such as hurricanes and
earthquakes, which may, among other things, impair performance at our
theme parks in California, Florida, Japan and Spain;
- Legal and regulatory developments, including changes in accounting
standards, taxation requirements and environmental laws;
- Technological developments that may affect the distribution of our
products or create new risks to our ability to protect our intellectual
property rights; and
- The uncertainties of litigation and other risks and uncertainties
detailed from time to time in our regulatory filings.
We urge you to review and consider carefully the various disclosures we
make concerning the factors that may affect our business, including the
disclosures made in "Item 4 -- Information on the Company -- Risk Factors," page
5, "Item 5 -- Operating and Financial Review and Prospects," page 52, and "Item
11 -- Quantitative and Qualitative Disclosures About Market Risk," page 105.
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.
EXPLANATORY NOTE
Unless otherwise indicated, all references to our competitive positions
made in this document are in terms of revenue generated.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
Vivendi Universal is a corporation organized under the laws of France. Many
of Vivendi Universal's directors and officers are citizens or residents of
countries other than the United States. Substantial portions of Vivendi
Universal's assets are located outside the United States. Accordingly, it may be
difficult for investors:
- to obtain jurisdiction over Vivendi Universal or their directors or
officers in courts in the United States in actions predicated on the
civil liability provisions of the U.S. federal securities laws;
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- to enforce against Vivendi Universal or their directors or officers
judgments obtained in such actions;
- to obtain judgments against Vivendi Universal or their directors or
officers in original actions in non-U.S. courts predicated solely upon
the U.S. federal securities laws; or
- to enforce against Vivendi Universal or their directors or officers in
non-U.S. courts judgments of courts in the United States predicated upon
the civil liability provisions of the U.S. federal securities laws.
Actions brought in France for enforcement of judgments of U.S. courts
rendered against French persons, including directors and officers of Vivendi
Universal, would require those persons to waive their right to be sued in France
under Article 15 of the French Civil Code. In addition, actions in the United
States under the U.S. federal securities laws could be affected under certain
circumstances by the French law of July 16, 1980, which may preclude or restrict
the obtaining of evidence in France or from French persons in connection with
those actions.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Identity of Directors, Senior Management and Advisers....... 1
Item 2. Offer Statistics and Expected Timetable..................... 1
Item 3. Key Information............................................. 1
Item 4. Information on the Company.................................. 9
Item 5. Operating and Financial Review and Prospects................ 52
Item 6. Directors, Senior Management and Employees.................. 74
Item 7. Major Shareholders and Related Party Transactions........... 83
Item 8. Financial Information....................................... 85
Item 9. The Offer and Listing....................................... 90
Item 10. Additional Information...................................... 91
Item 11. Quantitative and Qualitative Disclosures About Market 105
Risk........................................................
Item 12. Description of Securities Other Than Equity Securities...... 105
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies............. 106
Item 14. Material Modifications to the Rights of Security Holders.... 106
Item 15. [Reserved].................................................. 106
Item 16. [Reserved].................................................. 106
PART III
Item 17. Financial Statements........................................ 106
Item 18. Financial Statements........................................ F-1
Item 19. Exhibits.................................................... 106
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PART I
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3: KEY INFORMATION
SELECTED FINANCIAL DATA
The selected consolidated financial data for each of the years in the
three-year period ended December 31, 2000 has been derived from our consolidated
financial statements and the related notes appearing elsewhere in this annual
report. The selected consolidated financial data at year end and for each of the
years in the two-year period ended December 31, 1997 have been derived from our
consolidated financial statements not included in this annual report. You should
read this section together with the section entitled "Operating and Financial
Review and Prospects" and our consolidated financial statements included in this
annual report.
Our consolidated financial statements have been prepared in accordance with
French GAAP, which differs in certain significant respects from U.S. GAAP. The
principal differences between French GAAP and U.S. GAAP, as they relate to us,
are described in Note 16 to our consolidated financial statements. For a
discussion of significant transactions and accounting changes that affect the
comparability of our consolidated financial statements and the financial data
presented below, refer to "Operating and Financial Review and Prospects" and the
notes to our consolidated financial statements.
Our consolidated financial statements and the selected financial data
presented below are reported in euros. For periods presented prior to January 1,
1999, our financial statements have been prepared in French francs and
translated into euros using the official fixed exchange rate of E1.00 =
FF6.55957, applicable since December 31, 1998 (see Note 2 to our consolidated
financial statements).
YEARS ENDED DECEMBER 31,
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2000 1999(1) 1999 1998 1997 1996
--------- -------- -------- -------- -------- --------
MILLIONS OF EUROS, EXCEPT PER SHARE AMOUNTS
INCOME STATEMENT
AMOUNTS IN ACCORDANCE WITH FRENCH
GAAP
Revenue............................ 41,797.6 40,854.5 41,622.5 31,737.1 25,476.6 25,293.4
Revenue outside France............. 20,625.1 17,243.7 17,829.3 10,313.0 8,504.8 7,793.0
Operating income................... 2,571.4 1,835.5 2,280.5 1,331.4 595.5 546.4
Exceptional items, net............. 2,946.8 (845.8) (837.8) 249.3 878.6 139.8
Goodwill amortization.............. 634.2 606.4 612.0 209.5 374.7 146.8
Minority interest.................. 624.9 (159.4) 5.3 212.2 (115.1) (56.4)
Net income......................... 2,299.0 1,434.6 1,431.4 1,120.8 822.0 297.7
Basic earnings per share........... 3.6 2.7 2.7 2.5 2.1 0.8
Dividends per share................ 1.0 1.0 1.0 0.9 0.8 0.6
Average shares outstanding
(millions)...................... 633.8 530.5 530.5 456.6 393.6 368.4
Shares outstanding at year end
(millions)...................... 1,080.8 595.6 595.6 478.4 402.1 367.8
7
YEARS ENDED DECEMBER 31,
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2000 1999(1) 1999 1998 1997 1996
--------- -------- -------- -------- -------- --------
MILLIONS OF EUROS, EXCEPT PER SHARE AMOUNTS
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Revenue............................ 34,275.8 36,542.9 36,542.9 -- -- --
Operating income................... 1,178.2 (677.0) (677.0) -- -- --
Net income......................... 1,907.8 246.1 246.1 565.2 -- --
Basic earnings per share........... 3.24 0.48 0.48 1.29 -- --
Diluted earnings per share......... 3.03 0.47 0.47 1.25 -- --
FINANCIAL POSITION
AMOUNTS IN ACCORDANCE WITH FRENCH
GAAP
Shareholders' equity............... 56,675.1 10,776.5 10,892.2 7,840.2 6,846.7 5,134.7
Minority interest.................. 9,787.4 3,754.5 4,052.4 2,423.0 1,742.3 825.9
Net financial debt(2).............. 25,514.1 22,832.7 22,832.7 6,502.2 4,177.0 6,874.6
Total assets....................... 150,737.9 84,613.7 82,777.0 48,982.4 39,365.2 36,624.9
Total long-term assets............. 112,579.3 47,915.4 45,340.9 26,072.6 20,810.4 19,098.4
AMOUNTS IN ACCORDANCE WITH U.S. GAAP
Shareholders' equity............... 64,729.4 16,954.5 16,954.5 10,265.4 -- --
Total assets....................... 151,818.0 74,497.0 74,497.0 -- -- --
CASH FLOW DATA
Net cash provided by operating
activities...................... 2,514.2 771.6 1,409.4 2,897.9 1,601.1 2,502.0
Net cash used for investing
activities...................... 1,480.5 12,918.3 13,556.2 2,925.9 3,106.4 --
Net cash (used for) provided by
financing activities............ (631.3) 13,745.8 13,745.8 222.6 1,664.4 --
Capital expenditures............... 5,799.8 6,153.7 6,791.5 4,478.2 2,713.3 2,134.4
OTHER DATA
EBITDA(3).......................... 5,980.9 4,300.6 5,235.0 3,453.0 2,144.2 2,003.8
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(1) Restated to give effect to changes in accounting policies (see Note 2 to the
consolidated financial statements).
(2) Net financial debt is defined as the sum of long-term debt, subordinated
debt, bank overdrafts and other short-term borrowings after deduction of
short-term loans, cash, cash equivalents and marketable securities and
long-term loans. Long-term loans are included under the caption "Portfolio
investments held as fixed assets (others)." Long-term loans amounted to
E1,502.2 million in 2000, E1,273.6 million in 1999 and E1,960.3 million in
1998.
(3) EBITDA is defined as operating income before amortization and depreciation,
expenses of replacement and repair of installation and equipment owned by
local authorities. Vivendi Universal EBITDA may not be strictly comparable
to similarly titled measures widely used in the United States or reported by
other companies.
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RECONCILIATION OF EBITDA TO NET INCOME
YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999(1) 1999 1998
-------- -------- -------- --------
MILLIONS OF EUROS
EBITDA
Music........................................... 94.2 -- -- --
Publishing...................................... 493.4 410.7 417.0 355.0
TV & Film....................................... 526.0 84.8 86.0 13.0
Telecoms........................................ 1,303.3 493.7 1,372.0 674.0
Internet........................................ (183.7) (34.3) (51.0) (4.0)
-------- -------- -------- --------
2,233.2 954.9 1,824.0 1,038.0
Holding and Corporate........................... (137.0) (75.9) (75.5) (43.0)
-------- -------- -------- --------
Media & Communications....................... 2,096.2 879.0 1,748.5 995.0
Environmental Services.......................... 3,544.3 2,723.6 2,781.0 1,929.0
Non-core businesses............................. 340.4 698.0 705.5 529.0
-------- -------- -------- --------
Total Vivendi Universal......................... 5,980.9 4,300.6 5,235.0 3,453.0
Depreciation and amortization..................... (3,131.3) (2,186.3) (2,678.3) (1,831.7)
Expenses of replacement and repair of
installation.................................... (278.2) (278.8) (276.2) (289.9)
-------- -------- -------- --------
Operating income.................................. 2,571.4 1,835.5 2,280.5 1,331.4
Net financial (expense) income.................... (632.9) (87.1) (220.1) 9.3
Exceptional items, net............................ 2,946.8 (845.8) (837.8) 249.3
Income taxes and deferred tax..................... (1,020.9) 946.1 793.2 (90.0)
Goodwill amortization............................. (634.2) (606.4) (612.0) (209.5)
Equity in net income of affiliates................ (306.3) 32.9 32.9 42.5
Minority interest................................. (624.9) 159.4 (5.3) (212.2)
-------- -------- -------- --------
Net income........................................ 2,299.0 1,434.6 1,431.4 1,120.8
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(1) Restated to give effect to changes in accounting policies (see Note 2 to the
consolidated financial statements).
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EXCHANGE RATE INFORMATION
The following table shows the French franc/U.S. dollar exchange rate for
1996 through 1998 based on the noon buying rate expressed in French francs per
$1.00, and the U.S. dollar/euro exchange rate for 1999, 2000 and 2001 based on
the noon buying rate expressed in dollars per euro. The "noon buying rate" is
the rate in New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York. For information
regarding the effect of currency fluctuations on our results of operations, see
"Item 5 -- Operating and Financial Review and Prospects."
PERIOD AVERAGE
YEAR END RATE* HIGH LOW
---- ------ ------- ---- ----
U.S. DOLLAR/EURO
May 2001.................................................... 0.85 0.89 0.89 0.85
April 2001.................................................. 0.89 0.90 0.90 0.88
March 2001.................................................. 0.88 0.91 0.93 0.88
February 2001............................................... 0.92 0.92 0.94 0.90
January 2001................................................ 0.94 0.94 0.96 0.91
December 2000............................................... 0.94 0.90 0.94 0.87
2000........................................................ 0.94 0.92 1.03 0.83
1999........................................................ 1.00 1.06 1.17 1.00
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
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* For yearly figures, 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
year.
DIVIDENDS
The table below sets forth the total dividends paid per Vivendi ordinary
share and Vivendi American Depositary Share ("ADS") in 1996 to 1999 and per
Vivendi Universal ordinary share and Vivendi Universal ADS in 2000. The amounts
shown exclude the avoir fiscal, a French tax credit described under "Item 10 --
Additional Information -- Taxation." Vivendi historically paid annual dividends
in respect of its prior fiscal year. We have rounded dividend amounts to the
nearest cent.
DIVIDEND PER ORDINARY SHARE DIVIDEND PER ADS
--------------------------- ----------------
E (1) $ (2)
1996*................................................ 0.61 0.14
1997*................................................ 0.76 0.17
1998*................................................ 0.92 0.17
1999................................................. 1.00 0.22
2000**............................................... 1.00 0.89
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* Restated for a 3 for 1 stock split which occurred on May 11, 1999.
** Prior to December 8, 2000, the date of the completion of the
Vivendi/Seagram/Canal Plus merger transactions (described below under "Item
4 -- Information on the Company -- History and Development of the Company"),
each Vivendi ADS represented one-fifth of a Vivendi ordinary share, while
each Vivendi Universal ADS now represents one Vivendi Universal ordinary
share.
(1) Until 1999 (i.e., until the dividend for the year ended December 31, 1998),
Vivendi paid dividends in French francs. Amounts in French francs have been
translated at the official fixed exchange rate of E1.00 = FF6.55957.
(2) 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. The noon
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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
ADSs.
RISK FACTORS
You should carefully consider the risk factors described below in addition to
the other information presented in this document.
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. Our competitors also
may introduce new technologies or services or improve the quality of their
services. 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. There is no assurance
that the desired rights to content will be available on commercially reasonable
terms, and 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, APPROVALS AND
CONSENTS.
We need to maintain, renew or obtain a variety of permits and approvals
from regulatory authorities to conduct and expand each of our businesses. The
process for obtaining these permits and approvals is often lengthy, complex and
unpredictable. Moreover, the cost for renewing or obtaining permits and
approvals may be prohibitive. If we are unable to retain or obtain the permits
and approvals we need to conduct and expand our businesses at a reasonable cost
and in a timely manner, in particular, licenses to provide telecommunications
services, our ability to achieve our strategic objectives could be impaired. The
regulatory environment in which our businesses operate is complex and subject to
change, and adverse changes in that environment could impose costs on us and/or
limit our revenue.
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 (i) integrated communications and content
services that are accessible through a variety of communications devices and
(ii) 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 or does not grow as quickly
as we expect, our profitability and the return we earn on many of our
investments may suffer.
THE INTEGRATION OF CANAL PLUS S.A. AND THE SEAGRAM COMPANY LTD.'S TRANSFERRED
BUSINESSES INTO VIVENDI UNIVERSAL MAY BE DIFFICULT AND EXPENSIVE TO ACHIEVE AND
MAY NOT RESULT IN THE BENEFITS CURRENTLY ANTICIPATED.
We may not be able to integrate successfully or manage profitably the
operations acquired in the merger transactions between Vivendi, S.A., Canal Plus
S.A. and The Seagram Company Ltd. We may not achieve the revenue or
profitability increases or cost savings currently anticipated to arise from the
merger transactions. The merger transactions, while expected to be accretive to
earnings in future periods, may fail to be accretive or may become accretive
later than expected. To realize the anticipated benefits of the merger
transactions, our management must implement a business plan that will
effectively combine operations that are diverse geographically and in terms of
the products and services they offer, as well as in management, compensation and
business culture. If our management is not able to implement a business plan
that
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effectively integrates its acquired operations, the anticipated benefits of the
merger transactions may not be realized.
WE MAY HAVE DIFFICULTY ENFORCING OUR INTELLECTUAL PROPERTY RIGHTS.
The decreasing cost of electronic equipment and related technology has made
it easier to create unauthorized versions of audio and audiovisual products such
as compact discs, videotapes and DVDs. A substantial portion of our revenue
comes from the sale of audio and audiovisual products that are potentially
subject to unauthorized copying. Similarly, advances in Internet technology have
increasingly made it possible for computer users to share audio and audiovisual
information without the permission of the copyright owners and without paying
royalties to holders of applicable intellectual property or other rights.
Intellectual property rights to information that is potentially subject to
widespread, uncompensated dissemination on the Internet represents a substantial
portion of our market value. If we fail to obtain appropriate relief through the
judicial process or the complete enforcement of judicial decisions issued in our
favor, or if we fail to develop effective means of protecting our intellectual
property or entertainment-related products and services, our results of
operations and financial position may suffer.
WE MAY NOT BE ABLE TO MEET ANTICIPATED CAPITAL REQUIREMENTS FOR CERTAIN
TRANSACTIONS.
We routinely engage in projects that may require us to seek substantial
amounts of funds through various forms of financing. Our ability to arrange
financing for projects and the cost of capital depends on numerous factors,
including general economic and capital market conditions, availability of credit
from banks and other financial institutions, investor confidence in our
businesses, success of current projects, perceived quality of new projects and
tax and securities laws that are conducive to raising capital. In addition, our
future operations are expected to be financed in part by a portion of the
proceeds we expect to receive from the sale of the Spirits and Wine business
(described below under "Item 5 -- Operating and Financial Review and
Prospects -- Significant Transactions"). While we and certain of our
subsidiaries have entered into a contract for the sale of the Spirits and Wine
business, that contract is subject to customary closing conditions, including
receipt of regulatory approvals. If the conditions for the sale of the Spirits
and Wine business are not satisfied, we may need to pursue alternative
transactions and may have to seek alternative forms of financing. We may forego
attractive business opportunities and lose market share if we cannot secure
financing on satisfactory terms.
OUR CONTENT ASSETS IN TV, MOTION PICTURES AND MUSIC MAY NOT BE COMMERCIALLY
SUCCESSFUL.
We expect a significant amount of our revenue to come from the production
and distribution of content offerings such as feature films, television series
and audio recordings. The success of content offerings depends primarily upon
their acceptance by the public, which is difficult to predict. The commercial
success of a film, television series or audio recording depends on the quality
and acceptance of competing offerings released into the marketplace at or near
the same time, the availability of alternative forms of entertainment and
leisure time activities, general economic conditions and other tangible and
intangible factors, all of which can change quickly. Because we expect the
popularity of our content offerings to be a significant factor driving the
growth of our communications services, its failure to produce films, television
series and audio recordings with broad consumer appeal could materially harm our
business and prospects for growth.
WE MAY NOT BE SUCCESSFUL IN DEVELOPING NEW TECHNOLOGIES OR INTRODUCING NEW
PRODUCTS AND SERVICES.
Many of the industries in which we operate are subject to rapid and
significant changes in technology and are characterized by the frequent
introduction of new products and services. Pursuit of necessary technological
advances may require substantial investments of time and resources and we may
not succeed in developing marketable technologies. 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
services and to make substantial new investments.
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CURRENCY EXCHANGE RATE FLUCTUATIONS MAY NEGATIVELY AFFECT OUR FINANCIAL RESULTS,
THE MARKET VALUE OF OUR ADSS AND THE VALUE OF DIVIDENDS RECEIVED BY HOLDERS OF
OUR ADSS.
We hold assets and liabilities, earn income and pay expenses of our
subsidiaries in a variety of currencies. Because our financial statements are
presented in euros, we must translate our assets, liabilities, revenue, income
and expenses in currencies other than the euro into euros at then-applicable
exchange rates when we prepare our financial statements. 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 other
currencies. To the extent this has a negative effect on our financial condition
as presented in our financial statements, it could cause the price of our shares
to decline. In addition, dividends to holders of our ADSs, will be converted
from euros to U.S. dollars prior to payment. As a result, changes in currency
exchange rates could affect the value of dividends holders of our ADSs receive.
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 of
businesses, 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 may
not be available in countries with less than investment grade sovereign credit
ratings. As a result, it may be difficult to create or maintain profit-making
operations in developing markets.
THE MARKET PLACE OF OUR ORDINARY SHARES AND OUR ADSS MAY BE SUBJECT TO THE
VOLATILITY GENERALLY ASSOCIATED WITH INTERNET AND TECHNOLOGY COMPANY SHARES.
The market for shares of Internet and technology companies has, over the
past year, experienced extreme price and volume volatility that has often been
unrelated or disproportionate to the operating performance of those companies.
Because our value is based in part on our Internet and other high technology
operations, the price of our ordinary shares and ADSs may be subject to similar
volatility.
PROVISIONS IN MANY OF THE ENVIRONMENTAL CONTRACTS OF OUR SUBSIDIARY, VIVENDI
ENVIRONNEMENT, MAY CREATE SIGNIFICANT RESTRICTIONS OR OBLIGATIONS ON ITS
BUSINESS.
Contracts with governmental authorities make up a significant percentage of
the revenue of our 63% effectively owned subsidiary, Vivendi Environnement.
Vivendi Environnement is subject to various statutes and regulations that apply
to companies that contract with governmental authorities that differ from laws
governing private contracts. In civil law countries such as France, for
instance, government contracts often allow the governmental authority to modify
or terminate the contract unilaterally in certain circumstances. Although
Vivendi Environnement is generally entitled to full indemnification in the event
of a unilateral modification or termination of a contract by a governmental
authority, such modifications or terminations could reduce its revenue and
profits if full indemnification is not available.
WE MAY INCUR ENVIRONMENTAL LIABILITY IN CONNECTION WITH PAST, PRESENT AND FUTURE
OPERATIONS.
Each of our businesses, primarily in the case of Vivendi Environnement, is
subject to extensive and increasingly stringent environmental laws and
regulations. In some circumstances, we could be required to pay fines or damages
under these environmental laws and regulations even if we exercise due care in
conducting our operations, we comply with all applicable laws and regulations,
and the quantity of pollutant is very small.
In addition, courts or regulatory authorities may require us to undertake
investigatory and/or remedial activities, curtail operations or close facilities
temporarily or permanently in connection with applicable environmental laws and
regulations. We could also become subject to claims for personal injury or
property damage. Being required to take these actions or to pay environmental
damages could substantially impair our business or affect our ability to obtain
new business.
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SOME PROVISIONS OF OUR STATUTS COULD HAVE ANTI-TAKEOVER EFFECTS.
Our statuts (i.e., our organizational documents) contain provisions that
are intended to impede the accumulation of our shares by third parties seeking
to gain a measure of control of the Company. For example, in the case where a
quorum of less than 60% is present at a shareholders' meeting, our statuts
adjust the rights of each shareholder that owns in excess of 2% of our total
voting power through the application of a formula pursuant to which the voting
power of each such shareholder will be equal to that which it would possess if
100% of our shareholders were present or represented at the shareholders'
meeting at which the vote takes place. In addition, our statuts provide that any
person or group that fails to notify us within 15 days of acquiring or disposing
of at least 0.5% or any multiple of 0.5% of our shares may be deprived of voting
rights for those shares in excess of the unreported fraction.
PRE-EMPTIVE RIGHTS MAY NOT BE AVAILABLE FOR U.S. PERSONS.
Under French law, shareholders have pre-emptive rights 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 pre-emptive rights for our shares unless a registration
statement under the U.S. Securities Act of 1933, as amended (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 pre-emptive rights.
THE ABILITY OF HOLDERS OF OUR ADSS TO INFLUENCE THE GOVERNANCE OF OUR COMPANY
MAY BE LIMITED.
Holders of our ADSs may not have the same ability to influence corporate
governance with respect to our company as shareholders in some U.S. companies
would. For example, the depositary may not receive voting materials in time to
ensure that holders of our ADSs can instruct the depositary to vote their
shares. In addition, the depositary's liability to holders of our ADSs for
failing to carry out voting instructions or for the manner of carrying out
voting instructions is limited by the depositary agreement.
WE ARE EXEMPT FROM CERTAIN REQUIREMENTS UNDER THE EXCHANGE ACT.
As a "foreign private issuer" for the purposes of the U.S. federal
securities laws, we are exempt from rules under the Exchange Act, that impose
certain disclosure and procedural requirements in connection with proxy
solicitations under Section 14 of the Exchange Act. In addition, our officers,
directors and principal shareholders are exempt from the reporting and
"short-swing" profit recovery provisions of Section 16 of the Exchange Act and
related rules with respect to their purchase and sale of our ordinary shares.
Moreover, we are 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, nor are we required to comply with Regulation
FD, which restricts the selective disclosure of material information.
Accordingly, there may be less information concerning our Company publicly
available than there is for those U.S. companies.
JUDGMENTS OF U.S. COURTS MAY NOT BE ENFORCEABLE AGAINST VIVENDI UNIVERSAL.
Judgments of U.S. courts, including those predicated on the civil liability
provisions of the federal securities laws of the United States, may not be
enforceable in French courts. As a result, shareholders who obtain a judgment
against Vivendi Universal in the United States may not be able to require it to
pay the amount of the judgment. See "Enforceability of Civil Liabilities Against
Foreign Persons", page ii.
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ITEM 4: INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
The legal and commercial name of our company is Vivendi Universal, S.A.
Vivendi Universal is a societe anonyme, a form of limited liability company,
incorporated on December 11, 1987 pursuant to the French commercial code for a
term of 99 years. Our registered office is located at 42, avenue de Friedland,
75380 Paris Cedex 08, France, and the phone number of that office is 01 71 71
1000. Our agent in the United States is Vivendi Universal U.S. Holding Co.
located at 800 Third Avenue, 7th Floor, New York, New York 10022, Attention:
President.
Vivendi Universal is the surviving entity of the merger transactions among
Vivendi, S.A. ("Vivendi"), The Seagram Company Ltd. ("Seagram") and Canal Plus
S.A. ("Canal Plus") which were completed on December 8, 2000 (the "Merger
Transactions").
The Merger Transactions included the following:
- The merger of Vivendi into its wholly owned subsidiary Vivendi Universal.
Prior to the Merger Transactions, Vivendi Universal functioned as a
non-operating holding company;
- Vivendi Universal's acquisition of all of the businesses of Canal Plus
not subject to a French law that prohibits any person from owning more
than 49% of a French television broadcaster. Accordingly, Canal Plus's
French premium pay television channel was retained by Canal Plus Public
Canal Plus shareholders retained their 51% interest in Canal Plus and
Vivendi Universal now holds the remaining 49%. The businesses that
Vivendi Universal acquired from Canal Plus are now operated collectively
as Groupe Canal S.A. ("CANAL+"); and
- Vivendi Universal's combination, through its subsidiaries, with Seagram
in accordance with a plan of arrangement under Canadian law.
VIVENDI, S.A.
Prior to the Merger Transactions, Vivendi was one of Europe's largest
companies. In May 1998, Vivendi's shareholders approved its name change from
Compagnie Generale des Eaux to "Vivendi" to reflect the expansion of its core
businesses in communications and environmental management services as well as
the increasingly international scope of its business. At that time, Vivendi
renamed its major water subsidiary Compagnie Generale des Eaux. In 1999, Vivendi
contributed or sold its direct and indirect interests in Compagnie Generale des
Eaux, Connex, Onyx, FCC, Dalkia and United States Filter Corporation ("US
Filter") to Vivendi Environnement. These transactions, along with the
consolidation of all of its water businesses into Vivendi Water, were designed
to focus each of its environmental operations on the goal of maintaining its
position as the world's leading provider of environmental management services.
In July 2000 Vivendi issued approximately 37% of the share capital of Vivendi
Environnement in a public offering in Europe and a private placement in the
United States.
At the time of the Merger Transactions, Vivendi's businesses were focused
primarily on two core areas: communications and environmental management
services. Its communications business operated a number of leading and
integrated businesses in the telecommunications, multimedia and publishing, pay
television and Internet industries. Its environment business, operated primarily
through its subsidiary Vivendi Environnement, included world-class water, waste
management, transportation and energy services operations. Each of these
businesses now forms part of Vivendi Universal.
THE SEAGRAM COMPANY LTD.
Prior to the Merger Transactions, Seagram operated in four business
segments:
- Music, through Universal Music Group, the world's largest recorded music
company, which developed, acquired, produced, marketed and distributed
recorded music globally, produced, sold and distributed music videos
globally, and engaged in music publishing;
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- Filmed Entertainment, primarily through Universal Pictures, produced and
distributed motion picture, television and home video productions
worldwide, owned and operated a number of international television
channels, and licensed merchandising and filmed property rights;
- Recreation and Other, which owned and operated theme parks, entertainment
complexes and specialty retail stores in the U.S. and elsewhere; and
- Spirits and Wine, which produced, marketed and distributed distilled
spirits, wines, coolers, beers and mixers in more than 190 countries and
territories worldwide. We have entered into an agreement to sell the
Spirits and Wine business.
Each of these businesses now forms a part of Vivendi Universal.
CANAL PLUS S.A.
Prior to the Merger Transactions, Canal Plus was Europe's leading pay
television company with approximately 14 million subscribers in 11 countries at
the end of 1999. Forty percent of Canal Plus's subscribers were enrolled in
digital television services at the end of 1999. Canal Plus also produced more
than 25 theme channels for cable and satellite television distribution in 14
countries and was a European leader in film and television production,
distribution and rights management, with Europe's second largest film rights
library based on number of titles. In addition, Canal Plus was Europe's leading
supplier of software technologies that enabled network operators to deliver
secure interactive services over digital television networks. Each of these
businesses now forms a part of Vivendi Universal.
As a result of the Merger Transactions, we are one of the world's leading
media and communications companies, with assets that include the world's largest
recorded music company, one of the largest motion picture studios and film
libraries in the world and leading businesses in the global telecommunications,
television, theme park, publishing and Internet industries. We believe that we
will become a fully integrated global media and communications company capable
of providing a diverse array of entertainment and information over wired and
wireless access devices using cable, Internet, satellite and broadcast networks.
See "Item 3 -- Key Information -- Our Services" for a complete description
of our businesses.
CERTAIN DEVELOPMENTS IN 2000
In 2000, our total capital expenditures were E5.8 billion, primarily in
connection with our Telecoms (E1.1 billion), TV & Film (E0.8 billion) and
Environmental Services (E2.6 billion) businesses.
Total proceeds from the sale of assets in the year were E2.8 billion,
principally related to the sale by Sithe Energy, Inc. (Sithe) of the assets
previously purchased from G.P.U. (E2.3 billion).
Acquisitions of investments in the year were E32.5 billion, principally
related to the merger of Vivendi, Seagram and CANAL+ (non-cash transaction of
E29.5 billion). Our cash investments in other Media and Communication businesses
were E1.9 billion and international expansion in our Environmental Services
businesses represented E0.7 billion.
Total dispositions of investments in the year were E4.1 billion. In our
Media and Communications businesses, these primarily related to the sale of part
of our interest in Canal Satellite and MultiThematiques to Lagardere (E1.0
billion). Dispositions of other investments principally relate to the sale of
certain operations of Dalkia (E0.8 billion), Kinetics (E0.6 billion), Vinci
(E0.6 billion) and Sithe (E0.4 billion).
No third parties have made public takeover offers with respect to the
Company since we began operations, and we have not made any public takeover
offers with respect to other companies, except as described under "Item 3 -- Key
Information -- Our Services -- Recent Developments". For important events
occurring since January 1, 2001, see "Item 5 -- Operating and Financial Review
and Prospects -- Other Matters and Recent Developments", and the "Recent
Development" sections of the description of our businesses contained in "Item
3 -- Key Information -- Our Services" below.
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OTHER ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
Over the 1998-99 period, we supplemented the growth in our Media and
Communications businesses and our Environmental Services businesses by entering
into joint ventures and acquisitions that significantly expanded our assets. The
following is a summary of some of the material acquisitions and dispositions
during the 1998-99 period in each of our core businesses.
Media and Communications
We completed the acquisition of Havas S.A. effective January 1, 1998,
having acquired 29.3% of Havas, now known as Vivendi Publishing, in February
1997. In 1998 and 1999, we significantly expanded Havas' international presence
through a number of acquisitions, including (i) Cendant Software, the world's
second leading developer of educational and games computer software, for E678
million, (ii) Anaya, a Spanish publishing firm, for E199.7 million, and (iii)
Medi-Media, a company specializing in the publication of medical information,
for E237 million.
Cegetel (defined below) acquired a 49.9% ownership interest in Telecom
Developpement through investments made in July 1997 and December 1998 totaling
E518.2 million.
In September 1999, we purchased an additional 15% interest in CANAL+ for
E1,374 million (bringing the total at the time to 49%), and acquired a 24.4%
equity interest in BSkyB, the leading pay-television company in the United
Kingdom and Ireland, for E1,258.8 million.
In December 1999, we purchased a 49% interest in a company that controls
the leading Polish mobile telephony operator and the Polish cable operator
Bresnam for E1,198.8 million.
Environmental Services
In October 1998, we acquired a 49% interest in the holding company that
owns 56.5% of Fomento De Constructiones y Contratas ("FCC") for E794.2 million.
In March 1999, we purchased E103.5 million of hazardous waste-related
assets from Waste Management, Inc.
In April 1999, we acquired US Filter, the world's leading manufacturer of
water equipment and water treatment systems, for E5,801 million.
In June 1999, we acquired a controlling stake in Superior Services, a U.S.
waste management company, for E932.2 million.
DIVESTITURES
In an effort to focus Havas on its multimedia and publishing operations,
during 1998 and 1999 we sold: (i) Havas' yellow pages businesses to France
Telecom for E411 million, (ii) Information et Publicite, an advertising
management agency, to Compagnie Luxembourgeoise de Telediffusion for E207
million, (iii) Havas Voyages, a travel agency, to American Express Voyages, for
E167 million, (iv) Havas' billboard advertising operations to the Decaux group
for E877 million and (v) 9% of Havas Advertising to a group of investors for
E198.4 million.
In June 1998, we sold 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 E1.1 billion.
In late 1999, we sold our interest in Audiofina to Groupe Bruxelles Lambert
for E704.1 million.
In 1999, we disposed of a substantial number of non-core real estate
assets, including E1.2 billion of real estate assets to Unibail, Accor,
Blackstone and Colony.
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BUSINESS OVERVIEW
GENERAL
We operate in two global core businesses: Media and Communications, and
Environmental Services. The Media and Communications business is divided into
five business segments: Music, Publishing, and TV & Film, which constitute our
content business, and Telecoms and Internet, our access businesses. The Music
business produces, markets and distributes recorded music throughout the world
in all major genres, manufactures, sells and distributes video products in the
United States and internationally, and licenses music copyrights. The Publishing
business provides content across multiple platforms including print, multimedia,
on the wired Internet, and to PDAs (Personal Data Appliances) via WAP (Wireless
Application Protocol) technology. The Publishing business provides content in
five markets: Games, Education, Literature, Health and Information. The TV &
Film business produces and distributes motion picture, television and home
video/DVD products worldwide, operates and has ownership interests in a number
of cable and pay television channels, engages in the licensing of merchandising
and film property rights, and operates theme parks and retail stores around the
world. The Telecoms business provides a broad range of telecommunications
services, including mobile and fixed telephony, Internet access, and data
services and transmission, principally in Europe. The Internet business manages
strategic Internet initiatives and new online ventures for Vivendi Universal.
Utilizing advanced digital distribution technology, the Internet business
develops e-commerce, e-services and thematic portals that offer access to the
Internet through a variety of devices, including mobile phones, PDAs,
interactive TV and computers. Vivendi Environnement, a 63% effectively owned
subsidiary of Vivendi Universal, operates the Environmental Services business,
with operations around the globe. Vivendi Environnement provides environmental
management services, including water treatment and system operation, waste
management, energy services (excluding the sale, production and trading of
electricity), and transportation services, to a wide range of public authorities
and industrial, commercial and residential customers.
SEGMENT DATA
The contribution of our business segments to our consolidated revenue for
1998, 1999 and 2000, in each case after the elimination of intersegment
transactions, follows:
TOTAL MEDIA &
MUSIC PUBLISHING TV & FILM TELECOMS INTERNET COMMUNICATIONS
----- ---------- --------- -------- -------- --------------
(IN MILLIONS OF EUROS)
REVENUE
DECEMBER 31, 2000............. 494.6 3,539.8 4,248.3 5,270.1 47.8 13,600.6
DECEMBER 31, 1999............. -- 3,316.9 1,151.8 4,102.2 2.0 8,572.9
DECEMBER 31, 1998............. -- 2,876.3 200.6 2,875.2 -- 5,952.1
TOTAL
ENVIRONMENTAL NON- VIVENDI
SERVICES CORE UNIVERSAL
------------- -------- ---------
(IN MILLIONS OF EUROS)
REVENUE
DECEMBER 31, 2000............. 26,512.0 1,685.0 41,797.6
DECEMBER 31, 1999............. 22,428.2 10,621.4 41,622.5
DECEMBER 31, 1998............. 16,047.2 9,737.8 31,737.1
GEOGRAPHIC DATA
The contribution of selected geographic markets to our consolidated revenue
for 1998, 1999 and 2000, follows:
AT DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(MILLIONS OF EUROS)
France............................................... 21,173.8 23,785.2 21,424.0
United Kingdom....................................... 2,969.1 3,465.0 2,947.4
Rest of Europe....................................... 7,420.9 7,369.7 4,793.3
United States of America............................. 7,009.1 5,014.1 1,267.8
Rest of the World.................................... 3,224.7 1,988.5 1,304.6
-------- -------- --------
Total................................................ 41,797.6 41,622.5 31,737.1
======== ======== ========
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SEGMENT AND GEOGRAPHIC DATA FOR 2000
The contribution of selected geographic markets to the revenue of our
business segments and to our consolidated revenue for 2000, in each case after
the elimination of intersegment transactions follows:
TOTAL MEDIA
& TOTAL
COMMUNICA- ENVIRONMENTAL VIVENDI
MUSIC PUBLISHING TV & FILM TELECOMS INTERNET TIONS SERVICES NON-CORE UNIVERSAL
----- ---------- --------- -------- -------- ----------- ------------- -------- ---------
(MILLIONS OF EUROS)
Europe................ 228.6 2,575.3 3,896.0 5,263.0 30.5 11,993.4 19,311.1 259.3 31,563.8
of which France..... 67.3 1,918.9 2,724.4 5,106.1 29.4 9,846.1 11,111.9 215.8 21,173.8
Americas.............. 196.5 862.6 232.5 0.0 17.3 1,308.9 5,953.6 1,214.5 8,477.0
Rest of the World..... 69.5 101.9 119.8 7.1 0.0 298.3 1,247.3 211.2 1,756.8
----- ------- ------- ------- ---- -------- -------- -------- --------
Total................. 494.6 3,539.8 4,248.3 5,270.1 47.8 13,600.6 26,512.0 1,685.0 41,797.6
===== ======= ======= ======= ==== ======== ======== ======== ========
STRATEGY
Vivendi Universal's overall goal is to take advantage of the strong
internal and external growth opportunities available in the areas of its core
operations -- Media and 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 these businesses to meet what we
believe to be a growing demand for customized, comprehensive packages of
environmental management services on a worldwide basis.
OUR SERVICES
MUSIC
Our music business is operated through Universal Music Group, the largest
recorded music business in the world, which develops, acquires, manufactures,
markets and distributes recorded music through a network of subsidiaries, joint
ventures and licensees in 63 countries. Universal Music Group also manufactures,
sells and distributes music video products, licenses music copyrights, publishes
music and owns mail order music/video clubs throughout the world.
In 2000, we held the number one market position in North America, Europe
and Latin America. We are the market leader in 75% of the countries in which we
operate. In 2000, 67 albums reached worldwide sales in excess of one million
units and five albums sold over five million units. We have the largest music
catalogue in the world and hold the leading position in jazz and classical
music, with our classical music sales representing 40% of worldwide classical
music sales for the industry. Our labels include:
- popular labels such as Barclay, Interscope Geffen A&M, Island Def Jam
Music Group, MCA Nashville, MCA Records, Mercury Nashville, Mercury
Records, Motor Music, Motown, Polydor, and Universal Records;
- leading classical labels such as Decca, Deutsche Grammophone and Philips;
and
- leading jazz labels such as 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 that 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. Including the United
States and the United Kingdom, sales of locally-signed artists in their home
territories represent 70% of worldwide recorded music sales. Increasingly,
certain national acts, such as Andrea Bocelli
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from Italy, Aqua from Denmark and Modjo from France, are attracting a wider
international audience. Our leading local market position in almost every major
region provides a critical competitive advantage.
Artists who are currently under contract with us, directly or through third
parties, for one or more important territories include, among others:
Bryan Adams, Aqua, A*Teens, Erykah Badu, Cecilia Bartoli, Bee Gees, George
Benson, Mary J. Blige, Blink 182, Andrea Bocelli, Bon Jovi, Boyzone, Jacky
Cheung, Sheryl Crow, DMX, Dr. Dre, Eminem, ERA, Mylene Farmer, Lara Fabian,
Masaharu Fukuyama, Luis Fonsi, Johnny Hallyday, Herbie Hancock, Enrique
Iglesias, Al Jarreau, Jay-Z, Elton John, Ronan Keating, B.B. King, Diana
Krall, Lighthouse Family, Limp Bizkit, Live, Los Tucanes de Tijuana, Reba
McEntire, Brian McKnight, Metallica (outside North America), Modjo, 98
Degrees, No Doubt, Padre Marcelo Rossi, Anne-Sophie Mutter, Florent Pagny,
Luciano Pavarotti, Rammstein, Andre Rieu, Rosana, Paulina Rubio, David
Sanborn, Sandy & Junior, S Club 7, Shaggy, Spitz, Sisqo, Sting, George
Strait, Tarkan, Texas, Shania Twain, Caetano Veloso, The Wallflowers,
Stevie Wonder, and U2.
In addition to recently released recordings, we also market and sell
recordings from our library of prior releases. Sales from this library account
for a significant and stable part of our recorded music revenue each year. We
own the largest catalogue of recorded music in the world, with performers from
the United States, the United Kingdom and around the world, such as:
ABBA, Louis Armstrong, Chuck Berry, James Brown, Eric Clapton, Patsy Cline,
John Coltrane, Count Basie, Bill Evans, Ella Fitzgerald, The Four Tops,
Marvin Gaye, Jimi Hendrix, Billie Holiday, Buddy Holly, The Jackson Five,
Antonio Carlos Jobim, Herbert von Karajan, Bob Marley, Nirvana, The Police,
Smokey Robinson, Diana Ross & The Supremes, Rod Stewart, Caetano Veloso,
Muddy Waters, Hank Williams and The Who.
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 classical artists and orchestral contracts are short in
duration and refer only to specific recordings. Established artists command
higher advances and royalties. Therefore, 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.
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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
We are at the forefront of the development of new methods to distribute,
market, sell, program, and syndicate music and music-related programming by
exploiting the potential of new technological platforms. The Internet now
permits consumers to sample music on the Web, order it, receive it (physically,
and/or electronically), pay for it, and even store it so that it can be accessed
anywhere. It also allows consumers to customize their radio stations in order to
create their own distinctive programming. In fiscal 2000, we launched our music
download business, and we became the first major music company to offer viewers
a slate of customizable premium music programs designed exclusively for
high-speed broadband access.
We believe that emerging technologies will be strategically important to
the future of the music business. Evolving technology will allow current
customers to sample and purchase music in a variety of new ways and will expose
potential consumers to new music. Through a variety of independent initiatives
and strategic alliances, we continue to invest resources in the technology and
electronic commerce areas that will allow the music business to be conducted
over the Internet, cellular networks, cable and satellite. Our investments and
initiatives include Bluematter(TM), DataPlay, InterTrust, Jimmy and Doug's
Farmclub.com, GetMusic as well as pressplay (formerly known as Duet), our joint
venture with Sony Music Entertainment to develop and launch an on-demand
subscription-based music service. The joint venture pressplay has entered into
an alliance with Yahoo! Inc. to present and market the pressplay subscription
service which is expected to launch in the U.S. in the summer of 2001. We have
recently purchased EMusic.com Inc. and entered into an agreement to purchase
MP3.com, Inc. See "Recent Developments" below.
Music Publishing
Music publishing involves the acquisition of rights to, and licensing of,
musical compositions (as compared to recordings). 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., a major independent music
publishing company, and Forerunner Music Catalogue, a classic contemporary
country music catalogue.
We are one of the world's largest music publishers. Our publishing
catalogue includes more than 800,000 titles that we own or control, including
songs such as : "I Wanna Hold Your Hand," "Candle in the Wind," "I Will
Survive," and "Sittin' on the Dock of the Bay". Among the artists and
songwriters represented are ABBA, George Brassens, Bon Jovi, Eddy Mitchell,
Andre Rieu, Shania Twain, Andrew Lloyd Weber and U2; composers represented
include Leonard Bernstein, Elton John, Bernie Taupin and Henry Mancini.
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.
Recent Developments
On April 6, 2001, we entered into an agreement to acquire all the
outstanding shares of EMusic.com Inc. pursuant to a cash tender offer at $.57
per share. EMusic sells music downloads, both individually and via subscription,
and operates a family of music-oriented Web sites, including Rollingstone.com,
EMusic.com and DownBeat.com. The acquisition was completed on June 14, 2001.
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On May 20, 2001, we entered into an Agreement and Plan of Merger with
MP3.com, Inc., the Internet's premier music service provider, pursuant to which
we will acquire MP3.com, Inc. for $372 million in a combined cash and stock
transaction. The acquisition is subject to customary closing conditions,
including regulatory approval.
TV & FILM
Our TV & Film division is comprised of CANAL+ and Universal Studios Group.
Our TV & Film division:
- produces and distributes films worldwide in the theatrical, home video
and television markets;
- produces and distributes episodic television and made-for-television
programming;
- operates pay television channels and services;
- develops digital television technology;
- develops Internet services and interactive services;
- licenses merchandising rights and film property publishing rights;
- owns and operates theme parks, entertainment complexes and specialty
retail stores; and
- engages in certain other activities through its ownership of the joint
venture and equity interests described below.
Motion Picture and Television Production and Distribution
Production, Marketing and Distribution. Through CANAL+, Universal Studios,
Inc., ("Universal Studios"), and StudioCanal (a majority owned subsidiary of
CANAL+), we are one of the leading film production studios in Europe and the
United States. We produce feature-length motion pictures intended for initial
theatrical exhibition, videocassette and DVD distribution and television
programming. Major motion pictures produced over the past several years include
Erin Brockovich, Gladiator, Dr. Seuss' How the Grinch Stole Christmas, The Boy's
Room, The Mummy, The Mummy Returns, Billy Elliot, U-571, Meet the Parents and
Notting Hill. 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 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 produced by Universal Pictures (a division of Universal City Studios,
Inc., a wholly owned subsidiary of Universal Studios) are generally based at
Universal City, California, or on location. The production facilities in
Universal City are also leased to third parties. Some motion pictures and
television products are produced, in whole or in part, at other locations both
inside and outside the United States and Europe.
The arrangements under which we produce, distribute and own motion pictures
vary widely. Other parties may participate in varying degrees in revenue or
other contractually defined amounts. We generally control worldwide distribution
or specified rights with respect to our motion pictures. Pursuant to contractual
arrangements, we distribute for, or service distribution for, third parties.
Generally, we distribute motion pictures in the theatrical, home video and
pay television markets. We then make motion pictures available for broadcast on
free television and basic cable distribution throughout the world. The
theatrical license agreements with theater operators are on a
theater-by-theater, picture-by-picture basis, and fees under these agreements
are generally a percentage of the theater's receipts with, in some instances, a
minimum guaranteed amount.
Universal Studios, through wholly owned subsidiaries, distributes its
theatrical product in the United States and Canada to motion picture theaters.
Its theatrical distribution throughout the rest of the world is
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primarily conducted through United International Pictures ("UIP"), which is
equally owned by Universal Studios International B.V., an indirect wholly owned
subsidiary of Universal Studios ("USIBV"), and Paramount Pictures International.
Television distribution of its approximately 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 USIBV. USIBV
licenses television products 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 the United States and
Canada, its videocassettes are primarily distributed by Universal Pictures
International B.V., an operating unit 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 Studios before then.
StudioCanal distributes its theatrical products throughout Europe.
StudioCanal has a pan European network in theater distribution with a presence
in Spain with Sogepaq, in Germany with Tobis-StudioCanal, in France with BAC
Distribution (and its subsidiary Mars Distribution), in the United Kingdom with
Pathe UK, in Holland with FU Works and in Italy with RAI Cinema. Through CANAL+,
StudioCanal distributes its motion pictures in the theatrical, home video and
pay television markets using both its own sales force and third party
distributors. StudioCanal also distributes newly released home video and DVD
products in France through Universal Pictures Video. Outside France, StudioCanal
contracts with video distribution partners.
Film Rights Management. We sell television rights to feature films in our
extensive library of 8,600 titles, the second largest catalogue in the world.
StudioCanal has a filmed entertainment library of 5,000 movies of a variety of
genres, broken down evenly among French, European and American productions. Some
of the titles in the StudioCanal library include Terminator 2, La Grande
Vadrouille, Basic Instinct, Total Recall, La Grande Illusion, The Graduate and
This Is Spinal Tap. Universal Studios controls rights to films in its extensive
library of approximately 3,600 titles. These rights include recent films such as
The Mummy Returns, Bridget Jones's Diary, Hannibal, Gladiator and Erin
Brockovich, and many Oscar-winning library titles, including To Kill A
Mockingbird and Schindler's List. Universal Studios' television library includes
Columbo, Magnum PI, Murder She Wrote, Miami Vice, Rockford Files, Knight Rider,
Incredible Hulk, Quantum Leap and Quincy.
Pay Television Channels and Services
Channel Production. CANAL+ is Europe's leading pay television company with
over 15.3 million subscribers. It is number one in Europe in digital television
with 5.3 million subscribers to its digital services. CANAL+ is also 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).
- Premium Channels. CANAL+'s premium channels offer programming with a
unique mix of recently-released feature films (300 first-run movies each
year) and 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 11
other countries.
- Theme Channels. CANAL+ is the number one European publisher of theme
channels broadcast via cable and satellite. It owns a 27.4% interest in
MultiThematiques, Europe's leading producer of "theme channels," channels
aimed at niche viewers. We indirectly own an additional 9.1% of the
MultiThematiques. MultiThematiques has 30 channels in 14 countries with a
total of over 20 million subscriptions. MultiThematiques produces such
successful channels as Planete, Canal Jimmy, Cinecinemas, Cinecinefil,
Cine Classics and Seasons. In addition, the CANAL+ thematic offerings
encompass Universal Studios' branded channels which reach almost 24
million subscribers in 30 countries. Universal Studios' branded channels
include: The Sci-Fi Channel U.K., USA Network Latin America, 13th Street
and Studio Universal.
- 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
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the CANALSATELLITE digital package. This package, which features over 60
French-language channels, radio stations and interactive services, had
1.8 million subscriptions in France at the end of 2000. CANAL+ also has
over 3.1 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.
- 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.
Digital Television Technology. We have 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. Our technology is used in 8.6 million digital set-top boxes in
over 15 countries, making us the European leader in digital television
technology.
On-line Services and Internet Access. CANAL+ formed CanalNumedia in
January 2000 to develop and leverage synergies among the various CANAL+ web
sites in Europe. CanalNumedia is responsible for producing entertainment sites
in Europe and sports and cinema content for the dedicated portals.
Merchandising. 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 Studios 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 had an approximate 26% interest in Loews Cineplex
Entertainment Corporation ("Loews Cineplex"), which exhibits theatrical films
principally in the United States and Canada. On February 15, 2001, Loews
Cineplex and all of its wholly owned U.S. subsidiaries filed voluntary petitions
to reorganize under Chapter 11 of the U.S. Bankruptcy Code. On June 28, 2001,
Universal Studios and USIBV sold their interests in Loews Cineplex to Goldman,
Sachs & Co. for an aggregate purchase price of $1.00. We intend to use the tax
loss from the sale to offset gains on other capital transactions.
Universal Studios also has a 49% interest in United Cinemas International
Multiplex B.V. and Cinema International Corporation N.V., which both operate
motion picture theaters outside of the United States and Canada, and also a 49%
interest in UIP, which distributes theatrical motion pictures outside of the
U.S. and Canada.
We own 39.34% of UGC, one of the leaders of the movie industry in Europe.
UGC operates in three business segments: ownership and operation of movie
theaters, big-screen advertising and the production and distribution of films.
In addition to the wholly owned themed channels discussed above, Universal
Studios has equity interests in a number of international joint venture
channels, including, among others:
- USA Network Brazil, a joint venture with Globosat in Brazil. This basic
service channel reaches approximately 2.5 million subscribers and
features primarily the same programming as USA Network Latin America;
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- HBO Asia, a pan-regional joint venture in Asia with AOL 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.
Recreation
Universal Studios owns and operates Universal Studios Hollywood, the
world's largest combined movie studio and movie theme park, located in Universal
City, California. Adjacent to Universal Studios Hollywood is Universal Studios
CityWalk, an integrated retail/entertainment complex that offers shopping,
dining, cinemas and entertainment.
Universal Studios has a 50% interest in Universal City Development
Partners, LP, a Delaware limited partnership based in Orlando, Florida, which
resulted from the January 6, 2000 merger of Universal City Florida Partners,
Universal City Florida, Ltd. and Universal City Development Partners. The joint
venture limited partnership owns Universal Studios Florida, a combined movie
studio and movie theme park, Universal's Islands of Adventure, a second theme
park with five unique islands, and Universal Studios CityWalk, a complex that
offers shopping, dining, cinemas and entertainment. Universal City Development
Partners also has an indirect 25% interest in a joint venture (UCF Hotel
Venture, a Florida general partnership) that has developed or is 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, opened in January 2001 and the Royal Pacific Resort, a Loews hotel,
is expected to open in Summer 2002. The two theme parks, Universal Studios
CityWalk, and these hotels together comprise Universal Orlando, the newest
Orlando multi-day entertainment resort. Universal Orlando owns and is developed
on approximately 800 acres. Universal Studios also owns Wet n' Wild, a water
park which is located near Universal Orlando.
On March 31, 2001, we opened Universal Studios Japan in Osaka. Universal
Studios Japan is owned by USJ Co. Ltd., in which Universal Studios holds a 24%
interest, and is located on 133 acres of land leased by certain USJ Co. Ltd.
shareholders.
Universal Studios also owns a 37% interest in, and manages, Universal
Studios Port Aventura, a theme park located on the Mediterranean coast of Spain
near Barcelona.
PUBLISHING
Vivendi Universal Publishing (formerly Havas), our wholly owned subsidiary,
is one of the leading publishers providing content across multiple platforms,
including print, multimedia, on the wired Internet and to PDAs via WAP
technology. Vivendi Universal Publishing operates through five divisions: Games,
Education, Literature, Health and Information. In addition, Vivendi Universal
Publishing Services provides logistics and distribution support to all of our
businesses and operates as a book sales company.
Games Division
Vivendi Universal Games is fast becoming one of the world leaders in the
multimedia games market on all platforms (PC, consoles such as Playstation 2,
X-Box and Game Boy Advanced, and on the Internet). We develop our games under
the Sierra, Blizzard and Universal Interactive Studios brands, including Diablo
II, Starcraft, Half-Life, King's Quest, Crash Bandicoot, Gladiator and Spyro the
Dragon. Our games division also includes Flipside.com.
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Education Division
Vivendi Universal Education is a major global educational publisher in all
media (academic and semi-academic books, CD-ROM, the Internet, and WAP). Our
education division ranks among the leading companies in the education market and
operates in four areas:
Schools. We hold leading positions in Spanish-speaking countries with
Anaya in Spain and Aique in Argentina, and in Portuguese-speaking areas with
Atica and Scipione in Brazil. In France, through Bordas, Nathan and Retz, we
offer a full range of pedagogical methods to teachers. Their academic and semi-
academic manuals are designed to be used by students throughout their education
and cover substantially all fields of knowledge. In the area of multimedia we
have played a pioneering role in digitalizing content. We recently launched the
first prototype of an "electronic schoolbag" in France through Nathan and
Bordas. This innovation provides the benefits of the latest technologies (sound,
images and videos) and a direct link between schoolbooks and reference tools.
Schoolbooks can be customized, thereby encouraging a different approach to
education. Trials for the electronic schoolbag were started in December 2000 in
collaboration with the French Department of Education in two classrooms (using
content from history and geography manuals, life and earth sciences and the
Larousse dictionary) and are continuing with other classes.
Youth. We publish educational materials for children and adolescents both
in printed form and on multimedia. We are the leading provider of interactive
educational products in Europe with brands that include Knowledge Adventure and
Coktel and titles including Jumpstart.
Life-long Learning. We are a leader in adult education in France,
especially in human and social sciences with Nathan University and Armand Colin,
and we are also very active in Spain. The company has plans to strengthen its
positions in the global market, in particular through Syracuse, a brand
developed in the United States.
Reference. We are one of the leading reference publishing companies in the
world. We publish a wide range of dictionaries and encyclopedias, published in
France by prestigious publishers such as Larousse, one of the best known
publishing brands in the world, or Le Robert, and outside France by Harrap and
Chambers. In the area of multimedia, Larousse Multimedia offers Kleio, available
on CD-ROM and DVD-ROM, which now represents the largest volume of encyclopedic
content on the Internet through the website Kleio.fr.
In February 2001, we launched Education.com. This Internet portal targets
children, parents and teachers worldwide and offers a rich and varied content
which is exciting, informative, entertaining and educational and includes most
of the Company's educational activities.
Literature Division
In France, we are the leading publisher of literature addressed to the
general public. We publish works through a variety of well known publishing
houses including, Robert Laffont, Plon-Perrin, Presses-Solar-Belfond, La
Decouverte-Syros and Presses de la Renaissance.
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 hold the exclusive right to publish Star Wars-related books in
France until 2006.
We rank second in France in the paperback market with four well-known
brands including: Pocket and its catalog of 2,500 titles including some 350 new
titles per year; Pocket Jeunesse with over 440 titles; 10/18 which covers
foreign literature; and Fleuve Noir (detective novels). Our authors include
San-Antonio, Lilian Jackson Braun, Armistead Maupin and Isabelle Wolff.
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Health Division
With brands like Le Quotidien du Medecin, Vidal, MIMS, Masson, Doyma and
Staywell, we are one of the leaders worldwide for healthcare information. Our
Health Division offers a full range of products to health care professionals and
patients using a variety of media.
We provide healthcare users with quality information updated on a
continuous basis in five areas: journals and customized communication, consumer
healthcare media, drug information systems, practice management services
(planners, organizers and prescription software), and academic and scientific
publishing products.
In January 2001, in an effort to enter the large English health market, we
acquired the Medicine Publishing Group in the United Kingdom which has various
publications aimed at almost 25,000 subscribers.
Information Division
Our Information Division holds leading positions in three business areas:
B2B. We offer professionals a complete range of services and products
such as magazines, books, trade fairs and online services. In this business
area we are one of Europe's major players. We bring together Exposium, one
of France's leaders in trade exhibitions, and four press groups: Group
Moniteur, which specializes in the building industry, local authorities and
energy; Groupe Tests, which specializes in computers, electronics and new
technologies; Groupe Industrie Services Info, which covers the
manufacturing, distribution, tourism and catering industries, and France
Agricole, a company specializing in agri-business trade magazines.
Consumer. We are a major competitor in the consumer information
business sector with three press groups in France: Group Express, one of
the two leading news magazines in France; Group L'Etudiant which offers
publishing, exhibitions and multimedia built around its magazine
L'Etudiant; and Groupe Expansion, one of the leading companies in France
for financial news. Our recruitment site, Cadres Online, was the number one
recruitment site in 2000, offering 75,000 jobs from 23 important press
publications.
Local Transactions. Vivendi Universal Publishing's subsidiary,
Comareg, publishes 220 newspapers and magazines in Europe which focus on
local transactions. Comareg is one of France's leading companies both for
free sheets (155 publications representing a total circulation of 15
million per week) and for classified advertisements. Its website,
bonjour.fr, had over 11 million pages viewed in March 2001.
In connection with our pending acquisition of Houghton Mifflin Company, we
intend to sell each of the units in our B2B and local transactions areas. See
"Recent Developments" below in this subsection.
Vivendi Universal Publishing Services
Vivendi Universal Publishing Services provides sales, marketing, promotion
and distribution services to our publishing divisions and subsidiaries. It also
provides Vivendi Universal Publishing services for centralized purchasing of
such items as computer equipment and paper, implements group information
technology policies, and manages cross-division projects such as the euro.
Marketing Channels
Vivendi Universal Publishing markets through both retail channels and
public administration channels. In the field of education, Vivendi Universal
Publishing interacts with national and local authorities. In the field of
literature and games, Vivendi Universal Publishing markets through all major
retail channels.
Recent Developments
On June 1, 2001 we announced that we had reached an agreement in principal
to acquire all the outstanding shares of Houghton Mifflin Company, a leading
U.S. educational publisher, pursuant to a cash
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tender offer at $60 per share. The total consideration approximates $2.2
billion, including the assumption of Houghton Mifflin's average net debt of $500
million. The acquisition is subject to customary closing conditions, including
regulatory approval.
TELECOMMUNICATIONS
We provide a broad range of telecommunications services, including mobile
and fixed telephony, Internet access and data services transmission.
Through Cegetel Group, a company in which we hold a 44% interest, we are
the leading private operator of fixed and mobile telephony in France. Through
our wholly owned subsidiary, Vivendi Telecom International ("VTI"), we develop
telecommunications activities outside France.
Cegetel Group
We founded Cegetel Group in 1996. The original name of the company,
Cegetel, was changed to Cegetel Group on March 31, 2001. We currently own 44% of
Cegetel Group's outstanding equity: 9% of the shares directly and 35% of the
shares indirectly through our 70% ownership interest in Compagnie
Transatlantique de Telecommunications ("Transtel"), which owns 50% plus one of
Cegetel Group's shares. 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 Group's nine directors. In addition to SBCI and
SBCI-SRC, which together hold a 15% interest in Cegetel Group through Transtel,
our current partners in Cegetel Group are British Telecom ("BT"), which has a
26% stake in the company, and Mannesmann, a wholly owned subsidiary of
Vodaphone, which owns 15%. We describe below the Shareholders' Agreement that
governs our participation in Cegetel Group. See "Shareholders' Agreement" below
in this subsection.
In late 2000, Cegetel Group began restructuring its organization to prepare
for anticipated radical changes in the telecommunications market, such as
high-speed transmission via fixed lines (ADSL technology) and mobile lines (GPRS
and UMTS), deregulation and access to local traffic through the unbundling of
the local loop and more widespread use of mobile phones. On January 1, 2001, two
new business divisions -- "Fixed Telephony" and "Mobile Telephony" -- were
formed to replace the "professional and consumer" and "business" divisions. The
"Network and Information Systems" division was retained. Cegetel Group divides
its activities into the following divisions:
Fixed Telephony Division and Internet Services.
- Cegetel 7. During 2000, Cegetel Group offered long distance and
international fixed telephone service through Cegetel 7, a company 80%
owned by Cegetel Group and 20% by Telecom Development ("TD"), a company
that is, in turn, owned 49.9% by Cegetel Group and 50.1% by Societe
Nationale des Chemins de Fer Francais ("SNCF"), the state-owned French
railway company.
- Cegetel Entreprises. During 2000, Cegetel Group operated its business
marketing division through Cegetel Entreprises, a company with the same
ownership structure as Cegetel 7. 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;
-- local telephony access through fiber optic loops.
On March 31, 2001, Cegetel 7 was merged with Cegetel Entreprises and
renamed "Cegetel", a company 80% owned by Cegetel Group and 20% by TD.
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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, in 2000, in preparation for the
unbundling of telecommunications services in 2001 and 2002, Cegetel conducted
pilot projects in Monaco and Paris to provide high speed Internet Access via the
traditional telephone network (Asymetric Digital Subscriber Line).
The backbone of all Cegetel Group telecommunications services is TD's
long-distance telecommunications network. TD owns, operates and maintains an
entirely digital telecommunications network throughout France, consisting of
18,000 kilometers of high capacity fiber optic cables. The TD Network is now
connected to more than 300 local France Telecom switches located throughout
France, versus 176 at the end of 1999, and to the various Cegetel Group networks
(mobile telecommunications, data network, and fiber optic local loops).
Mobile Telephony Division. Cegetel Group 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 more than 100 countries.
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. In addition, since December 2000, SFR has been operating
telecommunications on its General Packet Radio System ("GPRS") network, which
permits greater bandwidth communications. This technology is expected to
increase the speed of SFR's network by a factor of ten by end of 2001.
Network and Information Systems Division. Cegetel Group's communication
networks ("GPRS") are operated through its Network and Information Systems
Division.
Shareholders' Agreement. The governance of Cegetel Group is subject to a
Shareholders' Agreement to which we are a party, along with BT, Mannesmann
(Vodafone Group), SBCI and Transtel. Among other things, the Shareholders'
Agreement provides that:
- None of the Cegetel Group Shareholders (the "Cegetel Group Shareholders")
can conduct telecommunications business in France or its overseas
departments and territories other than through Cegetel Group. This
provision does not apply to the operation of Internet websites.
- Cegetel Group'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 Group can take certain actions only if representatives of each of
the Cegetel Group Shareholders consent. These actions include:
-- making any change in the scope of its business;
-- changing any provision of its by laws or amending any shareholders'
agreement between it, on the one hand, and any of the Cegetel Group
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
Group or selling Cegetel Group 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 Transtel or
us obtaining a greater interest in Cegetel Group than that held by BT.
- If all of BT, Mannesmann and Transtel dissent, we cannot cause Cegetel
Group to:
-- create or acquire shares in any entity in which Cegetel Group or
companies it controls hold less than 100% of the shares and voting
rights; or
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-- 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 Group Shareholders' Agreement contains a number of
limitations on the transfer of Cegetel Group Shares.
Vivendi Telecom International
In addition to our investment in Cegetel Group, we have also invested in a
number of telecommunications companies outside of France through VTI. These
companies have a total of 4.7 million clients of which 3.9 are for mobile
telephone activity.
Egypt. We hold a 7% interest in Misrfone, an international consortium,
with a 45% share of Egypt's telecommunications mobile market.
Hungary. We operate several regional companies in Hungary through our
wholly owned subsidiary, Vivendi Telecom Hungary, that have monopolies for voice
telephony on fixed networks.
Kenya. We hold a 40% interest in KenCell, a consortium formed with Sameer
Group that was awarded Kenya's second GSM license.
Kosovo. Monaco Telecom has successfully installed and is now operating
Kosovo's GSM system.
Monaco. We hold a 51% interest in Monaco Telecom, the Principality's
dominate telecommunications operator.
Morocco. Vivendi Telecom International holds a 35% interest in Maroc
Telecom.
Poland. We hold a 49% interest in Elektrim Telekomunikacja ("Elektrim"), a
company that owns 51% of Polska Telefonia Cyfrowa, Poland's largest GSM mobile
operator and 100% of El Viv Telecom (formerly Bresnan), a Polish cable
television operator and a high-speed Internet access provider.
Spain. We are a major shareholder in Xfera, a consortium which obtained a
30 year Universal Mobile Telecommunications Standard ("UMTS") license.
Recent Developments
In March 2001, Cegetel Group finalized the terms of the disposition of its
interest in AOL CompuServe France, in which it owned a 55% interest with CANAL+
(66% of the stake being owned by Cegetel and 34% by CANAL+), pursuant to an
agreement under which the companies will exchange their stake in the AOL France
joint venture for junior preferred shares in AOL Europe. The agreement provides
that AOL Time Warner will be able either to redeem the preferred shares with
cash, or to exchange them for publicly traded AOL Europe common stock or AOL
Time Warner stock by April 2003.
On January 31, 2001, SFR applied for a third generation mobile license
UMTS. This license will permit SFR to provide mobile broadband and Internet
services to its customers.
On May 31, 2001, the Autorite de Regulation des
Telecommunications -- "ART" -- the French regulator, decided that SFR could be
awarded a UMTS license by the French government.
In the course of the partial privatization of Maroc Telecom, Vivendi
Universal has been designated strategic partner to purchase 35% of the national
telecommunication operator in Morocco for 2.3 million euros. The closing took
place in February 2001 and Vivendi Telecom International now holds a stake of
35% of Maroc Telecom. As a leader in telecommunication in Morocco, Maroc Telecom
operates 1.4 million fixed lines and owns 2.6 million GSM clients.
On June 28, 2001, Vivendi Universal announced that it had signed a
Memorandum of Understanding that will result in it increasing its stake in
Elektrim from 49% to 51%.
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Marketing Channels
To market its services, Cegetel Group operates different sales and
distribution channels for its targeted customer, consisting of indirect
distribution (i.e., retail and large distributors) for mobile services to the
residential customers, direct marketing for fixed services to residential
customers, specialized indirect distribution for both fixed and mobile services
to small business customers, and direct sales forces for services to corporate
customers.
INTERNET
Our Internet business includes our strategic Internet initiatives and new
online ventures. Utilizing advanced digital distribution technology, we develop
e-commerce, e-services and thematic portals that offer access to the Internet
through a variety of devices, including mobile phones, PDA's, interactive TV and
computers.
Vivendi Universal Net, a wholly owned subsidiary, manages our Internet
business and focuses on four major objectives:
- to establish Vizzavi as the leading European portal;
- to develop thematic portals leveraging content, technology, brand equity,
and subscriber bases of the Vivendi Universal group;
- to launch Internet service providers which exploit our critical mass; and
- to invest in and develop promising new ventures which relate to and
enhance the value of our businesses.
Vivendi Universal Net manages Vivendi Universal Group Internet-related
technological, investment and business development activities, including
defining group Internet strategy and serving as the bridge between our content
and new digital technologies.
Vizzavi
Vizzavi, our 50/50 joint venture with Vodafone, is a multi-access Internet
portal designed to provide services and content to customers in a consistent
format throughout Europe, across all Internet platforms, including mobile
phones, personal computers, television and PDAs. It combines our content and
reach in pay-TV access with Vodafone's reach in mobile telephone access. Vizzavi
is the default home page for Vivendi Universal and Vodafone's subscriber base of
over 80 million. Vizzavi's existing services include e-mail, address book and
calendar, as well as theme channels covering news, sports, weather, games and
general information. The mobile and PC portal has been launched in the UK,
France and the Netherlands and will expand to other European markets in 2001.
Access through interactive television will follow.
I-France
I-France, our wholly owned subsidiary, has a complementary positioning with
Vizzavi. It creates portals targeting advanced Internet users, offering services
(including multi-platform e-mail, Web-site creation and hosting, and shared
"virtual" office tools) and themed content. It has portals in France,
Switzerland, Belgium, Canada and Spain.
Thematic Portals
We create leading Internet portals based on thematic categories by
leveraging our content-related assets, brands and know-how. Each branded
category of web-based content and services has been 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 these thematic portals is
enhanced by Vizzavi, which features these portals on a preferred, but not
exclusive, basis.
Flipside. Our subsidiary, Flipside, Inc., is a leading worldwide
interactive entertainment company. In February 2001, following its acquisition
of Uproar Inc., a company specialized in interactive entertainment, Flipside
became a world leader in free, multi-platform online games providing both single
and multi-player PC
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content as well as wireless games. Flipside is among the top 10 U.S. websites,
all categories combined, in total time spent online and among the top 20
worldwide.
Scoot.com plc. We hold a 22.4 % interest in Scoot, a multi-platform
"infomediary" offering location-specific directory services and enabling
transactions between businesses and customers. We have also formed a 50/50
joint-venture with Scoot to expand Scoot's business model in Europe. Scoot
operates in the UK, the Netherlands, Belgium, and, since early 2001, in France.
Scoot is expected to launch across the rest of Europe over the next three years.
Canal Numedia. Canal Numedia develops and leverages synergies among
various CANAL+ web sites in Europe. It is responsible for producing
entertainment sites in Europe and sports and cinema content for dedicated
portals. Canal Numedia has created or acquired, and manages about 20 sites to
date. A strong brand policy is being developed around the leading CANAL+
themes -- sports (zidane.fr., fcna.fr), film (allocine.fr) and news
(itelevision.fr.).
Divento. We own 75% of Divento, a European cultural portal providing
editorial coverage and ticketing for major events and institutions.
Internet Support Services
e-Brands. This wholly owned company offers a variety of services to its
customers that commercialize their brand names over the Internet and mobile
telephony. These include connectivity solutions (Internet access, SMS, WAP),
third-party billing services (flat or metered), customer relationship management
solutions and database analysis. In addition, e-Brands offers turnkey solutions.
The seven market segments that e-Brands is currently addressing are: finance,
media, service, distribution, industry, communities and dot-coms. The company
operates in Europe.
Ad 2-One. Ad 2-One operates in Europe and leverages its customers website
traffic and user databases through customized, multi-platform online-marketing
tools ranging from enhanced banners to sponsored direct-marketing solutions.
Venture Capital Activities
Viventures. We have invested in two Viventure funds. The first, Viventures
1, is a venture capital fund that provides financing in the United States,
Europe and Asia and strategic and financial guidance to promising information
technology and telecommunications start-up companies. The second Viventures 2,
has over 30 corporate and financial investors around the world including SG
Asset Management, British Telecom, Siemens Venture Capital, Cisco Systems, IBM,
GE Capital, Goldman Sachs, Singapore Power Telecom, China Development Industrial
Bank and Marubeni.
SoftBank Capital Partners ("SBCP"). We have invested in SBCP, a $1.5
billion "late-stage" internet venture capital fund managed by Softbank (49.6%).
SBCP's investments are mainly concentrated in the Business to Consumer sector.
Vivendi Universal is the fund's largest minority shareholder with an
investment commitment of $240 million, which constitutes 16% of the fund. As of
December 31, 2000, $216 million have been called by SBCP, out of which $ 200
million are already invested.
@viso. @viso is our joint venture with Softbank created to support
Internet companies already established in the U.S. to launch and gain rapid
presence in Europe. @viso aims to provide these incubated companies with
business services, financing and access to strategic partnerships. @viso's
investments in U.S. companies have stopped due to the difficult economic
environment for Internet companies. Some portfolio companies have been rolled up
or shut down after the decision made by their U.S. parent company to refocus
their activity in the U.S.
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Marketing Channels
Vivendi Universal Net markets its websites together in order to increase
the efficiency of acquisition and retention of customers and to reduce costs. It
operates in various marketing fields, such as media buying, marketing research,
customer relationship management and performance reporting.
COMPETITION
Music
The music entertainment industry is highly competitive. The profitability
of a company's recorded music business depends on its ability to attract,
develop and promote recording artists, the public acceptance of those artists
and the recordings released in a particular period. Universal Music Group
competes for creative talent both for new artists and those artists who have
already established themselves through another label. Universal Music
Competitors are mainly the following major record companies: EMI, Bertelsmann
Music Group, Warner Music Group, Sony Music Entertainment. Universal Music also
faces the competition from independents such as Zomba. Following a pattern
established in the United States, European retailers have begun to consolidate,
and in Europe increasing quantities of product is being sold through
multinational retailers and buying groups and other discount chains. This has
increased competition for shelf space among the recorded music companies. The
recorded music business continues to be adversely affected by counterfeiting,
piracy and parallel imports, primarily in Eastern Europe, Asia and Latin
America, and may be adversely affected by the ability to download quality sound
reproductions from the Internet without authorization. As part of its response
to these developments, Vivendi Universal, through its subsidiary Universal Music
Group, allied with Sony Music Entertainment to create a 50/50 joint venture
named pressplay (formerly know as Duet). The joint venture pressplay will
develop and implement an on-demand music subscription service that will offer
customers a broad range of online music while respecting artists' rights.
TV & Film
As a diversified entertainment company involved in all aspects of the film
and television industry, Vivendi Universal offers movie audiences around the
world a wide array of films, and provides its customers and subscribers the very
best in sports and film programming on all media (movie theaters, TV, PC, fixed
and cellular telephones).
CANAL+. CANAL+ is a leader in the production of pay television channels,
both stand-alone branded channels and theme channels, despite intense
competition in all of these markets. The success of CANAL+ along with theme
channels produced by other U.S. major studios (MTV, Fox Kids, etc.) indicates
that this market will remain highly competitive.
The European multichannel 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). In
Spain, CANAL+ (through Sogecable) competes with Telefonica's subsidiary Via
Digital, Quiero -- the DTT offer -- and various cable operators. 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 sector to compete vigorously. Generally,
competition is country-by-country due to national differences in viewer
preferences.
StudioCanal. StudioCanal is a key European player in production and
distribution of feature films and television programming. Primary competitors in
this market are the U.S. major studios and local production companies and
distributors.
Universal Studios Group. There are eight major competitors in the U.S. and
several independents that compete aggressively against each other in all aspects
of the production, acquisition and distribution of motion pictures
internationally. These companies include Universal Pictures, The Walt Disney
Company, Warner Bros., DreamWorks SKG, Paramount Pictures Corporation,
Metro-Goldwyn-Mayer Studios, Inc., Twentieth-Century Fox Film Corporation and
Sony (through Columbia/Tri-Star and Sony Pictures). The majors and
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independents compete against each other for product, talent and revenue from all
distribution markets including theatrical, home video/DVD, pay television,
video-on-demand, pay-per-view, free television, basic cable television and
developing new media for the distribution of film and television content. Given
the rapidly changing marketplace for consumer tastes, year-to-year market share
in the U.S. and non-U.S. territories varies widely by film and distribution
markets. Outside of the U.S. and Canada, Universal Studios distributes its
feature films theatrically through UIP, a joint venture between USIBV and
Paramount Pictures International, and competes with other distributors in the
international theatrical distribution markets. In the year 2000, Universal
Pictures ranked number 2 in U.S. theatrical market share.
Through its Recreation Group, Universal Studios is a leader in themed
entertainment. Universal Studios competes aggressively against other major theme
park operators including The Walt Disney Company, Anheuser Busch Companies,
Paramount Parks (owned by Viacom), Six Flags Theme Parks, Inc. and Cedar Fair,
L.P., and is third both in the U.S. and internationally (behind Disney and Six
Flags) in annual attendance.
Telecommunications
The consumer telecommunications industry in France is currently very
competitive. We compete in this industry primarily through SFR, an 80% owned
subsidiary of Cegetel Group. As of March 31, 2001, SFR had 10.6 million mobile
customers, giving it a 33.9% share of the French mobile market measured by
volume. SFR's competitors include Orange (France Telecom), which had a market
share of 48.2% in March 2001, and Bouygues Telecom, which had a 17.9% share.
Cegetel 7 had 2.5 million customer lines at the end of 2000, which we estimate
to represent approximately 6.9% 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 a local
traffic. To overcome this situation and be in a position to offer broadband
access and related services to business customers, Cegetel has developed a
strategy of installing fiber optic and of providing ADSL services through a
beatstream access agreement with the French incumbent operator; ADSL services
will also be provided by local loop unbundling (full access and shared access).
The French business telecommunications sector is highly competitive as well.
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,
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.
Internet
The market for web-based services is rapidly evolving and highly
competitive. A number of U.S. market participants such as Yahoo! and AOL have
succeeded in establishing a strong European presence. We believe the principal
competitive factors in the European market are customer base, brand recognition,
performance, ease of use, value-added services, functionality, 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
Research and development in technology plays a critical role in developing
Vivendi Universal's Media and Communications businesses. Mass media and
communications are constantly changing and one must be at the cutting edge of
new technologies to satisfy consumers and remain competitive. Our research,
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development and innovation ("RDI") strategy targets two main objectives: better
performance and lower prices of our products, and the multiple-access
distribution of digitized content.
Our technologies may be divided into two core categories:
- Network technologies. Network technologies include all of the hardware
and software resources used to interconnect content consumers, producers
and distributors, such as terminals, telecommunications networks and
processing and storage servers.
- Information system technologies. Information system technologies provide
our content creators, publishers and distributors with the means to
interact with consumers.
Our current principal RDI projects in the various Media and Communications
business lines include the following:
Content development and publishing
Music. Development of enhanced CD players that allow users to read song
lyrics and provide information about artists -- the "content reference offering
management and architecture" project ("Croma") for music organization and
delivery.
TV & Film. The creation of complementary content and services specifically
for DVD format films.
Publishing. Online delivery of increasingly interactive and networked
games, and the development of e-books and e-school bag.
Interfaces
The design and choice of WAP and multi-device interfaces (e.g., television,
Internet, CD, DVD, etc.) that will allow our content and services to be accessed
on a broad range of computers, mobile phones, PDA's, television and other
terminals.
Digital production and distribution
Digital encoding and multimedia formatting and structuring of content,
including: Croma and "content authoring and rendering audio format" ("Caraf")
projects, Audio Advanced Coding ("AAC") digital encoding and DVD as a music
medium; and image-compression technologies on DVD, audiovisual catalogue
encoding and delivery, and digital cinema.
Digital distribution and rights management, including: Blue Matter project
for distributing protected music over the Internet; image watermarking
technologies; CANAL+ Technologies' encryption and decryption technology; Cegetel
and CANAL+ smart-card protection technologies; active participation in the
Secure Distribution of Music Initiative ("SDMI") in collaboration with major
record labels and multimedia device manufacturers; super-distribution project
for tracking copyright payments when purchasers redistribute purchased content
themselves, as well as setting up and testing of a rights payment clearing
house.
Distribution
Physical distribution and logistics, including: mobile networks (setting up
high-bandwidth GPRS networks and preparing and deploying UMTS networks), cable,
fibre-optic, satellite and new media (e.g. mini CD-dataplay, e-books, memory
cards, etc.); information systems, such as supply chain management, Enterprise
Resources Planning ("ERP") and workflow; and terminals, such as mobile
telephones, set-top boxes, televisions, PDA's and computers.
Commercial aspects, including: Customer Relationship Management; payment
systems, such as e-wallet (Magex) and secure Cegetel and CANAL+ payment systems;
relationship marketing and data mining; and activation and delivery of
interfaces used to provide content to end-users. WAP site, Web site access,
CANAL+ interface to access programs and services.
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REGULATION
Music
The recorded music, music publishing, manufacturing and distribution
businesses comprising the Universal Music Group are subject to applicable
national statutes, common law and regulations in each territory in which it
operates including, without limitation, copyright, trademark, patent, antitrust,
taxation, corporate law and governance, employment, environmental and health and
safety laws and regulations.
In addition, many governmental agencies exercise some degree of oversight
and, at times, may initiate investigations and enforcement proceedings with
regard to industry practices. In the U.S. these agencies include, without
limitation, the United States Department of Justice, the Federal Trade
Commission, the Environmental Protection Agency ("EPA") and the Occupational
Health and Safety Administration, and in the various states they include the
Attorney General and other labor, health and safety agencies. In other
territories where the Universal Music Group operates equivalent agencies cover
some or all of the same areas.
In the European Union, Universal Music Group is subject to additional
pan-territorial regulatory controls, in particular relating to merger control
and antitrust regulation.
In a few limited areas, a consent decree or undertaking further regulates
the operation of the Universal Music Group. Specifically, in the United States,
certain companies in the Universal Music Group entered into a Consent Agreement
in 2000 with the Federal Trade Commission wherein they agreed for seven years
that they will not make the receipt of any co-operative advertising funds for
their pre-recorded music product contingent on the price or price level at which
such product is advertised or promoted.
The Universal Music Group is subject to an undertaking given to the
European Commission arising out of Vivendi's purchase of Seagram, which, for a
limited period, requires that the Universal Music Group shall not discriminate
in favor of Vizzavi (a joint venture between Vivendi Universal and Vodafone) in
the supply of music for downloading and streaming online in the European
Economic Area. An undertaking given in connection with Vivendi's purchase of
Seagram to the Canadian Department of Heritage also requires the Universal Music
Group to continue its investments in Canada's domestic music industry.
Continuing compliance with the consent decree and undertakings mentioned above
do not have a material effect on the business of the Universal Music Group.
TV & Film
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
audiovisual 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 broadcasts in France must be
European in origin and 40% must be French language films. 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.
The European Community has adopted a variety of Directives that address
television without frontier, 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 business.
Film Production and Distribution. In the United States, the motion picture
production and distribution businesses are not regulated due to protections
given to expressive works under the United States Constitution. There are,
however, many federal, state and local statutes and regulations that are
integral to the business and
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under which the businesses operate including, without limitation, the copyright,
trademark, antitrust, discrimination and environmental, health and safety laws
and regulations. In addition, many federal and state agencies exercise some
degree of oversight and, at times, may initiate investigations and enforcement
proceedings with regard to industry practices. These agencies include, without
limitation, the United States Department of Justice, the Federal Trade
Commission, the Department of Labor, the Equal Employment Opportunity
Commission, the EPA and the Occupational Health and Safety Administration and,
in the State of California, the Attorney General, the Department of Toxic
Substances and the California Division of Industrial Relations. In a few limited
areas, a consent decree and undertakings further regulate the operations of
Universal Studios. In the United States, the motion picture distribution and
exhibition industries are regulated by the consent decree in U.S. v. Paramount
Pictures, Inc. This consent decree, affirmed in 1950, prohibits certain conduct
by film distributors, including price fixing and product tying, and requires
film distributors to license product on a film-by-film and theater-by-theater
basis.
In the European Union, Universal Studios is regulated by an undertaking in
the pay television area which, for a limited period of time, will regulate
certain business with CANAL+. Additionally, it is regulated in the film
distribution area through an undertaking given by UIP, the joint venture through
which Universal Studios distributes its feature films theatrically outside of
the United States and Canada. An undertaking with the Canadian Department of
Heritage also regulates certain operations of Universal Studios Canada Ltd.
Continuing compliance with the laws, regulations, consent decree and
undertakings mentioned in this paragraph do not have a material effect on the
business of Universal Studios.
Theme Parks. Universal Studios operates theme parks around the world in
accordance with applicable health, safety and environmental standards. In the
State of California, recent legislation (effective January 2001) and
implementing regulations, currently under development, will regulate the manner
in which the Company records and reports certain incidents which occur on
permanent amusement rides which result in the death or serious injury of a
guest. It is not anticipated that the full implementation of these new
requirements will have a material effect on the business of Universal Studios.
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. It does not, however, currently provide companies like Cegetel
and/or SFR equal access to local telephone loops.
The National Regulatory Authority 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, Cegetel Group holds national and global
licenses (i.e. public network and voice telephony; fixed and mobile telephony
services). Each license carries certain obligations. The terms of its
long-distance license, for example, requires TD to make investments in network
infrastructure. Similarly, SFR's license obligates it to provide nationwide
coverage.
Third generation mobile licenses "UMTS" (Universal Mobile
Telecommunications Standard) have been awarded by most European governments. On
May 31, 2001, the Autorite de Regulation des Telecommunications -- "ART" -- (the
French regulator), decided that SFR could be awarded a UMTS license by the
French government for 32.5 billion francs, barring a drop in the price decided
by the French government.
Except for the way by which the unbundling of the local loop will be
effectively provided by the incumbent French government, Vivendi Universal is
not aware of any other material legislative or regulatory development that is
likely to have a material effect on its telecommunications business.
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SEASONALITY
Because of the nature of our operations and worldwide presence, our
business is typically not subject to material seasonal variations.
RAW MATERIALS
As for our music and film businesses, we purchase raw materials on a
worldwide basis from numerous suppliers. We seek to accumulate and maintain
appropriate inventory levels, qualify new suppliers, and develop production
processes that maximize our efficient use of raw materials. We undertake to
secure strategic materials through medium-term and long-term contracts and we
have not experienced difficulties in obtaining sufficient amounts of raw
materials in recent years. We do not anticipate such difficulties in the future.
The base raw material of many of our products is oil, and as such, the price of
our raw materials is subject to major fluctuations in the price of oil. Such
fluctuations in the price of our raw materials, however, does not materially
affect the overall cost of our products. As for our publishing business, Vivendi
Universal Publishing is mainly a publisher of books, magazines and CD-ROM. In
all markets where Vivendi Universal Publishing operates, it obtains its supply
of paper from local suppliers. The market for paper is global and subject to
well-known cycles of volatility. Vivendi Universal Publishing does not
anticipate that the globalization of its raw material suppliers will
significantly impact its businesses.
ENVIRONMENTAL SERVICES
GENERAL
We effectively own 63% of the share capital of Vivendi Environnement.
Vivendi Environnement is divided into four major divisions, each with its own
brand identity and area of specialty. Vivendi Water, which is comprised
primarily of Compagnie Generale des Eaux, Vivendi Water Systems, and US Filter,
specializes in water and wastewater treatment and systems operation; Onyx
specializes in waste management; Dalkia specializes in energy services
(excluding the sale, production and trading of electricity); and Connex
specializes in transportation services. Vivendi Environnement also owns 49% of
the holding company that controls FCC and thus jointly manages Spain's leading
environmental services company.
Traditionally, in the environmental management services industry, services
have been provided in an uncoordinated manner, each by a different entity. A
provider of energy services, for example, would not also offer water treatment
or waste disposal services, nor would it integrate its services with those of a
customer's other environmental service providers. Public authorities and
industrial companies, moreover, have typically met many of their own
environmental needs without looking to private firms that specialize in these
areas. This situation has changed fundamentally in recent years, however, as
private firms increasingly provide a wide range of integrated environmental
management services to both public and private customers. In addition, as
industrial companies have continued to expand their operations internationally,
their need for an environmental management services provider with global reach
has grown as well. Vivendi Environnement is leading an emerging trend toward the
creation of comprehensive packages of large-scale, customized, integrated
environmental management services to governmental and commercial clients.
Vivendi Environnement offers a wide variety of environmental services to
public authorities and industrial, commercial and residential customers around
the world. It is the leading global provider of these services, defined
collectively as environmental management services. In an increasingly global,
competitive, and deregulated marketplace, Vivendi Environnement is one of the
few companies that can meet the needs of customers looking for a single provider
to manage all of their environmental services. Vivendi Environnement offers
tailored solutions, innovative, integrated packages customized to meet the needs
of its customers, most often in the form of long-term contracts. Vivendi
Environnement has been successfully anticipating new trends in a market that has
changed significantly over the past 10 years. Greater awareness of human impact
has led to stricter environmental standards. Both emerging and developed nations
are being forced to deal with the consequences of urbanization in a context of
limited public spending. Industrial customers are outsourcing their
environmental services functions in order to focus on their core businesses.
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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 ITS EXPERTISE, LEADING MARKET POSITIONS AND STRONG FINANCIAL
POSITION TO DELIVER STRONG INTERNAL GROWTH.
Providing environmental services has been the core business of Vivendi
and then 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 also has a track record of using its technological and
management expertise to deliver high quality service while reducing costs
and 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. Vivendi Environnement expects 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.
- ACHIEVE AND MAINTAIN BEST-IN-CLASS PERFORMANCE IN EACH OF ITS BUSINESS
SEGMENTS BY INVESTING 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. Its world-wide presence also allows it to quickly seize
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. 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 ITS 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.
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ENVIRONMENTAL SERVICES BUSINESS SEGMENTS
Vivendi Environnement is the world's leading provider of environmental
management services in terms of revenue. It believes that it offers a more
comprehensive array of environmental services than any other company in the
world. Vivendi Environnement has the expertise, for example, to supply water to,
and recycle the water used in, a customer's facility, collect, sort and treat
waste generated in the facility, heat and cool it, optimize the industrial
processes used in it and maintain it, all in an integrated service package
designed to address the customer's unique circumstances. Vivendi Environnement
can provide these services to a customer in any combination it desires. Vivendi
Environnement can provide a similarly broad range of services, including
transportation network management, to public authorities.
Water
Vivendi Environnement, through its wholly owned subsidiary, Vivendi Water,
is the world's leading provider of outsourced and privatized water and waste
water treatment services and systems. Vivendi Water's three main subsidiaries
are Compagnie Generale des Eaux, which is the leading water and waste water
services company in Europe and has operations worldwide, US Filter, North
America's leading water services and equipment company, and Vivendi Water
Systems, a leading designer and provider of water systems.
Municipal and Industrial Outsourcing. The focus of Vivendi Water's water
business is on the management and operation of water and waste water treatment
and distribution systems for public authorities and industrial companies.
Vivendi Water provides integrated services that cover the entire water cycle,
from collection from natural sources 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. Vivendi Water's design and
construction services are provided by its water treatment systems and equipment
operations.
Vivendi Water and its predecessor have provided outsourced water services
in Europe for more than 150 years and uses its experience to capitalize on the
worldwide trend towards privatization of municipal water and waste water
services. In the public sector, Vivendi Water concentrates on "non-regulated"
outsourcing markets -- markets which better allow it to take advantage of its
expertise in improving the efficiency of water systems.
Through US Filter, Vivendi Water is also well positioned to meet industrial
firms' rapidly growing demand for outsourced water services. It is leveraging
that position to grow its industrial outsourcing business in North America,
Europe and the Asia/Pacific region. For example, Vivendi Water recently entered
into contracts with General Motors pursuant to which it, together with Trigen
and Cinergy, will design, build and operate facilities that will provide
electricity, water, waste water and compressed air for several General Motors
factories in the United States over a fifteen-year period.
Water Treatment Systems and Equipment. Through US Filter and Vivendi Water
Systems, Vivendi Water is the world's leading designer and manufacturer of water
and waste water treatment equipment and 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/re-use 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. The large number of installations
Vivendi Water constructs and operates gives it a competitive advantage in terms
of costs, performance and reliability, especially for services to private firms.
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
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treatment technologies that can be combined and configured to treat water to a
customer's individual specifications.
Through Sade and Bonna Sabla, subsidiaries of Generale des Eaux, Vivendi
Water also constructs and repairs urban water distribution networks in France
and around the world.
Bottled Water and Household Filtration Products. Through US Filter,
Vivendi Water provides consumers in North America and Europe bottled water under
the "Culligan" brand. Vivendi Water 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. Vivendi Water 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.
Vivendi Water provides water services and products to three types of
customers: municipalities, industrial firms and consumers. Municipalities,
primarily in Europe, accounted for 72% of its 2000 water revenue (E9.1 billion).
Vivendi Water's significant contracts include ones to provide water-related
services in Paris, Berlin, Lyon, Marseille, Budapest, Bucharest and Adelide,
Australia. In 2000, it won 35 new contracts with public authorities in France.
It also won some of the largest contracts awarded in North America in 2000,
including one, expected to generate $150 million in revenue over 15 years, to
design, build and manage a water treatment plant in Tampa, Florida, and another,
expected to generate $220 million over 20 years, to operate the first privatized
wastewater treatment plant in Chicago. Vivendi Water also had 220 contracts with
public authorities renewed in 2000, primarily in France.
Vivendi Water has approximately 40,000 industrial clients. Its major
industrial clients include General Motors, Conoco, Hyundai and Danone. About
two-thirds of its consumer customers are in North America, and the remainder are
in Europe and Latin America.
Transactions and Developments. In August 2000, Vivendi Environnement sold
the Kinetics Group, a subsidiary of US Filter, to a group of investors for a
price of E0.5 billion, and used the proceeds of the sale to reduce its
indebtedness. Vivendi Environnement has won a number of major contracts since
the beginning of 2001, including one to design and build a chemical treatment
unit and a sludge treatment unit for Millennium, a leading chemicals company. It
has also won significant contracts to provide outsourced water services in
Prague and Tangiers, Morocco.
Waste Management
Through Onyx and its participation in FCC, Vivendi Environnement is a
global waste management leader -- the number one in Europe and the third largest
in the world. Vivendi Environnement provides waste management services to 70
million people with operations in 35 countries on five continents. It has waste
management contracts with approximately 4,000 municipalities and 250,000
industrial clients worldwide, the latter representing about 60% of its waste
revenue. Its principal markets are Europe and North America. It also provides
waste management services in the Asia/Pacific region and in Latin America. It
conducts its waste operations in Latin America through Proactiva Medio Ambiente
("Proactiva"), a 50/50 joint venture with FCC.
Onyx is the only global operator present in all the major waste treatment
segments -- solid, liquid, and hazardous waste, a unique multi-segment approach
that enables Onyx to offer solutions tailored to each customer's specific needs.
Onyx's core business consists of the collection, processing and disposal of
municipal, commercial and industrial waste. Its waste activities fall into two
broad categories: waste collection and related services and waste disposal and
treatment.
Waste Collection and Related Services.
- Collection and Transfer. Vivendi Environnement collects waste from
residences and communal depositories and from industrial sites. It
transports this waste to transfer stations, recycling and treatment
centers or directly to disposal sites. Solid waste consolidated at
transfer stations is usually compacted for transport to disposal sites.
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- 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. Onyx recycles approximately 4.8 million metric tons of solid
waste each year. It owns 151 sorting and recycling units. It sells
recyclable material to intermediaries or directly to industrial clients.
Sorting and recycling are becoming larger components of the environmental
management services provided to industrial companies. Onyx owns 151
sorting and recycling units throughout Europe. It is a European leader in
recycling waste paper and cardboard and has substantial waste paper
recycling operations in the United States as well.
- Commercial and Industrial Cleaning. Vivendi Environnement conducts its
commercial and industrial cleaning operations primarily under the brand
"Renosol." It cleans, among other things, offices, train stations,
subways, airports, museums and shopping centers. 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.
- Street Cleaning. Vivendi Environnement provides mechanized street
cleaning services for public authorities, including authorities in
London, Paris, Madrid, Buenos Aires and Madras, India.
Waste Disposal and Treatment.
- Non-Hazardous Solid Waste. Onyx disposes of non-hazardous solid waste by
depositing it in landfills, by incinerating it at incineration plants or
through composting.
- Landfill Disposal. Onyx disposes of non-hazardous solid waste in 119
different landfills. It has developed expertise in waste treatment
methods that minimize emission of liquid or gaseous pollutants, allowing
it to manage landfills under strict environmental regulations. At some
landfills, Onyx recycles biogas by converting it into energy. It
primarily relies on landfill disposal for industrial solid waste. For
municipal waste, it uses landfill disposal, incineration and composting.
- Waste-to-Energy and Incineration. Onyx uses the 83 waste-to-energy and
incineration plants it operates to incinerate waste, the majority of
which is municipal waste. At its waste-to-energy plants, it uses the heat
created by incinerating waste to generate energy. It sells this energy
principally to district thermal networks or electricity providers. It
often uses incineration as its primary method of waste disposal in
densely populated areas where landfill space is scarce.
- Composting. Onyx composts waste at its 62 composting production units.
It then sells a portion of the composted waste for use as fertilizer.
- Hazardous Waste. Onyx also treats hazardous waste. Eighty percent of its
business in this category comes from the chemical, petrochemical and
metallurgy industries, primarily in the United States, France and the
United Kingdom. Onyx collects hazardous waste from customers and
transports it, usually in specially constructed containers, tankers or
semi-trailers, and treats it at one of 23 treatment facilities. Onyx's
principal methods for treating hazardous waste are: incineration for
organic liquid waste, solvents, salted water and sludge; solvent
recycling; stabilization of residues followed by disposal in
specially-designed landfills; and physical-chemical treatment for
inorganic liquid waste.
Contracts with industrial customers accounted for approximately 60% of
Onyx's 2000 waste revenue. Onyx provides integrated waste management services
which can include solid, liquid and hazardous waste management to companies
including Ford, General Motors, Renault, Michelin, Rhodia, Motorola and Intel.
It also designs, builds and operates integrated solid waste disposal, treatment
and recycling systems for governmental authorities.
Throughout the world, Onyx's multi-segment abilities are a significant
asset when dealing with local authorities seeking a service provider with
expertise in construction, operation, and management to ensure
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quality public service in household waste collection and treatment. Since the
beginning of 2000, Onyx has won a number of major contracts with governmental
authorities around the world including contracts to provide waste services in
central Singapore, Alexandria, Egypt, Fort Myers, Florida and Tai-Tung, Taiwan.
In France, it won a contract in Saumur to construct and operate, for a 20-year
period, a waste-to-energy plant. In addition, it won contracts to provide waste
collection and sorting services in four of Paris' twenty districts.
Transactions and Developments. In 2000, Onyx continued its development in
the United States with the acquisition of landfills, transfer stations and
hauling routes from Allied Waste and the remaining 49% of Waste Management's
interests in their joint venture for hazardous waste and industrial services. It
also purchased from Waste Management waste operations in Mexico and Brazil, and
waste operating licenses in Hong Kong where it has now a leading position.
Energy
Through Dalkia, Vivendi Environnement is a leading energy management
services provider in the rapidly growing European energy services 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.
Formerly focused mainly on French local authorities, Dalkia's customer base
is now balanced between public and private-sector customers. Dalkia is becoming
increasingly international in scope. Dalkia's primary markets are France, UK,
and Central and Eastern Europe. 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 urban "district"
heating and cooling systems. 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, that is about half of those in existence. It is
expanding rapidly in Central Europe. 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 offers innovative multi-energy and remote management solutions
to ensure cost-effectiveness, reliability and environmental protection.
When practicable, it uses alternative energy sources such as geothermal
energy, biomass (organic material), heat recovered from household waste
incineration, "process" heat (heat produced by industrial processes) and
thermal energy produced by cogeneration projects.
Dalkia has become a European leader in cogeneration (the simultaneous
production of electricity and heat) and on-site power production. It offers
decentralized energy production, cogeneration, local mini-generation, and
renewable power generation using the heat and electricity produced by
biomass or gas emissions from household waste. Dalkia leads the French
market in cogeneration with a market share of approximately 25% at the end
of 2000. When the agreement with EDF (see "Transactions and Developments"
below) is fully implemented, it expects its market share to rise
approximately 40%.
Industrial Utilities. Dalkia is a leading provider of industrial
utilities services in France and the United Kingdom. It supplies complete,
customized services, integrating facilities construction, steam and
compressed air production and distribution, and site maintenance and
modernization and has also
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developed recognized expertise in the analysis of industrial processes,
productivity improvement 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, 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. Dalkia 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.
Transactions and Developments. In December 2000, Vivendi Environnement
entered into an agreement with Electricite de France "EDF" pursuant to which
Dalkia has begun to 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 energy services. Together Vivendi
Environnement and EDF can provide such integrated services, mainly to large
industrial firms. The partnership with EDF will allow Vivendi Environnement to
offer public and private-sector customers innovative, comprehensive solutions
drawing on the two companies' complementary expertise.
Pursuant to Vivendi Environnement's agreement with EDF, EDF acquired in
December 2000 and January 2001 a 28% stake in Dalkia Holding, Dalkia's direct
parent, in exchange for approximately E850 million. In early 2001, EDF acquired
an additional 6% interest in exchange for contributing one of its subsidiaries
to Dalkia Holding. In addition, Dalkia Holding purchased certain energy services
operations of EDF for E103 million, and EDF purchased interests in two Dalkia
Holding subsidiaries for a total of E627 million. As the deregulation process
continues and limits on EDF's ability to provide energy services are further
removed, Vivendi Environnement has agreed that EDF's stake in Dalkia Holding
will eventually rise to 50%.
Vivendi Environnement believes that the EDF agreement will give Dalkia the
resources it needs to become the European leader in energy and technical
services and gives it an improved set of assets with which to meet its
customers' needs, notably in industry, and thus gives the company a significant
lead over the competition.
In May 2001, Onyx and Dalkia won a 30-year contract to provide sanitation,
recycling and energy services for the city of Sheffield in the United Kingdom.
The contract is expected to generate total revenue of E2 billion.
Transportation
Through Connex, Vivendi Environnement is a leading European private
operator of local and regional passenger transportation services. With 40,000
employees serving over 4,000 communities worldwide, Connex and its subsidiaries
transport over one billion passengers per year by rail and by road. Connex
provides integrated transportation solutions involving bus, train, maritime,
tram and other networks. It expanded to new markets, for example in Spain, and
reinforced its inter-city and road transportation activities by acquiring a
significant portion of Via GTI's operations and assets.
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 that Connex operates and manages. The fares Connex charges
passengers on transportation networks are usually insufficient to cover its
costs; consequently, the public authority typically provides Connex a guaranteed
minimum payment or pays a subsidy. Connex seeks to increase profitability by
reducing its operating costs and
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increasing traffic through improvements in system speed and reliability, service
customization and vehicle comfort and safety. It also tries to reduce costs by
rationalizing previously government-run operations.
Urban Transportation. Connex operates a number of "right-of-way" transit
systems, i.e., systems in which vehicles travel on dedicated lines separated
from ordinary automobile traffic, and provides integrated transportation
products and services in urban areas. Connex is responsible for driving,
inspecting, cleaning and providing security on the vehicles it operates,
marketing, providing customer service, and maintaining, cleaning and providing
security in the stations on its networks. Its urban transportation services fall
into three broad categories: right-of-way system operation, alternative services
and integrated services.
- Right-of-Way System Operation. Connex operates tram and light rail lines
in cities including Stockholm, Sydney and Rouen and Saint-Etienne in
France. Connex also operates a frequent-service bus system in Bogota,
Colombia and is developing innovative "tram-on-tires" system in Nancy,
France that combines the flexibility of buses with the high speed of
trams.
- Bus Networks. Connex also operates a number of bus networks that are not
part of right-of-way systems. It is the exclusive bus operator in cities
including Nice, Bordeaux, Nancy and Toulon, as well as 40 other cities in
France, and operates lines in cities including London, Stockholm,
Frankfurt and Warsaw.
- Alternative Services. In a number of cities, Connex provides innovative,
non-traditional transportation services in situations where conventional
services would be inefficient. For example, it provides
transportation-on-demand services such as "Creabus," a minibus tracked by
a global positioning system (GPS) that replaces large buses during
off-peak hours, and systems that use small electric cars to serve urban
areas that are otherwise restricted to pedestrians.
- Integrated Services. In many cities, Connex provides combinations of
bus, tram, metro and train services on an integrated basis using unified
ticketing systems. In Stockholm, for instance, it operates a metro, three
tram lines and 20% of the bus network, all as part of a single system. In
other cities, Connex provides unimodal services that are integrated into
a system served by multiple operators. Connex provides such integrated
services in areas including suburban Paris, London, Sydney and
Dusseldorf.
Regional Transportation. Connex provides regional transportation services
through the operation of road and rail networks. As with urban transportation
services, it is responsible for operating, maintaining and providing security on
the vehicles and stations it uses in regional networks, as well as for ticket
sales and customer service.
Connex's most significant rail networks are in the United Kingdom, Germany,
France and Australia. In the United Kingdom, it operates regional rail networks
serving the London suburbs and southern England through its subsidiaries Connex
South Central (under a contract that expires in May 2003) and Connex South
Eastern (under a contract that expires in October 2011). In 2000, its subsidiary
Connex Transport UK participated in the tender for the renewal and extension of
the franchise for the network operated by Connex South Central. Connex Transport
UK was short-listed, but was not awarded the contract. Connex Transport UK is
currently preparing offers for a number of other contracts in the United Kingdom
that are expected to be up for tender in the near future. In regional road
transportation, Connex operates networks including France, Norway, Sweden,
Finland, Belgium and the Czech Republic.
Freight. Connex is also beginning to develop rail freight operations,
primarily in France and Germany. It intends to expand these operations
significantly in order to leverage its industrial client base for other
environmental services and to implement our strategy of providing a
comprehensive array of such services to industrial customers. Connex provides
rail freight services primarily through the following three activities:
- Regional Freight Networks. Connex operates a number of regional freight
trains for customers including the French national railroad, SNCF.
- Management of Private Branch Lines. Connex manages branch lines for
customers in the automobile, petrochemical and refining industries that
have plants connected to a national rail network. Facilities served
include the Eisenach Opel plant in Thuringia, Germany, the Bitterfeld
chemical complex in Saxony-Anhalt, Germany and approximately 40
industrial sites in France.
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- Multimodal Transportation. In 2000, Connex began providing "multimodal"
shipping services -- i.e., shipment of freight in containers that can be
carried by either trains or trucks. Daily multimodal service between
Paris and Milan began in October 2000, following the acquisition of an
interest in multimodal operator TAB. Service between Stuttgart and
Mannheim, Germany began in February, 2001.
In France, governmental authorities typically own the buses used on urban
networks and lease them to Connex under the applicable operating contract.
However, Connex usually owns the motorcoaches used on regional road networks. In
the other countries in which it operates, Connex typically owns the buses and
motorcoaches used in both urban and regional road networks. With regard to rail
networks, Connex usually rents, rather than owns, the trains it uses.
The vast majority of Connex transportation customers are the national,
regional and local public authorities responsible for providing public transit
services. Connex operates 26 rail networks, 236 road networks, 20 integrated
networks and four tram systems that carry, in the aggregate, more than one
billion passengers a year.
Transactions and Developments. In 2000, Connex purchased from Via GTI
Group, a leader in transportation in France, operations holding a number of
contracts in inter-urban transportation in France, Spain and Germany. This
acquisition provided it with additional revenue of E236 million in 2000. It also
sold its interest in the Barraqueiro Group, a Portugese passenger transportation
company, to its co-shareholder, Barraqueiro SGPS, for E50 million.
Vivendi Environnement has agreed to sell its operations associated with the
Connex South Central contract to Govia for 30 million British pounds and to
withdraw from the contract (which was scheduled to expire in May 2003). This
sale, which is subject to regulatory approval, would reduce Vivendi
Environnement's revenue, as it currently generates revenue of E500 million per
year from the contract. Vivendi Environnement agreed to the sale because it
believes its capital and the efforts of its management will be better employed
in connection with projects with which it expects to have a long-term
involvement. Moreover, it is possible that its capital expenditure requirements
will rise modestly in 2001, as there is a trend among some governmental
authorities toward requiring private operators to make some investments upon the
commencement of a new contract.
FCC
FCC, a public company listed on the Madrid Stock Exchange, is one of
Spain's largest companies. Its market capitalization was E3.376 billion as of
June 26, 2001. 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 a 49% interest in
the holding company that owns 56.5% of FCC. In December 1999, we transferred our
interest in this holding company to Vivendi Environnement. Another shareholder
owns the remaining 51% of the holding company.
FCC's main activities are:
- construction, which represented 46% of its overall 2000 revenue;
- waste and water services, which represented 31% of its 2000 revenue; and
- cement production, which represented 15% of its 2000 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. On July 2000, as part of its
international expansion, Vivendi Environnement consolidated most of its water
and waste treatment businesses with FCC's operations in Latin America and the
Caribbean in Proactiva.
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FCC's services include:
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 provides waste management services to approximately 1,500
municipalities and 21 million people in Spain. It also supplies drinking
water to 6 million people in Spain and treats waste water for 9 million.
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.
Cement Production. FCC produces cement through its 49% interest in
Portland Valderrivas which controls Cementos Portland, Spain's
second-largest cement maker. It began to expand internationally with its
1999 acquisition of Giant Cement in the United States. FCC's cement
production is now approximately 80% in Spain and 20% in the United States.
Under the terms of an option agreement dated October 6, 1998 between
Vivendi Universal and the other shareholder in the holding company through which
Vivendi Environnement holds its stake in FCC, the other shareholder has an
option, exercisable between April 18, 2000 and October 6, 2008, to sell Vivendi
Universal its 51% interest in the holding company. 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 Vivendi Environnement owns its
interest in FCC that becomes exercisable in the event Vivendi Universal ceases
to hold a majority of the capital of Vivendi Environnement.
FCC is focusing on developing its core businesses in order to boost its
market share, particularly in services, which are not cyclical, for which FCC
has recognized references and capabilities. At the same time, FCC has been
making targeted investments in opportunities offering new technologies. In
conjunction with Vivendi Telecom International, Vivendi Universal's wholly owned
subsidiary, FCC owns 31.28% of Xfera Moviles, which has been awarded a UMTS
mobile phone licence in Spain.
In 2000, Proactiva, which provides 29 million people with waste services
and 16 million with their entire water cycle, won a contract to manage Bogota's
waste storage centre. It will also manage water systems for Catamarca, Argentina
for the next 30 years.
COMPETITION
General
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.
With regard to integrated, large-scale environmental management services in
particular, Vivendi Environnement's competitors include Suez 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
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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
(through its water business Ondeo), RWE (through its UK subsidiary Thames
Water), Anglian Water, Severn Trent and Saur. 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. Vivendi
Water is a leading competitor in the rapidly growing industrial outsourcing
market. It also has a leading position in the highly fragmented water equipment
market.
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
competitor is Suez. It ranks among the top providers of household, commercial
and industrial waste management services in the United Kingdom, along with Suez,
Biffa, Cleanaway and Shanks. Onyx has strong market positions in Norway,
Ireland, Switzerland and Portugal. It has also expanded its presence in Israel,
where it now has a leading position and is the only provider of a full range of
services.
Vivendi Environnement has taken significant steps toward establishing its
competitive position in North America 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 Onyx
Environmental Services and Onyx Industrial Services, which provide hazardous
waste and industrial services, respectively, in the United States and Canada.
Vivendi Environnement's major competitors in the United States include Waste
Management, Allied Waste, Republic Services and Safety Kleen.
Vivendi Environnement's Latin American operations are concentrated in
Brazil, Venezuela, Mexico, Colombia, Argentina and Chile, where its primary
competition is from a variety of local companies and SITA (a subsidiary of
Suez). It plans to expand its activities in Latin America through Proactiva.
Vivendi Environnement is among the market leaders in the Asia/Pacific region
where its main competitors are various local companies, Cleanaway and Suez.
Energy Services
Vivendi Environnement's traditional competitor in district thermal
management is Suez through its subsidiary Elyo. It increasingly faces
competition from large European gas and electricity companies such as RWE, E.on,
Texas Utilities and Power Gen, especially for large district heating contracts
in Eastern and Central Europe. Its competitors in cogeneration consist primarily
of large utilities companies such as RWE, E.on, 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, and 22% of the privately run passenger road transportation
market in Scandinavia.
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 European
competitor, National Express, First Group, Arriva and Go Ahead in the United
Kingdom and Kedis and Transdev in France. It anticipates that new competitors
may seek to enter the market, including civil engineering companies, rolling
stock manufacturers and government-owned operators seeking to expand into
contiguous regions.
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FCC
FCC is the leading private provider of waste management services in Spain,
with a share of the overall market (i.e., the public and privatized markets
combined) for waste management services of approximately 43% and a share of
privatized market of approximately 70%. 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 15%.
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
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. Vivendi Environnement has 11 research facilities
throughout the world, staffed by a total of 500 scientists and other
researchers.
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 its
laboratories in Paris, Lyon and Rennes 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. In 2000, in
cooperation with a number of German universities and Berliner Wasser Betriebe,
it established a "competence center" in Berlin that is designed to develop
international research and technical support programs. Through Anjou Recherche,
approximately 350 researchers are involved in water-related research projects.
Current areas or research include membrane filtration, sea water desalination
and disinfection of municipal waste water. Vivendi Environnement's researchers
have developed the technology necessary for large-scale nanofiltration, a
purification method that uses membranes with microscopic holes to remove
impurities from water (at its Mery sur Oise water treatment plant near Paris)
and submerged membrane filtration, a method using underwater purification
filters (in the Adjaccio region of Corsica). 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 its Centre de Recherches pour
l'Environnement, l'Energie et les Dechets ("CREED") research and testing center
in Limay, France. With 65 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. Current areas of research include the development of new uses
for recycled products, advanced sorting and recycling processes for municipal
waste, improved techniques for treating land contaminated by heavy metals and
other pollutants, new methods of detecting, measuring and removing dioxins and
other pollutants released by incineration plants, more efficient waste-to-
energy processes and the exploitation of energy created during effluent
treatment and recycling processes. It has been awarded more than 60 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 through the use of alternative energy sources
such as fuel cells and wind-powered and photovoltaic generators. Other research
projects in this area include the development of low-power cogeneration systems
to heat public buildings and advanced heat storage systems.
Vivendi Environnement's research and development in passenger
transportation includes the development of traffic management systems and new
forms of local transportation to improve passenger service, GPS technology and
real-time information transmission to improve transportation efficiency and
security and new
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techniques to reduce vehicle emissions. Approximately 20 people are involved in
its research efforts in the transportation services field.
Vivendi Environnement conducts a number of research efforts in cooperation
with research centers and institutions of higher learning in France and
elsewhere. In France, we have 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 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
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.
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
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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 numerous countries, 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 landfills. Incineration plants are
subject to rules that limit the emission of pollutants.
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 "Item
3 -- Key Information -- Risk Factors".
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 a date that is to be determined. 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 Vivendi Environnement builds 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
requires Vivendi Environnement to obtain certain permits. One Directive sets
forth guidelines for the laws of the member states with respect to the emissions
of gas
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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 vehicle
CONTRACTS
General
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 vary widely in terms of size,
duration and the degree of responsibility and/or risk they impose. Some require
to provide specific services on a one-time basis in exchange for a set fee;
others give broad responsibility for the implementation of large, long-term
projects. Some require to make substantial capital expenditures, in which case
Vivendi Environnement generally bears considerable risks. Some of these
contracts provide mechanisms through which particular risks -- for example, the
risk that passengers on a transportation network will fall to an uneconomic
level -- will be shared by the counterparty. Others provide for renegotiation of
terms in the event of a material change in circumstances. The duration of a
contract, which tends to increase with the level of responsibility and risk
Vivendi Environnement assumes, is generally based on the time needed to
depreciate the investment made, set in place an efficient organization and
achieve the expected improvements in the service provided.
Contracts with governmental authorities
Vivendi Environnement has a number of contracts with governmental
authorities, particularly in France. Contracts with governmental authorities
often differ in a number of respects from contracts with private parties,
especially in civil law countries. Governmental contracts for essential
community services such as water supply, waste water treatment and household
waste treatment typically obligate the private operator to provide a service to
a given population, often on an exclusive basis, in accordance with operating
conditions, including fees, that are defined by the governmental authority. The
private operator also has a contractual relationship with services users, i.e.
members of the public, but that relationship is defined by contractual terms
established by the governmental authority.
There are number of features common to French governmental contracts,
including provisions that (i) entitle the governmental authority to modify or
terminate the contract unilaterally if the public interest so requires (in case
of termination or modification, the governmental authority must fully compensate
the private operator), (ii) allow, in long-term contracts, periodic review to
ensure the contract remains fair for both sides, and (iii) grant the
governmental authority the right to supervise how the public service is
provided.
In Europe, most of the contracts with governmental authorities can be
awarded only after a competitive bidding, where the selection criteria generally
are price, investments candidates offer to make, candidate's experience and
ability to provide high quality service while complying with applicable
regulatory standards, and the candidates' ability to adapt to new regulatory
standards.
Seasonality
Because of the nature of its operations and its worldwide presence, Vivendi
Environnement's business is typically not subject to seasonal variations.
RAW MATERIALS
Vivendi Environnement purchases raw materials on a worldwide basis from
numerous suppliers. It seeks to accumulate and maintain a reserve inventory of
raw materials and supplies, qualify new suppliers, and develop production
processes in its own facilities. Vivendi Environnement undertakes to secure
strategic materials through medium-term and long-term contracts and has not
experienced difficulties in obtaining sufficient amounts of raw materials and
supplies in recent years. It anticipates that it will be able to do so in the
future. For example, the price of fuel has, in recent years, exhibited
considerable volatility. Significant
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increases in fuel prices are possible in the future as a result of increased
demand, greater coordination among oil-producing nations and other factors.
Vivendi Environnement's operations historically have not been, and are not
expected to be in the future, materially affected by changes in the price or
availability of fuel or other raw materials, as its contracts typically contain
provisions designed to compensate it for increases in the cost of providing its
services.
MARKETING CHANNELS
Vivendi Environnement markets its products and services primarily to take
advantage of its strong brands and reputation, and it offers a comprehensive
range of environmental services to existing clients. It analyzes the
environmental services needs of prospective and existing industrial and
commercial customers and demonstrates to them how its services could improve the
efficiency of their operations. The marketing efforts Vivendi Environnement
directs toward public authorities come primarily in the form of bids it submits
for contracts to provide public services. For more information regarding
marketing channels used by each of Vivendi Environnement's business segments,
see "Item 4 -- Information on the Company -- Our Services -- Environmental
Services -- Environmental Services Business Segments".
OTHER BUSINESSES
REAL ESTATE
As part of our strategy of focusing on our core Media and Communications
and Environmental Services 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. In July 2000, we sold 100% of Nexity.
Vivendi Valorisation holds our remaining property assets, which include
land and land development rights, commercial property (owned and leased) and
loans extended to finance commercial property sales. We hold these assets on our
balance sheet at their current market value. 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, these assets cannot easily be
sold. We intend to divest these assets as and when opportunities arise. Nexity
will manage the assets of Vivendi Valorisation pending their sale, pursuant to a
services agreement.
PARIS ST.-GERMAIN CLUB
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.
RETAIL STORES AND DEVELOPMENT OF ENTERTAINMENT SOFTWARE
Universal Studios is involved in other businesses including the operation
of retail gift stores and the development of entertainment software. It owns
Spencer Gifts, Inc. which operates 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 Studios owns a building in New Jersey and
leases approximately 715 stores in various cities in the U.S., Canada and the
U.K. and a warehouse in North Carolina. The Spencer, DAPY and Glow stores
compete with numerous retail firms of various sizes throughout the U.S., Canada
and the U.K., including department and specialty niche-oriented gift stores.
Universal Studios 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.
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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 Studios' websites and manages our minority interest
in Interplay Entertainment Corp., an entertainment software developer.
SPIRITS AND WINE
In connection with the business combination of Vivendi, Seagram and Canal
Plus, we acquired Seagram's spirits and wine business. Seagram's spirits and
wine business has global responsibility for all production, brand management and
marketing, sales and distribution of Seagram beverage alcohol brands throughout
more than 190 countries and territories. The portfolio includes Chivas Regal,
Royal Salute and The Glenlivet Scotch Whiskies, Crown Royal and Seagram's V.O.
Canadian Whiskies, Captain Morgan Rum, Seagram's 7 Crown American Blended
Whiskey, Don Julio Tequila, Martell Cognacs, Seagram's Extra Dry Gin and
Sterling Vineyards Wines. In December 2000, we entered into an agreement with
Diageo plc and Pernod Ricard S.A. to sell our spirits and wine business for
$8.15 billion, an amount that is expected to result in approximate after-tax
proceeds of $7.7 billion. See "Item 5 -- Operating and Financial Review and
Prospects -- Significant Transactions".
Production
Seagram's spirits and wine business operates distilleries and bottling
facilities in 18 countries in North America, Latin America, Europe and Asia.
Seagram's spirits aggregate daily distillation capacity approximates 253,000
U.S. proof gallons and aggregate daily bottling capacity approximates 275,000
standard cases. Seagram maintains 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 December 31, 2000. Additionally, Seagram's bulk wine
inventory aggregated approximately 25 million wine gallons as of June 2001.
Seagram purchases 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. Seagram also
participates in the bulk supply market as a buyer and seller of malt and grain
spirits. Seagram's 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. Seagram acquires substantially all of its 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. Seagram believes that its relationships with its 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, Seagram generally sells 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 of 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.
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In addition to the United States and Canada, Seagram's 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 revenue comes from sales outside of North America.
In addition to economic and currency risks, Seagram's foreign operations involve
risks including governmental regulation, embargoes, expropriation, export
controls, burdensome taxes, government price restraints and exchange controls.
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 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.
Seagram continues to address these competitive challenges by investing in
brand equity building behind Seagram's core brands in key established and
development markets. Seagram uses magazine, newspaper and outdoor advertising,
as well as interactive marketing, to maintain and improve its brands' market
position. Seagram also utilizes 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
U.S.
Regulation and Taxes
Seagram's 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 U.S., Seagram
must file or publish prices for its beverage alcohol products in some states as
much as three months before they go into effect.
In the U.S., 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 December 31, 2000, Seagram 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.
ORGANIZATIONAL STRUCTURE
The following table shows the subsidiaries through which we conducted the
majority of our operations as of December 31, 2000:
OUR OUR
COUNTRY OF OWNERSHIP CONTROLLING
NAME INCORPORATION INTEREST INTEREST
---- ------------- --------- -----------
UNIVERSAL STUDIOS, INC. USA 92% 92%
Polygram Holding, Inc. USA * *
Interscope Records USA * *
Def Jam Records, Inc. USA * *
Universal City Studios, Inc. USA * *
USANi LLC USA 49% 0%
CENTENARY HOLDING N.V. Holland 92% 92%
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OUR OUR
COUNTRY OF OWNERSHIP CONTROLLING
NAME INCORPORATION INTEREST INTEREST
---- ------------- --------- -----------
Universal Music (UK) Holdings Ltd. UK * *
Universal Holding GmbH Germany * *
Universal Music K.K. Japan * *
Universal Music S.A. France France * *
UNIVERSAL PICTURES INTERNATIONAL B.V. Holland 92% 92%
GROUPE CANAL S.A. France 100% 100%
Canal Satellite France 66% 66%
StudioCanal S.A. France 85% 85%
CEGETEL France 44% 59%
Cegetel 7 France 40% 80%
SFR France 35% 80%
Cegetel Entreprises France 40% 80%
AOL France France 35% 55%
VIVENDI TELECOM INTERNATIONAL France 100% 100%
Mattel Hungary * *
Monaco Telecom Monaco 51% 51%
VIVENDI UNIVERSAL NET France 100% 100%
Vizzavi Europe France 50% 50%
Scoot.com plc UK 22% 22%
I France France * *
Ad-2-One France * *
VIVENDI UNIVERSAL PUBLISHING France 100% 100%
Comareg France * *
Group Expansion France * *
Group Moniteur France * *
Editions Robert Laffont France * *
Group Anaya Spain * *
Havas Interactive Inc. USA * *
Larousse-Bordas France * *
Group Tests France * *
France Loisirs France 50% 50%
VIVENDI ENVIRONNEMENT France 63% 63%
Vivendi Water France * *
CGEA Onyx France * *
CGEA Connex France * *
US Filter USA * *
Dalkia France 46% 73%
FCC Spain 18% 28%
---------------
* Indicates 100% ownership of the relevant Vivendi Universal subsidiary.
PROPERTY, PLANTS AND EQUIPMENT
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. Where we do not own property, we lease warehouses and office space
around the world.
Universal Studios owns, develops and manages commercial buildings with
approximately 3.3 million rentable square feet of office space in Universal
City, including Universal Studios CityWalk, an integrated retail/entertainment
complex that offers shopping, cinemas and entertainment; the 10 Universal City
Plaza
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office building, which is occupied by Universal Studios or leased to outside
tenants; and the Sheraton-Universal Hotel.
We own or have interests in hotels and other property and equipment in
connection with our theme parks businesses as further described under "Item
4 -- Key Information -- Our Services -- TV & Film -- Recreation".
In connection with its environmental services businesses, Vivendi
Environnement generally conducts its water, energy services and transportation
operations at premises owned by its customers; as a result, Vivendi
Environnement does not own any significant physical properties in connection
with those operations. With regard to its waste management services, Vivendi
Environnement owns or operates approximately 120 sorting, recycling and transfer
facilities (not including waste paper facilities), 119 solid waste landfill
sites and 83 incineration and waste-to-energy transformation facilities
worldwide.
Vivendi Environnement is currently in the process of renovating a building
located at 36-38 avenue Kleber, 75116, Paris, France for use as its headquarters
building. Vivendi Environnement will lease the building for approximately E10.4
million per year. It expects to spend an additional E9 to 10 million renovating
the building. The renovations are expected to be complete by May 2002. Vivendi
Environnement will occupy approximately 15,000 square meters of the building,
using it for offices for members of its management and senior managers of its
principal subsidiaries.
We have various commitments for the purchase of property, plant and
equipment, materials, supplies and items of investment related to the ordinary
conduct of business.
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.
Trademarks, copyrights and brand recognition are important to our
businesses, particularly the Music, Publishing, TV & Film, Telecoms and Internet
segments as well as trademarks related to the spirits and wine business. We have
registered our trademarks and copyrights with appropriate governmental
authorities, believe that there is significant value associated with them, and
it is our practice vigorously to defend our intellectual property interests
against infringement by third parties. With respect to trademarks in the waste
management business, Vivendi Environnement arranged for protection of the "ONYX"
trademark (the word and logo) in many countries around the world and has signed
trademark licenses with a number of its subsidiaries.
INSURANCE
Each of Vivendi Universal's segments (Music, TV & Film, Publishing,
Telecoms, Internet, and Environmental Services) are afforded protection by
various types of property damage, business loss and civil liability insurance
programs. These insurance programs are structured to address risks specific to
each business segment and comply with legal regulations, requirements of
customer contracts, public authorities and institutions providing financing. In
addition to the insurance programs maintained for each business segment, Vivendi
Universal maintains civil liability insurance programs of $400 million which
provide protection for all segments.
Vivendi Universal also has Directors and Officers liability insurance that
provides $200 million of protection for our officers and directors.
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
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environmental protection action plan. The first phase of the plan, for the
period between 2000 and 2005, focuses on the following goals:
- Reducing direct carbon dioxide emissions of our world wide operations;
- 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 impacts of our operations on the natural environment;
- Increasing the research and development budget for environmental
services;
- Improving environmental management by increasing the number of employees
certified under ISO 14001 and increasing spending on vocational training;
and
- Developing and implementing of a global environmental management system
to track and manage environmental impacts of our global operations.
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our operations should be read in conjunction
with our financial statements and related notes included elsewhere in this
document. The following discussion contains forward-looking statements that
involve risks and uncertainties, including, but not limited to, those described
under "Item 3 -- Key Information -- Risk Factors". Our results may differ
materially from those anticipated in the forward-looking statements.
Since the introduction of the euro on January 1, 1999, our functional and
reporting currency has been the euro. Accordingly, we prepared our 2000 and 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 E1 = 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
our consolidated financial statements).
OVERVIEW
Vivendi Universal was created through the merger of Vivendi, Seagram and
Canal Plus that was completed in December 2000. Vivendi Universal operates in
two global core businesses: Media and Communications and Environmental Services.
The Media and Communications business is divided into five business segments:
Music, Publishing and TV & Film, which constitute our content businesses, and
Telecoms and Internet, which constitute our access businesses. Integration and
partnering of the Media and Communications business segments enables Vivendi
Universal to provide a diverse array of entertainment and information content to
an international customer and subscriber base over wired and wireless access
devices using cable, Internet, satellite and broadcast networks.
CONTENT
- The Music business is conducted through Universal Music Group, which
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 Publishing business is one of Europe's leading publishers of
information providing content across multiple platforms, including print,
multimedia, on the wired Internet and to PDAs via WAP
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technology. The Publishing business is a content leader in five markets:
education, games, healthcare information, local services and business and
general information.
- The TV & Film business produces and distributes motion picture,
television and home video/DVD products worldwide, operates and has
ownership interests in a number of cable and pay TV channels, engages in
the licensing of merchandising and film property rights and operates
theme parks and retail stores around the world.
ACCESS
- The Telecoms business provides a broad range of telecommunications
services, including mobile and fixed telephony, Internet access and data
services and transmission, principally in Europe.
- The Internet business manages the strategic Internet initiatives and new
online ventures for Vivendi Universal. Utilizing advanced digital
distribution technology, the Internet business develops e-commerce,
e-services and thematic portals that offer access to the Internet via a
variety of devices, including mobile phones, PDAs, interactive TV and
computers.
Vivendi Environnement, a 63% effectively owned subsidiary of Vivendi
Universal, operates the Environmental Services business, with operations around
the globe. Vivendi Environnement provides environmental management services,
including as water treatment and system operation, waste management, energy
services and transportation services, to a wide range of public authorities and
industrial, commercial and residential customers.
SIGNIFICANT TRANSACTIONS
During the last year, we entered into several significant transactions that
have realigned our businesses and have impacted the comparability of our
financial statements.
MERGER OF VIVENDI, SEAGRAM AND CANAL PLUS
On December 8, 2000, Vivendi, Seagram and Canal Plus completed a series of
transactions in which the three companies combined to create Vivendi Universal.
The terms of the Merger Transactions included:
- The merger of Vivendi into its wholly owned subsidiary Vivendi Universal.
- Vivendi Universal's combination, through its subsidiaries, with Seagram
in accordance with a plan of arrangement under Canadian law. In Vivendi
Universal's combination with Seagram, holders of Seagram common shares
(other than those exercising dissenters' rights) received .80 Vivendi
Universal American Depositary Shares (ADSs), or .80 non-voting
exchangeable shares of Vivendi Universal's Canadian subsidiary Vivendi
Universal Exchangeco Inc. (exchangeable shares) and an equal number of
related voting rights in Vivendi Universal, for each Seagram common share
held.
- In connection with the business combination of Vivendi Universal and
Seagram, Vivendi entered into a series of transactions involving Canal
Plus, an entity approximately 49% owned by Vivendi before the Merger
Transactions and included in its consolidated financial statements.
Vivendi Universal acquired all the businesses of Canal Plus other than
the French premium pay television channel business, which was subject to
a French law that prohibits any person from owning more than 49% of a
French television broadcaster. Canal Plus shareholders received two
Vivendi Universal ordinary shares for each Canal Plus ordinary share they
held and retained their existing shares in Canal Plus, which retained the
French premium pay television channel business. Vivendi Universal remains
a 49% shareholder in Canal Plus and continues to consolidate it.
In connection with the Merger Transactions, on December 19, 2000, we
entered into an agreement with Diageo plc and Pernod Ricard to sell our spirits
and wine business for $8.15 billion, an amount that is expected to result in
approximate after-tax proceeds of $7.7 billion. The sale is expected to close
during 2001 and is subject to regulatory approvals and customary closing
conditions. We account for the spirits and wine business net operations as an
exceptional item in the income statement and the expected proceeds from the sale
as an investment on the balance sheet.
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In connection with the European Commission's approval of the Merger
Transactions pursuant to the relevant European merger regulations, we committed
to divest almost all of our stake in British Sky Broadcasting Group ("BSkyB"),
the leading pay television broadcasting service in the United Kingdom and
Ireland, within a period of two years from the completion of the Merger
Transactions.
PURCHASE OF INTEREST IN MAROC TELECOM
In December 2000, we announced that we had acquired a 35% stake in Moroccan
telecommunications operator Maroc Telecom for approximately E2.3 billion. Maroc
Telecom, which operates fixed-line and mobile telephone networks in Morocco, is
estimated to have generated revenue of approximately E1.3 billion in 2000. In
cooperation with Maroc Telecom, we intend to contribute our telecoms experience
to the modernization of the telecommunications industry in Morocco.
DISPOSITION OF SITHE
In December 2000, we, along with other shareholders of Sithe Energies, Inc.
("Sithe") finalized the sale of a 49.9% stake in Sithe to Exelon (Fossil)
Holdings, Inc, ("Exelon") for approximately $696 million. The net proceeds of
the transaction to Vivendi Universal were approximately $475 million. Following
the transaction, Exelon is the controlling shareholder of Sithe; we retain an
interest of approximately 34%. For a period of three years beginning in 2002, we
can put to Exelon, or Exelon can call from us, our remaining interest. As a
result of the transaction, we ceased to consolidate Sithe's results of
operations for accounting purposes effective December 31, 2000. In April 2000,
Sithe sold 21 independent power production plants to Reliant Energy Power
Generation for E2.13 billion. This transaction generated a capital gain of E415
million.
DISPOSITION OF NON-CORE CONSTRUCTION AND REAL ESTATE BUSINESSES
As part of our strategy of focusing on our core Media and Communications
and Environmental Services businesses, we have decided to withdraw from our
non-core construction and real estate businesses. 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. In July 2000, we sold 100% of Nexity
to a group of investors and to Nexity's senior management for E42 million, an
amount that approximated book value of these operations. Vivendi Valorisation
holds our remaining property assets, which consist primarily of investments
arising out of past property development projects. These assets are managed by
Nexity pending their sale. In February 2000, we reduced our interest in Vinci
(Europe's leading construction company) from 49.3% to 16.9%, receiving in
exchange E572 million, which resulted in a capital gain of approximately E374
million. Subsequently, Vinci merged with the construction company, Groupe GTM,
which reduced our interest in the combined entity to 8.67%. As a result of these
transactions we ceased to consolidate Vinci's results effective July 1, 2000. We
have committed not to engage in further sales of Vinci shares until 2001, except
to Vinci itself. We intend to dispose of our remaining stake in 2001.
LAGARDERE ALLIANCE
In July 2000, pursuant to an alliance between Canal Plus and Lagardere, a
French media company, Lagardere acquired a 34% stake in CanalSatellite and a
27.4% stake in MultiThematiques. Canal Plus reduced its stake in
MultiThematiques to 27.4% (Vivendi reduced its indirect interest to nine
percent). Canal Plus and Lagardere also set up three joint ventures. The first,
51% owned by Lagardere and 49% by Canal Plus, will own and operate existing
theme channels and intends 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 joint
venture between Lagardere and MultiThematiques, will create and distribute new
theme-based channels based on Lagardere's international brands such as Elle.
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EXPANSION OF VIZZAVI
In May 2000, we signed an agreement with Vodafone pursuant to which we will
participate in a venture to operate and promote Vizzavi, a multi-access Internet
portal that 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. Vivendi
introduced Vizzavi in France in June 2000. Together with Vodafone, we plan to
introduce it in a number of European countries by the end of 2001.
OTHER ACQUISITIONS
In addition to the above, we invested approximately E3 billion in the
acquisition of other companies during 2000. This amount corresponds to the cash
and non-cash investments made by us and does not take into account cash held by
the acquired companies. The most significant acquisitions in the period can be
categorized as follows:
- Internet -- E780.1 million, principally used to acquire i-France for
E149.3 million and Scoot for E443.4 million;
- Telecoms -- E441.5 million relating to the acquisition of United Telecom
Investment in Hungary for E130.3 million, Kencell in Kenya for E35.9
million, Xfera in Spain for E96.2 million and Vendi Telecom Espana SL for
E90.2 million;
- TV & Film -- E520.0 million in connection with financing the development
of subsidiaries, including CANAL+ Belgium, Eurosport and Sogecable;
- Publishing -- E219.1 million, including E93.3 million in Staywell, a
medical publishing company;
- Environmental Services -- E920.3 million, including E700.6 million
dedicated to international expansion; and
- Other of E123.2 million.
FORMATION/IPO OF VIVENDI ENVIRONNEMENT
Vivendi Environnement was formed at the end of 1999. It brought together
the majority of our water, waste management, energy services and transportation
businesses, as well as our interest in FCC. Vivendi Environnement's formation
was achieved by either the contribution of existing businesses and companies or
the purchase of shares. Generale des Eaux, Dalkia and Companie Generale
d'Entreprises Automobiles were transferred at book value in accordance with tax
provisions applicable to certain mergers. US Filter and our interest in FCC were
acquired by Vivendi Environnement in December 1999. 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.
We currently hold an effective 63% interest in Vivendi Environnement, and intend
to maintain majority control at this level for the long term.
COMPARABILITY
BASIS OF PRESENTATION
The discussion presented below includes an analysis of total Vivendi
Universal and business segment results prepared in accordance with French GAAP,
which differs in certain significant respects from U.S. GAAP.
For the years ended December 31, 2000, 1999 and 1998, we had a net income
under U.S. GAAP of E1,907.8 million, E246.1 million and E565.2 million,
respectively, compared to E2,229.0 million, E1,431.4 million and E1,120.8
million under French GAAP. Under U.S. GAAP, shareholders' equity was E64,729.4
million and E16,954.5 million for 2000 and 1999, respectively, compared to
E56,671.1 million and E10,892.2 million under French GAAP.
The most significant reconciling item relates to business combination
accounting as described in Note 16 to our consolidated 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
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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 E8,782.6 million and E7,876.3 million for
the years ended December 31, 2000 and 1999, respectively, and
- a decrease in our net income by E263.4 million, E1,052.7 million and
E191.0 million for the years ended December 31, 2000, 1999 and 1998.
Other significant items in reconciling French GAAP and U.S. GAAP, as they
apply to the Company, are described in Note 16 to our consolidated financial
statements.
CHANGE IN ACCOUNTING PRINCIPLES
As of January 1, 2000, the following new accounting principles were
adopted:
- Revenue and expenses of subsidiaries financial statements denominated in
a currency different from euros, which were previously translated at the
year end exchange rate, are now translated at the average exchange rate
during the period. The cumulative effect of this change in accounting
principle would have decreased net income as of December 31, 1999 by
E16.3 million.
- Gains on foreign currency transactions, which were previously deferred,
are now recorded in current period earnings. The cumulative effect of
this change in accounting principle would have increased net income as of
December 31, 1999 by E107.4 million.
- Subscriber acquisition costs, which were previously spread over 12 months
from the date the line was put into service, are now charged to expense.
The cumulative effect of this change in accounting principle would have
decreased net income as of December 31, 1999 by E87.7 million.
- Sports broadcasting rights acquired by Canal Plus are now capitalized as
intangible assets and are amortized over the period of the agreement. The
cumulative effect of this change had no impact on net income in 2000 and
1999. Total assets increased by E2.0 billion (most of which related to
intangible assets) and total liabilities and shareholders' equity
increased by the same amount.
In order to facilitate comparability of financial statements, we have
presented the 1999 financial statements on a restated basis. See "Item
18 -- Financial Statements -- Note 2 Summary of Significant Accounting Policies"
for a description of some of the policies used in preparing our financial
statements.
PRO FORMA
To further enhance comparability, financial information for 2000 and 1999
is also presented on a pro forma basis which illustrates the effect of the
Merger Transactions, the consolidation of CANAL+ on a twelve month basis in both
periods and the divestiture of Vinci, as if the transactions had occurred at the
beginning of 1999. We believe that pro forma results represent meaningful
comparative information for assessing earnings trends because the pro forma
results include comparable operations in each year presented. The discussion of
the Telecoms, Internet and Environmental Services businesses do not include pro
forma comparisons, since the pro forma adjustments did not impact those
segments. The pro forma results are not necessarily indicative of the combined
results that would have occurred had the events actually occurred at the
beginning of 1999. We believe this information will help to better understand
our business results.
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RESULTS OF OPERATIONS
EARNINGS SUMMARY
ACTUAL PRO FORMA
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------------- -------------------
2000 1999(1) 1999 1998 2000 1999
-------- -------- -------- -------- -------- --------
(EUROS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenue.......................... 41,797.6 40,854.5 41,622.5 31,737.1 52,521.2 44,000.5
EBITDA........................... 5,980.9 4,300.6 5,235.0 3,453.0 7,213.2 4,862.5
Depreciation and
amortization................ (3,131.3) (2,186.3) (2,678.3) (1,831.7) (3,791.6) (2,718.9)
Expenses of replacement and
repair of installation...... (278.2) (278.8) (276.2) (289.9) (278.2) (274.5)
-------- -------- -------- -------- -------- --------
Operating income................. 2,571.4 1,835.5 2,280.5 1,331.4 3,143.4 1,869.1
======== ========
Financial (expense)/income....... (541.2) 75.9 (57.2) 307.3
Financial provisions............. (91.7) (163.0) (162.9) (298.0)
Exceptional items................ 2,755.2 (922.7) (914.3) 42.7
Depreciation, amortization and
provisions on exceptional
items.......................... 191.6 76.9 76.5 206.6
Goodwill amortization............ (634.2) (606.4) (612.0) (209.5)
-------- -------- -------- --------
Income before income taxes,
equity interest and minority
interest....................... 4,251.1 296.2 610.6 1,380.5
Income taxes and deferred tax.... (1,020.9) 946.1 793.2 (90.0)
Equity in net income of
affiliates..................... (306.3) 32.9 32.9 42.5
Minority interest................ (624.9) 159.4 (5.3) (212.2)
-------- -------- -------- --------
Net income....................... 2,299.0 1,434.6 1,431.4 1,120.8
======== ======== ======== ========
Earnings per share -- basic...... 3.6 2.7 2.7 2.5
======== ======== ======== ========
---------------
(1) Restated to reflect change in accounting policies.
2000 VERSUS 1999 (RESTATED)
The actual 2000 results discussed below include the results of Seagram's
operations for the twenty-three day period since the completion of the merger on
December 8, 2000. The spirits and wine operations have been presented on a
single line as a component of exceptional items.
Revenue
Our consolidated revenue totaled E41.8 billion in 2000 with Media and
Communications and Environmental Services accounting for E40.1 billion, a global
increase of 37% over 1999. Almost 20% of the revenue growth resulted from
acquisitions and the impact of consolidating the results of CANAL+ for the full
twelve-month period in 2000 (compared to three months in 1999), 3.7% resulted
from favorable foreign currency exchange rates and 13.6% was due to internal
growth (growth on a comparable basis at constant exchange rates excluding the
impact of acquisitions and dispositions).
Our Media and Communications businesses earned revenue of E13.6 billion in
2000, an increase of 63% over 1999, primarily due to the consolidation of
CANAL+, as discussed above. Revenue from Universal Studios and Universal Music
Group for the twenty-three day period included in the above was E0.2 and E0.5
billion, respectively. Internal growth in our Media and Communications
businesses was 19% with growth in all business segments. The Media and
Communications businesses represented 33% of our revenue in 2000, compared to
20% in 1999.
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Our Environmental Services businesses generated revenue of E26.5 billion in
2000, an increase of 26% compared to 1999. The increase was the result of
internal growth of 11% and the full-year effect of acquisitions made in 1999,
principally US Filter which was consolidated for twelve months in 2000 compared
to eight months in 1999. Internal growth was generated by new contracts in the
water, waste management and transportation divisions, increases in volumes and
the price of paper in the waste management division and cogeneration facilities
in France combined with expansion in Northern and Eastern Europe in the energy
division. The Environmental Services businesses represented 63% of our revenue,
compared to 51% in 1999.
Revenue from non-core businesses declined to E1.7 billion in 2000 from
E11.6 billion in 1999, reflecting our withdrawal from construction and real
estate operations. The disposition of Vinci and Nexity, with revenue of E8.8 and
E1.5 billion respectively in 1999, account for the revenue decline. Of the E1.7
billion in revenue from non-core businesses, E1.4 billion were earned by Sithe,
in which we now have a reduced interest.
In 2000, E21.2 billion or 51% of total revenue was generated in France,
compared to E23.6 billion or 58% in 1999. The revenue decline in France and
corresponding growth outside France reflected the impact of our acquisitions and
dispositions, discussed above. Of the revenue generated outside of France, E5.6
billion was earned in the "euro zone" (includes 10 countries in Western Europe)
and E4.8 billion was earned in European countries outside the euro zone,
including E3.0 billion in the United Kingdom. In the Americas, revenue increased
52% to E8.5 billion, in Asia/Pacific, revenue reached E1.3 billion, including
E0.5 billion in Australia, an increase of 64%. In emerging markets, revenue was
approximately E0.5 billion.
Operating Income
Operating income was E2.6 billion in 2000, a 40% increase over 1999. Our
Media and Communications businesses generated operating income of E612.1
million, before holding and corporate expenses, more than triple that of 1999.
Including holding and corporate expenses, Media and Communications operating
income was E417.5 million, representing 16% of our total operating income. This
growth came primarily from our Telecoms business. This increase was primarily a
consequence of the increased profitability of our French mobile business, which
had operating income of E659.9 million, up from E185 million in 1999. In
addition, Cegetel's fixed telephony business start-up losses were reduced, from
E206.3 million in 1999 to E148.9 in 2000.
Operating income generated by our Environmental Services businesses reached
E1.9 billion in 2000, up from E1.5 billion in 1999. This 28% increase is
attributable primarily to Vivendi Water and Onyx. Internal growth, primarily
resulting from new environmental contracts, was 10%. Our Environmental Services
businesses contributed almost 74% to our operating income in 2000, compared to
81% in 1999. Operating income from non-core businesses, principally in
construction and real estate amounted to E257.4 million in 2000 versus E351.3
million in 1999.
On a pro forma basis, operating income increased 68% to E3.1 billion and
EBITDA increased 48% to E7.2 billion in 2000. These results reflect the strong
performance and growth in all business units with the exception of Internet, in
which development costs related to business expansion continued to have a
negative impact on earnings.
Financial Expense/Income
Our net financial expense increased significantly in 2000 to E632.9 million
primarily due to increased financing costs associated with our acquisitions. In
addition to E1,288.4 million of financing costs, 2000 net financial expense
included E684.8 million of capital gains on the sale of portfolio investments,
primarily the sale of Alcatel and treasury shares and E91.7 million of financial
provisions. In 1999, our net financial expense was comprised of E871.9 million
in financing costs, E450.6 million of capital gains, E163.0 million of financial
provisions and E235.6 million of foreign exchange gains. Our average cost of
debt in 2000 was 5.15% compared to 5.13% in 1999.
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Exceptional Items
In 2000, we recorded net exceptional income of E2.9 billion, compared to
net exceptional expense of E0.8 billion in 1999. Significant items included in
the 2000 net exceptional income were:
- a net gain of E779.6 million on the dilution of our interest in Vivendi
Environnement due to the IPO of that subsidiary;
- E2,997 million in capital gains and gains on the dilution of our
interests in other companies, including Dalkia (E734.6 million), Vinci
(E549.3 million), BSkyB (E473.4 million), CanalSatellite/MultiThematiques
(E408.1 million) and Sithe/GPU (E371.9 million)
- E270.9 million in restructuring costs including, E146.7 million for our
Publishing business and E124.2 million for our Environmental Services
business.
Goodwill Amortization
Goodwill amortization increased five percent to E634.2 million in 2000,
primarily due to the inclusion of twenty-three days of goodwill amortization
related to the merger with Seagram and Canal Plus, partially offset by the
impact of dispositions.
Income Taxes
Our income and deferred tax provision was E1 billion in 2000, compared to a
tax benefit of E946.1 million in 1999. The year-on-year variance primarily
results from a revaluation of tax loss carry forwards in 1999 of approximately
E1 billion. Excluding exceptional items and goodwill amortization, Vivendi
Universal's effective tax rate in 2000 was 33.7%.
Equity in Earnings of Affiliates
The equity in earnings of affiliates decreased to a loss of E306.3 million
in 2000 from income of E32.9 million in 1999. The decrease is primarily due to
increased losses from TV & Film affiliates of E109.2 million in 2000 compared to
E20 million in 1999 and BSkyB of E118.9 million in 2000 compared to E13.7
million in 1999, combined with losses of E125.1 million from new Internet
affiliates, most of which did not exist in 1999.
Net Income
Net income of E2.3 billion or E3.6 per basic share was earned in 2000,
compared with net income of E1.4 billion or E2.7 per basic share in 1999.
1999 VERSUS 1998
Revenue
Our consolidated revenue increased to E41.6 billion in 1999 from E31.7
billion in 1998. Of this 31.2% increase, 19.6% resulted from acquisitions,
primarily of US Filter, Superior Services and Havas Interactive, and the full
year effect of our earlier acquisition of FCC. A further 9.7% was due to
internal growth, principally in the Telecoms business. The impact of changes in
exchange rates, particularly in the U.S. dollar/euro exchange rate, accounted
for the remaining two percent.
In 1999, our Media and Communications businesses earned revenue of E8.6
billion compared to E5.9 billion in 1998. Of this 44% increase, 23% was the
result of internal growth in the Telecoms segment, caused primarily by a
significant increase in demand for our mobile telephony services. The remaining
21% resulted from acquisitions, principally of Havas Interactive, Medi-Media and
Canal Plus, in which we acquired an additional 15% ownership interest in
September 1999. The Media and Communications businesses represented 21% of our
revenue in 1999, compared to 19% in 1998.
Our Environmental Services businesses generated revenue of E22.4 billion in
1999, compared to E16 billion in 1998. Of this 40% increase, 29% was
attributable to external growth, principally our acquisitions of
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US Filter and Superior Services. Approximately eight percent 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 Services businesses represented 54% of our revenue, compared to
50.5% in 1998. Revenue from non-core businesses, principally in construction and
real estate amounted to E10.6 billion in 1999 versus E9.7 billion in 1998.
Geographically, revenue generated in France totaled E23.8 billion, an
increase of 11%, 10% of which came from internal growth. The majority of the
growth was in Telecoms due the continued strong performance of our French
telecommunications operations. Of the total revenue, 57% was generated in France
in 1999 compared to 67% in 1998. Revenue generated outside France increased 73%
to E17.8 billion in 1999, primarily as a result of our acquisitions discussed
above. Internal growth, principally due to the impact of new environmental
contracts, accounted for the remainder, or 10%. In total, business outside
France represented 43% of our total revenue, compared to 33% in 1998. Of the
revenue generated outside of France, E5.9 billion was earned in the euro zone,
an increase of 46.7% and E4.9 billion was earned in European countries outside
the euro zone, an increase of 29%, of which the United Kingdom accounted for
E3.5 billion. In the Americas, revenue increased almost fourfold to E5.6
billion, in Asia/Pacific, revenue reached E0.8 billion, including E0.3 billion
in Australia, an increase of 71%. In emerging markets, revenue was approximately
E1 billion.
Operating Income
Operating income was E2.28 billion in 1999, a 71.3% increase over 1998, of
which 33.5% was due to internal growth. The increase in operating income
reflected a 1.3% improvement in operating margin and the impact of the
acquisitions described above. The improved operating margin reflected internal
growth in revenue of 9.7% compared to an 8.6% increase in operating expenses.
Operating income generated by Media and Communications businesses, before
holding and corporate expenses, doubled to E551.6 million (including internal
growth of a factor of 2.4), representing 24% of our total operating income,
compared to less than 20% in 1998. This growth came primarily from our Telecoms
business, where operating income rose from E22.5 million to E350.6 million. This
increase was primarily a consequence of the increased profitability of our
French mobile business, which had operating income of E581 million, up from E291
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 E264 million in 1998 to E215 in 1999. Finally, the Publishing
business 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 E92.8 million, and by start-up losses of E50.8 million
generated by our Internet businesses.
Operating income generated by our Environmental Services businesses reached
E1.7 billion in 1999, up from E1.1 billion in 1998. This 54.4% increase is
attributable primarily to the consolidation of US Filter, which contributed
approximately E339.1 million to our 1999 operating income. Internal growth,
primarily resulting from new environmental contracts such as those described
above, was 9.8%. Our Environmental Services businesses contributed 73% to our
operating income in 1999, compared to slightly over 80% in 1998. Operating
income from non-core businesses, principally in construction and real estate
amounted to E225.8 million in 1999 versus an operating loss of E113.4 million in
1998.
Financial Expense/Income
Our net financial expense was E220.1 million in 1999 compared to net
financial income of E9.3 million in 1998. This decline was primarily due to an
increase of E463.9 million in our financing costs, which grew as a result of our
1999 acquisitions. As a result of a hedging policy that was implemented at the
end of 1998, our average cost of debt fell from 5.45% to 5.13% between 1998 and
1999 in spite of rising interest rates. Allowances for financial provisions were
E162.9 million in 1999, down from E298 million in 1998. This decrease was caused
principally by lower allowances for financial risks due to the cancelation of
certain real estate risks. We recognized E450.6 million in capital gains in 1999
(down from E553.2 million in 1998), primarily in connection with the sale of
portfolio securities, including the sale of treasury shares and shares of
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Alcatel and Saint-Gobain. In 1999, we recorded a E102.6 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 E10.4 million in 1998.
Exceptional Items
In 1999, we recorded a net exceptional loss of E837.8 million, compared to
a E249.3 million profit in 1998. Significant items included in the 1999 net
exceptional loss were:
- capital gains of E650.8 million (E575.4 million re: Havas' billboard
advertising business sale, E275.2 million re: the sale of our 18.7%
interest in Audiofina and E148.7 million re: the sale of 9% of Havas
Advertising), partially offset by a pre-tax capital loss of E386.7
million incurred in connection with the sale of CGIS's real estate
assets;
- exceptional charges of E1.42 billion, of which almost E800 million
consisted of provisions related to real estate assets, (particularly the
multi-year construction programs which were revalued to facilitate the
process of selling them) and E318.5 million consisted of provisions
related to the accelerated write-off of CANAL+ digital set-top boxes
(which must be replaced sooner than expected by a new generation of
equipment made necessary by the development of multi-access portals); and
- E95.1 million in restructuring expenses, net of allowances and releases,
of which related primarily to the construction, water, and energy
services.
Goodwill Amortization
Goodwill amortization increased significantly in 1999. This increase is due
primarily to strategic acquisitions, particularly of US Filter (goodwill
amortization of E30 million) and Havas Interactive (goodwill amortization of E28
million) as well as from Vivendi Environnement (goodwill amortization of E45
million). As a result of the US Filter acquisition, and as part as of the
restructuring of our activities in the United States, we wrote down the goodwill
related to Aqua Alliance (E92 million) and its subsidiaries (E90 million).
Income Taxes
Our income taxes and deferred tax result for 1999 is a profit of E0.8
billion, compared to an expense of E90 million in 1998. The E0.8 billion profit
is due to the fact that we recognized in 1999 a deferred tax asset of E1
billion.
Equity in Earnings of Affiliates
Our share in the net income of affiliated companies accounted for by the
equity method amounted to E32.9 million in 1999, compared with E42.5 million in
1998. As in 1998, this category consisted primarily of net income generated by
Cofiroute (E26 million compared with E21.4 million in 1998), Havas Advertising
(E11.3 million compared with E13.6 million in 1998) and General Utilities' U.K.
subsidiaries (E21.3 million compared with E17.4 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 E20 million to our net income, compared with a negative
E9.6 million in 1998. BSkyB contributed negative income of E13.7 million.
Net Income
Our consolidated net income rose 27.7% to E1,431.4 million in 1999. This
corresponds to net earnings per share of E2.7, as compared with E2.5 in 1998, a
10% increase.
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BUSINESS SEGMENT RESULTS
ACTUAL PRO FORMA
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------------- --------------------
2000 1999(1) 1999 1998 2000 1999
-------- -------- -------- -------- -------- --------
(EUROS IN MILLIONS)
Revenue
Music..................... 494.6 -- -- -- 6,611.0 5,705.0
Publishing................ 3,539.8 3,278.4 3,316.9 2,876.3 3,599.8 3,352.4
TV & Film................. 4,248.3 1,150.6 1,151.8 200.6 8,795.5 7,345.2
Telecoms.................. 5,270.1 3,912.5 4,102.2 2,875.2 5,270.1 3,912.5
Internet.................. 47.8 2.1 2.0 -- 47.8 2.1
-------- -------- -------- -------- -------- --------
Media &
Communications....... 13,600.6 8,343.6 8,572.9 5,952.1 24,324.2 20,317.2
Environment............ 26,512.0 20,959.4 22,428.2 16,047.2 26,512.0 20,959.4
Non-Core Businesses.... 1,685.0 11,551.5 10,621.4 9,737.8 1,685.0 2,723.9
-------- -------- -------- -------- -------- --------
Total Vivendi Universal..... 41,797.6 40,854.5 41,622.5 31,737.1 52,521.2 44,000.5
======== ======== ======== ======== ======== ========
EBITDA
Music..................... 94.2 -- -- -- 1,157.0 840.0
Publishing................ 493.4 410.7 417.0 355.0 531.0 442.7
TV & Film................. 526.0 84.8 86.0 13.0 770.9 325.7
Telecoms.................. 1,303.3 493.7 1,372.0 674.0 1,303.3 493.7
Internet.................. (183.7) (34.3) (51.0) (4.0) (183.7) (34.3)
-------- -------- -------- -------- -------- --------
2,233.2 954.9 1,824.0 1,038.0 3,578.5 2,067.8
Holding and Corporate..... (137.0) (75.9) (75.5) (43.0) (250.0) (174.4)
-------- -------- -------- -------- -------- --------
Media &
Communications....... 2,096.2 879.0 1,748.5 995.0 3,328.5 1,893.4
Environment............ 3,544.3 2,723.6 2,781.0 1,929.0 3,544.3 2,723.6
Non-Core Businesses.... 340.4 698.0 705.5 529.0 340.4 245.5
-------- -------- -------- -------- -------- --------
Total Vivendi Universal..... 5,980.9 4,300.6 5,235.0 3,453.0 7,213.2 4,862.5
======== ======== ======== ======== ======== ========
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ACTUAL PRO FORMA
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------------- --------------------
2000 1999(1) 1999 1998 2000 1999
-------- -------- -------- -------- -------- --------
(EUROS IN MILLIONS)
Operating income (loss)
Music..................... 85.5 -- -- -- 726.0 513.0
Publishing................ 344.7 352.1 354.5 252.2 382.3 384.1
TV & Film................. (110.6) (103.2) (102.7) (4.7) (90.6) (307.0)
Telecoms.................. 486.1 (60.4) 350.6 22.5 486.1 (60.4)
Internet.................. (193.6) (35.1) (50.8) (6.4) (193.6) (35.1)
-------- -------- -------- -------- -------- --------
612.1 153.4 551.6 263.6 1,310.2 494.6
Holding and Corporate..... (194.6) (151.6) (151.1) (116.6) (320.6) (259.5)
-------- -------- -------- -------- -------- --------
Media &
Communications....... 417.5 1.8 400.5 147.0 989.6 235.1
Environment............ 1,896.5 1,482.4 1,654.2 1,071.0 1,896.5 1,482.4
Non-Core Businesses.... 257.4 351.3 225.8 113.4 257.3 151.6
-------- -------- -------- -------- -------- --------
Total Vivendi Universal..... 2,571.4 1,835.5 2,280.5 1,331.4 3,143.4 1,869.1
======== ======== ======== ======== ======== ========
---------------
(1) Restated to reflect change in accounting policies.
MUSIC
The Music business is conducted though Universal Music Group, which
develops, acquires, produces, markets and distributes recorded music through a
network of subsidiaries, joint ventures and licensees in 63 countries around the
world. Universal Music Group also manufactures, sells and distributes music
videos in the United States and internationally, licenses music copyrights and
publishes music. Universal Music Group's record labels include A&M, Barclay,
Blue Thumb, Decca/London, Def Jam, Deutsche Grammophon, Geffen, GRP, Impulse,
Interscope, Island, Jimmy and Doug's Farmclub.com, MCA, MCA Nashville, Mercury,
Mercury Nashville, Motown, Philips, Polydor, Universal and Verve. Universal
Music Group owns the most extensive music catalog in the industry and is at the
forefront of the development of new methods to distribute, market, sell, program
and syndicate music and music-related programming by exploiting the potential of
new technological platforms, that will allow the music business to be conducted
over the Internet, cellular networks, cable and satellite.
2000 Versus 1999
Actual. The actual 2000 results include twenty-three days of Universal
Music Group operations since the completion of the merger on December 8, 2000.
Revenue for that period was E494.6 million, EBITDA and operating income were
E94.2 million and E85.5 million, respectively.
Pro forma. Revenue increased almost 16% to E6.6 billion in calendar year
2000. Excluding the impact of favorable foreign exchange, revenue would have
increased five percent. In 2000, 67 albums reached worldwide sales in excess of
one million units and 5 albums sold over five million units. Major album sales
included those by Eminem, Limp Bizkit, U2, Bon Jovi, Nelly, Dr. Dre, 3 Doors
Down, Sisqo, Sting, Texas, Ronan Keating and Aqua, among others. We continue to
hold strong chart positions in all music genres and major markets, including the
United States, United Kingdom, France, Germany and Brazil. Internationally, we
continue to maintain a strong local repertoire presence. In calendar 2000,
revenue generated in North America accounted for 44% of the total music revenue.
The European market accounted for 39%, Asia Pacific contributed 13% and Latin
America accounted for the remaining four percent. Operating income increased 42%
and EBITDA increased 38%, or 24% on a constant exchange rate basis, reflecting
strong performances in North America and Europe and worldwide cost savings
achieved from the integration of PolyGram, partially offset by investments in
our electronic business initiatives and weaker results in Latin America.
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We believe that emerging technologies will be strategically important to
the future of the music business. Evolving technology allows current customers
to sample and purchase music in more and different ways, and it exposes
potential consumers to music they otherwise would not know exists. Through a
variety of independent initiatives and strategic alliances, we continue to
invest resources in the technology and electronic commerce areas that will allow
the music business to be conducted over the Internet, cellular networks, cable,
satellite, wireless broadband and future networks. Our investments and
initiatives include the Bluematter(TM) music format, the DataPlay physical
format, InterTrust Technologies, Jimmy and Doug's Farm Club, GetMusic (our joint
venture with BMG Entertainment) as well as our joint venture with Sony Music
Entertainment to develop and launch pressplay, an online subscription-based
music service.
PUBLISHING
Vivendi Universal Publishing (formerly Havas) focuses on worldwide
multi-platform content (press, publishing, multimedia and trade fairs) in five
divisions -- games, education, health, information and literature. The games
division is No. 1 worldwide in online games and No. 2 worldwide in PC-based
games. The education division is one of the world leaders in its field and the
European leader in PC-based educational CD-ROMs. Its market segments are school
textbooks, youth, adult training and reference books. The divisions brands
include Larousse, Nathan, Anaya and Coktel (Adibou). The health division
provides professionals with regularly updated, top quality information. The
information division has three branches: B2B, general information and local
information. The literature division is a French market leader in general
literature with well-known publishing houses including, Robert Laffont,
Plon-Perrin and Les Presses-Solar-Belfond. Vivendi Universal Publishing is
focused on developing interactive and digital content within all its divisions.
2000 Versus 1999 (Restated)
Actual. Revenue generated by our Publishing businesses totaled E3.5
billion in 2000, an increase of eight percent over 1999, approximately five
percent of which was from internal growth. Internal revenue growth at our games
division was 27%, primarily due to the worldwide success of Diablo II, which has
sold over three million copies since its launch in 2000. The education division,
with revenue of approximately E1.0 billion in 2000, had a successful year in
textbooks (partly due to the turnaround of Anaya in Spain) but faced a weak
market for educational CD-ROM sales, primarily in the U.S. Revenue generated by
the health division at E419 million, increased in excess of 90% compared to
1999, due in part to the integration of Staywell-3V, a leading provider of
consumer health information. Internal revenue growth in the health division was
six percent. The information division contributed revenue in excess of E1.2
billion, an increase of six percent compared to 1999, reflecting the outstanding
advertising market for B2B and consumer magazines. The literature division
(excluding France Loisirs) performed well with revenue of E184 million, up 10%
from 1999. Revenue generated outside France accounted for 46% of the Publishing
businesses compared to 40% in 1999. Operating income for our Publishing
businesses was E344.7 million in 2000. Excluding the amortization of Havas
Interactive acquired software, operating income was E381 million, eight percent
higher than 1999.
Pro forma. Pro forma EBITDA increased 20%, of which seven percent was from
internal growth. In 2000, Universal Interactive Games, which is included in the
pro forma results, included revenue of E60 million or slightly below two percent
of the total business, and operating income was E37 million. In 1999, Universal
Interactive Games revenue was E74 million and operating income was E32 million.
1999 Versus 1998
Revenue generated by our Publishing businesses increased 15% to E3.3
billion in 1999, primarily due to the acquisition of Havas Interactive, which
contributed revenue of E536 million. Internal revenue growth was three percent.
Revenue generated by the Business and Professional division was E1.3 billion, up
nine percent from 1998, primarily due to the advertising market for professional
publications in France and in the United Kingdom and the integration of
MediMedia, the world leader in drug information, for six months. Revenue
generated by the General Public division was E1.5 billion, up 60% on 1998,
primarily due to the integration of Havas Interactive. Of the Publishing
businesses total revenue, 17% was generated by electronic media (mostly
educational and game CD-ROMs) compared to five percent in 1998. Geographically,
40% of the revenue was
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generated outside France, compared to 27% in 1998. The Publishing businesses
contributed E354.5 million to operating income in 1999, an increase of E102.3
million from 1998, primarily due to acquisitions described above. Internal
growth was three percent resulting largely from productivity enhancements in our
French operations.
TV & FILM
Vivendi Universal's TV & Film businesses are a major global player in film
and television production and distribution, pay television channels and
services, digital television technology, Internet content and themed
entertainment. The TV & Film businesses own the world's second-largest film and
television library, totaling more than 8,600 feature films and more than 30,000
hours of TV programs. The TV business is comprised of CANAL+ and Universal
Television and Networks Group. CANAL+ is the leading European producer and
operator of pay television premium and theme channels, the number one in Europe
in digital television and also is an international provider of digital TV
solutions. Universal Television and Networks Group is a global television sales,
networks and production operation, with customers in over 180 countries. The
Film business is comprised of Universal Pictures and StudioCanal which produce
and distribute motion picture, television and home video/DVD, products worldwide
and engage in the licensing of merchandising and film property rights. Universal
Studios Recreation Group operates the themed entertainment business, which is a
natural extension of the core TV & Film businesses. Its "Universal Studios"
destination resorts, theme parks and entertainment centers provide exciting and
compelling attractions to visitors around the world.
Through Universal Studios, Vivendi Universal has an effective 43% equity
interest in USA Networks, Inc., which is focused on the new convergence of
entertainment, information and direct selling. Formed in February 1998, the
company is organized into three distinct but interrelated units: entertainment,
electronic retailing and information and services.
2000 Versus 1999 (Restated)
Actual. Revenue from the TV & Film segment totaled E4.2 billion in 2000,
of which E3.8 billion was generated by CANAL+ and E0.2 billion was generated by
Universal Studios in the twenty-three day period following the merger. Revenue
growth for CANAL+ was 17%, with 13% growth in pay TV. All divisions contributed
to the revenue growth. Of the total TV & Film revenue, E2.7 billion were
generated in France and E1.5 billion were generated outside France. At December
31, 2000, CANAL+ had 15.3 million subscriptions, an increase of nine percent
over the prior year. The number of digital subscribers increased 32% in 2000, to
5.3 million. In spite of increased subscriptions and digital subscribers and
several hits from StudioCanal, the CANAL+ operating loss increased to E98
million in 2000 from a E22 million loss in 1999 on a full year basis. The
increased loss was primarily due to investment in the Italian pay television
market, sports rights and competition in Europe, which increased expenses aimed
at reinforcing subscriber loyalty and the move towards digitalization. This was
partly offset by positive operating results at StudioCanal and CanalSatellite.
Pro forma. Pro forma results include the operations of Universal Studios
on a twelve-month calendar year basis and the consolidation of CANAL+ for twelve
months in 1999. Pro forma EBITDA more than doubled to E770.9 million, on revenue
of E8.8 billion, largely due to strong box office performance at Universal
Studios and a solid subscriber base in the pay television market. The
performance of Universal Studios improved year-on-year. In 2000, revenue
increased 23% (six percent on a constant rate basis) to E4.7 billion, operating
income was E7 million, an increase of E282 million, and EBITDA was E241 million,
an increase of E337 million. These results reflect improvements in both the
filmed entertainment and recreation and other businesses. Within the filmed
entertainment business, revenue increased 22% (five percent on a constant rate
basis), and EBITDA was E70 million, an improvement of E281 million compared to
1999. These results primarily reflect the solid performance of the motion
picture business in 2000. The theatrical success of Dr. Seuss' How The Grinch
Stole Christmas, Gladiator, Meet the Parents, Erin Brockovich and Nutty
Professor II: The Klumps, combined with strong DVD and video sales of The Mummy,
Notting Hill and American Pie resulted in improved earnings. Additionally, the
development of programs designed to manage production, marketing, participation
and overhead and development costs also contributed to filmed entertain-
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ment results. Results of the television and networks business also improved in
2000, primarily due to improved operating performance for channels launched in
prior years and higher international earnings on USA Networks product, partially
offset by lower library sales. Within the recreation and other business, revenue
increased 26% (eight percent on a constant rate basis), and EBITDA increased to
E171 million an improvement of E56 million compared to 1999. These results
reflect improved earnings at Universal Studios Hollywood principally due to the
opening of the CityWalk expansion in April 2000, increased management fees and
earnings generated from the expansion of Universal Orlando and increased retail
sales at Spencer Gifts.
1999 Versus 1998
Our TV & Film businesses contributed E1.15 billion to total revenue in 1999
compared to E0.2 billion in 1998. The significant increase was primarily due to
the E951 million contribution from CANAL+ for the three-month period starting
October 1, 1999. Prior to that date, the results of CANAL+ were accounted for
using the equity method, however, after acquiring the 15% interest held by
Richemont, the results of CANAL+ were fully consolidated. Our TV & Film
businesses incurred an operating loss of E102.7 million in 1999, compared to a
E4.7 million loss in 1998. The increased loss was due to the negative
contribution of E92.8 million from CANAL+ for the fourth quarter.
TELECOMS
Through Cegetel and VTI, Vivendi Universal provides a broad range of
telecommunications services, including fixed and mobile telephony, Internet
access and data services and transmission. Vivendi Universal currently owns,
directly and indirectly, 44% of Cegetel's outstanding equity. The results of
Cegetel are consolidated because, through a shareholders' agreement, Vivendi
Universal has a majority of the shareholder voting rights and thus effective
control. With 15% of the French telecommunications market at the end of 2000,
Cegetel is the leading private full-service telecoms operator in France. Cegetel
offers mobile telephone services through its subsidiary SFR, long distance and
international fixed telephone services through Cegetel 7 and various
telecommunications services to business customers through Cegetel Entreprises.
VTI, a wholly owned subsidiary of Vivendi Universal, develops our
telecommunications activities outside France. At the end of 2000, VTI was
operating in Spain, Monaco, Poland, Hungary, Kosovo, Egypt, Morocco and Kenya.
2000 Versus 1999 (Restated)
The Telecoms business generated revenue of E5.3 billion in 2000, an
increase of 35%, of which approximately 32% was generated from internal growth.
Cegetel's revenue increased to E5.1 billion in 2000, compared with E3.9 billion
in 1999, an increase of approximately 31%. This growth was linked to the
continuing development of SFR, whose revenue increased by 31% to E4.6 billion in
2000, due to a 38% increase in the user base, from 7.3 million customers at the
end of 1999 to 10.1 million at the end of 2000, which represented 35% of the
French mobile telephone market. The volume increase was in line with the French
mobile market growth, where penetration grew from 34% at the end of 1999 to 49%
at the end of 2000. Monthly average usage per customer increased from 240
minutes in 1999 to 290 minutes in 2000. SFR's revenue growth was achieved
despite a 15% decrease of the average revenue per user, from E53 to E45, which
resulted primarily from increased share of prepaid customers in the customer
base, a general trend of the French market, such customers representing
significantly lower bills than postpaid customers. Prepaid customers accounted
for 43% of SFR's total customer base at the end of 2000, versus 33% at the end
of 1999. Additionally, SFR's revenue suffered from the decrease in incoming
calls from fixed lines, which represented 30% of total incoming calls in 2000
versus 37% in 1999, and from the full year effect over 2000 of fixed-to-mobile
rates' reduction decided in September 1999 at the request of the ART, the French
telecommunications regulator. Revenue would have been even higher in 2000 had
certain mobile-to-mobile contracts not been deferred until 2001. Our fixed
telephony business revenue increased 43% to E455 million in 2000, compared to
E318 million in 1999. Cegetel 7's revenue increased by 35% to E193 million. This
growth is mainly due to an increase of the user base, including over 800,000 new
clients and reaching 2.4 million lines at the end of 2000 versus 1.5 million
lines at the end of 1999. Cegetel 7 has reached a market share of approximately
nine percent
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at the end of 2000. Cegetel Entreprises' revenue increased by 50% to E262
million due, on the one hand, to the significant growth of voice traffic
(increase of 37% to 1.4 billion minutes), mitigated by significant price
pressure on voice products. On the other hand, Cegetel developed its data
transmission services, which represented 40% of 2000 revenue compared to 35% in
1999, reflecting 62% growth.
Operating income in 2000 was E486.1 million versus a operating loss of
E60.4 million in 1999. The 1999 restated operating income reflects the adoption
of a new accounting method related to mobile customers acquisition costs. These
costs, which were previously capitalized and depreciated over 12 months, are now
directly recorded as expenses. SFR's operating income increased to E634 million
in 2000 from E54 million in 1999. This performance resulted both from a slight
reduction in acquisition costs per user and from the scale effect linked to the
increased customer base. Cegetel 7 incurred an operating loss of E59 million in
2000, stable versus 1999, as a decrease in tariffs was balanced by an increase
in the client base and cost savings. Cegetel Entreprises' operating loss
decreased from E148 million in 1999 to E89 million in 2000, due to increased
revenue, a cost control program put in place in early 1999 and network
restructuring.
Telecoms consolidated EBITDA grew significantly on a pro forma basis, from
E494 million in 1999 to E1.3 billion in 2000. The EBITDA from SFR's mobile unit
grew 100% to E1.2 billion, whereas the fixed activities of Cegetel 7 and Cegetel
Entreprises both significantly reduced their EBITDA loss by 40% from E143
million in 1999 to E86 million in 2000.
1999 Versus 1998
In 1999, the Telecoms businesses generated revenue of E4.1 billion, an
increase of 43% compared to 1998, primarily due to the operations of Cegetel.
Cegetel's revenue increased by 42% to E4.0 billion. This growth was due in part
to the performance of SFR, whose revenue increased by 37% to E3.7 billion in
1999, largely as a result of a 73% increase in its user base, from 4.3 million
customers at the end of 1998 to 7.3 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 E63 to E53, which resulted primarily from lowered prices. Price
declines were caused by intense competition in the French market and by the
increased popularity of prepaid, rather than contract, arrangements. Prepaid
customers represented 33% of SFR's total customer base at the end of 1999, up
from 15% at the end of 1998. Prepaid customers generated average monthly revenue
of E23, compared to E59 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
E318 million in 1999, compared to E147 million in 1998. Cegetel 7's revenue
almost tripled to E143 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 seven percent in 1999, half of the market share
relinquished by France Telecom to its competitors. Cegetel Entreprises' revenue
doubled to E175 million, coming from a sharp increase in traffic (which almost
quadrupled to 1.1 billion minutes), mitigated by significant price pressure on
voice products.
Operating income for our telecommunications businesses increased to E350.6
million from E22.5 million in 1998. Cegetel accounted for E366 million of the
1999 total, having contributed E27 million in 1998. Cegetel's contribution was
partially offset by a E15 million operating loss generated by the international
operations of VTI. Within Cegetel, SFR's operating income doubled to E550
million, 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 E58 million,
compared to a E102 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 E193 million to E148 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.
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INTERNET
The Internet business is conducted through Vivendi Universal Net which
brings together all of Vivendi Universal's Internet ventures alongside
Internet-related technological, investment and business development activities.
Vivendi Universal Net is an investor, incubator, technical service provider and
site operator that develops online content, technologies, brands and subscriber
bases in collaboration with all the other Media and Communications businesses.
Its focus is on selective investments, the strong internal growth of its
subsidiaries and the development of applications that are not dependent on
advertising as a revenue stream. Vivendi Universal Net's interactive operating
strategy allows it to identify and develop synergies throughout the company and
to benefit from economies of scale.
2000 Versus 1999 (Restated)
During 2000, many new Internet operations were launched or acquired
including, Ad-2One, an online advertising agency and i-France, a multiservice
portal that serves six European countries. Revenue in 2000 increased to E47.8
million, primarily as a result of these new businesses. The operating loss
incurred in 2000 was E193.6 million, primarily due to start-up and development
costs and marketing expenses. The planned European expansion of Ad-2One combined
with new development in the Education portal and Enablers will continue to have
a negative impact on earnings in 2001, however, the first launched vertical
portals such as Flipside and Bonjour are expected to break even by the end of
2001.
1999 Versus 1998
Our Internet businesses expanded rapidly in 1999, however, revenue was
insignificant as many operations were in the developmental stage. Due primarily
to marketing costs and the undeveloped nature of the Internet industry in
general, these businesses generated an operating loss of E50.8 million in 1999
compared to a loss of E6.4 million in 1998. The year-on-year increase resulted
from additional development costs for new operations.
ENVIRONMENTAL SERVICES
Vivendi Universal's Environmental Services businesses are primarily
operated through Vivendi Environnement, a 63% effectively owned subsidiary.
Vivendi Environnement is a worldwide leader in environmental services, with
operations around the globe. It provides integrated services in four principal
sectors, including water treatment and systems operation (Vivendi Water), waste
management (Onyx), energy services (Dalkia) and transportation services
(Connex), to a wide range of public authorities and industrial, commercial and
residential customers. Vivendi Environnement also holds a 49% interest in and
joint control of the holding company that owns FCC, one of the largest public
companies in Spain, that operates in the construction, public works and
environmental services sectors. Vivendi Environnement has been listed on the
Paris Bourse since July 2000.
2000 Versus 1999 (Restated)
Environmental Services' total revenue for 2000 was E26.5 billion, an
increase of 26% compared with 1999. Ten percent of the Environmental Services'
revenue growth resulted from the full-year impact of acquisitions made in 1999,
principally US Filter in water and Superior Services in waste management. Five
percent resulted from favorable currency exchange rates and 11% was the result
of internal growth. Revenue from Vivendi Environnement's water business was
E12.9 billion, an increase of 23%, including 10% internal growth. Internal
growth was generated by new contracts outside France and the steady development
of waterworks in France. Revenue from Vivendi Environnement's waste management
business was E5.3 billion, an increase of over 50% from 1999, of which internal
growth was in excess of 13%. Internal growth resulted from a number of new
contracts and increases in volumes and the price of paper. In the energy
business, revenue increased 14% in 2000 to E3.2 billion, including almost 10%
internal growth generated by cogeneration facilities in France and expansion in
Northern and Eastern Europe. The transportation business generated revenue of
E3.1 billion in 2000, up 29% from 1999, including internal growth of 13%, which
resulted primarily from the development of the Stockholm and Melbourne contracts
outside France and urban contracts within France. FCC generated
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revenue of in excess of E4 billion in 2000, E2 billion of which was contributed
to Vivendi Environnement's consolidated revenue, reflecting its 49% interest.
Revenue generated outside of France represented E15.4 billion, approximately 58%
of the total.
Operating income generated by Environmental Services businesses increased
by 28% to E1.9 billion in 2000. Twelve percent of the operating income growth
resulted from 2000 acquisitions and full-year impact of the 1999 acquisitions,
primarily US Filter and Superior Services. Six percent resulted from favorable
currency exchange rates and 10% was the result of internal growth, principally
in the water, energy and transportation divisions. Operating income generated by
Vivendi Environnement's water division increased 35%, including over 11% from
internal growth. Internal growth resulted from new contracts acquired outside
France, steady activities in the United States and the benefits of a cost
management policy. The waste management division generated operating income of
E399 million, an increase of almost 45% over 1999, primarily as a result of
acquisitions. Operating income from the energy business increased approximately
13% to E191 million in 2000. The internal growth was 15.9%. The transportation
division generated operating income of E108 million in 2000, an increase of in
excess of 14% over 1999, due to the favorable evolution of Stockholm and British
contracts. FCC, generated an operating income of E208 million, an increase of
12% from 1999.
1999 Versus 1998
Total revenue in our Environmental Services sector amounted to E22.4
billion in 1999, representing an increase of 40% 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. Revenue
from Vivendi Environnement's water business was E10.7 billion, an increase of
59% from 1998, primarily due to the acquisition of US Filter, which contributed
E3.6 billion between May and December 1999. Internal revenue growth in the water
business was approximately five percent. Revenue from Vivendi Environnement's
waste management business was E3.5 billion, an increase of 24% from 1998,
including internal growth in excess of nine percent, which resulted from a
number of new contracts. Within the energy business, services revenue (Dalkia)
increased five percent in 1999 to E2.8 billion, of which four percent was due to
internal growth reflecting the ramp-up of cogeneration contracts in France and
Eastern Europe. The transportation business generated revenue of E2.5 billion in
revenue in 1999, up 23% from 1998, of which internal growth was 15%, resulting
primarily from new contracts such as the Stockholm metro contract and the
Melbourne contract. FCC generated revenue of almost E4 billion in 1999, E1.9
billion of which was contributed to Vivendi Environnement's consolidated
revenue, reflecting its 49% interest. Geographically, revenue generated in
France increased six percent to E9.9 billion. Outside France, revenue increased
88% to E12.5 billion, or 55% of the total revenue of the division.
Operating income from our Environmental Services businesses increased by
54% to E1.7 billion in 1999. This increase is primarily attributable to the
acquisitions of US Filter, Superior Services, hazardous waste-related assets
from Waste Management and our interest in FCC. Internal growth was 10%, an
increase attributable primarily to new contracts in the water, waste management
and transportation segments. The water business contributed operating income of
E793 million in 1999, an increase of 96%, largely due to US Filter. The
performance was also improved due to continued cost cutting efforts in the
French water business. Operating margin in the water business increased from six
percent in 1998 to seven percent in 1999. Within the energy business operating
income increased 25% to E170 million in 1999, including 22% from internal
growth. In the waste management business, operating income totaled E277.7
million, an increase of 23%, primarily due to the acquisition of Superior
Services and Waste Management, which contributed E25 million and E13 million,
respectively, to our operating income. Internal growth was 11%. The
transportation business generated operating income of E96.1 million, an increase
of 28% from 1998 (including 20% internal growth), primarily resulting from
increased passenger traffic in the United Kingdom, which led to higher
productivity in our operations there. FCC's contribution to our operating income
was E190.5 million in 1999, compared to E74.5 million for the second half of
1998. Operating income for the same period in 1999 was E104 million.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
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.
2000 Versus 1999 (Restated)
Net cash flow from operating activities reflects funds generated from
operations and changes in operating assets and liabilities. Net cash flow from
operating activities was E2.5 billion in 2000, an improvement of E1.7 billion
over 1999. The improvement was mainly due to an increase in earnings primarily
generated by our Telecoms, Publishing and Environmental Services businesses. We
expect operating cash flow to increase as a result of the continuing development
of our Media and Communications businesses and from a reduction in interest
costs resulting from planned disposals. In addition, we expect the array of
Seagram content assets to increase demand for our access services, and therefore
to increase the net cash generated by our access operations. Also, we believe
that Seagram's businesses -- particularly its recorded music business -- will
generate strong cash flow, consistent with their historical performance.
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 E1.5 billion in 2000 compared to E12.9 billion in 1999.
The significant decrease primarily reflects fewer strategic acquisitions paid
for in cash in 2000 compared to 1999. Purchase of investments were E3.1 billion
in 2000, E8.8 billion lower than in 1999. Capital expenditures were E5.8 billion
in 2000, E0.7 billion higher than 1999. Proceeds from the disposal of
investments and fixed assets were E6.9 billion in 2000 compared to E4.5 billion
in 1999, mainly attributable to the divestiture of non-core real estate,
construction assets and GPU power generation plants.
Net cash flow used for financing activities was E0.6 billion in 2000
compared to net cash provided by financing activities of E13.7 billion in 1999.
The year-on-year variance was primarily due to the merger with Seagram and Canal
Plus. In July 2000, the sale of 37% of Vivendi Environnement through an IPO
contributed to an increase in financing transactions of E3.8 billion.
1999 Versus 1998
Net cash flow from operating activities was E1.4 billion in 1999 compared
to E2.9 billion in 1998. The decrease from 1998 to 1999 was mainly due to rising
debt costs and sales of real estate assets, which more than offset increases in
cash generated by our Telecoms, TV & Film and Publishing businesses.
Net cash used in investing activities was E13.6 billion in 1999 compared to
E2.9 billion in 1998. The significant increase in 1999 primarily reflects
several strategic acquisitions, including US Filter, Superior Services, Havas
Interactive, Elektrim, Medimedia and Sogeparc (representing, in the aggregate, a
total cash investment of E12 billion). An additional E5.7 billion was invested
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. These investments more than offset the E2.9 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.
Net cash flow provided by financing activities was E13.7 billion in 1999
compared to E0.2 billion in 1998. The significant increase in 1999 was primarily
due to increased proceeds from the issuance of common stock (principally in
connection with the US Filter acquisition), the issuance of two series of
convertible bonds that together generated proceeds in excess of E4.5 billion and
additional credit facilities of approximately E6.0 billion.
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In connection with the sale of the spirits and wine business, Seagram and
Joseph E. Seagram & Sons, Inc. ("JES") have recently completed tender offers and
consent solicitations for all of their outstanding debt securities that would
have otherwise matured between April 2001 and December 2038 (excluding the
Adjustable Conversion-rate Equity Security Units ("ACES")), representing an
aggregate of $6.175 billion principal amount of securities. Seagram and JES
purchased an aggregate of approximately $6 billion of securities pursuant to
these tender offers and consent solicitations. The aggregate purchase price,
dealer management fees and solicitation fees paid in relation to these tender
offers and consent solicitations totaled approximately $6.6 billion. On March 8,
2001, Vivendi Universal successfully completed an exchange offer and consent
solicitation for 97.9% of the ACES, representing a principal amount of
approximately $1 billion, issued by The Seagram Company Ltd. Vivendi Universal
arranged certain bridge financing facilities with various financial institutions
to provide funding for the tender offers and consent solicitations. We intend to
repay amounts drawn under these bridge financing facilities from the proceeds of
the sale of the spirits and wine business.
We expect that we will be able to satisfy our cash requirements for the
next 12 months without raising additional funds. As for our Media and
Communications businesses, 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 Telecoms and Internet
segments, in which case we may incur some additional debt, likely in the form of
bank loans.
CAPITAL RESOURCES
We meet our long-term financing needs through the issuance of bonds and
convertible debt and adapt to changes in these needs through the issuance of
commercial paper and through short-term credit facilities. As at December 31,
2000, our material capital resources included, E56.7 billion in total
shareholders' equity (up from E10.8 billion in 1999), E23.8 billion in long-term
debt (up from E19.1 billion in 1999) and E14.9 billion in short-term debt
(versus E15 billion in 1999). Our net financial debt at December 31, 2000 was
E25.5 billion, of which E13.1 billion relates to our Environmental Services
businesses. The net financial debt was 91% denominated in euros with an average
interest cost of 4.82% versus 4.1% in 1999. The remaining balance of the net
financial debt was denominated in U.S. dollars, pounds sterling and Australian
dollars with an average interest rate of 7.12%, 7.32% and 6.72%, respectively.
Altogether, the average cost of debt in 2000 was 5.15% versus 5.13% in 1999. The
maturity profile of the E23.8 billion in long-term debt is: E7.3 billion will
mature in one to two years, E12.6 billion will mature in more than two years but
less than five years, and E3.9 billion will mature in more than five years. We
expect to accelerate the retirement of the Media and Communications businesses
net financial debt with the anticipated proceeds from the sale of Seagram's
spirits and wine operations, completion of the ACES exchange offer and sale of
our investment in BSkyB. Our ratio of net financial debt to shareholders' equity
and minority interest was 38% in 2000 (versus 153% in 1999).
CAPITAL EXPENDITURES
Our total capital expenditures for 2000 were E5.8 billion, compared to E5.1
billion in 1999. Our 2000 capital expenditures were primarily in connection with
our Telecoms (E1.1 billion), TV & Film (E0.8 billion) and Environmental Services
(E2.6 billion) businesses. In addition, we invested E32.5 billion in the
acquisition of other companies in 2000, principally related to the merger of
Vivendi, Seagram and Canal Plus (a non-cash transaction of E29.5 billion).
Capital expenditures are expected to remain at similar levels over the next
years in order to maintain existing facilities, continue research and
development and promote the launch of new products and services.
We believe our access to external capital resources together with
internally generated liquidity will be sufficient to satisfy existing
commitments and plans, and to provide adequate financial flexibility. We expect
to fund future capital requirements of our content business from future cash
flows generated by operations. Regarding our Telecoms and Internet businesses,
we expect to fund our future substantial capital expenditure
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requirements (including our E4.95 billion bid for a UMTS license in France)
through additional incurrence of debt. We expect that Vivendi Environnement will
finance its capital requirements from its net cash flows and existing external
financing and, if necessary, a moderate increase in indebtedness.
EFFECT OF INFLATION
Inflation did not have a material effect on our revenue or income from
continuing operations in the 1998-2000 period.
UPDATE ON INTEGRATION AND SYNERGIES
Integration and cost-savings initiatives, along with the identification of
revenue- and EBITDA-generating opportunities, are proceeding well. Cost-saving
initiatives are well under way across all businesses and major progress has been
made in the first three months since the creation of Vivendi Universal toward
achieving the Company's 2002 target of E420 million. Cost-savings have resulted
from consolidations in headquarters operations, real estate, logistics, IT
(Information Technology) and procurement. Additional cost savings are expected
in all these areas. Identification of revenue synergies are well advanced and
poised for delivery in 2002. Those synergies are projected to contribute E1
billion to the revenue line, resulting in an annual EBITDA contribution of E220
million. Synergies identified cut across the Company's content and access
business units.
OTHER MATTERS AND RECENT DEVELOPMENTS
SFR SUBMITS APPLICATION FOR UMTS LICENSE
On January 30, 2001, SFR, an indirect subsidiary of Vivendi Universal,
officially submitted its application for a license to provide third generation
UMTS mobile telephony services in France. UMTS is a high-speed standard for
mobile telephony that would allow Vivendi Universal, through SFR, to provide an
extensive range of new services, including video telephony and high-speed access
to the Internet and to corporate intranets. The licenses are expected to be
awarded in 2002. The fee for each license is currently expected to be E4.95
billion, with payments spread over a 15-year period. The French government may
be considering proposals to alter the terms of the license awards.
CANAL+'S SALE OF ITS STAKE IN EUROSPORT
On January 31, 2001, CANAL+ announced that it had sold its 49.5% interest
in European sports channel Eurosport International and its 39% interest in
Eurosport France to TF1. Proceeds from the sale amounted to E303.5 million for
CANAL+ and E345 million for Vivendi Universal as its subsidiary Havas Image also
sold its interest in Eurosport France. CANAL+ will remain a distribution channel
for Eurosport. CANAL+ had acquired its interest in Eurosport International and
Eurosport France from ESPN in May 2000.
CONVERTIBLE BOND ISSUANCE
On February 2, 2001, Vivendi Universal placed E457 million principal amount
of bonds exchangeable for shares of Vinci, a company in which Vivendi Universal
has an 8.67% stake. The 1% five-year bonds were issued at a price of E77.35, a
30% premium to Vinci's then-current stock price. Each bond is exchangeable for
one Vinci share. On February 5, 2001, the lead manager for the bonds, which
managed the offering of the bonds, exercised its over-allotment option to
purchase E70 million additional principal amount of the bonds, thus increasing
the overall amount of the issuance to E527 million. Conversion of all the bonds
into Vinci shares would result in the elimination of Vivendi Universal's stake
in Vinci.
ACQUISITION OF UPROAR INC.
On February 5, 2001, Flipside Inc., a subsidiary of Vivendi Universal's
Publishing business, and Uproar Inc., a leading interactive entertainment
company, announced that they had entered into a definitive merger agreement
pursuant to which Flipside would acquire all of the outstanding stock of Uproar
for $3 per share, or
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a total consideration of $140 million. The transaction has been approved by the
Boards of both companies and will make the combined entity an overall leader in
interactive games on the Internet.
EXCHANGEABLE BOND ISSUANCE
On February 8, 2001, Vivendi Universal placed E1.809 billion principal
amount of bonds exchangeable into Vivendi Environnement stock on a one for one
basis. The bonds correspond to 9.3% of the capital stock of Vivendi
Environnement. The 2%, five year bonds were issued at a price of E55.90, a 30%
premium over the previous day's weighted-average price. Excluding, the 9.3% now
allocated to the exchangeable bonds, Vivendi Universal holds 63% of Vivendi
Environnement, and intends to maintain its majority control at this level for
the long term.
DISPOSITION OF AOL COMPUSERVE FRANCE
In March 2001, Vivendi Universal finalized the terms of the disposition of
its interest in AOL CompuServe France.
ACQUISITION OF EMUSIC.COM
On April 6, 2001, we entered into an agreement to acquire all of the
outstanding shares of EMusic.com Inc. pursuant to a cash tender offer at $.57
per share. The acquisition was completed on June 14, 2001.
ACQUISITION OF MP3.COM
On May 20, 2001, Vivendi Universal announced that it had reached an
agreement in principal to acquire MP3.com, Inc. for $372 million in a combined
cash and stock transaction. The acquisition is subject to customary closing
conditions, including regulatory approval.
ACQUISITION OF HOUGHTON MIFFLIN COMPANY
On June 1, 2001, Vivendi Universal announced that it had reached an
agreement in principal to acquire Houghton Mifflin through a cash tender offer
for all of Houghton Mifflin's common stock at a price of $60 per share. The
total consideration approximates $2.2 billion, including the assumption of
Houghton Mifflin's average net debt of $500 million The acquisition is subject
to normal customary closing conditions, including regulatory approval.
SALE OF LOEWS CINEPLEX
On June 28, 2001, Universal Studios and USIBV sold their interests to
Goldman, Sachs & Co. for an aggregate purchase price of $1.00. We intend to use
the tax loss from the sale to offset gains on other capital transactions.
CANCELATION OF SHARES
On June 28, 2001, the Vivendi Universal board authorized the cancelation of
22 million shares, reducing the number of outstanding shares by approximately
2%.
TRENDS
We believe that we can continue to achieve substantial growth in 2001 and
beyond. The key industry factors that will enable us to sustain significant
internal growth in our two core businesses are:
- In the Media and Communications division, continuing advances in
technology and growth in the mobile telephony sector, particularly in
mobile data and wireless internet services, as well as increasing demand
for multimedia services, which we intend to exploit by leveraging our key
content assets, including those we acquired in the Merger Transactions
with Seagram and Canal Plus.
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- In the Environmental Services division, the acceleration of the trend
towards privatization in the municipal market. We believe that the
percentage of the worldwide operating and management ("O&M") water market
that is privatized will continue to grow. Similarly, although only a very
small portion of the O&M industrial water market is privatized today, it
is growing rapidly. 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 "Item 3 -- Key Information -- Risk Factors".
FINANCIAL OUTLOOK
The strong results that we generated in 2000, combined with our unique
combination of content and distribution assets provide a solid foundation for
growth in 2001. For our Media and Communications businesses, revenue growth
(excluding Universal Studios Group Filmed Entertainment) is targeted to be 10%
and EBITDA growth is targeted to be 35% for the period 2000-2002.
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS
The table below shows the names, current principal occupations and recent
employment history of the directors of Vivendi Universal.
DATE
EXPIRATION INITIALLY
PRINCIPAL BUSINESS ACTIVITIES DATE OF APPOINTED
NAME OUTSIDE VIVENDI UNIVERSAL CURRENT TERM TO BOARD AGE
---- ---------------------------------------- ------------ --------- ---
Jean-Marie Messier...... Chairman and CEO of Vivendi Universal. 2004 1998 44
Chairman and CEO of Vivendi 1994 to
2000.
Mr. Messier is also a director of
Compagnie de Saint-Gobain, LVMH Moet
Hennessy Louis Vuitton, UGC Unipart
Group of Companies, BNP Paribas,
Alcatel, USA Networks, Inc. and The New
York Stock Exchange.
Edgar Bronfman, Executive Vice Chairman of Vivendi 2004 2000 46
Jr.(1)................ Universal.
President and Chief Executive Officer of
Seagram from 1994 to 2000.
Mr. Bronfman is also a director of USA
Networks, Inc.
Eric Licoys............. Co-COO of Vivendi Universal. 2004 2000 62
Chairman and CEO of Vivendi Universal
Publishing since 1998.
Advisor to Vivendi's Chairman from 1997
to 1999.
Chairman of Lazard Freres & Cie from
1996 to 1997.
Mr. Licoys is also a director of CGEA,
Media Overseas.
Pierre Lescure.......... Co-COO of Vivendi Universal. 2004 2000 55
Chairman and CEO of CANAL+, and Chairman
of the Executive Board of CANAL+ Group.
Mr. Lescure is also the Vice Chairman of
Sogecable SA (Spain), Companie
Independiente de Television SL (Spain),
Sociedad General de Cine SA (Spain).
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DATE
EXPIRATION INITIALLY
PRINCIPAL BUSINESS ACTIVITIES DATE OF APPOINTED
NAME OUTSIDE VIVENDI UNIVERSAL CURRENT TERM TO BOARD AGE
---- ---------------------------------------- ------------ --------- ---
Bernard Arnault......... Chairman and CEO of Moet Hennessy Louis 2004 2000 52
Vuitton.
Mr. Arnault is also the Chairman of
Christian Dior, Groupe Arnault,
Montaigne Participations et Gestion SA
and a director of Financiere Jean
Goujon, Christian Dior Couture, Societe
Civile du Cheval Blanc, Saint Emilion.
Jean-Louis Beffa........ Chairman and CEO of Compagnie de Saint- 2004 2000 59
Gobain.
Mr. Beffa is also Vice Chairman of BNP-
Paribas, and a director of Groupe
Bruxelles-Lambert (Belgium).
Edgar M. Bronfman(2).... Former Chairman of the Board of Seagram 2004 2000 72
Richard H. Brown........ Chairman and CEO of Electronic Data 2004 2000 54
Systems Co. since January 1, 1999.
From July 1996 to December 1998, Chief
Executive Officer of Cable and Wireless
plc.
From May 1995 to July 1996, President
and CEO of H&R Block, Inc.
Mr. Brown is also a director of Home
Depot Inc.
Jean-Marc Espalioux..... Chairman of the Executive Board of Accor 2004 2000 49
since 1997.
Previously a member of the Executive
Committee of Vivendi and then Deputy CEO
of Vivendi.
Mr. Espalioux is also a director of Fiat
France.
Philippe Chairman of CEO of Adecco. 2004 2000 65
Foriel-Destezet.......
Mr. Foriel-Destexet is also Chairman of
Akila S.A., Eco S.A., Idem France S.A.
Nescofin UK Limited and a director of
Carrefour S.A., Akila Finance S.A. and
Securitas A.B.
Jacques Friedmann....... Retired Chairman of the Supervisory 2004 2000 68
Board of AXA-UPA (Chairman from
1993-2000).
Mr. Friedmann is also a director of
Alcatel, BNP Paribas, and Total Fina Elf
S.A.
Esther Koplowitz........ Chairman and member of the Board of 2004 2000 48
Directors of Fomento de Constructiones y
Contratas (Spain)
Marie-Josee Kravis(3)... Senior Fellow, Hudson Institute Inc. 2005 2001 51
Mrs. Kravis is also a director of The
Canadian Imperial Bank of Commerce,
Hollinger International Inc., The Ford
Motor Company, Hasbro Inc., StarMedia
Network, Inc. and USA Networks, Inc.
Henri Lachmann.......... Chairman and CEO of Schneider Electric 2004 2000 62
since 1999.
Chairman and CEO of Strafor Facom from
1993 to 1998.
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DATE
EXPIRATION INITIALLY
PRINCIPAL BUSINESS ACTIVITIES DATE OF APPOINTED
NAME OUTSIDE VIVENDI UNIVERSAL CURRENT TERM TO BOARD AGE
---- ---------------------------------------- ------------ --------- ---
Samuel Minzberg(3)...... President of Claridge Inc. 2004 2001 51
Mr. Minzberg is also a director of Koor
Industries Ltd., ECI Telecom Ltd.,
Groupe Expordev Inc., Reitmans (Canada)
Limited and HSBC Bank Canada.
Simon Murray............ Chairman of Simon Murray & Associates. 2004 2000 61
Mr. Murray is also the Chairman of Gems
Ltd., Onyx Ltd. (Hong Kong) and a
director of Hermes International, Cheung
Kong Holdings Ltd., Hutchinson Whampoa
Ltd. and Tommy Hilfiger Corporation.
Serge Tchuruk........... Chairman and CEO of Alcatel. 2004 2000 63
Mr. Tchuruk is a director of Alstom,
Societe Generale, Thompson-CSF (Thales)
and Total Fina Elf S.A.
Rene Thomas............. Honorary Chairman and Director of BNP 2004 2000 72
Paribas.
Mr. Thomas is also a director of
Chargeurs Essilor and Usinor.
Marc Vienot............. Honorary Chairman and Director of 2004 2000 72
Societe Generale.
Chairman and CEO of Societe Generale
from 1973 to 1997.
Mr. Vienot is also a director of
Alcatel, Aventis, Societe Generale
Marocaine de Banque and Ciments
Francais.
---------------
(1) Son of Edgar M. Bronfman.
(2) Father of Edgar Bronfman, Jr.
(3) Mrs. Marie-Josee Kravis and Mr. Samuel Minzberg were elected as Director for
a four-year term by shareholders at a Meeting held on April 24, 2001. They
succeeded Messrs. Charles R. Bronfman and Andre Desmarais who resigned
effective April 24, 2001. Mr. Thomas Middelhof also resigned with the same
date of effect.
Other than those described in footnotes (1) and (2), there are no familial
relationships among our directors and executive officers.
Our directors are appointed for renewable terms of a maximum of four years,
subject to provisions of Vivendi Universal's statutes relating to age limits.
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SENIOR MANAGEMENT
The table below shows the names of our senior managers and members of the
Executive Committee (other than Jean-Marie Messier, Edgar Bronfman, Jr., Eric
Licoys and Pierre Lescure (listed in the table above under "Directors")), their
current positions and principal responsibilities:
NAME OTHER CURRENT RESPONSIBILITIES
---- ------------------------------------
John Borgia......................... Senior Executive Vice President
Human Resources of Vivendi Universal
Phillippe Germond................... Chairman and CEO of Cegetel Chairman
and CEO of Vivendi Universal Net
Guillaume Hannezo................... Senior Executive Vice President and
Chief Financial Officer of Vivendi
Universal
Doug Morris......................... Chairman and CEO of Universal Music
Group
Denis Olivennes..................... Member of the Executive Board of
CANAL+. Chief Operating Officer of
CANAL+.
Henri Proglio....................... Executive Senior Vice President CEO
of Vivendi Environnement
Agnes Touraine...................... Vice Chairman and CEO of Vivendi
Universal Publishing
COMPENSATION OF DIRECTORS AND SENIOR MANAGERS
The aggregate amount of compensation that we paid to our directors,
officers and senior managers, which included approximately 30 persons in all,
for services to the Company and its subsidiaries during the 2000 fiscal year was
10.32 million euros.
The aggregate amount that we set aside or accrued to provide pension,
retirement or similar benefits for our senior managers as a group, which
included 11 persons in all, was approximately E1.358 million during the 2000
fiscal year. Except as described below, none of these persons is party to a
service contract with Vivendi Universal pursuant to which he or she will receive
material employment termination benefits. In 2000, we awarded these persons
options to purchase 2,904,000 Vivendi Universal ordinary shares and options to
purchase 1,535,000 Vivendi Universal American Depositary Shares (of which
520,000 options are based on an award made in 2000 by Seagram). The options on
ordinary shares had an average exercise price of E88.12 and an average
expiration date of September 30, 2008. The options on American Depositary Shares
had an average exercise price of $70.83 and an average expiration date of July
14, 2009.
In respect of Seagram's fiscal year ended June 30, 2000, Edgar M. Bronfman
received total compensation, including salary, bonus and other compensation, of
$2,439,744. In respect of the same period, Edgar Bronfman, Jr. received
compensation, including salary, bonus and other compensation of $7,046,431 and
options for 650,000 Seagram common shares. These options have been converted
into options for 520,000 Vivendi Universal ADSs, have an exercise price of
$76.80 and expire on February 14, 2010. Of these options, 260,000 are currently
exercisable, and the other 260,000 options become exercisable in equal
installments over a three year period beginning on February 15, 2001. The other
former Seagram directors on Vivendi Universal's board, Richard H. Brown,
Marie-Josee Kravis and Samuel Minzberg, received compensation from Seagram in
respect of acting as directors during Seagram's fiscal year ended June 30, 2000.
Non-employee directors of Seagram received a retainer of $42,500 per year plus a
fee of $1,500 for each board and committee meeting attended and were reimbursed
for travel expenses incurred in connection with meetings attended. In addition,
Marie-Josee Kravis received an additional $7,500 per year for acting as Chairman
of Seagram's Human Resources Committee. Under The Seagram Company Ltd. Stock
Plan for Non-Employee Directors, each non-employee director received at least
50% of his or her retainer in Seagram common shares or share equivalents and
could elect to receive his or her entire retainer in that form. Non-employee
directors could
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also receive their fees for attending board and committee meetings in Seagram
common shares or share equivalents. Seagram did not set aside or accrue any
material amounts to provide pension, retirement or similar benefits for Edgar
Bronfman, Edgar Bronfman, Jr., Richard H. Brown, Marie-Josee Kravis or Samuel
Minzberg in respect of Seagram's fiscal year ended June 30, 2000.
Bonus compensation paid to Edgar M. Bronfman and Edgar Bronfman, Jr. in
respect of Seagram's fiscal year ended June 30, 2000 was paid, in each case,
under Seagram's Senior Executive Short-Term Incentive Plan or Seagram's
Management Incentive Plan. For the 2000 fiscal year, target awards for executive
officers under both plans were based upon Seagram or its applicable operating
unit achieving prescribed objectives for earnings before interest, taxes,
depreciation and amortization. Awards under the Senior Executive Short-Term
Incentive Plan could be reduced for any reason, including the assessment by the
Human Resources Committee of Seagram's board of directors of the individual
executive's performance or of the financial performance of Seagram or its
operating units. Management Incentive Plan awards could be reduced or increased
based on an assessment of the individual executive's performance.
As previously disclosed by Vivendi Universal, the fixed component of the
remuneration of the Chairman and Chief Executive Officer in 2000 was 1.075
million euros gross, and 329,000 euros net after income tax and social charges.
The amount of the variable component of the Chairman's remuneration will be set
following approval of the financial statements by the Shareholders' Meeting. It
could total a maximum amount of 3.2 million euros gross, and 1.1 million euros
net after income tax and social charges.
BOARD PRACTICES
Under our statuts, our company is managed by a board of directors composed
of no less than three members and no more than eighteen members.
By way of an exception to the foregoing and pursuant to the exception set
forth by law in case of merger, our board of directors currently consists of 19
directors. The board includes 15 independent directors, and eight non-French
directors. Under our statuts, shareholders elect board members for four year
renewable terms.
Our board of directors has the broadest powers to act in all circumstances
on behalf of the company and to take all decisions related to management and
disposal of assets within the limit of the corporate purpose, and subject only
to the powers granted by law to shareholders' meetings.
EMPLOYMENT AGREEMENT WITH EDGAR BRONFMAN, JR.
Seagram is party to an employment agreement with Edgar Bronfman, Jr. that
is guaranteed by Vivendi Universal. The employment agreement has a four-year
term that began December 8, 2000 and will automatically be extended for
additional one-year periods unless Seagram or Mr. Bronfman provides 120 days'
written notice of termination prior to the next extension date. The agreement
provides that Mr. Bronfman will be the sole vice chairman of Vivendi Universal
and Seagram, and will report to Vivendi Universal's chairman, who will be the
only executive senior to Mr. Bronfman. Mr. Bronfman's duties under the
employment agreement will include primary responsibility for music and spirits
and wine. In addition, the operating head(s) of Vizzavi, Vivendi Net and other
Internet investments and activities will report directly to Mr. Bronfman.
Under the employment agreement, Mr. Bronfman continues to receive an annual
base salary of $1,000,000 and have an annual target bonus equal to 300% of his
base salary payable upon achievement of annual performance targets. However, Mr.
Bronfman will receive a minimum annual bonus of $2,000,000 for the first two
years of the agreement. Mr. Bronfman will also participate in all Vivendi
Universal and Seagram employee benefit plans at the levels afforded our other
senior executives, but not less than the levels afforded to Mr. Bronfman by
Seagram immediately prior to the execution of the arrangement, and will receive
additional perquisites.
If Mr. Bronfman's employment is terminated by us or by Seagram (including
by a failure to extend the employment agreement) other than for "cause" or by
Mr. Bronfman for "good reason," (including any
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voluntary termination by Mr. Bronfman during the thirteenth month following the
effective time of the arrangement), in each case as defined in the employment
agreement, Mr. Bronfman will be entitled, in addition to accrued compensation,
to severance payments equal to (1) three times the sum of his annual base salary
and target bonus, plus (2) a pro rata portion of his target bonus for the year
of termination. In addition, Mr. Bronfman's employment agreement provides the
following additional severance payments and benefits:
- all unvested stock options outstanding on the date or termination will
become fully vested and exercisable, except that the unvested options
(described above) granted at the recommendation of the chairman of
Vivendi Universal at the compensation committee's first meeting on or
after the effective time of the arrangement, and all options will remain
exercisable for the period applicable to vested options under the
applicable option agreement; provided that any termination of employment
(other than for cause or by reason of death or disability) will be
treated as a retirement for purposes of options and other stock-based
plans and agreements of Seagram in which Mr. Bronfman participated as of
the commencement of the term of the employment agreement, or any
successor plans, programs or arrangements; provided, further that if Mr.
Bronfman terminates his employment for good reason based solely on his
right to resign during the thirteenth month following the effective time
of the arrangement, the options (described above) granted at the
beginning of the term of the employment agreement shall be only
two-thirds vested and exercisable and the vesting of the other options
granted under the employment agreement will not accelerate;
- the continuation of all medical, life insurance and disability benefits
for a period of three years following the termination date, except that
those benefits will become secondary to any benefits granted by a new
employer;
- his age and years of service for retirement plan eligibility and certain
other purposes will be increased by three years;
- all unfunded pension benefits will become fully vested; and
- reimbursement of reasonable expenses incurred for outplacement services
during the three-year period following his termination date.
In the event Mr. Bronfman becomes subject to any excise tax, the agreement
entitles him to payment in an amount sufficient to ensure a net after-tax
benefit to him that is the same as if no excise tax had been charged.
Seagram will also indemnify Mr. Bronfman to the fullest extent permitted by
applicable law and has provided him with customary directors' and officers'
liability insurance. Amounts payable to Mr. Bronfman will be increased in the
event he becomes subject to any French tax.
BOARD COMMITTEES
Audit Committee
We have established an audit committee and a compensation committee. The
audit committee is comprised of Marc Vienot, Philippe Foriel-Destezet, Henri
Lachmann and Marie-Josee Kravis. Marc Vienot serves as chairman. Beginning in
2001, the audit committee will meet at least once each quarter prior to meetings
of the board of directors at which annual and semi-annual company and
consolidated financial statements are to be considered, and at other times when
an event of particular importance to us occurs. The audit committee met three
times during the 2000 fiscal year.
The audit committee is responsible for reviewing the annual and semi-annual
company and consolidated financial statements, our internal control procedures,
our internal and external auditors and the accounting methods and principles
that are or may be applicable to our company. The audit committee is authorized
to meet with our internal and external auditors without any executive officers
being present, and to meet with the executive officers responsible for preparing
financial statements without any other executive officers being present.
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Compensation Committee
The compensation committee is comprised of Edgar M. Bronfman, Bernard
Arnault and Serge Tchuruk. Edgar M. Bronfman serves as chairman. No director may
be appointed to the compensation committee if he or she is employed by a company
that has a compensation committee on which a director or executive officer of
our company serves. The compensation committee meets at least twice a year and
met three times during the 2000 fiscal year.
The compensation committee is responsible for making proposals to the board
of directors with regard to the remuneration of executive officers, the grant of
stock options to executive officers and related issues. The compensation
committee is also responsible for advising the chairman of Vivendi Universal
with regard to stock option plans and for providing advice in connection with
the selection of executive officers and directors.
EMPLOYEES
The average number of Vivendi Universal's employees in 2000 was
approximately 253,000 people worldwide. The table below shows a breakdown of
employees by business segments:
AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER
OF EMPLOYEES OF EMPLOYEES OF EMPLOYEES
IN 2000 IN 1999 IN 1998
-------------- -------------- --------------
MEDIA & COMMUNICATIONS
Music*.............................. 719 -- --
TV & Film........................... 7,152 **22,299 19,227
Publishing.......................... 22,007 + +
Internet............................ 933 + +
Telecoms............................ 9,603 8,164 6,087
SUB-TOTAL................. 40,414 30,463 25,314
Environmental Services.............. 212,084 171,126 135,953
Other***............................ 788 74,002 74,343
TOTAL............................... 253,286 275,591 235,610
---------------
* Includes only 23 days of Seagram in 2000.
** Includes only 3 months of CANAL+ in 1999.
*** Includes our Construction and Property activity, the majority of which was
disposed in 2000.
+ TV & Film employee numbers for 1999 and 1998 include Publishing and Internet
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.
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.
SHARE OWNERSHIP
The total amount of Vivendi Universal's voting securities owned by its
directors and executive officers, other than those related to the Bronfman
family, is less than 1%.
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The following table shows the number of Vivendi Universal ADSs beneficially
owned by each of the Seagram designees to the Vivendi Universal board of
directors, as of May 31 2001:
NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER VOTING SECURITIES VOTING SECURITIES
---------------- ----------------- -----------------
Edgar M. Bronfman............................. 33,441,416(1) 3.3%
Edgar Bronfman, Jr. .......................... 35,177,209(2) 3.5%
Richard H. Brown.............................. 750 *
Samuel Minzberg............................... 750 *
---------------
(*) Less than 1%
(1) Includes 31,541,219 ADSs owned indirectly by The Edgar Miles Bronfman Trust,
a trust established for the benefit of Edgar M. Bronfman and his descendants
(EMBT), and 1,189,212 ADSs owned directly by the PBBT/Edgar Miles Bronfman
Family Trust, a trust established for the benefit of Edgar M. Bronfman and
his descendants (PBBT/EMBFT), trusts for which Mr. Bronfman serves as a
trustee, 888 ADSs owned directly by Mr. Bronfman, 517,813 ADSs issuable upon
the exercise of options which are currently exercisable or become
exercisable within 60 days of May 31, 2001, and 192,284 ADSs owned by two
charitable foundations of which Mr. Bronfman is among the trustees or
directors. Mr. Bronfman disclaims beneficial ownership of the foregoing
ADSs, except to the extent of his beneficial interest in the EMBT and the
PBBT/EMBFT and with respect to ADSs owned directly by him.
(2) Includes 31,541,219 ADSs owned indirectly by the EMBT trust for which Mr.
Bronfman serves as a trustee, 792 ADSs owned directly by Mr. Bronfman,
3,442,666 ADSs issuable upon exercise of options which are currently
exercisable or become exercisable within 60 days of May 31, 2001, 192,000
ADSs owned by a charitable foundation of which Mr. Bronfman is among the
trustees and 532 ADSs in which Mr. Bronfman has an indirect interest through
an investment in the Retirement Savings and Investment Plan for Employees of
Joseph E. Seagram & Sons, Inc. and Affiliates (based on the value of such
investment as of December 4, 2000). Mr. Bronfman disclaims beneficial
ownership of the foregoing ADSs, except to the extent of his beneficial
interest in the EMBT and with respect to ADSs owned directly by him.
THE GOVERNANCE AGREEMENT
We are a party to a governance agreement with certain former Seagram
shareholders that are members or affiliates of the Bronfman family (the
"Bronfman shareholders"). In addition to the provisions described below, the
governance agreement restricts the transfer of Vivendi Universal shares held by
the Bronfman shareholders and contains other provisions relating to the
ownership, holding, transfer and registration of Vivendi Universal shares. See
also "Item 7: Major Shareholders and Related Party Transactions -- Related Party
Transactions -- Share Purchase From Members of Bronfman Family".
DESIGNEES TO VIVENDI UNIVERSAL'S BOARD OF DIRECTORS
Under the governance agreement, Vivendi Universal has elected to, and is
required to use best efforts to, cause the continuation for a four-year term on
its board of directors of four former members of Seagram's board of directors.
Two of the four designees are parties to the governance agreement (Edgar M.
Bronfman and Edgar Bronfman, Jr.), and the remaining two designees (Richard H.
Brown and Samuel Minzberg) are unaffiliated with the Bronfman family (the
"non-Bronfman designees"). Our board of directors consists of 19 members. The
number of directors will be reduced to 18 by January 1, 2003, subject to French
law as it relates to employee shareholder representatives on the board.
Following the expiration of the initial four-year period, and for so long
as the Bronfman shareholders continue beneficially to own the applicable
percentage of the number of Vivendi Universal voting securities (as described
below) owned by them immediately following the effective time of the
arrangement, we will use
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our best efforts to cause the election of the number of individuals designated
by the Bronfman shareholders indicated below:
NUMBER OF
PERCENTAGE OF INITIAL INVESTMENT BRONFMAN DESIGNEES
-------------------------------- ------------------
more than 75%....................................... 3
more than 50% but less than or equal to 75%......... 2
more than 25% but less than or equal to 50%......... 1
After the initial four-year term, the renomination of the non-Bronfman
designees will be our discretion.
"Vivendi Universal voting securities" are securities that generally entitle
the holder to vote for members of Vivendi Universal's board of directors, or
securities issued in substitution for such securities, including Vivendi
Universal ordinary shares, Vivendi Universal ADSs and exchangeable shares.
DESIGNEES TO THE COMMITTEES OF VIVENDI UNIVERSAL'S BOARD OF DIRECTORS
For so long as either (i) the Bronfman shareholders have the right to
designate at least two members of Vivendi Universal's board of directors or (ii)
the Bronfman shareholders are collectively the largest holders of Vivendi
Universal voting securities other than Vivendi Universal and its affiliates, we
must:
- appoint and maintain a designee of the Bronfman shareholders as the
chairman of the compensation committee of our board of directors;
- cause the chairman of the compensation committee to be appointed and
maintained as a member of the nominating committee of our board of
directors;
- cause the nominating committee to be responsible for proposing the
nomination of all directors, other than the Bronfman designees;
- cause a designee of the Bronfman shareholders to be appointed and
maintained as a member of the audit committee of our board of directors;
and
- cause a designee of the Bronfman shareholders to be appointed and
maintained as a member of any subsequently formed executive or similar
committee if the failure of the Bronfman shareholders to participate
would be inconsistent with the purposes of the board and committee
participation rights described above.
STOCK OPTION PLANS
Two stock option plans were introduced in fiscal 2000, the first in May
2000, and the second in December 2000 following the merger of Vivendi, Seagram
and Canal Plus. The two plans involved a total of 13,670,458 options, or 1.3% of
Vivendi Universal's capital stock at the date of the merger. Under the plans,
1,047 optionees were granted 2,783,560 options to purchase stock at a
non-discounted exercise price of 111.44 euros, and 3,681 optionees were granted
10,886,898 options to purchase stock at a non-discounted exercise price of 78.64
euros or 67.85 U.S. dollars for options to purchase American Depositary Shares.
The allocation of stock options is made on the basis of three criteria: level of
responsibility, performance, and identification of high-potential managers or
those who have carried out significant business operations.
Following the merger of Vivendi, Seagram and Canal Plus, Vivendi Universal
also introduced an exceptional performance-related stock option plan in December
2000, known as the "out-performance" plan. The plan involved a maximum of
5,200,000 options (drawn from treasury stock) granted to Vivendi Universal's 91
principal managers. The stock options were granted at a non-discounted exercise
price of 78.64 euros or 67.85 U.S. dollars for options to purchase American
Depositary Shares. The accelerated exercise of these options is tied to Vivendi
Universal outperforming the MSCI Media index.
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ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
To our knowledge, other than with respect to the Bronfman shareholders, as
discussed above, no individual shareholder owns beneficially, or exercises
control or direction over, 5% or more of the outstanding Vivendi Universal
ordinary shares. There are 71,703,859 Vivendi Universal ADSs and exchangeable
shares held by the Bronfman shareholders and subject to the governance
agreement. The foregoing shares, collectively, represent approximately 7.1% of
the voting securities. The information for the Bronfman shareholders is based on
their holdings as of May 31, 2001. The governance agreement is described under
"Item 6 -- Directors, Senior Management and Employees -- Share Ownership -- The
Governance Agreement".
RELATED PARTY TRANSACTIONS
SHARE PURCHASE FROM MEMBERS OF BRONFMAN FAMILY
On May 29, 2001, we acquired an aggregate of 16,900,000 ADSs from entities
related to the Bronfman family. The purchase price for these acquisitions was
74.9228 euros per ADS for 15,400,000 of the ADSs we purchased and 76.9414 euros
per ADS for 1,500,000 of the ADSs we purchased. In connection with these sales,
each of the sellers (other than a charitable foundation) agreed with us that,
from May 29, 2001 until December 31, 2001, it will not sell or otherwise
transfer any ADSs that it holds (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise), subject to certain
specified exceptions.
ESTHER KOPLOWITZ AND FCC
In October 1998, Vivendi acquired from Ms. Esther Koplowitz, a member of
Vivendi Universal's 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, Vivendi and Ms. Koplowitz signed a shareholders' 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 Vivendi 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, Vivendi entered into an option agreement under which Ms.
Koplowitz has an option to sell to Vivendi, 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.
CLARIDGE INC.
For the period July 1, 1998 through April 30, 2001, Claridge Inc.
reimbursed a subsidiary of Seagram for the use of aircraft owned by such
subsidiary in the amount of $438,293. The payment represented Claridge's pro
rata share of the applicable operating expenses of the aircraft. For the same
period, Seagram paid or accrued rent and reimbursed expenses to Claridge in the
amount of 1,047,072 Canadian dollars for the use by Seagram of office and
parking space and secretarial services. The Charles Rosner Bronfman Family
Trust, a trust established for the benefit of Charles R. Bronfman and his
descendants, owns all the shares of Claridge. Charles R. Bronfman is among the
directors and officers of Claridge.
THE ANDREA & CHARLES BRONFMAN PHILANTHROPIES, INC.
For the period July 1, 1998 through April 30, 2001, The Andrea & Charles
Bronfman Philanthropies, Inc., a charitable organization, paid or accrued rent
and reimbursed Seagram in the amount of $190,876 for
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use by such organization of office space in Seagram's offices in New York.
Andrea Bronfman and Charles R. Bronfman are directors of The Andrea & Charles
Bronfman Philanthropies, Inc.
FRANK ALCOCK
Since the beginning of Seagram's last fiscal year, Frank Alcock, the
father-in-law of Edgar Bronfman, Jr., has provided consulting services to
affiliates of Seagram for $6,250 per month.
USA NETWORKS, INC.
Universal Studios holds an effective 43% interest in USA Networks for the
period ended May 31, 2001 through its ownership of common stock and class B
common stock of USA Networks and shares of USANi LLC, a subsidiary of USA
Networks, which Universal Studios can exchange for common stock and class B
common stock of USA Networks. Universal Studios is party to a governance
agreement among USA Networks, Universal Studios, Liberty Media and Barry Diller.
The governance agreement:
- limits Universal Studios from acquiring additional equity securities of
USA Networks;
- restricts Universal Studios from transferring USA Networks securities;
- provides for representation by Universal Studios and Liberty Media on USA
Networks' board of directors; and
- lists fundamental actions that require the consent of Universal Studios,
Liberty Media and Mr. Diller before USA Networks can take those actions.
In addition, Universal Studios has entered into a stockholders' agreement
among Universal Studios, Liberty Media, Mr. Diller, USA Networks and Seagram.
The stockholders' agreement:
- governs the acquisition of additional USA Networks securities by Liberty
Media;
- restricts the transfer of shares; and
- generally grants Mr. Diller voting control over all of the USA Networks
capital stock owned by Universal Studios and Liberty Media except with
respect to the fundamental actions discussed above.
Universal Studios is also party to a spin-off agreement among Universal
Studios, Liberty Media and USA Networks providing for interim management
arrangements in the event that Mr. Diller ceases to be chief executive officer
of USA Networks or becomes disabled. In addition, Universal Studios has entered
into agreements with USA Networks providing for various ongoing business
arrangements, including:
- an international distribution agreement granting Universal Studios the
right to distribute internationally, programs produced by USA Networks
for a fee;
- a domestic distribution agreement granting USA Networks the right to
distribute specific Universal Studios programming, including Universal
Studios' library of television programs, for a fee; and
- a transition services agreement and agreements relating to merchandising,
music administration and music publishing, home video distribution, the
use by USA Networks of Universal Studios' studio facilities and certain
other matters.
The parties negotiated these ongoing arrangements, which contain normal
business terms and conditions, on an arms' length basis. Under the agreement
governing Universal Studios' investment in USA Networks, at various times since
March 1998 Universal Studios and Liberty Media have exercised their pre-emptive
rights to purchase additional shares of USANi LLC shares following issuances of
common stock by USA Networks. Universal Studios and Liberty Media may continue
to exercise these pre-emptive rights from time to time in the future.
Mr. Diller is the chairman of the board and chief executive officer of USA
Networks and, based on the information as of January 31, 2000 set forth in the
proxy statement of USA Networks dated March 6, 2000, owns or has the right to
vote, pursuant to the stockholders agreement, approximately 14% of the
outstanding
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USA Networks common stock and 100% of the outstanding USA Networks class B
common stock and has approximately 75% of the outstanding total voting power of
USA Networks common stock and USA Networks class B common stock.
On May 28, 1999, USA Networks acquired from Universal Studios Holding I
Corp. all of the capital stock of PolyGram Filmed Entertainment, Inc. ("PFE"),
including the domestic motion picture and home video distribution organization
conducted as PolyGram Films, PolyGram Video, PolyGram Filmed Entertainment
Canada, Gramercy Pictures, Interscope Communications and Propaganda Films.
Universal Studios acquired PFE in December 1998 as part of Seagram's
approximately $10.6 billion acquisition of PolyGram. At the time of the sale of
PFE to USA Networks, USA Networks agreed to pay or assume certain liabilities
relating to the acquired businesses, and Universal Studios and USA Networks
entered into agreements providing for various ongoing business arrangements
between Universal Studios and USA Networks, including, among others:
- a domestic theatrical distribution agreement, pursuant to which USA
Networks made a $200 million interest bearing loan to Universal Studios'
parent which is due in approximately eight years unless repaid earlier
from receipts arising from distribution of specified motion pictures
which USA Networks has the exclusive right to distribute theatrically, on
television and on video in the United States and Canada for a fee;
- an ancillary services agreement, pursuant to which the parties will
provide certain customary transitional services to each other during the
six months following the closing;
- a videogram fulfillment agreement, pursuant to which Universal Studios or
one of its affiliates will provide certain "pick, pack and ship" and
related fulfillment services in the United States and Canada with respect
to videos containing motion pictures of USA Networks; and
- a music administration agreement, pursuant to which, subject to certain
specified exceptions, USA Networks appointed Universal-MCA Music
Publishing to be the exclusive administrator for 15 years of USA
Networks' interest in certain music publishing rights to music
compositions owned or controlled by USA Networks which are written for or
used in motion pictures and videos following the closing.
These arrangements were negotiated by the parties on an arms' length basis
and contain customary business terms and conditions. In the ordinary course of
business, and otherwise from time to time, Seagram and Vivendi Universal may
enter into other agreements with USANi and its subsidiaries.
ITEM 8: FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
See our financial statements in Item 18.
LITIGATION
In the ordinary course of its business, Vivendi Universal and its
subsidiaries and affiliates are, from time to time, named as a defendant in
various legal proceedings. Vivendi Universal maintains comprehensive liability
insurance and believes that its coverage is sufficient to ensure that it is
adequately protected from any material financial loss as a result of any legal
claims made against Vivendi Universal.
BT filed a request for arbitration against Vivendi Universal with the
International Court of Arbitration on March 8, 2000, alleging, among other
things, that Vivendi Universal breached the Cegetel Shareholders' Agreement by
agreeing with Vodafone to establish a joint venture to develop and market
Vizzavi. On November 9, 2000, the court issued a ruling rejecting that claim.
The court also ruled, however, that if BT proves that the creation of Vizzavi
harmed SFR, BT will be entitled, in its capacity as indirect shareholder of SFR,
to compensation from Vivendi Universal. Vivendi Universal believes that there
was no such harm and is vigorously defending the claim BT is pursuing upon that
ground before the court.
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On June 21, 2000, the French competition commission opened an investigation
into the state of competition in drinking water and waste water treatment
markets in France. On February 27, 2001, Compagnie Generale des Eaux was served
with a complaint alleging that it had illicitly cooperated with its competitors
in the course of bidding for certain water services contracts. In particular,
the complaint alleged that, in order unlawfully to limit competition, Compagnie
Generale des Eaux declined to bid for contracts that were also subject to bids
by joint ventures Compagnie Generale des Eaux had formed with other water
companies. Compagnie Generale des Eaux intends to respond to the complaint by
explaining, on a case-by-case basis, its lawful reasons for declining to bid for
the contracts in question. At this time, it is impossible to predict what
financial penalties, if any, will be imposed in connection with this proceeding.
In December 1999, Vivendi entered into an Investment Agreement with
Elektrim SA by which it acquired 49% of Elektrim Telekomunikacja Sp. Zoo
("Telco"). Telco in turn holds 51% of PTC and 100% of Bresnam following the
transfer of these stakes to Telco by Elektrim. In October 1999, Deutsche Telecom
("DT") commenced arbitration proceedings in Vienna alleging that Elektrim's
purchase on August 26, 1999 of 13.9% of the PTC shares from four minority PTC
shareholders (which gave it a 51% controlling interest in PTC) violated the PTC
shares that were part of those shares transferred to Elektrim on August 26,
1999. DT is seeking (1) a declaration that the transfer to Elektrim on August
26, 1999 was ineffective; (2) alternatively, an order requiring the transfer of
3.126% of PTC shares to DT; and/or (3) damages in an amount of $135 million.
Under the terms of the Investment Agreement, Vivendi Universal may be liable for
the first $100 million of any damages awarded against Elektrim. The hearing date
for the arbitration has been set down for November 5, 2001.
CANAL+ is involved in two proceedings before the French competition
commission in the field of film broadcasting rights. The first one was initiated
by the French authorities in order to control that CANAL+ fully complied with
the order pronounced against them in 1999 regarding pay-per-view rights. The
second one was introduced by competitors alleging that CANAL+ and its pay per
view subsidiary Kiosque restrict competition by acquiring film broadcasting
rights on an exclusive basis.
On February 4, 1999, the Antitrust Division of the United States Department
of Justice issued a civil investigative demand to Universal Studios, Inc. 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 demand
required 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 responded to the government's demand in February 2000. The Antitrust
Division has taken no further action in this matter.
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 agreements 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 asserted claims for declaratory
relief, breach of contract, breach of the implied covenant of good faith and
fair dealing, and breach of fiduciary duty. Plaintiff sought 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 sought punitive
damages on its breach of fiduciary duty claims. 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 breach 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 not state facts
sufficient to constitute a claim. KirchMedia later filed an amended
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complaint, which Universal moved to dismiss. The Court granted Universal's
motion to dismiss and KirchMedia's complaint has now been dismissed in its
entirety. Universal has amended its cross-complaint to seek payments that
KirchMedia has failed to make.
In July 1999, a small video retailer located in San Antonio, Texas, filed a
lawsuit in the federal district court in San Antonio, entitled 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. The
action alleges that the home video divisions of the major movie studios,
including Universal Studios Home Video, Inc., have 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 filed a motion asking that the court certify the
proposed class. Universal and the other defendants opposed the motion, arguing
that the case is not amenable to class treatment. The Court denied plaintiffs'
motion for class certification and the case is now proceeding as an individual,
not a class, action.
Some of the same plaintiffs in the Texas case, along with others, filed, on
January 31, 2001, a similar case in California, entitled Merchant, et al. v.
Redstone, et al., a purported class action complaint, Case No. BC244270 in the
Superior Court of the State of California for the County of Los Angeles. This
action makes essentially the same claims as are made in the Texas action, but
seeks relief solely under California state law. Defendants have not yet
responded to the complaint.
In June 2001, the European Commission served an Article 11 letter on each
of the major motion picture distributors, including Universal Studios, Inc. The
request for information is based upon complaints from consumers regarding DVD
prices. As a result of these complaints, the Commission is undertaking an
industry-wide assessment of pricing policies for DVDs. Universal Studios has not
yet responded to the request.
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 Electra 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., 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
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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 had been set
for trial on February 15, 2000. The trial date has been vacated and no new trial
has been set.
On February 17, 1998, a purported consumer class action was filed in the
Circuit Court for Cocke County, Tennessee, Civil Action NO., 24855 II, entitled
Doris D; Ottinger, et al., V. Emi Music Distribution, Inc., Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corp., Universal Music & Video
Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music
Group, Inc., and PolyGram Group Distribution, Inc. A motion to dismiss was filed
on May 11, 1998 but was denied. The trial date of July 2, 2001 was vacated, and
no new trial date has been set. In addition, a motion to limit the case to the
residents of one state (Tennessee), rather than 17 has been filed. That motion
was set for hearing March 30 and was granted. The judge set a date for a July
hearing on the question of whether class certification is appropriate.
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 and UMG Recordings,
Inc. ("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.
Following a change to Australian copyright law in 1998 to permit parallel
import of CD's into Australia, the Australian Competition and Consumer
Commission ("ACCC") commenced proceedings against Universal Music Australia Pty
Limited (formerly PolyGram Pty Limited), alleging violations of the Australian
Trade Practices Act, the statute which governs competition law in Australia. The
ACCC alleges that Universal took steps to restrict parallel imports into
Australia. Separate proceedings making similar allegations have also been
commenced against another record company in Australia. The hearings began in
April 2001. The case has been adjourned and is to resume in September 2001.
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., UMGR 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
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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 heard the motion on September 22, 2000 and subsequently ruled that the
federal cases should be consolidated in Portland, Maine. With respect to 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 42 states and territories filed parens patriae action in the federal
district court in the Southern District of New York against several recorded
music companies, including UMVD and UMGR. 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.
In January 2001, the European Commission served an Article 11 letter on
each of the major record companies including Universal Music International
Limited investigating the relationship between the record companies and
retailers in four key European territories (France, Germany, the United Kingdom
and Spain). Universal Music International Limited submitted its written reply to
the inquiries on March 9, 2001 and responded to further inquiries in relation to
all European Economic Area Member states on June 1, 2001. Universal awaits a
response from the Commission.
In February 2001, the Office of Fair Trading in the UK ("OFT") submitted a
request for information to each of the major UK record companies including
Universal Music (UK) Limited relating to the record companies' policies in
respect of parallel imports of CD's into the UK. Universal responded to a
detailed inquiry on February 23, 2001. On June 4, Universal received a request
for further information from the OFT and is in the process of responding to this
request.
In April 2001, Universal Music International Limited received an Article 11
letter from the European Commission requesting certain information in relation
to the pressplay joint venture between UMG Duet Holdings, Inc. and SMEI Duet
Holdings, Inc. Universal Music International Limited responded to the inquiry on
May 8, 2001. The Commission has since sent a subsequent response to which
Universal Music International Limited will respond.
On December 4, 2000, Destileria Serralles, Inc. ("Serralles") commenced a
litigation against JES and Seagram in Puerto Rico Superior Court seeking
declaratory judgment and injunctive relief relating to whether a right of first
refusal over certain Captain Morgan trademarks owned by JES contained in a
supply agreement between Serralles and JES would be triggered by the sale of
Seagram's Spirits and Wine business. JES and Seagram removed the case to the
United States District Court for the District of Puerto Rico and answered the
complaint and filed a motion for summary judgment. On December 27, 2000,
Serralles filed a request for expedited discovery and to postpone adjudication
of JES and Seagram's motion for summary judgment. On February 8, 2001, Serralles
filed a request for 30 days notice of the closing of the sale of Seagram's
Spirits and Wine business. The court required Seagram only to notify Serralles
when all regulatory approvals are obtained. On April 23, 2001 the Court ordered
that the parties engage in limited expedited discovery for a period of 30 days
and that Serralles respond in 30 days to the motion by JES and Seagram for
summary judgment. That period of discovery is now completed, Serralles filed its
opposition to the summary judgment motion and JES and Seagram filed a reply
submission. The summary judgment motion is currently pending for decision. On
June 27, 2001, Serralles filed a motion seeking a temporary restraining order
and preliminary injunction, temporarily enjoining JES and Seagram from taking
certain actions pending the outcome of the case. JES and Seagram are opposing
that motion. However, the motion does not seek to enjoin the sale of Seagram's
Spirits and Wine business or any portion thereof. Vivendi Universal believes
this litigation is without merit and is defending it vigorously.
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SIGNIFICANT CHANGES
Except as otherwise disclosed in this annual report, there has been no
material adverse change in the financial position of Vivendi Universal since
December 31, 2000.
ITEM 9: THE OFFER AND LISTING
MARKET PRICE INFORMATION
Our ordinary shares currently trade on the Paris Bourse and our ADSs trade
on the New York Stock Exchange. The table below sets forth the reported high and
low sales prices of Vivendi and Vivendi Universal ordinary shares and ADSs on
the Paris Bourse and on the NYSE, respectively (and, for periods before
September 2000, the high and low bids for Vivendi ADSs in the over-the-counter
market). For periods before the completion of the Merger Transactions on
December 8, 2000, the table sets forth price information for Vivendi ordinary
shares and ADSs; for periods after that date, the table sets forth price
information for Vivendi Universal ordinary shares and ADSs. Each Vivendi ADS
represented one-fifth of a Vivendi ordinary share before the completion of the
Merger Transactions, while each Vivendi Universal ADS now represents one Vivendi
Universal ordinary share. To facilitate comparison of information (i) for
periods before and after December 8, 2000, price information for the Vivendi
ADSs is shown as if each Vivendi ADS represented one Vivendi ordinary share, and
(ii) the market prices for periods prior to May 11, 1999 are restated to reflect
the 3:1 stock split on May 11, 1999. Prices are rounded to the nearest cent.
Last Six Months
PARIS BOURSE NYSE
(ORDINARY SHARES) (ADS'S)
------------------ ----------------
HIGH LOW HIGH LOW
------- ------- ------ ------
June, 2001 (through June 27)............................ E76.65 E63.20 $64.55 $54.95
May, 2001............................................... 79.70 74.40 69.15 63.48
April, 2001............................................. 78.90 63.35 69.23 57.80
March, 2001............................................. 71.50 61.20 66.10 54.30
February, 2001.......................................... 81.00 68.05 75.00 61.80
January, 2001........................................... 82.00 65.30 76.00 62.60
December, 2000.......................................... 79.70 68.60 69.50 50.00
Last Two Years by Quarter
PARIS BOURSE NYSE
(ORDINARY SHARES) (ADS'S)
----------------- -----------------
HIGH LOW HIGH LOW
------- ------ ------- ------
2001
Second Quarter (through June 27)...................... E79.70 E63.20 $69.23 $54.95
First Quarter......................................... 82.00 61.20 76.00 54.30
2000
Fourth Quarter........................................ E89.65 E68.60 $77.50 $50.00
Third Quarter......................................... 97.10 80.30 91.85 70.00
Second Quarter........................................ 122.00 85.30 128.75 81.25
First Quarter......................................... 150.00 79.10 142.50 81.25
1999
Fourth Quarter........................................ E92.95 E61.10 $94.40 $66.25
Third Quarter......................................... 83.70 65.05 86.25 68.75
Second Quarter........................................ 81.10 69.60 88.35 71.90
First Quarter......................................... 87.13 72.33 101.65 76.05
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Last Five Years
PARIS BOURSE NYSE
(ORDINARY SHARES) (ADS'S)
----------------- -----------------
HIGH LOW HIGH LOW
------- ------ ------- ------
2001 (through June 27).............................. E 82.00 E61.20 $ 76.00 $54.30
2000................................................ 150.00 68.60 142.50 50.00
1999................................................ 92.95 61.10 101.65 66.25
1998................................................ 72.35 39.82 85.85 43.55
1997................................................ 41.98 31.38 51.65 36.65
1996................................................ 32.68 24.05 34.00 31.25
We urge you to obtain current market quotations.
SHARE CAPITAL INFORMATION
As of June 28, 2001, we had 1,085,675,856 ordinary shares outstanding. We
estimate that as of that date, approximately 39.7% of our shares traded on the
Paris Bourse were held by French residents and approximately 23.9% by residents
of the United States (including 6.5% held by members of the Bronfman family and
trusts controlled by them).
As of June 20, 2001, there were 1,125 registered holders of ADSs in the
United States holding a total of 122,321,258 ADSs.
ARRANGEMENTS FOR TRANSFER AND RESTRICTIONS ON TRANSFERABILITY
Our statuts do not contain any restrictions relating to the transfer of
shares.
Registered shares must be converted into bearer form before being
transferred on the Paris Bourse and, accordingly, must be registered in an
account maintained by an accredited intermediary. A shareholder may initiate a
transfer by giving instructions to the relevant accredited intermediary. For
dealings on the Paris Bourse, a tax assessed on the price at which the
securities are traded, or impot sur les operations de bourse, is payable at the
rate of 0.3% on transactions of up to 1,000,000 French francs and at a rate of
0.15% for larger trades. This tax is subject to a rebate of 150 French francs
per transaction and a maximum assessment of 4,000 French francs per transaction.
Non-residents of France are not required to pay this tax. In addition, a fee or
commission is payable to the broker involved in the transaction, regardless of
whether the transaction occurs in France. No registration duty is normally
payable in France, unless a transfer instrument has been executed in France.
ITEM 10: ADDITIONAL INFORMATION
GENERAL
As of April 26, 2001, there were 1,106,528,860 Vivendi Universal ordinary
shares outstanding (including treasury shares). All of the outstanding ordinary
shares are fully paid. As of April 26, 2001 Vivendi Universal had approximately
79,210,200 ordinary shares in treasury, with an approximate book value of E6
billion. All of these ordinary shares were issued to Vivendi Universal and were
fully paid. Our ordinary shares have a nominal value of E5.50 per share. Vivendi
Universal's statuts provide that ordinary shares may be held in registered or
bearer form, at the option of the shareholder.
UNDERTAKINGS TO INCREASE VIVENDI UNIVERSAL'S SHARE CAPITAL
As of December 31, 2000, Vivendi Universal had undertaken to increase its
capital in connection with warrants, options, convertible bonds and exchangeable
shares.
- Warrants -- In May 1997, Vivendi issued bonus subscription warrants to
its shareholders. As of December 31, 2000, 106,036,727 of the warrants
were outstanding and exercisable, at a price of E137.0 per 40 warrants,
for 3.05 Vivendi Universal ordinary shares per 40 warrants. On May 2,
2001, those warrants expired and no more warrants are outstanding and
exercisable;
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- Convertible bonds -- In January 1999, Vivendi issued 6,028,369 bonds to
the public. Each bond is convertible into 3.047 Vivendi Universal
ordinary shares. As of December 31, 2000, 6,024,347 of these bonds were
outstanding and convertible into a total of 18,356,185 ordinary shares
(which may be treasury or newly-issued shares). The bonds are scheduled
to be redeemed in 2003;
- Vivendi Environnement convertible bonds -- In April 1999, Vivendi
Environnement issued 10,516,606 bonds to the public. Each bond is
convertible into 3.047 ordinary shares of Vivendi Universal or Vivendi
Environnement. As of December 31, 2000, 5,331,135 of these bonds were
outstanding and convertible into a total of 16,243,969 shares (which may
be treasury or newly-issued shares). The bonds are scheduled to be
redeemed in 2005;
- Options granted pursuant to Vivendi Universal share subscription
plans -- As of December 31, 2000, there were outstanding options to
subscribe for 34,720,208 Vivendi Universal ordinary shares or ADSs
granted to Vivendi Universal's executive officers, management and
employees pursuant to Vivendi Universal's share subscription plans
(including 2,804,857 pursuant to former Vivendi plans and 31,915,351
pursuant to former Seagram plans);
- Convertible Bonds -- In connection with the merger transaction, we issued
on December 8, 2000, bonds redeemable into 401,582,689 Vivendi Universal
ordinary shares. These bonds were or are to be redeemed for (i) the ADSs
of Vivendi Universal received by holders of Seagram common shares on
closing of the merger, (ii) ADSs of Vivendi Universal to be issued to
holders of exchangeable shares of Vivendi Universal Exchangeco Inc. when
such holders exchange such shares from time to time, (iii) ADSs of
Vivendi Universal to be issued to holders of stock options or stock
appreciation rights of Seagram on exercise of such options or rights, and
(iv) ADSs of Vivendi Universal to be issued to holders of other
convertible securities of Seagram, such as the ACES, on conversion of
such securities. As of December 31, 2000, bonds redeemable into
82,051,273 Vivendi Universal ordinary shares were outstanding. As of
April 26, 2001, bonds redeemable into 57,839,934 Vivendi Universal
ordinary shares were outstanding. The number has decreased because
Vivendi Universal has repurchased most of the ACES, some of the
exchangeable shares have been exchanged and some of the options have been
exercised.
Under the French commercial code, shareholders of French companies such as
Vivendi Universal have certain rights to purchase, on a pro rata basis,
securities issued by the company.
OPTIONS TO PURCHASE VIVENDI UNIVERSAL SECURITIES
We have several share purchase option plans for the benefit of our
executive officers, management and other staff. As of January 19, 2001, options
to purchase approximately 42,653,190 Vivendi Universal ordinary shares were
outstanding pursuant to these plans. The average expiration date of these
options was July 2006 and the average exercise price was E51.24.
HISTORY OF SHARE CAPITAL
The table below sets forth the history of the share capital of Vivendi
Universal, S.A., formerly known as Sofiee S.A. Sofiee was a shell company
incorporated in 1987, and on December 8, 2000 it was the recipient of all the
assets in connection with the merger transactions involving Vivendi, CANAL+ and
Seagram described under "Item 4 -- Information on the Company -- History and
Development of the Company."
NOMINAL NOMINAL VALUE TOTAL TOTAL
MEETING NUMBER OF VALUE OF OF THE AMOUNT OF NUMBER OF
DATE OPERATION SHARES ISSUED THE SHARES CAPITAL INCREASE CAPITAL STOCK SHARES
------- --------- ------------- ---------- ---------------- ---------------- -------------
12/17/87 Formation................. 2,500 FF100 FF250,000.00 250,000 2,500
5/14/98 Capital increase.......... 16,784,000 100 1,678,400,000.00 1,678,650.000 16,786,500
6/15/00 Conversion of the capital
to euros.................. 0 E16 E0.00 268,584,000 16,786,500
6/15/00 Capital increase.......... 0 16.5 0.00 276,977,250 16,786,500
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NOMINAL NOMINAL VALUE TOTAL TOTAL
MEETING NUMBER OF VALUE OF OF THE AMOUNT OF NUMBER OF
DATE OPERATION SHARES ISSUED THE SHARES CAPITAL INCREASE CAPITAL STOCK SHARES
------- --------- ------------- ---------- ---------------- ---------------- -------------
6/15/00 Three-for-one stock
split..................... 0 5.5 0.00 276,977,250 50,359,500
12/08/00 Merger Transactions....... 1,029,666,247 5.5 5,663,164,358.50 5,940,141,609 1,080,025,747
1/18/01 Capital increase Group
savings Plan 1st block.... 343,127 5.5 1,887,198.50 5,946,333,635 1,081,151,570
1/26/01 Bonds redemption, warrants
conversion, exercise of
subscription option....... 782,696 5.5 4,304,828.00 5,944,446,437 1,080,808,443
4/24/01 Bonds redemption, warrants
conversion, exercise of
subscription option....... 25,026,898 5.5 137,647,939.00 6,083,981,574.00 1,106,178,468
4/26/01 Capital increase Group
savings Plan 2nd block.... 350,392 5.5 1,927,156.00 6,085,908,730.00 1,106,528,860
On June 28, 2001, the Vivendi Universal board authorized an increase of
11,448,920 shares in connection with exercises of options and warrants for
ordinary shares. On the same date, the Vivendi Universal board authorized the
cancelation of 22,000,000 treasury shares and 10,301,924 ordinary shares
originally set aside to satisfy exchange rights in connection with the Merger
Transactions, reducing overall the number of outstanding shares by approximately
2%.
ORGANIZATIONAL DOCUMENT OF VIVENDI UNIVERSAL
OBJECTS AND PURPOSES
Under Article 2 of our statuts, the corporate purpose of the Company is to
engage in all communications activities and all activities related to the
environment, to manage, acquire and sell securities of other companies and to
engage in any transactions related to the foregoing purposes.
DIRECTORS
Under the French commercial code, each director must be a shareholder of
the Company. Our statuts provide that a director must own at least 750 shares of
the Company for as long as he or she serves as a director.
The French commercial code provides that each director is eligible for
reappointment upon the expiration of his or her term of office. Our statuts fix
the term of reappointment at four years, provided that no more than one-fifth of
the directors may be 70 or older. No individual director may be over 75.
Under the French commercial code, any transaction directly or indirectly
between a company and a member of its board of directors and/or its managing
directors or one of its shareholders holding more than 5% of voting securities,
if any, that cannot be reasonably considered to be in the ordinary course of
business of the company and/or is not at arm's-length, is subject to the board
of directors' prior consent. Any such transaction concluded without the prior
consent of the board of directors can be nullified if it causes prejudice to the
company. The interested member of the board of directors or managing director
can be held liable on this basis. The statutory auditor must be informed of the
transaction within one month following its conclusion and must prepare a special
report to be submitted to the shareholders for approval at their next meeting.
In the event the transaction is not ratified by the shareholders at a
shareholders' meeting, it will remain enforceable by third parties against the
company, but the company may in turn hold the interested member of the board of
directors and, in some circumstances, the other members of the board of
directors, liable for any damages it may suffer as a result. In addition, the
transaction may be canceled if it is fraudulent. Moreover, certain transactions
between a corporation and a member of its board of directors who is a natural
person and/or its managing directors, if any, are prohibited under the French
commercial code.
Our directors are not authorized, in the absence of an independent quorum,
to vote compensation to themselves or other directors.
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ORDINARY AND EXTRAORDINARY MEETINGS
General
In accordance with the French commercial code, there are two types of
shareholders' general meetings: ordinary and extraordinary.
Ordinary general meetings of shareholders are required for matters that are
not specifically reserved by law to extraordinary general meetings, such as:
- approving annual financial statements (individual and consolidated);
- electing, replacing and removing members of the board of directors;
- appointing independent auditors;
- declaring dividends or authorizing dividends to be paid in shares; and
- issuing debt securities.
Extraordinary general meetings of shareholders are required for approval of
matters such as amendments to our statuts, including any amendment required in
connection with extraordinary corporate actions.
Extraordinary corporate actions also include:
- changing the Company's name or corporate purpose;
- increasing or decreasing our share capital;
- creating a new class of equity securities;
- authorizing the issuance of investment certificates or convertible or
exchangeable securities;
- establishing any other rights to equity securities;
- selling or transferring substantially all of our assets; and
- the voluntary liquidation of the Company.
Shareholders' Meetings
The French commercial code requires our board of directors to convene an
annual ordinary general meeting of shareholders for approval of the annual
accounts. This meeting must be held within six months of the end of each fiscal
year. This period may be extended by an order of the President of the Tribunal
de Commerce. The board of directors may also convene an ordinary or
extraordinary meeting of shareholders upon proper notice at any time during the
year. If the board of directors fails to convene a shareholders' meeting, our
independent auditors or a court-appointed agent may call the meeting. Any of the
following may request the court to appoint an agent:
- one or several shareholders holding at least 5% of our share capital;
- the Employee Committee in cases of urgency;
- any interested party in cases of urgency;
- duly qualified associations of shareholders who have held their shares in
registered form for at least two years and who together hold at least 2%
of the voting rights of Vivendi Universal; or
- in a bankruptcy, our liquidator or court-appointed agent may also call a
shareholders' meeting in some instances.
Shareholders holding more than 50% of our share capital or voting rights
may also convene a shareholders' meeting after a public offer or a sale of a
controlling stake of Vivendi Universal's capital.
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Notice of Shareholders' Meetings
We must announce general meetings at least 30 days in advance by means of a
preliminary notice published in the Bulletin des Annonces Legales Obligatoires
(the "BALO"). The preliminary notice must first be sent to the Commission des
Operations de Bourse (the "COB"). The COB also recommends that the preliminary
notice be published in a financial newspaper of national circulation in France.
The preliminary notice must disclose, among other things, the time, date, and
place of the meeting, whether the meeting will be ordinary or extraordinary, the
agenda, a draft of the resolutions to be submitted to the shareholders, a
description of the procedures which holders of bearer shares must follow to
attend the meeting, the procedure for voting by mail, and a statement informing
the shareholders that they may propose additional resolutions to the board of
directors within ten days of the publication of the notice.
We must send a final notice containing the agenda and other information
about the meeting at least 15 days prior to the meeting or at least six days
prior to the resumption of any meeting adjourned for lack of a quorum. The final
notice must be sent by mail to all registered shareholders who have held shares
for more than one month prior to the date of the preliminary notice. The final
notice must also be published in the BALO and in a newspaper authorized to
publish legal announcements in the local administrative department in which we
are registered, with prior notice having been given to the COB.
In general, shareholders can take action at shareholders' meetings only on
matters listed in the agenda for the meeting. One exception to this rule is that
shareholders may take action with respect to the dismissal of members of the
board of directors and various other matters regardless of whether these actions
are on the agenda. Additional resolutions to be submitted for approval by the
shareholders at the meeting may be proposed to the board of directors (within
ten days of the publication of the preliminary notice in the BALO) by:
- one or several shareholders holding a specified percentage of shares (as
of today 0.5%), or
- a duly qualified association of shareholders who have held their shares
in registered form for at least two years and who together hold at least
a specified percentage of Vivendi Universal's voting rights (as of today
1%).
The board of directors must submit properly proposed resolutions to a vote
of the shareholders.
Before a meeting of shareholders, any shareholder may submit written
questions to the board of directors relating to the agenda for the meeting. The
management board must respond to these questions during the meeting.
Attendance and Voting at Shareholders' Meetings
Each share confers on the shareholder the right to cast one vote, subject
to certain limited exceptions under our statuts. Shareholders may attend
ordinary meetings and extraordinary meetings and exercise their voting rights
subject to the conditions specified in the French commercial code and our
statuts. There is no requirement that shareholders have a minimum number of
shares in order to attend or to be represented at an ordinary or extraordinary
general meeting.
To participate in any general meeting, a holder of shares held in
registered form must have shares registered in his or her name in a shareholder
account maintained by Vivendi Universal or on its behalf by an agent appointed
by Vivendi Universal at least one day prior to the date set for the meeting. A
holder of bearer shares must obtain a certificate from the accredited
intermediary with whom the holder has deposited his or her shares. This
certificate must indicate the number of bearer shares the holder owns and must
state that these shares are not transferable until the time fixed for the
meeting. The holder must deposit this certificate at the place specified in the
notice of the meeting at least one day before the meeting.
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Proxies and Votes by Mail
In general, all shareholders who have properly registered their shares or
duly presented a certificate from their accredited financial intermediary may
participate in general meetings. Shareholders may participate in general
meetings either in person or by proxy. Shareholders may vote in person, by proxy
or by mail.
Proxies will be sent to any shareholder on request. To be counted, those
proxies must be received at Vivendi Universal's registered office, or at any
other address indicated on the notice convening the meeting, prior to the date
of the meeting. A shareholder may grant proxies to his or her spouse or to
another shareholder. A shareholder that is a corporation may grant proxies to a
legal representative. Alternatively, the shareholder may send a blank proxy
without nominating any representative. In this case, the chairman of the meeting
will vote blank proxies in favor of all resolutions proposed by the management
board and against all others.
With respect to votes by mail, we are required to send shareholders a
voting form. The completed form must be returned to Vivendi Universal at least
three days prior to the date of the shareholders' meeting.
Quorum
The French commercial code requires that 25% of the shares entitled to
voting rights must be represented by shareholders present in person or voting by
mail or by proxy to fulfill the quorum requirement for:
- an ordinary general meeting; or
- an extraordinary general meeting where an increase in Vivendi Universal's
share capital is proposed through incorporation of reserves, profits or
share premium.
The quorum requirement is one-third of the shares entitled to voting
rights, on the same basis, for any other extraordinary general meeting.
If a quorum is not present at a meeting, the meeting is adjourned. When an
adjourned meeting is resumed, there is no quorum requirement for an ordinary
meeting or for an extraordinary general meeting where an increase in Vivendi
Universal's share capital is proposed through incorporation of reserves, profits
or share premium. However, only questions that are on the agenda of the
adjourned meeting may be discussed and voted upon. In the case of any other
reconvened extraordinary general meeting, shareholders representing at least 25%
of outstanding voting rights must be present in person or be voting by mail or
proxy for a quorum. If a quorum is not present, the reconvened meeting may be
adjourned for a maximum of two months. Any deliberation by the shareholders that
takes place without a quorum is void.
Majority
A simple majority of shareholders may pass any resolution on matters
required to be considered at an ordinary general meeting, or concerning a
capital increase by incorporation of reserves, profits or share premium at an
extraordinary general meeting. At any other extraordinary general meeting, a
two-thirds majority of the shareholder votes cast is required.
A unanimous shareholder vote is required to increase liabilities of
shareholders.
Abstention from voting by those present or those represented by proxy or
voting mail is counted as a vote against the resolution submitted to the
shareholder vote.
In general, a shareholder is entitled to one vote per share at any general
meeting. Under the French commercial code, shares of a company held by entities
controlled directly or indirectly by that company are not entitled to voting
rights and are not considered for quorum purposes.
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LIMITATIONS ON RIGHT TO OWN SECURITIES
Our statuts contain no provisions that limit the right of shareholders to
own Vivendi Universal's securities or hold or exercise voting rights associated
with those securities, except as described under "-- Anti-Takeover Provisions."
ANTI-TAKEOVER PROVISIONS
Our statuts provide that any person or group that fails to notify the
company within 15 days of acquiring or disposing of 0.5% or any multiple of 0.5%
of our shares may be deprived of voting rights for shares in excess of the
unreported fraction. Vivendi Universal's statuts also adjust the voting rights
of shareholders who own (within the meaning of the statuts and Article L 233-9
of the French commercial code to which those statuts refer) in excess of 2% of
the total voting power of Vivendi Universal through the application of a formula
designed to limit the voting power of these shareholders to that which they
would possess if 100% of the shareholders were present at the meeting at which
the vote in question takes place. This last provision is not applicable to any
shareholders' meeting where a quorum of 60% or more is present.
ANTI-TAKEOVER EFFECTS OF APPLICABLE LAW REGULATIONS
In addition, the French commercial code 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%, one-third, 50% or two-thirds of the
outstanding shares or voting rights of a listed company in France, such as
Vivendi Universal, or that increases or decreases its shareholding or voting
rights above or below any of those percentages, must notify Vivendi Universal
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 these thresholds.
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 one-third 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.
To permit holders to give the required notice, Vivendi Universal is
required to 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, Vivendi Universal is required to 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 fine.
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VIVENDI UNIVERSAL ORDINARY SHARES
DIVIDENDS
Dividends on our ordinary shares are distributed to shareholders pro rata.
Outstanding dividends are payable to shareholders on the date of the
shareholders' meeting at which the distribution of dividends is approved,
subject to any conditions imposed by the shareholders at the meeting. The
dividend payment date is decided by the shareholders at an ordinary general
meeting (or by the management board in the absence of such a decision by the
shareholders). Under the French commercial code, we must pay any dividends
within nine months of the end of our fiscal year unless otherwise authorized by
court order. Subject to certain conditions, the board of directors can decide
the distribution of interim dividends during the course of the fiscal year, but
in any case before the approval of the annual accounts by the annual ordinary
general meeting of shareholders. Dividends on shares that are not claimed within
five years of the date of declared payment revert to the French government.
VOTING RIGHTS
In general, each Vivendi Universal ordinary share carries the right to cast
one vote in shareholder elections. However, our statuts adjust the voting rights
of shareholders who own in excess of 2% of the total voting power of Vivendi
Universal 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 at the meeting at which the vote in question takes
place. See "Item 10 -- Additional Information-- Organizational Document of
Vivendi Universal -- Anti-Takeover Provisions." This provision is not applicable
to any shareholders' meeting where a quorum of 60% or more is present.
LIQUIDATION RIGHTS
If Vivendi Universal is liquidated, any assets remaining after payment of
its debts, liquidation expenses and all of its remaining obligations will be
distributed first to repay in full the nominal value of its shares. Any surplus
will be distributed pro rata among shareholders in proportion to the nominal
value of their shareholdings.
PREFERENTIAL SUBSCRIPTION RIGHTS
Under the French commercial code, if we issue additional shares, or any
equity securities or other specific kinds of additional securities carrying a
right, directly or indirectly, to purchase equity securities issued by us for
cash, current shareholders will have preferential subscription rights to these
securities on a pro rata basis. These preferential rights will require Vivendi
Universal to give priority treatment to those shareholders over other persons
wishing to subscribe for the securities. The rights entitle the individual or
entity that holds them to subscribe to an issue of any securities that may
increase our share capital by means of a cash payment or a set-off of cash
debts. Preferential subscription rights are transferable during the subscription
period relating to a particular offering. These rights may also be listed on the
Paris Bourse.
A two-thirds majority of our ordinary shares entitled to vote at an
extraordinary general meeting may vote to waive preferential subscription rights
with respect to any particular offering. French law requires a company's board
of directors and independent auditors to present reports that specifically
address any proposal to waive preferential subscription rights. In the event of
a waiver, the issue of securities must be completed within the period prescribed
by law. The shareholders may also decide at an extraordinary general meeting to
give the existing shareholders a non-transferable priority right to subscribe
for the new securities during a limited period of time. Shareholders may also
waive their own preferential subscription rights with respect to any particular
offering.
AMENDMENTS TO RIGHTS OF HOLDERS
The rights of holders of our ordinary shares can be amended only by action
of an extraordinary general meeting. Pursuant to French law, in some cases where
an amendment would increase shareholders'
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obligations, a special majority is required for approval. Depending on the
particular proposed amendment, the special majority may be two-thirds,
three-quarters or unanimity of the voting shares. Consistent with French law,
the Vivendi Universal statuts require a quorum of one-third of the voting shares
for an extraordinary general meeting.
MATERIAL CONTRACTS
In view of the size and scope of the operations of our Company, we believe
that the only contracts to which we or any of our subsidiaries are a party that
could be considered material to our Company as a whole are (i) the merger
agreement, dated June 19, 2000, by and among Vivendi S.A., Canal Plus S.A., and
The Seagram Company Ltd., related to the Merger Transactions, described under
"Item 4 -- Information on the Company -- History and Development of the
Company," (ii) the merger agreement for the sale of the spirits and wine
business, the principal terms of which are described under "Item 5 -- Operating
and Financial Review and Prospects -- Significant Transactions" and (iii) the
governance agreement with the Bronfman shareholders, the principal terms of
which are described under "Item 6 -- Directors, Senior Management and
Employees -- Share Ownership -- The Governance Agreement."
EXCHANGE CONTROLS
The French commercial code 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 our
company. 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.
TAXATION
On August 31, 1994, the United States and France entered into the
Convention Between the United States of America and France for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income and Capital (the "Treaty"). The following is a general summary of the
principal tax effects that may apply to you as a holder of our ordinary shares
or ADSs 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:
- an individual who is a citizen or resident of the United States for
United States federal income tax purposes;
- a corporation or other entity taxable as a corporation that is created
or organized in or under the laws of the United States or any
political subdivision thereof;
- an estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
- a trust, if a court within the United States is able to exercise
primary supervision over its administration and one or more U.S.
persons have the authority to control all of the substantial decisions
of the trust;
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- you are entitled to the benefits of the Treaty under the "Limitations of
Benefits" article of the Treaty;
- you hold your ordinary shares or ADSs of our company as capital assets;
and
- your functional currency is the U.S. dollar.
This summary is based in part upon the representations of the depositary,
and the assumption that each obligation in the deposit agreement and any related
agreement will be performed in accordance with its terms. In general, and taking
into account these assumptions, holders of ADSs will be treated as the owners of
the ordinary shares represented by such ADSs, and exchanges of ordinary shares
for ADSs, and ADSs for ordinary shares, will not be subject to United States
federal income or French tax.
YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
CONSEQUENCES TO YOU OF ACQUIRING, OWNING OR DISPOSING OF VIVENDI UNIVERSAL
ORDINARY SHARES OR ADSS, 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 ordinary shares or ADSs
as parties to a conversion transaction, among others. Those special rules are
not discussed in this annual report. The summary is based on the laws,
conventions and treaties in force as of the date of this annual report, 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
ordinary shares or ADSs, 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 ordinary shares or ADSs is not effectively
connected with a permanent establishment or a fixed base in France;
- you own all the rights attached to the full ownership of the ordinary
shares or ADSs, 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 upon request. After completing it, you send it to the Centre des
Impots des Non Residents.
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Under the Treaty, you may be entitled, in certain circumstances, to a
French tax credit called the avoir fiscal. Effective January 1, 2001, under
French law, a resident of France is entitled to an avoir fiscal or a tax credit,
in respect of a dividend received from a French corporation equal to 50% of the
amount of the dividend for individuals, 50% for companies owning more than 5% of
the Company's capital and 25% for other shareholders (15% for such other
shareholders who will use the avoir fiscal as of January 1, 2002). 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 Treaty;
- you are a U.S. corporation, other than a regulated investment company
that owns less than 10% of our share capital;
- 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 ordinary shares or ADSs
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 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
- 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
ordinary shares or ADSs 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 actually or constructively
received by the shareholder in the case of ordinary shares or the depositary in
the case of ADSs, to the extent they are 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
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deduction. Dividends 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 tax basis of your ordinary shares or ADSs 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 ordinary
shares or ADSs; and
- second, the balance of the dividend in excess of the adjusted tax basis
in your ordinary shares or ADSs 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.
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" income 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.
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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 ordinary shares or ADSs, unless you have a permanent establishment or fixed
base in France and the ordinary shares or ADSs 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 ordinary shares or ADSs. 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.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
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 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.
For purposes of this test, we will be treated as directly owning our
proportionate share of the assets, and directly receiving our proportionate
share of the gross income, of each corporation in which we own, directly or
indirectly, at least 25% of the value of the shares of such corporation.
If we were to become a PFIC, the tax applicable to distributions on our
ordinary shares or ADSs and any gains you realize when you dispose of our
ordinary shares or ADSs 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 ordinary shares or ADSs.
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 ordinary shares or ADSs 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 ordinary shares or
ADSs for that use.
FRENCH WEALTH TAX
The French wealth tax does not generally apply to our ordinary shares or
ADSs 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 ordinary shares or ADSs and proceeds from the
sale, exchange or other disposition of the ordinary shares or ADSs may be
subject to information reporting to the Internal Revenue Service and possible
U.S. backup withholding. U.S. federal backup withholding generally is imposed,
at a maximum 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
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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 have generally expanded the circumstances under which information
reporting and backup withholding may apply.
Backup withholding is not an additional tax. 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.
DIVIDENDS
DIVIDENDS
We may only pay dividends out of our "distributable profits," plus any
amounts held in our reserve that the shareholders decide to make available for
distribution. These amounts may not include those that are specifically required
to be held in reserve by law or our statuts. Distributable profits consist of
the unconsolidated statutory net profit we generate in each fiscal year, as
increased or reduced by any profit or loss carried forward from prior years,
less any contributions to the reserve accounts made pursuant to law or our
statutes. This restriction on the payment of dividends also applies to each of
our French subsidiaries on an unconsolidated basis.
LEGAL RESERVE
The French commercial code provides that societes anonymes such as our
company must allocate 5% of their unconsolidated statutory net profit each year
to their legal reserve fund before dividends may be paid with respect to that
year. Funds must be allocated until the amount in the legal reserve is equal to
10% of the aggregate nominal value of the issued and outstanding share capital.
As of December 31, 1999, we had no legal reserve. The legal reserve of any
company subject to this requirement may be distributed to shareholders only upon
liquidation of the company.
APPROVAL OF DIVIDENDS
Under the French commercial code, the board may propose a dividend for
approval by the shareholders at the annual general meeting of shareholders. If
we have earned distributable profits since the end of the preceding fiscal year,
as reflected in an interim income statement certified by our auditors, the board
may distribute interim dividends to the extent of the distributable profits for
the period covered by the interim income statement. The board exercises this
authority subject to French law and regulations and may do so without obtaining
shareholder approval, unless such distribution is of shares.
DISTRIBUTION OF DIVIDENDS
Dividends are distributed to shareholders pro rata. Outstanding dividends
are payable to shareholders on the date of the shareholders' meeting at which
the distribution of dividends is approved. In the case of interim dividends,
distributions are made to shareholders on the date of the management board
meeting at which the distribution of interim dividends is approved. The actual
dividend payment date is decided by the shareholders in an ordinary general
meeting (or by the management board in the absence of such a decision by the
shareholders).
TIMING OF PAYMENT
According to the French commercial code, we must pay any dividends within
nine months of the end of our fiscal year unless otherwise authorized by court
order. Dividends on shares that are not claimed within five years of the date of
declared payment revert to the French State.
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DOCUMENTS ON DISPLAY
Documents referred to in this document can be inspected at our offices at
42, avenue de Friedland, Paris Cedex 75380, France.
We are subject to the periodic reporting and other informational
requirements of the Exchange Act. Under the Exchange Act, we are required to
file reports and other information with the SEC. Specifically, we are required
to file annually a Form 20-F no later than six months after the close of each
fiscal year. Copies of reports and other information, when so filed, may be
inspected without charge and may be obtained at prescribed rates at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at
Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain
information regarding the Washington, D.C. Public Reference Room by calling the
Commission at 1-800-SEC-0330. The public may also view documents we have filed
with the SEC on the Internet at www.sec.gov. As a foreign private issuer, we are
exempt from the rules under the Exchange Act prescribing the furnishing and
content of quarterly reports and proxy statements, and officers, directors and
principal shareholders are exempt from the reporting and short-swing profit
recovery provisions in Section 16 of the Exchange Act.
ITEM 11: 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.
EXPOSURE TO INTEREST RATE RISK
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. 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
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. A hypothetical increase in average
market rates of one percent over the year 2001 would result in a decrease
(before taxes) in our annual net income of approximately E170 million.
EXPOSURE TO EQUITY MARKET RISK
Our exposure to equity markets risk relates primarily to its investments in
the marketable securities of unconsolidated entities and derivative equity
instruments. 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 2001 would result in a decrease in our equity market
portfolio of E869.3 million.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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PART II
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
None.
ITEM 15: [RESERVED]
ITEM 16: [RESERVED]
PART III
ITEM 17: FINANCIAL STATEMENTS
Not applicable.
ITEM 18: FINANCIAL STATEMENTS
See our consolidated financial statements beginning at F-1.
ITEM 19: EXHIBITS
1.1 Vivendi Universal Restated Corporate statuts (organizational
document) (English translation).
2.1 Deposit Agreement dated as of April 19, 1995, as amended and
restated as of September 11, 2000, and as further amended
and restated as of December 8, 2000, among Vivendi
Universal, S.A., The Bank of New York, as Depositary, and
all the Owners and Beneficial Owners from time to time of
American Depositary Shares issued thereunder (incorporated
by reference to the Vivendi Universal Registration Statement
on Form 8-A dated December 29, 2000).
2.2 Vivendi Universal agrees to furnish to the Commission on
request a copy of any instrument defining the rights of
holders of long-term debt of Vivendi Universal and of any
subsidiary for which consolidated or unconsolidated
financial statements are required to be filed.
4.1 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. (incorporated by reference
to the Vivendi Universal Registration Statement on Form F-4
dated October 30, 2000).
4.2 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. (incorporated by
reference to the Vivendi Universal Registration Statement on
Form F-4 dated October 30, 2000).
4.3 Stock and Asset Purchase Agreement, dated as of December 19,
2000, among Vivendi Universal S.A., Pernod Ricard S.A. and
Diageo plc (incorporated by reference to the Vivendi
Universal Registration Statement on Form F-4 dated
February 5, 2001).
8.1 Subsidiaries of Vivendi Universal, S.A.
10.1 Indenture among Joseph E. Seagram & Sons, Inc., as issuer,
The Seagram Company Ltd., as guarantor, and The Bank of New
York, as Trustee dated September 15, 1991 (incorporated by
reference to the Seagram Current Report on Form 8-K dated
November 8, 1991, as amended (file number 001-02275)).
10.2 Form of First Supplemental Indenture among Joseph E. Seagram
& Sons, Inc., The Seagram Company Ltd. and The Bank of New
York, as Trustee, dated as of June 21, 1999 (incorporated by
reference to Amendment No. 2 to the Seagram Registration
Statement on Form S-3/A dated June 10, 1999).
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10.3 Second Supplemental Indenture among Joseph E. Seagram & Sons, Inc., The Seagram Company Ltd. and The
Bank of New York, as Trustee, dated as of November 15, 1999 (incorporated by reference to the Vivendi
Universal Registration Statement on Form F-4 dated February 5, 2001).
10.4 Third Supplemental Indenture among Joseph E. Seagram & Sons, Inc., The Seagram Company Ltd. and The
Bank of New York, as Trustee, dated as of January 5, 2001 (incorporated by reference to the Vivendi
Universal Registration Statement on Form F-4 dated February 5, 2001).
10.5 Form of Fourth Supplemental Indenture, dated as of March 7, 2001, among Joseph E. Seagram & Sons, Inc.,
The Seagram Company Ltd. and The Bank of New York, as Trustee (incorporated by reference to the Vivendi
Universal Registration Statement on Form F-4 dated February 5, 2001).
10.6 Form of Purchase Contract Agreement between The Seagram Company Ltd. and The Bank of New York, as
purchase contract agent, dated as of June 21, 1999 (incorporated by reference to Amendment No. 2 to the
Seagram Registration Statement on Form S-3/A dated June 10, 1999).
10.7 Supplemental Agreement to the Purchase Contract Agreement entered into by Vivendi Universal, S.A. dated
December 8, 2000 (incorporated by reference to the Vivendi Universal Registration Statement on Form F-4
dated February 5, 2001).
10.8 Form of Supplemental Agreement to the Purchase Contract Agreement between The Seagram Company Ltd. and
The Bank of New York, as purchase contract agent (incorporated by reference to the Vivendi Universal
Registration Statement on Form F-4 dated February 5, 2001).
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SIGNATURES
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 that it has duly caused this annual report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VIVENDI UNIVERSAL, S.A.
By: /s/ GUILLAUME HANNEZO
------------------------------------
Name: Guillaume Hannezo
Title: Senior Executive Vice
President and Chief Financial
Officer
Date: July 2, 2001
114
VIVENDI UNIVERSAL
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Public Accountants................... F-2
Consolidated Statement of Income for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Balance Sheet as of December 31, 2000 and
1999...................................................... F-5
Consolidated Statement of Shareholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998.................... F-6
Consolidated Statement of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
F-1
115
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Vivendi Universal:
We have audited the accompanying consolidated balance sheet of Vivendi
Universal (the successor company to Vivendi S.A. -- see Note 1) and subsidiaries
(together the "Company"), as of December 31, 2000 and December 31, 1999 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years then ended, expressed in Euros. We have also audited
the information presented in Note 16, 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 the
Company as of December 31, 2000, 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 16 that are based on accounting principles generally accepted in France, 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 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, the financial position of Vivendi Universal and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in France and the information with
respect to accounting principles generally accepted in the United States as of
and for the years ended December 31, 2000, 1999 and 1998 set forth in the Note
16.
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 three
years ended December 31, 2000 is set forth in Note 16 to the consolidated
financial statements.
Barbier Frinault & Cie, RSM Salustro Reydel
a member firm of Arthur Andersen
Paris, France
April 2, 2001
(Except with respect to the matters discussed in Note 16 as to which the date is
June 28, 2001)
F-2
116
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 statement of income, change in shareholders' equity and cash flow
for the year 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.
We conducted our audit 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 audit provides 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 the year then ended in conformity with accounting principles generally
accepted in France.
RSM Salustro Reydel Signature
RSM Salustro Reydel
Paris, France
March 10, 2000
F-3
117
VIVENDI UNIVERSAL
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999(1) 1999 1998
--------- --------- --------- ---------
(IN MILLIONS OF EUROS, EXCEPT PER SHARE AMOUNTS)
REVENUE....................................... 41,797.6 40,854.5 41,622.5 31,737.1
Other revenue................................. 821.2 1,171.1 1,951.3 1,516.8
Cost of revenue............................... (20,644.6) (23,246.8) (23,712.9) (18,575.3)
Personnel costs (including employee
profit-sharing)............................. (9,487.3) (10,299.5) (10,431.1) (8,225.1)
Taxes......................................... (629.2) (653.8) (659.2) (627.9)
Other operating expenses...................... (6,155.0) (3,803.7) (3,811.8) (2,662.5)
Depreciation and amortization................. (3,131.3) (2,186.3) (2,678.3) (1,831.7)
--------- --------- --------- ---------
OPERATING INCOME.............................. 2,571.4 1,835.5 2,280.5 1,331.4
Financial (expense) income.................... (541.2) 75.9 (57.2) 307.3
Financial provisions.......................... (91.7) (163.0) (162.9) (298.0)
--------- --------- --------- ---------
NET FINANCIAL (EXPENSE) INCOME................ (632.9) (87.1) (220.1) 9.3
--------- --------- --------- ---------
INCOME FROM OPERATIONS BEFORE EXCEPTIONAL
ITEMS AND INCOME TAXES...................... 1,938.5 1,748.4 2,060.4 1,340.7
Exceptional items............................. 2,755.2 (922.7) (914.3) 42.7
Depreciation, amortization and provisions on
exceptional items........................... 191.6 76.9 76.5 206.6
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES, GOODWILL
AMORTIZATION, EQUITY INTEREST AND MINORITY
INTEREST.................................... 4,885.3 902.6 1,222.6 1,590.0
Income taxes and deferred tax................. (1,020.9) 946.1 793.2 (90.0)
--------- --------- --------- ---------
INCOME BEFORE GOODWILL AMORTIZATION, EQUITY
INTEREST AND MINORITY INTEREST.............. 3,864.4 1,848.7 2,015.8 1,500.0
Goodwill amortization......................... (634.2) (606.4) (612.0) (209.5)
--------- --------- --------- ---------
INCOME BEFORE EQUITY INTEREST AND MINORITY
INTEREST.................................... 3,230.2 1,242.3 1,403.8 1,290.5
Equity in net income of affiliates............ (306.3) 32.9 32.9 42.5
Minority interest............................. (624.9) 159.4 (5.3) (212.2)
--------- --------- --------- ---------
NET INCOME.................................... 2,299.0 1,434.6 1,431.4 1,120.8
========= ========= ========= =========
EARNINGS PER SHARE:
Basic....................................... 3.6 2.7 2.7 2.5
Diluted..................................... 3.4 2.5 2.5 2.4
The accompanying notes are an integral part of these 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 1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the consolidated financial statements).
(1) Restated to give effect to changes in accounting policies (see Note 2 to the
consolidated financial statements).
F-4
118
VIVENDI UNIVERSAL
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
-----------------------------------
2000 1999(1) 1999
--------- --------- ---------
(IN MILLIONS OF EUROS)
ASSETS
GOODWILL, NET............................................. 47,132.5 10,388.6 10,388.6
OTHER INTANGIBLE ASSETS, NET.............................. 20,180.1 11,256.4 8,681.9
Property, plant and equipment............................. 25,670.8 26,569.1 26,569.1
Publicly-owned utility networks........................... 5,660.9 3,985.8 3,985.8
Accumulated depreciation.................................. (11,342.9) (10,577.5) (10,577.5)
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET........................ 19,988.8 19,977.4 19,977.4
Investments accounted for using the equity method......... 9,176.5 781.9 781.9
Investments accounted for using the cost method........... 1,000.3 2,415.6 2,415.6
Portfolio investments held as fixed assets (securities)... 3,264.2 534.4 534.4
Portfolio investments held as fixed assets (others)....... 11,836.9 2,561.1 2,561.1
--------- --------- ---------
FINANCIAL ASSETS.......................................... 25,277.9 6,293.0 6,293.0
--------- --------- ---------
TOTAL LONG-TERM ASSETS.................................... 112,579.3 47,915.4 45,340.9
Inventories and work-in-progress.......................... 3,219.5 4,348.3 4,900.3
Accounts receivable....................................... 23,149.7 22,164.1 22,391.7
Short-term loans.......................................... 1,170.6 3,041.2 3,035.6
Cash and cash equivalents................................. 3,271.4 2,861.8 2,861.8
Other marketable securities............................... 7,347.4 4,282.9 4,246.7
--------- --------- ---------
TOTAL CURRENT ASSETS...................................... 38,158.6 36,698.3 37,436.1
--------- --------- ---------
TOTAL ASSETS.............................................. 150,737.9 84,613.7 82,777.0
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Share capital............................................. 5,944.5 3,276.1 3,276.1
Additional paid-in capital................................ 27,913.4 4,350.8 4,350.8
Retained earnings......................................... 22,817.2 3,149.6 3,265.3
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY................................ 56,675.1 10,776.5 10,892.2
MINORITY INTEREST......................................... 9,787.4 3,754.5 4,052.4
DEFERRED INCOME........................................... 1,560.1 1,306.4 1,306.4
RESERVES AND ALLOWANCES................................... 5,945.8 6,704.2 6,883.3
SUBORDINATED DEBT......................................... 150.1 178.3 178.3
Non-recourse project financing............................ -- 1,193.0 1,193.0
Other financial long-term debt............................ 23,804.1 17,861.7 17,861.7
--------- --------- ---------
LONG-TERM DEBT............................................ 23,804.1 19,054.7 19,054.7
OTHER LONG-TERM LIABILITIES............................... 6,337.2 4,251.2 1,560.2
TOTAL LONG-TERM LIABILITIES............................... 104,259.8 46,025.8 43,927.5
Accounts payable.......................................... 31,626.6 23,565.6 23,832.1
Bank overdrafts and other short-term borrowings........... 14,851.5 15,022.3 15,017.4
TOTAL CURRENT LIABILITIES................................. 46,478.1 38,587.9 38,849.5
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ 150,737.9 84,613.7 82,777.0
========= ========= =========
The accompanying notes are an integral part of these statements.
(1) Restated to give effect to changes in accounting policies (see Note 2 to the
consolidated financial statements).
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VIVENDI UNIVERSAL
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL
SHARE PAID-IN RETAINED NET SHAREHOLDERS'
CAPITAL CAPITAL EARNINGS INCOME EQUITY
------- ---------- -------- -------- -------------
(IN MILLIONS OF EUROS)
BALANCE AT DECEMBER 31, 1997............. 2,043.5 3,237.3 743.8 822.1 6,846.7
Changes in accounting methods............ (226.8) (226.8)
------- -------- -------- -------- --------
RESTATED BALANCE 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................................. (579.0) (579.0)
Capital increase......................... 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................................. (4,310.3) (4,310.3)
Capital increase......................... 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
Changes in accounting methods............ (115.7) (115.7)
------- -------- -------- -------- --------
RESTATED BALANCE AT DECEMBER 31, 1999.... 3,276.1 4,350.8 1,718.2 1,431.4 10,776.5
Net income for the year 2000............. 2,299.0 2,299.0
Foreign currency translation
adjustment............................. (735.3) (735.3)
Dividends paid and net income
appropriation.......................... 865.7 (1,431.4) (565.7)
Goodwill................................. 781.0 (44.0) 737.0
Capital increase......................... 2,668.4 22,781.6 18,792.0 44,242.0
Release of revaluation surplus and
other.................................. (78.4) (78.4)
------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2000............. 5,944.5 27,913.4 20,518.2 2,299.0 56,675.1
======= ======== ======== ======== ========
The accompanying notes are an integral part of these 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 E1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the consolidated financial statements).
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VIVENDI UNIVERSAL
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------------
2000 1999(1) 1999 1998
--------- --------- --------- --------
(IN MILLIONS OF EUROS)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income............................................. 2,299.0 1,434.6 1,431.4 1,120.8
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 4,038.3 2,988.5 3,489.7 2,125.0
Financial provisions................................. 91.7 163.0 162.9 298.0
Gain on sale of property and equipment and financial
assets, net........................................ (3,909.5) (670.0) (670.0) (297.9)
Undistributed earnings from affiliates, net.......... 342.8 50.8 50.8 38.8
Deferred taxes....................................... 231.1 (1,175.0) (1,022.1) (279.4)
Minority interest.................................... 624.9 170.0 5.3 212.2
Net changes in current assets and liabilities:
Prepaid, deferrals and accruals...................... (157.4) (1,094.3) (1,094.3) (536.1)
Other working capital................................ (1,046.7) (1,096.0) (944.3) 216.5
--------- --------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 2,514.2 771.6 1,409.4 2,897.9
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.............. (5,799.8) (5,059.4) (5,697.2) (3,942.2)
Proceeds from sale of property, plant and equipment.... 2,821.9 1,092.1 1,092.1 191.7
Purchase of investments................................ (3,132.7) (11,971.6) (11,971.6) (2,228.9)
Sale of investments.................................... 3,786.8 2,704.5 2,704.5 2,532.7
Purchase of portfolio investments...................... (69.3) (716.4) (716.4) (168.1)
Sale of portfolio investments.......................... 302.1 673.3 673.3 579.3
Disbursement on notes receivables...................... (253.7) (1,121.0) (1,121.0) (522.1)
Principal payment on notes receivables................. 793.5 1,841.8 1,841.8 192.1
Net decrease (increase)in short-term financial
receivables.......................................... 3,912.8 (120.7) (120.7) 1,421.2
Purchase of treasury shares held as marketable
securities........................................... (2,455.7) (1,401.8) (1,401.8) (288.7)
(Purchases) sales of other marketable securities....... (1,386.4) 1,161.0 1,161.0 (692.8)
--------- --------- --------- --------
NET CASH USED FOR INVESTING ACTIVITIES............... (1,480.5) (12,918.3) (13,556.2) (2,925.9)
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings....... 2,432.0 9,273.4 9,273.4 (1,384.2)
Proceeds from issuance of borrowings and other
long-term debt....................................... 16,369.9 11,695.6 11,695.6 2,850.7
Principal payment on borrowings and other long-term
debt................................................. (21,923.4) (9,899.6) (9,899.6) (1,042.4)
Net proceeds from issuance of common stock............. 3,396.5 3,295.5 3,295.5 146.8
Purchase of treasury stock............................. (106.4) (135.3) (135.3) --
Cash dividends paid.................................... (799.9) (483.8) (483.8) (348.3)
--------- --------- --------- --------
NET CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES......................................... (631.3) 13,745.8 13,745.8 222.6
Effect of foreign currency exchange rate changes on cash
and cash equivalents................................... 7.3 (1.5) (1.5) 89.3
--------- --------- --------- --------
CHANGE IN CASH AND CASH EQUIVALENTS...................... 409.7 1,597.6 1,597.6 283.9
========= ========= ========= ========
CASH AND CASH EQUIVALENTS:
Beginning.............................................. 2,861.8 1,264.1 1,264.1 980.2
Ending................................................. 3,271.4 2,861.8 2,861.8 1,264.1
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest............................................. 1,288.4 871.9 871.9 408.0
Income taxes......................................... 228.9 369.5 369.5 140.8
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition:
Purchase of affiliates by issuance of common stock... 28,809.2 2,225.2 2,225.2 923.1
Issuance of common stock in settlement of note
payable............................................ 1,404.9 619.6 619.6 150.0
The accompanying notes are an integral part of these 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 1 = FF 6.55957, applicable since January 1,
1999 (see Note 2 to the consolidated financial statements).
(1) Restated to give effect to changes in accounting policies (see Note 2 to the
consolidated financial statements).
F-7
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VIVENDI UNIVERSAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS
Vivendi Universal (also referred to herein as "the Company") is a societe
anonyme organized under the laws of France. Vivendi Universal was created
through the merger of Vivendi, The Seagram Company Ltd. and Canal Plus that was
completed in December 2000, and is the successor company to Vivendi. The Company
operates in two global core businesses: Media and Communications and
Environmental Services. The Media and Communications business is divided into
five business segments: Music, Publishing, and TV & Film, which constitute our
content businesses, and Telecoms and Internet, which constitute our access
businesses. Integration and partnering of the Media and Communications business
segments enables Vivendi Universal to provide a diverse array of entertainment
and information content to an international customer and subscriber base over
wired and wireless access devices using cable, Internet, satellite and broadcast
networks.
Content
- The Music business is conducted through Universal Music Group, which
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 Publishing business is Europe's premier publisher of information
providing content across multiple platforms, including print, multimedia,
on the wired Internet and to personal data appliances (PDAs) via wireless
application protocol (WAP) technology. The Publishing business is a
content leader in five core markets: education, games, healthcare
information, local services, and business and general information.
- The TV & Film business produces and distributes motion picture,
television and home video/DVD products worldwide, operates and has
ownership interests in a number of cable and pay television channels,
engages in the licensing of merchandising and film property rights and
operates theme parks and retail stores around the world.
Access
- The Telecoms business provides a broad range of telecommunications
services, including mobile and fixed telephony, Internet access and data
services and transmission, principally in Europe.
- The Internet business manages the strategic Internet initiatives and new
online ventures for Vivendi Universal. Utilizing advanced digital
distribution technology, the Internet business develops e-commerce,
e-services and thematic portals that offer access to the Internet via a
variety of devices, including mobile phones, PDAs, interactive TV and
computers.
Vivendi Environnement, a 63 percent effectively-owned subsidiary of Vivendi
Universal, operates the Environmental Services business, with operations around
the globe. Vivendi Environnement provides environmental management services,
including water treatment and system operation, waste management, energy
services and transportation services, to a wide range of public authorities and
industrial, commercial and residential customers.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation Vivendi Universal has prepared its consolidated
financial statements 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 (U.S. GAAP). A description of these differences and their effects on net
income and shareholders' equity is discussed in
F-8
122
Note 16. The consolidated financial statements are presented in French GAAP
format and incorporate certain modifications and additional disclosures designed
to conform more closely to U.S. GAAP financial statements.
Principles of Consolidation and Accounting for Investments The
consolidated financial statements include the accounts of Vivendi Universal and
its subsidiaries. All companies in which Vivendi Universal has legal or
effective control are consolidated. The Company consolidates Cegetel and Canal
Plus, 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% direct
ownership interest in Canal Plus. With respect to Canal Plus, the Company's
control is derived from the facts that (i) Vivendi Universal has a majority of
the Board of Directors, and (ii) the operational risks and rewards of Canal Plus
are borne by Vivendi Universal. 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 Universal 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, where Vivendi Universal and outside shareholders
have agreed to exercise joint control over significant financial and operational
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. All material intercompany transactions have been eliminated.
In the case of proportionally consolidated companies, intercompany transactions
are eliminated on the basis of Vivendi Universal's interest in the company
involved.
Use of Estimates The preparation of the financial statements requires
management to make informed estimates, assumptions and judgments, with
consideration given to materiality, that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and
liabilities. For example, estimates are used in management's forecast of
anticipated revenues in the TV & Film and Music businesses and in determining
valuation allowances for long-lived assets and uncollectible accounts
receivable, pension liabilities and deferred taxes. Actual results could differ
significantly from these estimates.
Foreign Currency Translation
Introduction of the euro -- Since the introduction of the euro on
January 1, 1999, the functional and reporting currency of Vivendi Universal
has been the euro. Prior to this date, the functional and reporting
currency of the Company was the French franc. Periods prior to January 1,
1999, have been restated from French francs into euros using the official
fixed exchange rate of E1 = FF 6.55957. The restated financial statements
depict the same trends as the financial statements previously prepared
using the French franc. 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 other than the French
franc.
Translation of foreign subsidiaries' financial statements -- Financial
statements of foreign subsidiaries whose functional currency is not the
euro are translated into euros at applicable exchange rates. All assets and
liability accounts are translated at the appropriate year-end exchange rate
and all income and expense accounts are translated at the average exchange
rate for the year. The resulting translation gains and losses are recorded
in retained earnings. For subsidiaries operating in highly inflationary
economies, the financial statements are translated into the stable currency
of a country that has a similar economy.
F-9
123
Related translation gains or losses are recorded in current period
earnings. These financial statements are then translated from the stable
currency into euros at the applicable exchange rates, and related
translation gains or losses are recorded in retained earnings. Financial
statements of subsidiaries located in countries that adopted the euro as
their official currency are translated from the former national currencies
to the euro at the official fixed exchange rates that were established on
January 1, 1999, and are no longer subject to fluctuation.
Foreign currency transactions -- Foreign currency transactions are
converted into euros at the exchange rate on the transaction date. The
resulting exchange losses are recorded in the current period earnings.
Exchange gains or losses on borrowings denominated in foreign currencies
that qualify as hedges of net investments in foreign subsidiaries are
recorded in retained earnings.
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 business segments
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 7 to 40
years in our Media and Communications businesses and from 20 to 40 years in our
Environmental Services businesses.
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 are not
amortized (see accounting policies specific to the Media and Communications
sector).
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.
Property, Plant and Equipment Property, plant and equipment are carried at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method, generally over the useful lives of 20 - 50 years for
buildings and 3 - 15 years for equipment and machinery.
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 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.
F-10
124
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 Universal'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.
Deferred Taxes Deferred tax assets are recognized for deductible temporary
differences, net tax operating loss carryforwards and tax credit carryforwards.
Deferred tax liabilities are recognized for taxable temporary 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 Universal treasury shares and other
highly liquid investments. Vivendi Universal treasury shares are classified as
marketable securities when they are acquired in open market transactions 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 Universal has several pension plans that cover
substantially all employees. Vivendi Universal determines its pension
obligations using the projected unit credit method. This method considers the
probability of personnel remaining with Vivendi Universal until retirement, the
foreseeable changes in future compensation, and the appropriate discount rate
for each country in which Vivendi Universal 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.
Vivendi Universal's employees in France and most other European countries
are eligible for severance pay pursuant to applicable law immediately upon
termination. Vivendi Universal reserves for such employees' termination
liabilities using the projected unit credit method.
Stock Based Compensation Vivendi Universal has adopted stock option
incentive plans that grant options on its common shares to certain directors,
officers and other managers. 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 Universal 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 Universal and certain of its
subsidiaries to purchase shares of Vivendi Universal. 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.
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
F-11
125
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
Universal 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.
Research and Development The Research and Development costs are expensed
as incurred.
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 Note.
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 the Company's
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 Media & Communications Businesses
TV & Film 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 recorded at the
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 revenues to
estimated total gross revenues from all sources on an individual production
basis. Revenue estimates are reviewed periodically and amortization is adjusted
accordingly. Film costs, net of amortization, are classified as other intangible
assets.
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.
F-12
126
Estimates of total gross revenues and costs 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
and cost 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.
In order to effectively manage our capital needs and costs in the film
business, we may utilize a variety of arrangements, including co-production,
insurance, contingent profit participation and the sale of certain distribution
rights. In connection with our review of capital needs and costs, the Company
has entered into an agreement with an independent third-party to sell
substantially all completed feature films produced over the period 1997 - 2000.
Films under the agreement are sold at our cost and no revenue or expense from
the initial sale of the films is recognized. The Company distributes these films
and maintains an option to reacquire the films at fair value, based on a formula
considering the remaining estimated total gross revenues, net of costs, at the
time of reacquisition. No films have been reacquired as of December 31, 2000.
Following the sale to the third-party, we accrue participations due to the
third-party in the same manner that the Company has historically amortized film
costs under Financial Accounting Standard (SFAS) No. 53, Financial Reporting by
Producers and Distributors of Motion Picture Films. As a distributor, the
Company has recorded, in its statement of income, the revenues received from and
operating expenses related to the films in all markets where we bear financial
risk for film performance, and, in interest, net and other expense, certain
other costs relating to the agreement.
Revenues at theme parks are recognized at the time of visitor attendance.
Revenues for retail operations are recognized at point-of-sale.
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.
Music segment -- Revenues from the sale of recorded music, net of a
provision for estimated returns and allowances, are recognized upon shipment to
third parties. Advances to established recording artists and direct costs
associated with the creation of record masters are capitalized and are charged
to expense as the related royalties are earned, or when the amounts are
determined to be unrecoverable. The advances are expensed when past performance
or current popularity does not provide a sound basis for estimating that the
advance will be recovered from future royalties.
Telecoms 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 twelve months) and discounts on packs (mobile granted access
to Societe Francaise du Radiotelephone ("SFR") flat-rate tariff including
connection). These discounts are treated as a reduction in revenue, and are
spread over twelve months from the date the line is put into service.
Internet segment -- Website development costs are expensed as incurred.
Accounting Policies Specific to the Environmental Services Business
Public Service Contracts -- Vivendi Universal holds public service
contracts according to which the Company is granted the obligation to manage and
maintain facilities owned and financed by local authorities. Revenue relating to
these contracts is recognized when services are rendered.
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
F-13
127
shorter of their economic useful lives or the contract's term. Whenever 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.
Vivendi Universal 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 incurred to obtain a contract and paid upfront are capitalized and
amortized on a straight line basis over the duration of the contract.
Landfill Capitalization and Depletion
Landfill sites are carried 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 determined before
its final authorization, as it is the case in France and the United Kingdom,
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 for which it is
otherwise responsible.
Landfill final closure and post-closure accruals consider estimates for
costs of the final cap and cover for the site, methane gas control, leachate
management, groundwater monitoring, and other monitoring and maintenance to be
incurred after the site discontinues accepting waste. The Company accrues a
reserve for these estimated future costs pro rata over the estimated useful life
of the sites.
Accruals for environmental remediation obligations are recognized when such
costs are probable and reasonably estimable.
These liabilities are classified as reserves and allowances.
Change in Accounting Principles
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, is effective for
fiscal years beginning on or after January 1, 2000. Accordingly, Vivendi
Universal adopted the following new principles for fiscal year 2000:
- Revenues and expenses of subsidiaries' financial statements denominated
in a currency different from euros, which were previously translated at
the year-end exchange rate, are now translated at the average exchange
rate during the period. The cumulative effect of this change in
accounting principle would have decreased net income as of December 31,
1999 by E16.3 million.
- Gains on foreign currency transactions, which were previously deferred,
are now recorded in current period earnings. The cumulative effect of
this change in accounting principle would have increased net income as of
December 31, 1999 by E107.4 million.
F-14
128
OTHER CHANGES
In addition, as of January 1, 2000, Vivendi Universal adopted the following
new accounting principles in order to more closely align the Company's
accounting policies to US GAAP:
- Subscriber acquisition costs, which were previously spread over 12 months
from the date the line was put into service, are now charged to expense.
The cumulative effect of this change in accounting principle would have
decreased net income as of December 31, 1999 by E87.7 million.
- Broadcasting rights acquired by Canal Plus are now capitalized as
intangible assets and are amortized over the period of the agreement. The
cumulative effect of this change had no impact on net income in 2000 and
1999. Total assets increased by E2.0 billion (most of which related to
intangible assets) and total liabilities and shareholders' equity
increased by the same amount.
Restated 1999 financial statements have been presented in order to
facilitate comparability of annual financial statements.
Reclassifications Certain prior period amounts in the financial statement
notes have been reclassified to conform with the current year presentation.
NOTE 3 SIGNIFICANT TRANSACTIONS/BUSINESS COMBINATIONS
MERGER OF VIVENDI, SEAGRAM AND CANAL PLUS
On December 8, 2000, Vivendi, Seagram and Canal Plus completed a series of
transactions in which the three companies combined to create Vivendi Universal.
The terms of the Merger Transactions included:
- Vivendi Universal's combination, through its subsidiaries, with Seagram
in accordance with a plan of arrangement under Canadian law. In Vivendi
Universal's combination with Seagram, holders of Seagram common shares
(other than those exercising dissenters' rights) received 0.80 Vivendi
Universal American Depositary Shares (ADSs), or a combination of 0.80
non-voting exchangeable shares of Vivendi Universal's Canadian subsidiary
Vivendi Universal Exchangeco (exchangeable shares) and an equal number of
related voting rights in Vivendi Universal, for each Seagram common share
held.
- Vivendi merger with Canal Plus: Canal Plus shareholders received two
Vivendi Universal ordinary shares for each Canal Plus ordinary share they
held and kept their existing shares in Canal Plus, which retained the
French premium pay television channel business.
- Vivendi Universal accounted for the Merger Transactions with Seagram and
Canal Plus using the purchase method of accounting for business
combinations.
Seagram
Allocation of Purchase Price The Company has performed a preliminary
purchase price study related to the Merger Transactions in order to assess and
allocate the purchase price among tangible and intangible assets acquired and
liabilities assumed, based on fair values at the transaction date. The final
allocation of purchase
F-15
129
price, which will be completed within one year of the completion of the Merger
Transactions, is not expected to differ significantly from the following:
MILLIONS OF EUROS
-----------------
Identifiable intangible assets.............................. 8,785
Investment in USA Networks, Inc. ........................... 5,904
Net assets of spirits & wine................................ 8,759
Goodwill.................................................... 25,345
Net debt.................................................... (8,921)
Deferred taxes.............................................. (6,253)
All other, net.............................................. (1,054)
------
32,565
======
Intangible Assets Identifiable intangible assets consist of music
catalogs, artists' contracts, music publishing assets, distribution networks,
customer relationships and international television networks. Acquired music
catalogs, artists' contracts and music publishing assets are amortized over
periods ranging from 14 to 20 years and other intangibles are amortized over a
40-year period, on a straight-line basis. Goodwill is the excess of purchase
price over the fair value of assets acquired and liabilities assumed, and is
amortized on a straight-line basis over a 40-year period.
Accrual for Exit Activities In connection with the integration of Vivendi,
Seagram and CANAL+, management developed a formal exit activity plan that was
committed to by management and communicated to employees shortly after the
merger was consummated. The accrual for exit activities consists principally of
facility elimination costs, including leasehold termination payments and
incremental facility closure costs, contract terminations, relocation costs and
the severance of approximately 100 employees, related to the acquired companies.
Plans to Dispose of Seagram's Spirits and Wine Business In connection with
the Merger Transactions, on December 19, 2000, Vivendi Universal entered into an
agreement with Diageo and Pernod Ricard to sell its Spirits and Wine business
for U.S.$8.15 billion, an amount that is expected to result in approximate
after-tax proceeds of U.S.$7.7 billion. The sale is expected to close during
2001 and is subject to regulatory approvals and customary closing conditions.
There is no assurance that such conditions will be satisfied. Vivendi Universal
accounts for the Spirits and Wine business on a single line as a component of
exceptional items.
CANAL+
The details of the acquisition of CANAL+ are as follows:
MILLIONS OF EUROS
-----------------
Fair value of net tangible and intangible assets acquired... (7)
Purchase price.............................................. 12,537
------
Goodwill.................................................... 12,544
------
Goodwill recorded as an asset............................... 12,544
Prior to the merger with Vivendi and Seagram, Vivendi Universal acquired
control of Canal Plus in September 1999, 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.
Goodwill arising from these transactions is amortized over a 40 year
period.
Plans to Dispose of Vivendi's Interest in BSkyB In connection with the
European Commission's approval of the Merger Transactions pursuant to the
relevant European merger regulations, Vivendi Universal has to divest its
investment in BSkyB within a period of two years from the completion of the
merger
F-16
130
transactions. Pursuant to the requirement, BSkyB has been accounted for using
the cost method since September 30, 2000.
Havas Interactive In January 1999, Vivendi Universal acquired 100% of the
outstanding shares of Cendant Software (renamed Havas Interactive), a U.S. based
software development company which produces games and educational CD-ROM. The
transaction was accounted for as a purchase. Vivendi Universal made a payment of
E678 million in exchange for the shares of Havas Interactive. The details of the
acquisition are as follows:
MILLIONS OF EUROS
-----------------
Fair value of net tangible and intangible assets acquired... 396
Purchase price.............................................. 678
---
Goodwill.................................................... 282
---
Goodwill recorded as an asset............................... 282
Goodwill recorded as an asset arising from this transaction is being
amortized over 10 years.
US Filter In April 1999, Vivendi Universal acquired 100% of the
outstanding shares of US Filter, a U.S. based water treatment and equipment
manufacturing company. The transaction was accounted for as a purchase. Vivendi
Universal paid E5,801 million in cash and financed the transaction through the
issuance of Vivendi Universal bonds and common shares. The details of the
acquisition are as follows:
MILLIONS OF EUROS
-----------------
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
Goodwill recorded as an asset arising from this transaction is being
amortized over 40 years.
Scoot.com In April and July 2000, Vivendi Universal acquired 22.4% of
Scoot.plc. The transaction was accounted for as a purchase, for an amount of
E443 million. The details of the acquisition are as follows:
MILLIONS OF EUROS
-----------------
Fair value of net tangible and intangible assets acquired... 84
Purchase price.............................................. 443
---
Goodwill.................................................... 359
---
Goodwill recorded as an asset............................... 359
I-France In March 2000, Vivendi Universal acquired 100% of I-France. The
transaction was accounted for as a purchase for an amount of E149 million. The
details of the acquisition are as follows:
MILLIONS OF EUROS
-----------------
Fair value of net tangible and intangible assets acquired... 3
Purchase price.............................................. 149
---
Goodwill.................................................... 146
---
Goodwill recorded as an asset............................... 146
UTI In January 2000, Vivendi Telecom International ("VTI", a wholly owned
direct subsidiary of Vivendi Universal) acquired 100% of the outstanding shares
of United Telecom International (UTI), a
F-17
131
Hungarian Telecommunications Company. The transaction was accounted for as a
purchase, and the price paid was E130 million. The details of the acquisition
are as follows:
MILLIONS OF EUROS
-----------------
Fair value of net tangible and intangible assets acquired... 8
Purchase price.............................................. 130
---
Goodwill.................................................... 122
---
Goodwill recorded as an asset............................... 122
Pro Forma Financial Information The unaudited condensed pro forma income
statement data presented below illustrates the effect of the Merger Transactions
(excluding the results of the acquired Seagram Spirits and Wine business which
is held for sale), the consolidation of CANAL+ on a twelve month basis and the
divestiture of Vinci, as if the transactions had occurred at the beginning of
1999. The pro forma information is not necessarily indicative of the combined
results of operations of the Company that would have occurred if the
transactions had occurred on the date previously indicated, nor is it
necessarily indicative of future operating results of the Company.
YEAR ENDED DECEMBER 31,
------------------------
MILLIONS OF EUROS 2000 1999
----------------- ---------- ----------
Pro Forma Revenue....................................... 52,521.2 44,000.5
Pro Forma Operating income.............................. 3,143.4 1,869.1
NOTE 4 INVESTMENTS
Investments Accounted for Using the Equity Method
AT DECEMBER 31,
---------------------------------------------------------
PROPORTIONATE PROPORTIONATE SHARE
INTEREST SHARE OF EQUITY OF NET INCOME (LOSS)
------------- ---------------- ----------------------
2000 1999 2000 1999 2000 1999 1998
----- ----- ------- ------ ------ ----- -----
MILLIONS OF EUROS
USANi LLC............................ (10)(11) 48.60% 0.00% 5,310.0 -- -- -- --
Elecktrim Telekomunikacja SP......... (1) 49.00% 0.00% 1,148.7 -- (30.5) -- --
Sithe Energies....................... (2) 34.21% 0.00% 820.5 -- -- -- --
UC Development Partners.............. (11) 50.00% 0.00% 395.5 -- -- -- --
Telecom Developpement................ 49.90% 49.90% 268.6 241.4 27.2 (1.1) (17.1)
Universal Studios Florida............ (11) 50.00% 0.00% 141.9 -- -- -- --
Port Aventura........................ (11) 37.00% 0.00% 95.6 -- -- -- --
Realia Business SA................... (3) 23.31% 0.00% 89.8 -- 15.0 -- --
Xfera Moviles........................ 26.21% 0.00% 74.6 -- (6.2) -- --
UGC.................................. 39.34% 39.34% 73.4 71.1 (1.7) 0.4 0.6
Philadelphia Suburban................ (10) 17.02% 15.87% 73.1 55.0 10.5 5.4 3.2
Universal Studios Japan.............. (11) 24.00% 0.00% 69.9 -- -- -- --
Scoot Com PLC........................ 22.40% 0.00% 65.4 -- (15.0) -- --
UCG CineCite......................... 16.86% 19.44% 63.7 52.0 (2.5) 0.3 --
Domino............................... 30.00% 0.00% 57.4 -- 8.4 -- --
South Staffordshire.................. (10) 31.74% 32.71% 54.3 47.0 10.6 10.1 7.7
Vizzavi Europe....................... 50.00% 0.00% (43.8) -- (44.2) -- --
Societe Financiere de Distribution
(SFD).............................. 49.00% 0.00% (47.0) -- (37.1) -- --
Canal Plus........................... (4) N/A N/A N/A N/A N/A N/A (9.6)
Havas Advertising.................... (5) N/A 19.71% N/A 127.8 N/A 11.3 13.6
Cofiroute............................ (6) N/A 31.13% N/A 105.0 N/A 26.0 21.4
British Sky Broadcasting............. (7) N/A 23.36% N/A (250.0) N/A (13.7) --
Canal+ DA............................ (8) N/A N/A N/A N/A -- -- (0.2)
Magyar Telecom....................... (8) N/A N/A N/A N/A -- -- (1.5)
F-18
132
AT DECEMBER 31,
---------------------------------------------------------
PROPORTIONATE PROPORTIONATE SHARE
INTEREST SHARE OF EQUITY OF NET INCOME (LOSS)
------------- ---------------- ----------------------
2000 1999 2000 1999 2000 1999 1998
----- ----- ------- ------ ------ ----- -----
MILLIONS OF EUROS
Consumers Water...................... N/A N/A N/A N/A -- -- 2.5
Audiofina............................ -- -- -- -- -- -- 10.4
Other................................ (9) N/A N/A 464.9 332.6 (152.7) (5.8) 11.5
------- ------ ------ ----- -----
Total per balance sheet.............. 9,176.5 781.9 (218.2) 32.9 42.5
======= ====== ====== ===== =====
Companies exiting consolidation scope
in 2000:(*)
British Sky Broadcasting........... (118.9)
Nexity............................. 17.5
Vinci.............................. 13.3
------
Total per income statement......... (306.3)
------
---------------
(*) These companies have been deconsolidated as of December 31, 2000.
(1) The main shareholder is Elecktrim.
(2) This company was consolidated during 2000 until December 31, 2000, at which
time the Company's interest was reduced to 34.21%.
(3) Since the beginning of the year, FCC's Real Estate was consolidated by the
equity method due to the constitution of the new company Realia Business SA
(47.57 % FCC -- 52.43 % Caja Madrid). In 1999, this activity was
consolidated.
(4) Vivendi Universal acquired an additional 15% of the capital stock of Canal
Plus in September 1999, bringing Vivendi Universal's total equity interest
to 49%. Canal Plus was consolidated beginning October 1, 1999, due to the
acquisition of effective control.
(5) Due to operation on its capital stock (mainly issue of shares exchanged
against Snyder shares), Havas Advertising was accounted for using the cost
method; the company's interest rate at December 31, 2000 was 11.36%, versus
19.71% in 1999.
(6) During 2000, Cofiroute (a subsidiary of Vinci) is no longer consolidated by
the Equity method because of Vinci's exiting consolidation scope.
(7) British Sky Broadcasting has been accounted for using the cost method since
September 30, 2000. Proportionate share of net loss for the first nine
months was E118.9 million.
(8) Magyar Telecom and Canal + DA were consolidated in 1999.
(9) Other investments consists of various entities accounted for using the
equity method whose proportionate share of equity is under E40 million at
December 31, 2000.
(10) The December 31, 2000 quoted market price for these investments, which are
publicly listed, are as follows: USA Networks, Inc.: E5,894.2 million,
Philadelphia Suburban: E217.7 million, South Staffordshire: E128.8 million.
(11) Entities acquired in connection with the acquisition of Seagram in December
2000.
Dividends received from the equity affiliates amount to E36.5 million in
2000, E83.7 million in 1999, and E81.3 million in 1998.
F-19
133
Summarized financial information for equity method investees is as follows:
AT DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
MILLIONS OF EUROS
BALANCE SHEET DATA
Long-term assets............................................ 23,201.9 5,237.1
Current assets.............................................. 3,936.9 4,830.7
-------- --------
Total assets................................................ 27,138.8 10,067.8
-------- --------
Shareholders' equity........................................ 13,291.5 1,047.5
Current liabilities......................................... 5,286.9 4,937.0
Non current liabilities..................................... 8,560.4 4,083.3
-------- --------
Total liabilities and shareholders' equity.................. 27,138.8 10,067.8
-------- --------
INCOME STATEMENT DATA
Net revenue................................................. 2,643.7 8,242.2 11,232.2
Operating income............................................ 180.9 (284.7) 755.6
Net income (loss)........................................... (26.3) (446.2) 209.1
Investments accounted for using the cost method
AT DECEMBER 31,
------------------------------------------
2000 1999
------------------------------- -------
GROSS ALLOWANCE NET NET
------- --------- ------- -------
MILLIONS OF EUROS
Havas Advertising(1)................................. 340.4 340.4
Fovarosi Csatomazasi Muvek
Reszvenytarsasag(2)(3)(4).......................... 76.2 76.2 37.8
Genova Acque......................................... 38.3 38.3
Apa Nova Bucaresti(2)(3)............................. 35.0 35.0
People PC(2)......................................... 27.2 (15.0) 12.2
Misrfone............................................. 22.5 22.5 22.5
Generale de Transport et d'Industrie................. 21.5 21.5
Elektrim Telekomunikacja SP Zoo(5)................... 1,209.2
Canal Satellite(6)................................... 304.0
Mediaset SpA(7)...................................... 143.6
Television Holding SA................................ 85.7
Domino(5)............................................ 59.3
Csatorna Uzemeltetesi Holding Reszvenyta(5).......... 40.0
Mitteldeutsche Wasserversorgungsgeselt(5)............ 34.2
Norsk Gjenvinning(5)................................. 29.2
CGEA Bresil(5)....................................... 23.7
@viso(5)............................................. 20.1
Other(8)............................................. 708.6 (254.4) 454.2 406.3
------- ------ ------- -------
Total................................................ 1,269.7 (269.4) 1,000.3 2,415.6
------- ------ ------- -------
---------------
(1) The December 29, 2000 quoted market price for Havas Advertising is E461.1
million.
(2) Companies acquired or created at the end of 2000.
(3) Companies consolidated in 2001.
(4) 12.5% additional acquisition in 2000.
(5) Companies consolidated in 2000.
F-20
134
(6) Investment sales to Lagardere Group in 2000.
(7) During 2000, Mediaset SpA shares were exchanged against Mediaset obligation
debt for around E102 million, the remaining amount is accounted in
marketable securities.
(8) Other investments whose gross book value is under E20 million.
Portfolio investments
Other portfolio investments held as fixed assets are detailed as follows:
AT DECEMBER 31,
-------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------- -------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
------- ---------- ---------- --------- ----- ---------- ---------- ---------
MILLIONS OF EUROS
British Sky Broadcasting(1)...... 1,232.8 4,946.4 6,179.2
Dupont(2)........................ 853.3 853.3
USAi Common and class B
Shares(2)(3)................... 571.8 571.8
Saint-Gobain..................... 124.1 103.9 228.0 119.2 130.7 -- 249.9
Facic(4)......................... 181.2 4.3 185.5 185.1 -- -- 185.1
Alcatel.......................... -- 145.1 298.8 -- 443.9
Eiffage.......................... 56.6 (16.9) 39.7 56.6 -- (14.0) 42.6
Societe Generale................. -- -- -- -- --
Others (with unit book value of
under 40 million).............. 261.4 21.2 (93.2) 189.4 49.0 64.3 (6.6) 106.7
------- ------- ------ ------- ----- ----- ----- -------
Total gross amount............... 3,281.2 5,075.8 (110.1) 8,246.9 555.0 493.8 (20.6) 1,028.2
Valuation allowance.............. (17.0) 17.0 -- (20.6) -- 20.6 --
------- ------- ------ ------- ----- ----- ----- -------
Total net amount................. 3,264.2 5,075.8 (93.1) 8,246.9 534.4 493.8 -- 1,028.2
------- ------- ------ ------- ----- ----- ----- -------
---------------
(1) 4.17% of the BSkyB common shares outstanding is accounting in marketable
securities for the repayment of the convertible debts.
(2) The fair values of the investments in Dupont and USAi common stock
approximated their book values at December 31, 2000 due to the fair value
allocation of the purchase price to these assets related to the acquisition
of Seagram.
(3) 18.2 million shares of common stock of USAi which had a book value of E425.6
million and 13.4 million shares of USAi Class B common stock with a book
value of E146.2 million.
(4) One of the parent companies of Washington Baltimore.
AT DECEMBER 31,
-------------------
2000 1999
-------- -------
MILLIONS OF EUROS
Unlisted investments..................................... 9,064.8 417.8
Long term loans.......................................... 2,088.6 1,350.5
Other.................................................... 760.8 918.8
-------- -------
11,914.2 2,687.1
Valuation allowance...................................... (77.3) (126.0)
-------- -------
Total net amount......................................... 11,836.9 2,561.1
-------- -------
Unlisted investments consist mainly of net assets related to Seagram's
Spirit and Wine branch for an amount of E8,759 million, of bonds for an amount
of E120.5 million and of mutual fund shares for an amount of E27.7 million, at
December 31, 2000.
F-21
135
Long-term loans relate mainly to Vivendi Universal for an amount of E703
million, Real Estate operations for an amount of E455 million as of December 31,
2000 and to environment companies, for an amount of E356 million as of December
31, 2000.
Other investments consist mainly of loans by CANAL+ and US Filter and bond
discount related to Vivendi Environnement.
Investments Accounted for Using the Proportionate Consolidation Method
Investments accounted for using the proportionate consolidation method
represent companies in which Vivendi Universal and other shareholders have
agreed to exercise joint control over significant financial and operating
policies.
Summarized financial information for major subsidiaries consolidated under
the proportionate consolidation method is as follows:
AT DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
MILLIONS OF EUROS
BALANCE SHEET DATA
Non-current assets.......................................... 5,276.0 4,324.6
Current assets.............................................. 2,179.6 2,835.7
------- -------
Total assets................................................ 7,455.6 7,160.3
------- -------
Shareholders' equity........................................ 2,095.4 1,878.6
Minority interests.......................................... 278.5 244.1
Financial debt.............................................. 1,829.8 1,557.4
Reserves and other liabilities.............................. 3,251.9 3,480.2
------- -------
Total liabilities and shareholders' equity.................. 7,455.6 7,160.3
------- -------
INCOME STATEMENT DATA
Net sales................................................... 3,055.2 2,508.5 1,401.7
Operating income............................................ 354.0 222.8 103.8
Net income.................................................. 171.4 80.2 46.1
NOTE 5 SHAREHOLDERS' EQUITY
During 1998, the Company issued 6,370,689 shares with a value of E205.5
million in connection with its obligations under the employee stock purchase
plan and stock option plans, and 647,139 shares valued at E29.6 million in
connection with conversion of bonds and exercise of warrants. In addition, the
Company issued 69,236,562 shares valued at E923.2 million in connection with the
acquisition of Havas. Goodwill of E579.0 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 E2,681.0
million for the exercise of subscription options. In addition, the Company
issued 25,747,392 shares with a value of E522.0 million relating to the
acquisition of Pathe. The Company also issued 4,254,300 shares with a value of
E325.0 million relating to the acquisition of BSkyB, and 17,500,000 shares with
a value of E1,373.0 million relating to the acquisition of Canal Plus shares
from Richemont. Lastly, the Company issued 9,813,432 shares with a value of
E524.0 million in connection with its obligations under the employee stock
purchase plan and stock option plans, and issued 19,712,100 shares valued at
E652.0 million relating to the conversion of bonds and warrants. Goodwill
totaling E4,310.3 million arising from business combinations was recorded in
additional paid-in capital in 1999.
F-22
136
During 2000, the Company issued 319,531,416 shares for a total of E32,445.1
million in relation with the Seagram merger. In addition, the Company issued
130,638,208 shares with a value of E12,394.5 million relating to the acquisition
of CANAL+. The Company also issued 36,391,248 shares due to the conversion of
Sofiee shares into Vivendi Universal shares. The Company also cancelled
12,585,720 shares with a value of E(1,244.6) million relating to the treasury
stock. The Company also issued 10,388,230 shares with a value of E611.1 million
in connection with its obligation under the employee stock purchase plan and
stock options plan; and issued 796,893 shares valued at E35.9 million relating
to the conversion of bonds and warrants. Lastly, goodwill totaling E737
million -- arising from business combinations and previously recorded in
additional paid-in capital-has been reversed following the disposition of BSkyB,
Vinci, Nexity and 34% of Multithematiques.
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, 2000, the parent company
has reserved a total of E82.2 million, which represents 1.4% of the aggregate
share capital of E5,944.5 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 E137.2 for the exercise of 40
warrants. As of December 31, 2000, 106,036,727 of these warrants remain
outstanding.
The share capital of the Company consisted of 1,080,808,443 shares as at
December 31, 2000 and 595,648,168 as of December 31, 1999. All shares have one
voting right and may be registered upon request by the owners. The treasury
shares have no voting rights. The number of voting rights outstanding was
1,018,679,038 as of December 31, 2000 and 624,506,807 as of December 1999.
F-23
137
NOTE 6 DEBT
The table below presents an analysis of the consolidated long-term debt
balance by type of debt instrument (in millions of Euros):
AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS
Subordinated debt(a).................................... 150.1 178.3
Non-recourse project financing(b)....................... -- 1,193.0
Other financial long-term debt:
Capital leases........................................ 629.3 818.0
Vivendi Universal convertible 1.25%(c)................ 1,689.9 1,700.0
Vivendi Environnement 1.5%(d)......................... 1,535.4 3,028.8
BSkyB 3%(e)........................................... 154.9 155.1
Mediaset SpA 3,5%(f).................................. 52.3 181.9
BSkyB 1%(g)........................................... 1,440.0 --
Seagram Debt remaining(h)............................. 2,491.0 --
Bonds and Bank loans.................................... 15,811.3 11,977.9
-------- --------
Total................................................... 23,954.2 19,233.0
-------- --------
---------------
(a) Subordinated debt consist primarily of:
- a loan of E244 million to finance the wastewater treatment plant in
Zaragoza, Spain, underwritten by OTV on December 27, 1991 and repayable
over 15 years.
- $70 million of securities repayable over 15 years, issued on January 29,
1991 by energies USA.
(b) Financing guaranteed by the related Sithe Energy project, which is now
accounted for by the equity method due to a reduction in the Company's
interest.
(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 Universal shares at the conversion rate of 1 bond
to 3.407 shares.
(d) On April 1999, Vivendi Environnement, a then wholly owned subsidiary, issued
bonds that bear interest at 1.5% with maturity in January 2005, and that are
convertible, at the option of the bondholder, into Vivendi Universal shares
at the conversion rate of 1 bond to 3.047 shares.
In July 2000, Vivendi Environnement sold approximately 37 percent of its
shares to the French public and to institutional investors in France and
elsewhere in an initial public offering.
(e) In connection with the acquisition of Pathe in September 1999, Vivendi
Universal 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
Universal currently owns an adequate number of BSkyB shares to meet its
maximum conversion obligation.
(f) On April 1997, Canal Plus issued bonds that bear interest at 3.5%, with
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 obligation.
(g) In connection with the Vivendi Universal's intention to dispose of its BSkyB
shares, the Company issued, on July 2000, bonds that bear interest at 1%
with maturity in July 2003. Each bond may be exchanged at the option of the
bondholder for 1 share per bond. Vivendi Universal currently owns an
adequate number of BSkyB shares to meet its maximum conversion obligation.
F-24
138
(h) In connection with the sale of the Spirits and Wine business, The Seagram
Company Ltd and Joseph E. Seagram & Sons, Inc. (JES), wholly owned
subsidiaries of the Company, have recently completed tender offers and
consent solicitations for all of their outstanding debt securities.
Long-term debt listed according to the currency in which it is denominated
is as follows (in millions of Euros):
AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS
Euros................................................... 20,004.4 15,032.4
US Dollar............................................... 3,421.9 3,604.8
Pound Sterling.......................................... 180.0 247.4
Australian Dollar....................................... 83.1 166.6
Korean Won.............................................. 86.9 --
Canadian Dollar......................................... -- 82.0
Other................................................... 177.9 99.8
-------- --------
Total................................................... 23,954.2 19,233.0
-------- --------
The table below presents a summary of the repayment schedules of the
long-term debt excluding subordinated securities (in millions of Euros):
AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS
Due between one and two years........................... 7,324.7 4,781.0
Due between two and five years.......................... 12,562.1 8,080.4
Due after five years.................................... 3,917.3 6,193.3
-------- --------
Total................................................... 23,804.1 19,054.7
-------- --------
At the end of 2000, E1.8 billion in bank borrowings was supported by
collateral guarantees, including E787 million for the financing of
"Cogeneration" of Bayerische Landesbank and E600 million for the financing of
the water treatment plants of C.G.E Deutschland in Berlin.
F-25
139
NOTE 7 RESERVES AND ALLOWANCES
AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS
Litigation including social and fiscal.................... 619.8 1,081.8
Warranties and customer care.............................. 312.2 376.7
Financial depreciation*................................... 567.8 525.8
Maintenance and repair costs accrued in advance........... 372.2 432.7
Reserves related to fixed assets.......................... 310.2 152.1
Valuation allowance on real estate........................ 809.6 1,255.7
Valuation allowance on work in progress and losses on long
term contracts.......................................... 717.6 684.8
Closure and post closure costs............................ 354.7 259.1
Pensions.................................................. 449.0 591.6
Restructuring costs....................................... 310.4 434.1
Losses on investments in unconsolidated companies......... 361.3 376.0
Others.................................................... 761.0 712.9
------- -------
Total reserves and allowances............................. 5,945.8 6,883.3
------- -------
---------------
* Financial depreciation of fixed assets relating to public service contracts.
The developments in the reserve for restructuring costs for the years ended
December 31, 2000 and 1999 are as follows:
AT DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
MILLIONS OF EUROS
Balance at beginning of period................... 434.1 267.0 244.7
Amount charged to expenses....................... 155.4 94.3 103.5
Deductions of reserve Utilization (cash)......... (105.1) (125.4) (114.1)
Reversal (change in estimate).................... (65.5) (39.6) (26.7)
Other adjustments*............................... (108.5) 237.8 59.6
------ ------ ------
Balance at end of period......................... 310.4 434.1 267.0
------ ------ ------
---------------
* Other adjustments reflect changes in the scope of consolidation.
Provisions for restructuring by segment analyses as follows:
AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS
TV & Film................................................... 31.3 37.3
Publishing.................................................. 86.4 53.5
Music....................................................... -- --
Telecoms.................................................... 8.6 19.1
Internet.................................................... -- --
----- -----
Total Media & Communications................................ 126.3 109.9
Environmental Services...................................... 184.1 209.1
Non-Core.................................................... -- 115.1
----- -----
Total Vivendi Universal..................................... 310.4 434.1
----- -----
F-26
140
The changes in the scope of consolidation in 2000 are mainly explained by
the merger of Vivendi with Seagram and Canal Plus, by the deconsolidation of
Vinci and the change in the method of consolidation of Sithe.
Changes in the scope of consolidation in 1999 were mainly explained by the
acquisition of US Filter and Medi-Media.
NOTE 8 INCOME TAXES
Analysis of income tax expense (benefit)
Components of the income tax provision (benefit) are as follows:
AT DECEMBER 31,
-----------------------------
2000 1999 1998
------- -------- ------
MILLIONS OF EUROS
France............................................... 394.5 56.8 96.6
Other countries...................................... 395.3 172.0 273.4
------- -------- ------
Current income tax expense............................. 789.8 228.8 370.0
------- -------- ------
France............................................... 224.3 (926.3) (394.5)
Other countries...................................... 6.8 (95.7) 114.5
------- -------- ------
Deferred income tax (benefit).......................... 231.1 (1,022.0) (280.0)
------- -------- ------
Total income tax expense (benefit)..................... 1,020.9 (793.2) 90.0
------- -------- ------
Deferred tax assets and liabilities
The temporary differences which give rise to significant deferred tax
assets and liabilities are as follows:
AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS
DEFERRED TAX ASSETS:
Employee benefits......................................... 81.4 118.1
Provisions for risks and liabilities...................... 747.1 931.1
Tax loss including Real Estate operations................. 3,901.8 3,645.0
Other temporary differences............................... 916.8 520.0
-------- --------
GROSS DEFERRED TAX ASSETS................................... 5,647.1 5,214.2
-------- --------
DEFERRED TAX ASSETS NOT RECORDED IN THE BOOKS(A)............ (1,739.2) (2,480.5)
Deferred tax assets recorded in the books................... 3,907.9 2,733.7
======== ========
Deferred tax liabilities:
Depreciation.............................................. 1,319.6 606.6
Reevaluation of assets.................................... 2,764.4 656.5
Dupont share redemption................................... 1,655.6 --
Spirit and Wine sale...................................... 1,769.1 --
Other taxable temporary differences....................... 620.7 318.0
-------- --------
Gross deferred tax liabilities.............................. 8,129.4 1,581.1
-------- --------
---------------
(a) The evolution of tax assets not recorded in the books between 2000 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.
F-27
141
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:
AT DECEMBER 31,
------------------------
2000 1999 1998
----- ------ -----
Statutory tax rate........................................ 37.8% 40.0% 41.6%
Goodwill amortization not deductible for tax purpose...... 6.1% 38.4% 7.2%
Permanent differences..................................... (17.7)% (79.1)% 7.1%
Lower tax rate on long-term capital gains and losses...... (5.7)% (22.3)% (6.1)%
Tax losses................................................ 6.0% (93.9)% (36.9)%
Other, net................................................ (0.6)% (7.4)% (5.5)%
----- ------ -----
Effective tax rate(a)..................................... 25.9% (124.3)% 7.4%
----- ------ -----
---------------
(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 savings
At December 31, 2000, the Company had tax LOSSES which represent a
potential tax saving of E3,901.8 million (computed with the enacted tax rate).
Tax losses expire as follows:
YEARS AMOUNT
----- -----------------
MILLIONS OF EUROS
2001.......................................... 462.5
2002.......................................... 101.8
2003.......................................... 70.6
2004.......................................... 393.4
2005.......................................... 1,064.3
2006 and thereafter........................... 1,695.4
Unlimited..................................... 113.8
-------
Total......................................... 3,901.8
-------
NOTE 9 BENEFIT 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. These 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.
F-28
142
NOTE 10 FINANCIAL INSTRUMENTS AND COUNTERPARTY RISKS
The Company uses various financial derivative instruments to manage its
exposure to fluctuations in interest rates and foreign currency rates.
The Company does not participate in any third-party default, which could
have a significant impact on its financial position and the results of its
transactions.
Interest rate and foreign currency agreements
The contractual amounts stated below are outstanding as of December 31,
2000 and 1999. These amounts represent the levels of involvement by the Company
and are not indicative of gains or losses. The amounts are in millions of euros.
AS OF DECEMBER 31, 2000
---------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------
INTEREST RATE HEDGING ACTIVITY
Interest Rate Swaps -- pay fix
Notional amount.................................... 7,290.1 466.2 3,219.6 3,604.3
Average received rate (as of 12.31.00).................. 4.87%
Average paid rate....................................... 4.78%
INTEREST RATE SWAPS -- PAY VARIABLE
Notional amount.................................... 2,847.2 1,833.4 922.6 91.2
Average received rate................................... 5.15%
Average paid rate (as of 12.31.00)...................... 5.00%
SWAP -- CROSS CURRENCY(A)
Notional amount.................................... 256.5 0 256.5 0
Average received rate................................... 4.90%
Average paid rate (as of 12.31.00)...................... 4.04%
Interest Cap, floors and collars
Notional amount.................................... 3,457.7 91.2 1,514.7 1,851.8
Guarantee rate.......................................... 4.74%
FOREIGN CURRENCY HEDGING ACTIVITY
Forward exchange contract
Notional amount.................................... 3,087.6 3,064.8 22.8 --
OTHERS
Specialized indexed swap(b)
Notional amount.................................... 377.3 -- 177.8 199.5
AS OF DECEMBER 31, 1999
---------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------
INTEREST RATE HEDGING ACTIVITY
Swap -- 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%
Swap -- 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%
F-29
143
AS OF DECEMBER 31, 1999
---------------------------------------------
TOTAL 1 YEAR 1-5 YEARS 5 AND + YEARS
------- ------- --------- -------------
Swap -- cross currency(a)
Notional amount.................................... 172.6 -- 172.6 --
Average received rate................................... 3.34%
Average paid rate (as of 12.31.99)...................... 2.29%
Interest Cap, floors and collars
Notional amount.................................... 4,705.2 1,042.4 1,810.9 1,851.9
Guarantee rate.......................................... 4.89%
FOREIGN CURRENCY HEDGING ACTIVITY
Forward exchange contract
Notional amount.................................... 1,626.0 1,626.0 -- --
OTHERS
Specialized indexed swap(b)
Notional amount.................................... 377.0 -- 177.8 199.2
---------------
(a) Cross Currency swaps
(b) Swaps covering Vivendi Universal against the Equity linked debts
NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No 107 and No 119, issued by the FASB, require the disclosure of the
estimated fair value of all financial instruments other than specified items
such as lease contracts, subsidiary and affiliate investments and employers'
pension and benefit obligations. Except for publicly traded equity and
marketable securities for which market prices were used, these values have been
estimated for the majority of the Company's financial instruments. Accordingly,
fair values are based on estimated values using various valuation techniques,
such as present value of future cash-flows. However, methods and assumptions
followed to disclose data presented herein are inherently judgmental and involve
various limitations.
As a consequence, the use of different estimations, methodologies and
assumptions may have a material effect on the estimated value amounts.
The methodologies used are as follows:
CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, BANK OVERDRAFTS,
SHORT-TERM BORROWINGS, ACCOUNTS AND NOTES PAYABLE.
The carrying amounts reflected in the consolidated statements are
reasonable estimates of the fair-value because of the relatively short period of
time between the origination of the instruments and their expected realization.
INVESTMENTS.
Estimated fair values for publicly traded equity securities are based on
quoted market prices as of December 31, 2000 and 1999. For other investments for
which there are no quoted price, a reasonable estimate of fair value could not
be made without incurring excessive costs.
LOANS AND ADVANCES.
The fair values for loans have been determined by discounting the estimated
future cash flows, using the zero coupon interest rate curves at year end taking
into account a spread that corresponds to the average risk classification of the
Company. Loans to subsidiaries excluded from consolidation are not fair valued.
F-30
144
LONG-TERM DEBT, CURRENT PORTION OF LONG-TERM DEBT, LONG-TERM INTEREST RATE AND
FOREIGN CURRENCY SWAPS.
The fair values of these financial instruments were determined by
estimating future cash flows on a borrowing-by-borrowing basis and discounting
these future cash flows using the zero coupon interest rate curves at year end
and taking into account a spread that corresponds to the average risk
classification of the Company.
All issue swaps (long-term interest rate and foreign currency swaps)
specifically hedge debenture loans. They were concluded under International Swap
and Derivative Association (ISDA) agreements, in order to create long-term debt
in US dollars on a Libor basis. Fair values of these swaps have to be considered
together with the fair values of hedged debenture loans, as set forth below.
Also, some long-term interest rate swaps were concluded to modify partially the
interest rate exposure. The corresponding fair value is set forth below and
should be considered together with the fair value of the long-term debt.
BANK GUARANTEES.
These instruments were fair valued based on average fees currently charged
for similar agreements, taking into accounts the average risk classification of
the Company.
Other off-balance sheet financial instruments:
The fair value of the interest rate swaps is calculated by discounting
future cash flows on the basis of the zero coupon interest rate curves existing
at year end.
Forward exchange transactions (forward exchange rates and currency swaps)
are valued on the basis of a comparison of the forward rates negotiated with the
rates in effect on the financial markets at year end for similar maturities.
DECEMBER 31,
-------------------------------------------
2000 1999
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
BALANCE SHEET
FINANCIAL ASSETS
Investments............................................. 1,000.3 1,121.0 2,415.6 2,896.7
Portfolio investments held as fixed assets
(securities).......................................... 3,264.2 8,246.9 534.4 1,028.2
Other investments and loans............................. 3,077.9 3,123.0 2,561.1 2,550.9
Treasury shares(a)...................................... 958.4 913.7 2,020.0 2,562.0
FINANCIAL LIABILITIES
Long-term debt.......................................... 23,954.2 24,427.0 19,233.0 20,020.6
OFF-BALANCE SHEET
TREASURY MANAGEMENT
Interest rate swaps..................................... -- 133.3 -- 171.0
Cross Currency interest rate swaps...................... -- 96.2 -- 86.6
Other specialized swaps................................. -- 166.2 -- 43.6
Forward exchange contacts............................... -- 165.9 -- 56.7
Interest caps, floors and collars....................... -- 65.5 -- 6.6
Calls and puts on marketable securities................. -- (257.1) -- (48.9)
---------------
(a) Treasury shares held for stock options purposes are excluded from this
table.
Financial instruments including cash and cash equivalents, accounts
receivables, 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.
F-31
145
NOTE 12 COMMITMENTS AND CONTINGENCIES
Commitments and contingent liabilities
Vivendi Universal's contingent liabilities relating to certain performance
guarantees by segments are as follows:
AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS
TV & Film................................................. 293.0 393.0
Publishing................................................ 132.1 164.0
Music..................................................... -- --
Telecoms.................................................. 310.0 243.0
Internet.................................................. -- --
------- -------
Total Media & Communications.............................. 735.1 800.0
Environmental Services.................................... 2,195.8 1,780.1
------- -------
Total Vivendi Universal "Core Business"................... 2,930.9 2,580.1
Non-Core.................................................. 1,851.8 2,021.4
------- -------
Total..................................................... 4,782.7 4,601.5
------- -------
Vivendi Universal had E4.78 billion in financial commitments on December
31, 2000. These included guarantees, collateral and other signature commitments.
The main ones are:
- E940 million surety contract applied to the Xfera joint venture which
obtained a third generation UMTS mobile telecommunications license in
Spain and in which Vivendi Universal has a 31% equity stake;
- Two guarantees capped at E250 million each extended when the group sold
its hotel business to a consortium composed of Accor, Blackstone and
Colony, and sold several office towers and housing complexes to Unibail;
- Under the Berlin water contract, the Company may be obliged to pay
approximately E613 million to previous land owners, no indemnitified 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 E189.5 million, E211 million and E188 million, and guarantees to
banks in the amounts of E99.5 million, E52 million and E72 million as at
December 31, 2000, 1999 and 1998, respectively.
Capital leases and other long term leases
Vivendi Universal 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, 2000 and December 31, 1999 represent E842 million
and E1.1 billion.
In addition, the disposal of three office buildings in April 1996 was
accompanied by a 30-year lease back arrangement effective upon completion of the
building. 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 E28.4 million. The difference between Vivendi
Universal's rental obligation under the leases and the market rent is reserved
when unfavorable.
F-32
146
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 December 31,
2000, the minimum future payments of these other commitments are summarized as
follows:
BROADCASTING PUBLIC SERVICE
RIGHTS CONTRACTS TOTAL
------------ -------------- -------
MILLIONS OF EUROS
2001............................................. 1,050.0 44.0 1,094.0
2002............................................. 637.0 36.0 673.0
2003............................................. 507.0 36.0 543.0
2004............................................. 462.0 32.0 494.0
2005............................................. 361.0 29.0 390.0
2006 and thereafter.............................. 529.0 119.0 648.0
------- ----- -------
Total minimum future payments.................... 3,546.0 296.0 3,842.0
======= ===== =======
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 Universal's operations are subject to evolving and increasingly
stringent environmental regulations in a number of jurisdictions. Vivendi
Universal's operations are covered by insurance policies. At December 31, 2000,
there are no significant environmental losses.
NOTE 13 SEGMENT INFORMATION
The Company operates in two global core businesses: Media and
Communications and Environmental Services. These businesses are divided into six
reportable segments: Music, Publishing, TV & Film, Telecoms, Internet and
Environmental Services. Each reportable segment defined by the Company is a
strategic business unit that offers different products and services that are
marketed through different channels. Segments are managed separately because of
their unique customers, technology, marketing and distribution requirements. The
Company evaluates the performance of its segments and allocates resources to
them based on several performance measures, including EBITDA. As defined by the
Company, EBITDA consists of operating income before amortization and
depreciation, expenses of replacement and repair of installation and equipment
owned by local authorities. EBITDA should not be considered an alternative to
operating or net income as an indicator of Vivendi Universal's 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, EBITDA may not be strictly comparable to
similarly titled measures widely used in the United States or reported by other
companies. There are no intersegment revenues; however, corporate headquarters
allocates a portion of its costs to each of its operating segments. The Company
does not allocate interest income, interest expense, income taxes or unusual
items to segments.
F-33
147
TV & HOLDING & TOTAL MEDIA &
MUSIC PUBLISHING FILM TELECOMS INTERNET CORPORATE COMMUNICATIONS
----- ---------- ------- -------- -------- --------- --------------
(IN MILLIONS OF EUROS)
INCOME STATEMENT DATA
DECEMBER 31, 2000
Revenue.................... 494.6 3,539.8 4,248.3 5,270.1 47.8 -- 13,600.6
EBITDA..................... 94.2 493.4 526.0 1,303.3 (183.7) (137.0) 2,096.2
Depreciation and
amortization............. (8.7) (148.7) (636.6) (817.2) (9.9) (57.6) (1,678.7)
Expenses of replacement and
repair of installation... -- -- -- -- -- -- --
----- ------- ------- -------- ------ ------ --------
Operating income (loss).... 85.5 344.7 (110.6) 486.1 (193.6) (194.6) 417.5
----- ------- ------- -------- ------ ------ --------
DECEMBER 31, 1999
Revenue.................... -- 3,316.9 1,151.8 4,102.2 2.0 -- 8,572.9
EBITDA..................... -- 417.0 86.0 1,372.0 (51.0) (75.5) 1,748.5
Depreciation and
amortization............. -- (62.5) (188.7) (1,021.4) 0.2 (75.6) (1,348.0)
Expenses of replacement and
repair of installation... -- -- -- -- -- -- --
----- ------- ------- -------- ------ ------ --------
Operating income (loss).... -- 354.5 (102.7) 350.6 (50.8) (151.1) 400.5
----- ------- ------- -------- ------ ------ --------
DECEMBER 31, 1998
Revenue.................... -- 2,876.3 200.6 2,875.2 -- -- 5,952.1
EBITDA..................... -- 355.0 13.0 674.0 (4.0) (43.0) 995.0
Depreciation and
amortization............. -- (102.8) (17.7) (651.5) (2.4) (73.6) (848.0)
Expenses of replacement and
repair of installation... -- -- -- -- -- -- --
----- ------- ------- -------- ------ ------ --------
Operating income (loss).... -- 252.2 (4.7) 22.5 (6.4) (116.6) 147.0
----- ------- ------- -------- ------ ------ --------
TOTAL
ENVIRONMENTAL NON- VIVENDI
SERVICES CORE UNIVERSAL
------------- -------- ---------
(IN MILLIONS OF EUROS)
INCOME STATEMENT DATA
DECEMBER 31, 2000
Revenue.................... 26,512.0 1,685.0 41,797.6
EBITDA..................... 3,544.3 340.4 5,980.9
Depreciation and
amortization............. (1,369.6) (83.0) (3,131.6)
Expenses of replacement and
repair of installation... (278.2) -- (278.2)
-------- -------- --------
Operating income (loss).... 1,896.5 257.4 2,571.4
-------- -------- --------
DECEMBER 31, 1999
Revenue.................... 22,428.2 10,621.4 41,622.5
EBITDA..................... 2,781.0 705.5 5,235.0
Depreciation and
amortization............. (850.6) (479.7) (2,678.3)
Expenses of replacement and
repair of installation... (276.2) -- (276.2)
-------- -------- --------
Operating income (loss).... 1,654.2 225.8 2,280.5
-------- -------- --------
DECEMBER 31, 1998
Revenue.................... 16,047.2 9,737.8 31,737.1
EBITDA..................... 1,929.0 529.0 3,453.0
Depreciation and
amortization............. (568.1) (415.6) (1,831.7)
Expenses of replacement and
repair of installation... (289.9) -- (289.9)
-------- -------- --------
Operating income (loss).... 1,071.0 113.4 1,331.4
-------- -------- --------
F-34
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TOTAL MEDIA &
TV & COMMUNICATIONS
MUSIC PUBLISHING FILM TELECOMS INTERNET "CORE BUSINESS"
-------- ---------- -------- -------- -------- -----------------
(IN MILLIONS OF EUROS)
BALANCE SHEET STATEMENT DATA
DECEMBER 31, 2000
Goodwill, net................ 14,208.0 575.6 24,583.5 1,745.0 664.4 41,776.5
Other intangible assets,
net........................ 6,225.7 1,868.2 7,026.5 609.8 9.1 15,739.3
Property, plant and
equipment.................. 543.0 576.3 4,477.8 4,419.3 24.7 10,041.1
Publicly-owned utility
networks................... -- -- 0.8 7.8 0.2 8.8
Accumulated depreciation..... (22.1) (295.2) (1,828.8) (1,423.2) (8.7) (3,578.0)
-------- ------- -------- -------- -------- --------
Property, plant and
equipment, net........... 520.9 281.1 2,649.8 3,003.9 16.2 6,471.9
-------- ------- -------- -------- -------- --------
Equity method investments.... 15.0 4.1 6,207.9 1,459.5 25.2 7,711.7
Inventories and
work-in-progess............ 111.5 253.1 567.5 85.0 0.5 1,017.6
Total assets................. 23,745.4 5,090.1 47,751.7 9,885.4 1,076.3 87,548.9
Reserves and allowances...... 166.6 232.2 876.5 108.9 9.5 1,393.7
Long-term
debt -- beginning.......... -- 121.3 1,581.0 1,024.6 -- 2,726.9
New borrowings............... -- 6.5 83.3 446.6 38.1 574.5
Repayment.................... -- (31.9) (150.7) (205.6) (5.3) (393.5)
Changes in scope of
consolidation.............. -- 22.4 (3.6) 133.6 0.1 152.5
Other(1)..................... -- (27.5) (416.7) (6.2) 8.9 (441.5)
-------- ------- -------- -------- -------- --------
Long-term debt -- end...... -- 90.8 1,093.3 1,393.0 41.8 2,618.9
-------- ------- -------- -------- -------- --------
Expenditures for long-lived
assets..................... 49.0 135.7 787.9 1,104.3 72.7 2,149.6
-------- ------- -------- -------- -------- --------
DECEMBER 31, 1999
Goodwill, net................ -- 586.2 2,176.2 1,656.8 53.6 4,472.8
Other intangible assets,
net........................ -- 1,763.1 1,921.1 987.1 -- 4,671.3
Property, plant and
equipment.................. -- 577.2 2,272.6 3,642.3 -- 6,492.1
Publicly-owned utility net
works...................... -- 0.9 -- 7.2 -- 8.1
Accumulated depreciation..... -- (278.5) (1,664.8) (1,012.6) -- (2,955.9)
-------- ------- -------- -------- -------- --------
Property, plant and
equipment, net........... -- 299.6 607.8 2,636.9 -- 3,544.3
-------- ------- -------- -------- -------- --------
Equity method investments.... -- 134.6 (87.7) 237.8 28.0 312.7
Inventories and
work-in-progess............ -- 197.5 759.7 86.4 -- 1,043.6
Total assets................. -- 5,206.1 8,749.0 9,158.6 34.5 23,148.2
Reserves and allowances...... -- 303.7 400.2 128.3 -- 832.2
Long-term
debt -- beginning.......... -- 220.5 -- 461.1 -- 681.6
New borrowings............... -- 36.2 412.8 632.3 -- 1,081.3
Repayment.................... -- (61.2) (17.9) (203.6) -- (282.7)
Changes in scope of
consolidation.............. -- (65.4) 1,190.5 126.2 -- 1,251.3
Other(1)..................... -- (8.8) (4.4) 8.6 -- (4.6)
-------- ------- -------- -------- -------- --------
Long-term debt -- end...... -- 121.3 1,581.0 1,024.6 -- 2,726.9
-------- ------- -------- -------- -------- --------
Expenditures for long-lived
assets..................... -- 95.5 205.9 1,053.3 6.1 1,360.8
-------- ------- -------- -------- -------- --------
NON- TOTAL
ENVIRONMENTAL CORE/ VIVENDI
SERVICES CORPORATE UNIVERSAL
------------- --------- ---------
(IN MILLIONS OF EUROS)
BALANCE SHEET STATEMENT DATA
DECEMBER 31, 2000
Goodwill, net................ 5,332.4 23.6 47,132.5
Other intangible assets,
net........................ 4,245.1 195.7 20,180.1
Property, plant and
equipment.................. 14,333.2 1,296.5 25,670.8
Publicly-owned utility
networks................... 5,644.4 7.7 5,660.9
Accumulated depreciation..... (7,557.3) (207.6) (11,342.9)
--------- --------- ---------
Property, plant and
equipment, net........... 12,420.3 1,096.6 19,988.8
--------- --------- ---------
Equity method investments.... 526.6 938.2 9,176.5
Inventories and
work-in-progess............ 1,491.2 710.7 3,219.5
Total assets................. 38,056.6 25,132.4 150,737.9
Reserves and allowances...... 3,102.5 1,449.6 5,945.8
Long-term
debt -- beginning.......... 19,469.7 (3,141.9) 19,054.7
New borrowings............... 7,047.5 8,687.8 16,309.8
Repayment.................... (5,158.0) (7,824.0) (13,375.5)
Changes in scope of
consolidation.............. 554.3 1,610.4 2,317.2
Other(1)..................... (10,566.9) 10,506.2 (502.2)
--------- --------- ---------
Long-term debt -- end...... 11,346.6 9,838.5 23,804.0
--------- --------- ---------
Expenditures for long-lived
assets..................... 2,612.9 1,037.3 5,799.8
--------- --------- ---------
DECEMBER 31, 1999
Goodwill, net................ 4,685.9 1,229.9 10,388.6
Other intangible assets,
net........................ 3,792.0 218.6 8,681.9
Property, plant and
equipment.................. 16,383.1 3,693.9 26,569.1
Publicly-owned utility net
works...................... 3,4 4 0.5 5 3 7.2 3,9 8 5.8
Accumulated depreciation..... (5,696.7) (1,924.9) (10,577.5)
--------- --------- ---------
Property, plant and
equipment, net........... 14,126.9 2,306.2 19,977.4
--------- --------- ---------
Equity method investments.... 344.6 124.6 781.9
Inventories and
work-in-progess............ 2,102.7 1,754.0 4,900.3
Total assets................. 37,601.3 22,027.5 82,777.0
Reserves and allowances...... 2,775.1 3,276.1 6,883.3
Long-term
debt -- beginning.......... 2,197.4 6,903.5 9,782.5
New borrowings............... 7,658.8 2,719.9 11,460.0
Repayment.................... (4,782.0) (5,028.9) (10,093.6)
Changes in scope of
consolidation.............. 3,336.6 2,963.0 7,550.9
Other(1)..................... 11,058.9 (10,699.4) 354.9
--------- --------- ---------
Long-term debt -- end...... 19,469.7 (3,141.9) 19,054.7
--------- --------- ---------
Expenditures for long-lived
assets..................... 1,905.0 2,362.5 5,628.3
--------- --------- ---------
---------------
(1) Foreign currency translation adjustments, reclassifications and changes in
accounting policies.
F-35
149
Geographic Data
AT DECEMBER 31,
---------------------
REVENUE 2000 1999
------- --------- --------
MILLIONS OF EUROS
France................................................. 21,173.8 23,785.2
United Kingdom......................................... 2,969.1 3,465.0
Rest of Europe......................................... 7,420.9 7,369.7
United States of America............................... 7,009.1 5,014.1
Rest of the World...................................... 3,224.7 1,988.5
--------- --------
Total........................................ 41,797.6 41,622.5
========= ========
AT DECEMBER 31,
---------------------
LONG LIVED ASSETS 2000 1999
----------------- --------- --------
MILLIONS OF EUROS
France................................................. 38,605.0 18,994.8
United Kingdom......................................... 8,438.9 3,748.0
Rest of Europe......................................... 9,179.9 9,656.4
United States of America............................... 48,069.7 12,268.2
Rest of the World...................................... 8,285.8 673.5
--------- --------
Total........................................ 112,579.3 45,340.9
========= ========
NOTE 14 ADDITIONAL FINANCIAL INFORMATION
INTANGIBLE ASSETS OTHER THAN GOODWILL:
AT DECEMBER 31,
-------------------
2000 1999
-------- -------
MILLIONS OF EUROS
OTHER INTANGIBLE ASSETS (NET)
Fees paid to local authorities........................... 519.9 516.9
Trademarks, market share, editorial resources............ 5,296.0 5,395.7
Software................................................. 525.9 459.0
Prepaid expenses......................................... 1,330.8 1,192.0
Audiovisual and musical rights........................... 8,590.1 75.0
Film costs, net of amortization.......................... 2,764.8 709.0
Other.................................................... 1,152.6 334.3
-------- -------
Total.......................................... 20,180.1 8,681.9
======== =======
Fees paid to local authorities relating to public service contracts, which
are located primarily in France, amounted to E519.9 million and E516.9 million
for the years ending December 31, 2000 and 1999, respectively. These are
amortized over the term of the contracts.
Trademarks, market share and editorial resources mostly relate to
environmental services, publishing and audiovisual activities other than
Universal Studios Group, in the amounts of E2,477.5 million, E1,747 million, and
E1,067.7 million, respectively, at December 31, 2000 and E2,378 million,
E1,726.4 million and E1,067.7 million, respectively, at December 31, 1999. 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.
F-36
150
Prepaid expenses of E1,330.8 million at December 31, 2000 and E1,192
million at December 31, 1999, 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, 2000, 1999 and 1998 was E761,4 million, E367.2 million and E195.7
million, respectively.
Accumulated amortization amounted to E2,847 million and E2,563.4 million as
of December 31, 2000 and 1999, respectively.
AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS
PROPERTY, PLANT AND EQUIPMENT (NET)
Land.................................................... 2,029.5 1,773.2
Buildings............................................... 3,518.0 2,680.2
Equipment and machinery................................. 6,267.9 8,352.4
Construction in progress................................ 740.4 1,323.0
Other................................................... 3,533.1 2,253.6
-------- --------
Property, plant and equipment........................... 16,088.9 16,382.4
Publicly owned utility networks......................... 3,899.9 3,595.0
-------- --------
Total......................................... 19,988.8 19,977.4
======== ========
As of December 31, 2000 and 1999, property plant and equipment totaling
E1.8 billion and E2.1 billion were pledged as collateral for borrowings from
banks. See Note 6.
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was E2,105.7 million, E1,898.1 million and E1,385.7 million, respectively.
AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS
INVENTORIES AND WORK IN PROGRESS
Inventories............................................... 3,797.6 5,558.1
Less valuation allowance.................................. (578.1) (657.8)
------- -------
Net Value................................................. 3,219.5 4,900.3
======= =======
AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS
ACCOUNTS RECEIVABLE
Trade accounts receivable............................... 17,439.8 18,082.4
Valuation allowance..................................... (1,124.5) (1,068.3)
-------- --------
Total trade accounts receivable............... 16,315.3 17,014.1
VAT and other taxes..................................... 2,926.5 2,644.0
Other including deferred tax............................ 3,907.9 2,733.6
-------- --------
Total accounts receivable..................... 23,149.7 22,391.7
-------- --------
F-37
151
AT DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- ------
MILLIONS OF EUROS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at beginning of period................ 1,068.3 706.2 472.4
Amount charged to expense..................... 447.9 514.3 290.2
Deductions of reserve......................... (172.7) (248.1) (137.2)
Other adjustments*............................ (219.0) 95.9 80.8
-------- -------- ------
Balance at end of period...................... 1,124.5 1,068.3 706.2
-------- -------- ------
---------------
* Other adjustments reflect changes in the scope of consolidation.
AT DECEMBER 31,
------------------
2000 1999
------- -------
MILLIONS OF EUROS
MINORITY INTEREST
MINORITY INTEREST AT JANUARY 1,........................... 4,052.4 2,423.0
Changes in consolidation.................................. 4,990.4 1,596.9
Minority interest in income of consolidated
subsidiaries............................................ 624.9 5.3
Dividends paid by consolidated subsidiaries............... (80.1) (70.3)
Impact of foreign currency fluctuations on minority
interest................................................ 189.8 84.1
Other changes............................................. 10.0 13.4
------- -------
MINORITY INTEREST AT DECEMBER 31,......................... 9,787.4 4,052.4
------- -------
Changes in consolidation in 2000 primarily result from the impact of
Vivendi Environnement's IPO and the Merger Transactions, respectively E2,914.9
million and E2,415.0 million. The Merger Transactions led to a reduction in
minority interests by E(416) million. Sithe partial disposition also reduces
minority interests by E(303.7) million. Lastly Cegetel's change in accounting
method related to mobile customers acquisition costs has lead to a decrease of
E(296.8) millions on minority interests.
Changes in consolidation in 1999 primarily result from the impact of the
consolidation of Canal Plus beginning in October 1999 of E784.9 million, from
the impact of the increase in Sithe's capital issued to third parties of E173.0
million, and the impact of the acquisition of Berliner Wasser Betriebe of E545.8
million, whose consolidated financial statements included minority interests.
AT DECEMBER 31,
--------------------
2000 1999
-------- --------
MILLIONS OF EUROS
ACCOUNTS PAYABLE
Trade accounts payable.................................. 19,144.6 17,637.6
Social costs payable.................................... 4,352.6 4,613.3
Other................................................... 8,129.4 1,581.2
-------- --------
Total accounts payable.................................. 31,626.6 23,832.1
-------- --------
F-38
152
NOTE 15 LISTING OF MAIN COMPANIES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS
IN 2000
Vivendi Universal consolidated in 2000 more than 3,770 companies compared
with 4,600 in 1999. The principal companies are:
CONSOLIDATION INTEREST %
COMPANIES METHOD HELD
--------- ------------- -----------
VIVENDI UNIVERSAL........................................... (1) 100.00
MEDIA ET COMMUNICATIONS
Cegetel and its subsidiaries.............................. (1) 44.00
Of which
- Societe Francaise du Radiotelephone (S.F.R.)............
- Cegetel 7...............................................
- Cegetel Entreprises.....................................
Vivendi Telecom International and its subsidiaries..... (1) 100.00
Of which:
- Mattel (Hungary)........................................ (1) 100.00
- Monaco Telecom.......................................... (3) 51.00
Vivendi Universal Publishing and its subsidiaries...... (1) 100.00
Of which:
- Havas Interactive Inc................................... (1) 100.00
- Groupe Expansion........................................ (1) 100.00
- Groupe Moniteur......................................... (1) 100.00
- Editions Robert Laffont................................. (1) 100.00
- Groupe Anaya............................................ (1) 100.00
- Larousse-Bordas......................................... (1) 100.00
- France Loisirs.......................................... (2) 50.00
- Groupe Tests............................................ (1) 100.00
- Comareg................................................. (1) 100.00
Canal Plus and its subsidiaries........................ (1) 100.00
Of which:
- Canal Plus ............................................. (1) 49.00
- Canal Satellite......................................... (1) 66.00
- StudioCanal............................................. (1) 84.70
Vivendi Universal Net and its subsidiaries............. (1) 100.00
Of which:
- Scoot.com plc........................................... (3) 22.40
- i-France................................................ (1) 100.00
- Won USA (Flipside)...................................... (1) 80.00
- Vizzavi Europe.......................................... (3) 50.00
- Ad-2-One................................................ (1) 100.00
The Seagram Company Ltd and its subsidiaries(b)........ (1) 100.00
F-39
153
CONSOLIDATION INTEREST %
COMPANIES METHOD HELD
--------- ------------- -----------
Of which:
- Centenary Holding N.V. ................................. (1) 92.30
- Universal Music (UK) Holding Ltd. ................... (1) 100.00
- Universal Holding GmbH............................... (1) 100.00
- Universal Music K.K. ................................ (1) 100.00
- Universal Music S.A. ................................ (1) 100.00
- Universal Pictures International B.V. .................. (1) 92.30
- Universal Studios, Inc.(c).............................. (1) 92.30
- Polygram Holding Inc. ............................... (1) 100.00
- Interscope Records................................... (1) 100.00
- Def Jam Records, Inc. ............................... (1) 100.00
- Universal City Studios, Inc. ........................ (1) 100.00
- USANi LLC............................................ (3) 48.60
VIVENDI ENVIRONNEMENT....................................... (1) 63.04
Of which:
Vivendi Water............................................. (1) 63.04
US Filter and its subsidiaries............................ (1) 63.04
Berliner Wasser Betriebe.................................. (2) 31.50
Dalkia and its subsidiaries............................... (1) 45.98
CGEA Onyx and its subsidiaries............................ (1) 63.04
CGEA Connex and its subsidiaries.......................... (1) 63.04
F.C.C. and its subsidiaries (F.C.C.)...................... (2) 17.60
MULTIPLE ACTIVITY AND HOLDING COMPANIES
Compagnie Transatlantique de Telecommunications
(Transtel)............................................ (1) 70.00
Vivendi North America Company Inc. ....................... (1) 63.04
Vivendi Asia Pacific Pte Ltd (Singapour).................. (1) 100.00
Vivendi U.K. ............................................. (1) 63.04
Gelgin Limited............................................ (1) 100.00
(1) = Consolidation
(2) = Proportionate consolidation
(3) = Equity method
---------------
(a) Vivendi Universal has majority voting rights and control of the Board of
Directors of Cegetel.
(b) Regarding the subsidiaries of the Seagram Company Ltd., percentages are
those of control.
(c) 92.3% interest held by the Seagram Company Ltd.
NOTE 16 SUPPLEMENTAL DISCLOSURES
The following information has been prepared to present supplemental
disclosures required under U.S. GAAP and SEC regulations applicable to the
Company.
NOTE 16A SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING POLICIES
GENERALLY ACCEPTED IN THE UNITED STATES AND FRANCE
The consolidated financial statements of Vivendi Universal have been
prepared in accordance with French GAAP, which differs in certain significant
respects from U.S. GAAP. The principal differences between French GAAP and U.S.
GAAP as they relate to Vivendi Universal are discussed in further detail below.
F-40
154
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 U.S. 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 U.S. 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.
Business Combinations -- Goodwill Certain acquisitions, notably Havas and
Pathe, have been accounted for as mergers as permitted under French GAAP. Under
this method, assets and liabilities of the acquired company are accounted for at
historical cost. Any difference between the value of shares issued in such a
merger and the fair value of net assets acquired is recorded as goodwill. Prior
to fiscal year 2000, in certain other instances, where the acquisition paid for
in equity securities of the Company, the excess of the purchase price over the
fair value of assets acquired may have been recorded as a reduction of
shareholders' equity. Under French GAAP, business trademarks acquired in a
purchase business combination and recognized for their fair value as intangible
assets are not required to be amortized. The Havas and Pathe acquisitions did
not meet the criteria for pooling in the U.S. and, therefore, were accounted for
as purchase business combinations. Accordingly, the assets acquired and
liabilities assumed are recorded at fair value, with the excess of consideration
paid over the fair value of net assets acquired being accounted for as goodwill.
Trademarks acquired in purchase business combination are amortized over their
estimated useful life. In addition, under U.S. GAAP, goodwill must be shown as
an asset and amortized over its useful life not to exceed 40 years.
Intangible Assets Under French GAAP, certain costs such as 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 U.S. GAAP, start-up and advertising costs are charged to expense in
the period they are incurred.
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 U.S. 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 provide a methodology
as detailed as under U.S. 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.
F-41
155
Under U.S. GAAP, assets to be reviewed for impairment are grouped at an
appropriate level when groups of assets generate joint cash flows. U.S. 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.
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 U.S. GAAP and
therefore are considered as financial arrangements. The related real estate
assets which, would have been recorded under U.S. GAAP must also be considered
for impairment. Accordingly, sales provisions were reversed.
Impairment/Decoders Replacement Under U.S. GAAP, changes in lives of
long-term assets held for use are reflected prospectively over the revised life
of the asset. Under French GAAP, for significant changes in lives, a write-down
is recorded currently as an expense.
Public Service Contracts
Under French GAAP, a few consolidated subsidiaries, being generally jointly
controlled, apply the accrue in advance method to account for repair costs.
Under U.S. GAAP, the Company applies the expensed as incurred method for
maintenance and repair expenditures
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 U.S. GAAP, the present value of the obligation corresponding to debt
service payments is recognized as a liability.
Financial Instruments
Equity 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 U.S. 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.
F-42
156
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 U.S. 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 U.S. 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 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 U.S. 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 or upon shares granted to employees and directors are
recorded as an increase to share capital at the cumulative exercise price.
Vivendi Universal 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 strike
price is accrued for.
Under U.S. GAAP plans that grant or sell common shares to employees are
qualified 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, the entire compensation cost
arising from such plans is recognized as of the grant date. If a plan is not
compensatory, its cost i) is recognized over the vesting period when the plan is
a stock option plan or, ii) is not expensed when the plan is a stock purchase
plan.
Pension Plans Under French GAAP, the Company records since January 1998
its pension obligations, covering all eligible employees, using the projected
unit credit method.
Under U.S. 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 U.S. 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.
F-43
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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 is currently evaluating the impact of adopting SFAS No.
133 on its financial statements.
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 application of
this bulletin does not have material effect on the Company's policies or result
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. Management does
not believe that the adoption of this statement could have a material impact on
the Company's results of operations and financial position.
NOTE 16B RECONCILIATION OF EQUITY AND NET INCOME TO U.S. 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 U.S. GAAP for the periods
ended December 31, 2000, 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 U.S. GAAP for the periods ended December 31, 2000,
1999 and 1998.
AT DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
MILLIONS OF EUROS
SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY......................... 56,675.1 10,892.2 7,840.2
Adjustment to conform to U.S. GAAP:
Business combinations/Goodwill............................ 8,782.6 7,876.3 3,160.0
Intangible assets......................................... (329.1) (460.9) (269.4)
Leasing contracts......................................... (11.3) (14.2) (15.3)
Impairment/Real Estate.................................... (87.9) (64.9) (586.0)
Public service contracts.................................. 159.2 113.9 105.2
Reserves for restructuring liabilities.................... 25.0 146.2 104.5
Other reserves............................................ 51.4 33.5 42.8
Financial instruments..................................... 822.7 (1,532.8) (266.8)
Pension plans and stock-based compensation................ (22.7) (8.9) 11.6
Others.................................................... (32.1) (101.2) (35.4)
Tax effect on the above adjustments....................... (1,303.5) 75.3 174.0
-------- -------- --------
U.S. GAAP Shareholders' equity.............................. 64,729.4 16,954.5 10,265.4
-------- -------- --------
F-44
158
AT DECEMBER 31,
------------------------------
2000 1999 1998
------- -------- -------
MILLIONS OF EUROS
NET INCOME AS REPORTED IN THE CONSOLIDATED STATEMENTS OF
INCOME.................................................... 2,299.0 1,431.4 1,120.8
Adjustment to conform to U.S. GAAP:
Business combinations/Goodwill............................ (263.4) (1,052.7) (191.0)
Intangible assets......................................... (106.3) (191.5) (118.5)
Leasing contracts......................................... 2.9 1.1 1.4
Impairment/Real Estate.................................... (23.0) 521.1 74.9
Public service contracts.................................. 18.2 8.7 (8.7)
Reserves for restructuring liabilities.................... (102.0) 26.0 1.7
Other reserves............................................ 27.8 6.4 (31.6)
Financial instruments..................................... 105.5 (208.0) (325.8)
Pension plans and stock-based compensation................ (108.1) (240.5) (58.2)
Others.................................................... 7.1 (15.2) 11.4
Tax effect on the above adjustments....................... 50.1 (40.7) 88.8
------- -------- -------
U.S. GAAP Net income........................................ 1,907.8 246.1 565.2
------- -------- -------
Basic and diluted earnings per share
For U.S. GAAP purposes, basic earnings 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 6). Net
income represents the earnings of the Company after minority interest. The
computation of diluted earnings per share is as follows:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
------- ----- -----
MILLIONS OF EUROS, EXCEPT
PER SHARE AMOUNTS
Net income.................................................. 1,907.8 246.1 565.2
------- ----- -----
Net income diluted.......................................... 1,941.9 275.9 565.2
------- ----- -----
Weighted average number of shares
Outstanding -- basic...................................... 588.8 511.3 438.3
Dilutive effect of:
Shares issuable on conversion of debt..................... 34.6 -- --
Shares issuable on exercise of dilutive options........... 10.4 2.3 2.9
Shares attributable to stock purchases plans.............. 2.0 2.7 1.0
Shares applicable to warrants............................. 4.2 8.9 9.3
------- ----- -----
Weighted average number of shares
Outstanding -- diluted.................................... 640.0 525.2 451.5
======= ===== =====
Earnings per share:
Basic..................................................... 3.24 0.48 1.29
======= ===== =====
Diluted................................................... 3.03 0.47 1.25
------- ----- -----
NOTE 16C PRESENTATION OF THE INCOME STATEMENT AND CONDENSED BALANCE SHEET IN
U.S. GAAP
For purposes of presenting a consolidated condensed balance sheet as of
December 31, 2000 and 1999 and consolidated condensed income statements for the
years ended December 31, 2000 and 1999 in a format
F-45
159
consistent with U.S. GAAP, the Company has reflected the financial statement
impact of those reconciling differences between French GAAP and U.S. GAAP
presented in Note 16A and Note 16B.
Operating income
Under French GAAP, goodwill amortization is excluded from operating income,
while under U.S. GAAP, it is included as a component of operating income. In
addition, French GAAP defines exceptional items in a manner that differs from
the definition of extraordinary items under U.S. GAAP. As a consequence, items
classified as exceptional for French GAAP purposes have been reclassified to the
appropriate income statement captions determined under U.S. GAAP. With the
exception of gains and losses on sales of shares of affiliated companies,
exceptional items relating to the operations of the group 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 U.S. GAAP purposes as other income (loss).
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
----------- ---------
(MILLIONS OF EUROS)
REVENUE*.................................................... 34,275.8 36,542.9
Cost of sales............................................... (23,172.9) (26,718.6)
Selling, general and administrative costs................... (8,997.9) (8,293.1)
Goodwill amortization....................................... (760.1) (766.3)
Other operating expense and revenue......................... (166.7) (1,441.9)
----------- ---------
OPERATING INCOME............................................ 1,178.2 (677.0)
Financial income............................................ (393.8) (371.2)
Other income................................................ 3,007.4 532.8
----------- ---------
NET INCOME BEFORE TAXES, MINORITY INTERESTS AND EQUITY
INTEREST.................................................. 3,791.8 (515.4)
Taxes....................................................... (798.5) 716.3
----------- ---------
NET INCOME BEFORE MINORITY INTERESTS AND EQUITY INTEREST.... 2,993.3 200.9
Equity interest............................................. (546.1) 21.0
Minority interest........................................... (579.7) 24.2
----------- ---------
NET INCOME FROM CONTINUED OPERATIONS........................ 1,867.5 246.1
Net income from discontinued operations..................... 40.3 --
----------- ---------
NET INCOME.................................................. 1,907.8 246.1
---------------
(*) included excise taxes and contribution collected on behalf of local
authorities for an amount of E1,729 million and E2,112 million for 2000 and
1999, respectively.
DECEMBER 31,
-----------------
2000 1999
------- ------
Current Assets.............................................. 35,146 30,982
Non Current Assets.......................................... 116,672 43,515
TOTAL ASSETS........................................... 151,818 74,497
Current Liabilities......................................... 46,071 33,935
Long term liabilities....................................... 31,651 20,728
Minority interest........................................... 9,367 2,880
Total Shareholders' Equity.................................. 64,729 16,954
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. 151,818 74,497
F-46
160
NOTE 16D COMPREHENSIVE INCOME
The concept of comprehensive income does not exist under French GAAP. In
U.S. GAAP, SFAS 130, "Reporting comprehensive income," defines comprehensive
income to include, net of tax impact:
- minimum pension liability adjustments,
- unrealized gains and losses on investment securities classified as
"available for sale,"
- foreign currency translation adjustments.
Net income for the year ended December 31, 1999............. 246.1
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... 332.3
Unrealized losses on equity securities.................... 110.0
-------
Other comprehensive income.................................. 442.3
-------
Comprehensive income for the year ended December 31, 1999... 688.4
Net income for the year ended December 31, 2000............. 1,907.8
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... (700.3)
Unrealized gains on equity securities..................... 3,158.0
Minimum liabilities adjustments............................. (5.1)
-------
Other comprehensive income.................................. 2,452.6
-------
Comprehensive income for the year ended December 31, 2000... 4,360.4
=======
NOTE 16E STOCK BASED COMPENSATION
STOCK BASED COMPENSATION
Vivendi Stock option plans
Beginning in 1997, Vivendi adopted stock options plans that are settled in
its own shares. Under the Company's "classic" plans prior to December 31, 1999,
options were granted to employees at a strike price discounted 12.5% to 20% from
the fair market value of the stock at the date of grant.
For plans adopted prior to January 1, 1997, options that are exercised are
settled through the issuance of new shares. These options are granted with a
contractual life of eight to ten years and vest over a two year period from the
date of grant. For plans adopted in 1998 and later, options that are exercised
are settled with treasury shares. These options vest over a three or five year
period and are valid up to eight years from the date of grant.
Prior to the creation of Vivendi Universal, Vivendi adopted two fixed major
stock options plans in 2000, which grant options to a limited number of senior
managers. One of them replaces a stock option plan adopted by CANAL+ in 2000.
No compensation expense has been recorded in connection with the stock
options granted by Vivendi under French GAAP. Under U.S. GAAP, the compensation
cost recorded by the Company is respectively E85.8 million and E8.6 million for
the years ended December 31, 1999 and 2000. A gain of E9.5 million has been
recorded in 2000 in connection with a variable stock-option plan adopted in 1999
against a cost of E38.6 million in 1999.
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 fair market value
of the shares at the grant date.
Outstanding options at December 4, 2000 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 the grant. CANAL+
F-47
161
manages its exposure to the price risk associated with the shares required to
settle the options through the issuance of put and call options settled in its
own stock.
No compensation expense has been recorded in connection with the stock
options granted by CANAL+ under French GAAP. Under U.S. GAAP, the compensation
cost recorded by the Company is respectively E1.9 million and E1.5 million for
the years ended December 31, 1999 and 2000.
F-48
162
Vivendi Universal stock option plans
Since its creation, Vivendi Universal has adopted two fixed stock option
plans that grant options to a limited number of senior managers. Under these
plans, the stock price is not discounted from the fair market value of the stock
on the date of grant. The options are granted with a contractual life of eight
years. Under the first plan, one third of the options will vest each of the next
three years. Under the second one, the options vest after three years but the
exercise date depends on the performance of Vivendi Universal stock against the
performance of the MSC Media Index. No compensation cost has been recorded with
these plans under U.S. GAAP.
As of December 8, 2000, the stock options of CANAL+ stock options plans
were replaced by two stock option plans of Vivendi Universal (Strike divided by
two and same maturity and vesting period). The following table presents the
evolution of CANAL+ and Vivendi Universal stock options plans together.
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES (IN EUROS)
---------- ----------------
December 31, 1997........................................... 12,241,569 23.8
---------- ----
Granted................................................... 6,085,560 33.3
Exercised................................................. (1,170,111) 20.6
Forfeited................................................. (36,232) 12.0
---------- ----
December 31, 1998........................................... 17,120,786 22.8
---------- ----
Granted................................................... 11,477,378 68.0
Exercised................................................. (2,652,681) 19.8
Forfeited................................................. (42,616) 19.7
---------- ----
December 31, 1999........................................... 25,902,867 46.2
---------- ----
Granted................................................... 15,131,761 85.7
Exercised................................................. (2,329,062) 17.3
Forfeited................................................. (126,216) 19.2
---------- ----
December 31, 2000........................................... 38,579,350 67.0
---------- ----
Havas Interactive and Medi-Media stock option plans
The stock option plans adopted by Havas Interactive on July 1, 1999 and the
stock option plans of Medi-Media were canceled in 2000 and exchanged against
options from the stock option plan adopted by Vivendi Universal on December 11,
2000.
Vivendi Environnement stock option plans
In July 2000, Vivendi Environnement granted 780,000 stock options on
Vivendi Environnement shares to its top management. The number of options to be
exercised depends of the performance of Vivendi Environnement. The strike is
E32.5. The compensation cost of this variable stock options plan recorded in
2000 is E1.9 million.
Seagram stock option plans
At December 7, 2000 there were 39,999,747 Seagram stock options which were
converted on December 8, 2000 into 32,061,549 Vivendi Universal stock options.
Compensation cost attributable to stock option and similar plans is recognized
based on the difference, if any, between the quoted market price of the
Company's common shares on the date of grant over the exercise price of the
option. The Company does not issue options at prices below market value at date
of grant. There is no compensation cost associated with Seagram stock option
plans.
F-49
163
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
ADS (IN USD)
---------- ----------------
December 8, 2000............................................ 32,061,549 54.1
---------- ----
Granted................................................... 6,878,697 67.9
Exercised................................................. (116,257) 45.7
Forfeited................................................. (29,941) 56.1
---------- ----
December 31, 2000........................................... 38,794,048 56.6
---------- ----
At December 31, 2000, 10,130,571 stock options on treasury shares and
24,655,611 stock options on ADSs were exercisable at weighted average exercise
prices of E42.3 and $47.8, respectively. The options outstanding at December 31,
2000 expire in various years through 2010.
Information about 38,579,350 stock options on treasury shares and
38,794,048 stock options on ADSs outstanding at December 31, 2000 is summarized
as follows:
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE NUMBER EXERCISE REMAINING NUMBER EXERCISE
(IN EUROS) OUTSTANDING PRICE LIFE VESTED PRICE
-------------- ----------- -------- --------- ---------- --------
< 20 237,176 19.3 1.80 237,176 19.3
20 - 30 1,493,315 22.9 2.53 1,492,315 22.9
30 - 40 2,190,234 34.2 4.59 2,190,234 34.2
40 - 50 2,691,223 40.3 2.50 800,663 40.4
50 - 60 5,409,183 52.4 4.20 5,409,183 52.3
60 - 70 5,697,221 64.0 5.70 2,202,900 62.6
70 - 80 14,937,438 76.5 7.33 -- --
80 - 90 3,135,000 83.7 7.90 -- --
90 - 110 5,000 106.4 7.20 -- --
110 - 120 2,783,560 111.4 7.40 -- --
---------- ----- ---- ---------- ----
TOTAL 38,579,350 67.0 6.17 12,333,471 46.0
========== ===== ==== ========== ====
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE NUMBER EXERCISE REMAINING NUMBER EXERCISE
(IN USD) OUTSTANDING PRICE LIFE VESTED PRICE
-------------- ----------- -------- --------- ---------- --------
< 20 -- -- -- -- --
20 - 30 389,528 29.6 0.20 389,528 29.6
30 - 40 5,753,322 36.0 3.09 5,753,322 36.0
40 - 50 12,335,068 46.0 6.48 12,335,068 46.0
50 - 60 4,130,340 59.5 8.21 4,008,340 59.6
60 - 70 7,833,497 67.5 7.88 728,000 64.0
70 - 80 8,352,293 75.8 9.03 1,441,553 74.2
---------- ---- ---- ---------- ----
TOTAL 38,794,048 56.6 6.93 24,655,811 47.8
========== ==== ==== ========== ====
The fair value of Vivendi Universal option grants is estimated on the date
of grant using the Binomial Option Pricing Model with the following assumptions
for the grants:
DECEMBER 31,
--------------------
2000 1999 1998
---- ---- ----
Expected life (years)....................................... 7.9 6.5 5.6
Interest rate............................................... 4.8% 4.6% 4.7%
Volatility.................................................. 35% 6.5% 6.5%
Dividend yield.............................................. 1% 1.1% 1.1%
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164
EMPLOYEE STOCK PURCHASE PLANS
Vivendi Universal maintains savings plans that allow substantially all full
time employees of Vivendi Universal and its subsidiaries to purchase shares of
Vivendi Universal. The shares were sold to employees at a discount of 20% from
the average market price of Vivendi Universal 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. The compensation cost
recorded by the company for the year ended December 31, 2000 is E85.9 million.
Vivendi Universal maintains a leveraged stock purchase plan named Pegasus,
which is available exclusively to the employees of the group's non-French
subsidiaries. At the end of a five-year period, the employees are given
assurance that they will receive the maximum amount of either their personal
contribution plus 6 times the performance of the Vivendi Universal share or
their personal contribution plus interest of five percent per year compounded
annually. The risk carried by Vivendi Universal is hedged through a trustee
based in Jersey by Societe Generale. The guarantee was paid through a reserved
capital increase with elimination of the preferential subscription rights
(decision of the Board of Directors of October 4, 1999). 6,000,000 shares were
issued in February 2000 with a value of E56.7 each, whereas the market value of
the Vivendi Universal share was around E110. The issue price corresponds in fact
to a 20% discount as compared to the average of the 20 opening stock market
prices prior to the meeting of the Board of Directors of October 4, 1999. The
compensation cost recorded by the Company for the year ended December 31, 2000
is E9.8 million.
Shares sold to employee stock purchase plans are as follows:
2000 1999 1998 1997
--------- --------- --------- -------
Number of shares............................... 8,937,889 6,608,980 1,511,769 936,912
Proceeds on sales (in millions Euros).......... 554.6 480.1 156.4 72.9
Average cost of treasury stock sales (in
Euros)....................................... 62.1 72.6 103.5 77.8
Under U.S. GAAP, the total compensation cost recorded by the Company for
period ended December 31, 2000 and 1999 is respectively E95.7 million and E160.8
million.
Had compensation cost for stock based compensation been awarded determined
based on the fair value at the dates of grant consistent with the methodology of
SFAS 123, Vivendi Universal's net income and basic earnings per share would have
reflected the following pro forma amounts (in millions of Euros):
AT DECEMBER 31,
----------------
2000 1999
------- -----
U.S. GAAP net income........................................ 1,907.8 246.1
Basic earnings per share.................................... 3.24 0.48
Impact of fair value method of stock option................. (57.8) (52.2)
Pro forma U.S. GAAP net income.............................. 1,850.0 193.9
Pro forma basic earnings per share.......................... 3.14 0.38
F-51
165
NOTE 16F BENEFITS PLAN
Disclosures, presented in accordance with SFAS 132, are as follows:
PENSION BENEFITS OTHER BENEFITS
------------------ --------------
2000 1999 2000 1999
------- ------- ------ ----
MILLIONS OF EUROS
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................ 1,645.6 1,334.2 7.3 9.0
Service cost........................................... 56.4 71.8 0.1 0.1
Interest cost.......................................... 65.7 91.3 0.4 0.4
Plan participants contributions........................ 10.8 11.9 -- --
Business combinations.................................. 971.2 100.2 179.4 --
Disposals.............................................. (580.7) (10.5) -- --
Curtailments........................................... (2.2) (2.8) -- --
Actuarial loss (gain).................................. 16.6 14.3 1.0 (1.5)
Benefits paid.......................................... (45.1) (71.8) (0.7) (0.7)
Special termination benefits........................... -- -- -- --
Others (foreign currency translation).................. (1.2) 107.0 --
------- ------- ------ ----
Benefit obligation at end of year...................... 2,137.1 1,645.6 187.5 7.3
======= ======= ====== ====
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year......... 1,533.5 1,155.9 -- --
Actual return on plan assets........................... (10.8) 232.5 -- --
Company contributions.................................. 25.9 45.7 -- 0.7
Plan participants contributions........................ 10.8 11.9 -- --
Business combinations.................................. 754.3 3.9 -- --
Disposals.............................................. (236.2) (2.0) -- --
Benefits paid.......................................... (2.7) (71.8) -- (0.7)
Others (foreign currency translation).................. (39.2) 157.4 -- --
------- ------- ------ ----
Fair value of plan assets at end of year............... 2,035.6 1,533.5 -- --
======= ======= ====== ====
FUNDED STATUS OF THE PLAN................................ (101.5) (112.1) (187.7) (7.4)
Unrecognized actuarial loss............................ (21.6) (154.6) (0.6) (1.6)
Unrecognized actuarial prior service cost.............. (137.7) (153.6) -- --
Unrecognized actuarial transition obligation........... (17.6) (26.1) -- --
------- ------- ------ ----
Accrued benefit cost................................... (278.4) (446.4) (188.3) (9.0)
======= ======= ====== ====
Write off of prepaid on multi-employer scheme
overtime(*)............................................ (45.2) (24.9) -- --
------- ------- ------ ----
Net (accrued) benefit cost under U.S. GAAP............... (323.6) (471.3) (188.3) (9.0)
------- ------- ------ ----
---------------
(*) 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.
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 E367 million, E299 million and E54 million,
respectively, as of December 31, 2000, E447 million, E356 million and E32
million, respectively, as of December 31, 1999.
F-52
166
Amounts recognized in the balance sheets consist of:
PENSION BENEFITS OTHER BENEFITS
------------------ ---------------
2000 1999 2000 1999
------- ------- ------- ----
MILLIONS OF EUROS}
Accrued benefit liability (including MLA)................ (439.0) (586.5) (188.3) (9.0)
Prepaid benefit cost..................................... 115.4 114.5 -- --
------- ------ ------ ----
Net amount accrued for under U.S. GAAP................... (323.6) (472.0) (188.3) (9.0)
======= ====== ====== ====
Intangible assets (MLA)(a)............................... (8.6) 0.7 -- --
------- ------ ------ ----
Net amount recognized under U.S. GAAP.................... (332.2) (471.3) (188.3) (9.0)
------- ------ ------ ----
---------------
(a) Adjustment for U.S. GAAP purpose: the benefit liability accrued under U.S.
GAAP has to be the minimum between the accumulated benefit obligation net of
fair value of plan assets and the net amount recognized under U.S. GAAP.
Net accruals in the accompanying consolidated balance sheet can be compared
with balances determined under U.S. GAAP as follows:
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
2000 1999 2000 1999
------ ------- ------- ----
MILLIONS OF EUROS}
NET AMOUNT ACCRUED FOR UNDER U.S. GAAP.................... (323.6) (472.0) (188.3) (9.0)
Excess funding of plans recognized in income only when
paid back to the Company................................ (3.6) (3.4) -- --
Impacts of transition obligation, of prior service costs
and of actuarial gains recognized with a different
timing under local regulations.......................... (1.3) (29.7) (0.6) --
Minimum liability adjustments (MLA)....................... 8.6 0.7 -- --
------ ------ ------ ----
NET AMOUNT ACCRUED FOR UNDER FRENCH GAAP IN THE
ACCOMPANYING CONSOLIDATED BALANCE SHEET................. (319.9) (504.4) (188.9) (9.0)
====== ====== ====== ====
Accrued................................................... (458.9) (582.6) (188.9) (9.0)
Prepaid................................................... 139.0 78.2 -- --
Net periodic cost under U.S. GAAP is as follows:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
2000 1999 2000 1999
------ ------ ----- -----
MILLIONS OF EUROS
Service cost................................................ 56.4 71.8 0.1 --
Expected interest cost...................................... 65.7 91.3 0.4 0.1
Expected return on plan assets.............................. (90.6) (93.5) -- 0.5
Amortization of unrecognized prior service cost............. (8.7) (12.1) -- --
Amortization of actuarial net loss (gain)................... (12.5) 0.7 (0.1) --
Amortization of net transition obligation................... (1.8) (1.2) -- --
Curtailments/Settlements.................................... 0.5 (2.8) -- --
Special termination benefits................................ -- -- -- --
----- ----- ---- ---
Net periodic benefit cost................................... 9.0 54.2 0.4 0.6
===== ===== ==== ===
Write off of prepaid on multi-employer scheme overtime...... 21.6 8.2 -- --
----- ----- ---- ---
Net periodic benefit cost under U.S. GAAP................... 30.6 62.4 0.4 0.6
----- ----- ---- ---
Annual cost under French GAAP was E37.9 million and E80.9 million for the
years ended December 31, 2000 and 1999, respectively. The difference between
these amounts and the annual cost under U.S. GAAP
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primarily results from the 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:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
2000 1999 2000 1999
------ ------ ----- -----
MILLIONS OF EUROS
Discount rate............................................... 6.5% 5.8% 7.5% 5.0%
Rate of compensation increase............................... N/A N/A N/A N/A
Expected return on plan assets.............................. 8.3% 7.4% 6.0% 6.0%
Expected residual active life (in years).................... 13.5 13.7 15.0
Regarding the other benefits plans, a one-percentage-point change in
assumed health care cost trend rates would have the following effects:
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
IN PERCENTAGE
Effect on total of service and interest
components..................................... 3.0% 3.0%
Effect on the postretirement benefit
obligation..................................... 3.0% 3.0%
NOTE 16G CAPITAL AND OPERATING LEASE
The Company has entered into capital and operating leases. At December
2000, the minimum future payments under these leases are as follows:
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, 2000 LEASES LEASES
----------------- --------- -------
MILLIONS OF EUROS
2001............................................. 792.7 251.8
2002............................................. 731.3 207.9
2003............................................. 679.5 185.4
2004............................................. 630.6 181.7
2005............................................. 571.2 150.5
2006 and thereafter.............................. 1,893.9 1,339.2
Total minimum future capital lease payments...... 5,299.2 2,316.5
Less amounts representing interest............... -- (895.9)
------- -------
Present value of net minimum future capital lease
payments....................................... -- 1,420.7
------- -------
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NOTE 16H RESTRUCTURING COSTS
Provisions for restructuring by segment details as follows:
ENVIRONMENTAL
EMPLOYEE TERMINATION COSTS PUBLISHING(A) SERVICES(B) NON-CORE(D) TOTAL
-------------------------- ------------- ------------- ----------- ------
MILLIONS OF EUROS
DECEMBER 31, 1997.......................... -- 21.1 40.1 61.2
Change in consolidation scope.............. 47.8 -- 1.7 49.5
Additions.................................. 26.0 2.1 64.4 92.5
Utilization................................ (34.6) (10.3) (53.3) (98.2)
Reversal................................... (0.8) -- (1.2) (2.0)
----- ----- ----- ------
DECEMBER 31, 1998.......................... 38.4 12.9 51.7 103.0
Change in consolidation scope.............. 14.6 54.2 (1.7) 67.1
Additions.................................. 18.0 2.0 50.2 70.2
Utilization................................ (42.6) (17.2) (56.5) (116.3)
Reversal................................... (1.4) -- (0.3) (1.7)
----- ----- ----- ------
DECEMBER 31, 1999.......................... 27.0 51.9 43.4 122.3
Change in consolidation scope.............. (4.2) -- (38.7) (42.9)
Additions.................................. 64.1 -- 0.2 64.3
Utilization................................ (9.8) (17.3) (3.5) (30.6)
Reversal................................... (4.0) -- -- (4.0)
----- ----- ------
DECEMBER 31, 2000.......................... 73.1 34.6 1.4 109.1
ENVIRONMENTAL
OTHER RESTRUCTURING COSTS TELECOMS(C) TV & FILMS(E) PUBLISHING(A) SERVICES(B) TOTAL
------------------------- ----------- ------------- ------------- ------------- -----
MILLIONS OF EUROS
DECEMBER 31, 1997............. 59.4 -- -- 30.2 89.6
Change in consolidation
scope....................... (3.3) -- -- (1.0) (4.3)
Additions..................... -- -- -- 9.5 9.5
Utilization................... (21.7) -- -- (13.3) (35.0)
Reversal...................... (0.3) -- -- -- (0.3)
----- ----- ---- ----- -----
DECEMBER 31, 1998............. 34.1 -- -- 25.4 59.5
Change in consolidation
scope....................... (4.1) -- 6.8 55.1 57.8
Additions..................... 1.4 -- -- 28.8 30.2
Utilization................... (12.4) -- (1.5) (34.5) (48.4)
Reversal...................... -- -- -- -- --
----- ----- ---- ----- -----
DECEMBER 31, 1999............. 19.0 -- 5.3 74.8 99.1
Change in consolidation
scope....................... 4.7 20.0 -- -- 24.7
Additions..................... -- -- 11.5 17.6 29.1
Utilization................... (11.6) -- (2.8) (42.8) (57.2)
Reversal...................... (3.5) -- (1.0) -- (4.5)
----- ----- ---- ----- -----
DECEMBER 31, 2000............. 8.6 20.0 13.0 49.6 91.2
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.
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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
Following the acquisitions of Grupo Anaya in September 1998 and Medi-Media
in August 1999, the Company respectively established a termination plan
involving approximately 240 employees and a restructuring plan associated with
severance costs related to the termination of approximately 40 employees,
respectively.
The continuation of these plans in 2000 led to accumulated expenses of
E12.6 million.
In fiscal year 2000, the following plans have been implemented:
- HII is involved in a down sizing plan as well as in a process of
reorganization of shared services and a reallocation of business. As of
December 31, 2000, these plans involve the termination of approximately
570 employees which amounts to E23.6. Other related projects will
generate E6 million of expenses.
- The Education segment is involved in several plans which total E22.0
million, including E17.5 million allocated to the termination of
approximately 210 employees. The major plans concern the downsizing of
the French structure, the reorganization of the supply chain in Brazil
and Spain, and the closure of a site in Belgium.
- The Information segment is in the process of reorganizing its back office
department, mainly through mutualization and reallocation of services.
The expenses of this plan amount to E14 million and will lead to the
termination of approximately 220 employees.
- The Services department will close down a logistic site. This plan will
lead to the termination of 117 employees for E7.0 million. Other costs
associated to this closure will amount to E1 million.
- The headquarters is also involved in a restructuring plan that will lead
to the termination of 17 employees. The expenses of this plan amount to
E2 million.
(b) Environmental Services
Beginning in 1997, the Group 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 administrating 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 Group'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. As previously discussed, the Group acquired US
Filter in April 1999. In conjunction with the acquisition, the Group evaluated
US Filter's ongoing restructuring plans. This evaluation resulted in the
continuation of certain restructuring efforts and the implementation of
additional restructuring plans to streamline United States Filter Corporation's
resulting manufacturing and production base and to redesign its distribution
network. The revised restructuring plans identified certain manufacturing
facilities, distribution sites, sales and administration offices, retail outlets
and related assets that became redundant or non-strategic upon consummation of
the transaction. The costs associated with the plan totaled E109.4 million and
are reflected in "Change in scope of consolidation." The costs originally
consisted of E54.2 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 E55.1 million in facility exit costs, including asset
write-downs, lease terminations and other exit costs. During 1999, the Group
incurred costs of E31.6 million in connection with the plan, including E11.7
million in severance payments in
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connection with the termination of approximately 350 employees and E19.9 million
in facility exit costs. As of December 31,1999, a total accrual of approximately
E77.7 million remained, consisting of E42.5 million in severance and employee
termination accruals and E35.2 million in other restructuring costs (primarily
attributable to facility consolidation). During 2000 the Group used E9.5 million
for various severance programs. At December 31,2000, E33 million remained,
mainly related to several European severance programs which due to local social
regulations require extended periods to complete. As the severance programs will
be completed the Group anticipates the closure of several facilities and
believes that the remaining E48.6 million will be utilized as the consolidations
are completed.
(c) Telecoms
In December 1997, SFR decided to discontinue mobile telephone service
operations utilizing analog technology. In connection with this decision, a
reserve of approximately E60.0 million was provided in 1997, in connection with
the phasing out of the subscriber base and associated technology. This plan is
almost completed at December 31, 2000. The remaining reserves of E8.6 million
relate to other technological changes accrued during the previous years.
(d) Non-core
Beginning in 1996, the Company recorded provisions for restructuring plans,
in the amount of E48.3 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 employee reduction, in the amount of E64.5 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 E31.6 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
E31.7 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 E61.0
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 E18.6 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 E42.1 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 E44.5 million, in connection with a workforce reduction of 1,460 employees
(277 management employees and 1,183 workers). During 1999, the Company incurred
E8.8 million in connection with such plans and reduced its number of employees
by 288 (49 management employees and 239 construction employees).
In 2000, the Company reduced its Non-Core provision to ME1.4 mainly due to
the disposal of Vinci. The construction segment has been deconsolidated at the
beginning of 2000 following the Vinci/GTM operation.
(e) TV & Films:
CANAL+ was first consolidated with Vivendi Universal in December 8, 2000.
The E20 million of restructuring costs mainly concern future expenses planned
for the maintenance of terminal equipment and
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other materials (E15 million), and a reserve due to future costs concerning the
reparation of defective Thomson digital decoder delivered in 1996 (E2 million).
NOTE 16I SUBSEQUENT EVENTS
SFR Submits Application for UMTS License. On January 30, 2001, SFR, an
indirect subsidiary of Vivendi Universal, officially submitted its application
for a license to provide third generation UMTS mobile telephony services in
France. UMTS is a high-speed standard for mobile telephony that would allow
Vivendi Universal, through SFR, to provide an extensive range of new services,
including video telephony and high-speed access to the Internet and to corporate
intranets. The licenses are expected to be awarded in 2002. The fee for each
license is currently expected to be E4.95 billion, with payments spread over a
15-year period. The French government may be considering proposals to alter the
terms of the license awards.
CANAL+'s Sale of Its Stake in Eurosport. On January 31, 2001, CANAL+
announced that it had sold its 49.5 percent interest in European sports channel
Eurosport International and its 39 percent interest in Eurosport France to TF1.
Proceeds from the sale amounted to E303.5 million for CANAL+ Group and E345
million for Vivendi Universal as its subsidiary Havas Image also sold its
interest in Eurosport France. CANAL+ will remain a distribution channel for
Eurosport. CANAL+ had acquired its interest in Eurosport International and
Eurosport France from ESPN in May 2000.
Convertible Bond Issuance. On February 2, 2001, Vivendi Universal placed
E457 million principal amount of bonds exchangeable for shares of Vinci, a
company in which Vivendi Universal has an 8.67 percent stake. The 1 percent
five-year bonds were issued at a price of E77.35, a 30 percent premium to
Vinci's then-current stock price. Each bond is exchangeable for one Vinci share.
On February 5, 2001, the lead manager for the bonds, which managed the offering
of the bonds, exercised their over-allotment option to purchase E70 million
additional principal amount of the bonds, thus increasing the overall amount of
the issuance to E527 million. Conversion of all the bonds into Vinci shares
would result in the elimination of Vivendi Universal's stake in Vinci.
Acquisition of Uproar Inc. On February 5, 2001, Flipside Inc., a
subsidiary of Vivendi Universal's Publishing business, and Uproar Inc., a
leading interactive entertainment company, announced that they had entered into
a definitive merger agreement pursuant to which Flipside would acquire all of
the outstanding stock of Uproar for U.S.$3 per share, or a total consideration
of U.S.$140 million. The transaction has been approved by the Boards of both
companies and will make the combined entity an overall leader in interactive
games on the Internet.
Exchangeable Bond Issuance. On February 8, 2001, Vivendi Universal placed
E1.809 billion principal amount of bonds exchangeable into Vivendi Environnement
stock on a one for one basis. The bonds correspond to 9.3 percent of the capital
stock of Vivendi Environnement. The 2 percent, five year bonds were issued at a
price of E55.90, a 30 percent premium over the previous day's weighted-average
price. Excluding, the 9.3 percent now allocated to the exchangeable bonds,
Vivendi Universal holds 63 percent of Vivendi Environnement, and intends to
maintain its majority control at this level for the long term.
Disposition of CompuServe France. In March 2001, Vivendi Universal
legalized the terms of the disposition of its interest in AOL CompuServe France.
Acquisition of EMusic.com. On April 6, 2001, we entered into an agreement
to acquire all of the outstanding shares of EMusic.com Inc. pursuant to a cash
tender offer at $.57 per share. The acquisition was completed on June 14, 2001.
Acquisition of MP3.com. On May 20, 2001, Vivendi Universal announced that
it had reached an agreement in principal to acquire MP3.com, Inc. for $372
million ($5 per share) in a combined cash and stock transaction. The acquisition
is subject to regulatory approval, shareholder approval, and customary closing
conditions.
Acquisition of Houghton Mifflin Company. On June 1, 2001, Vivendi
Universal announced that it had reached an agreement in principal to acquire
Houghton Mifflin through a cash tender offer for all of Houghton
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Mifflin's common stock at a price of $60 per share. The total consideration
approximates $2.2 billion, including the assumption of Houghton Mifflin's
average net debt of $500 million The acquisition is subject to regulatory
approval and customary closing conditions.
Sale of Loews Cineplex. On June 28, 2001, Universal Studios and USIBV sold
their interests in Loews Cineplex to Goldman, Sachs & Co. for an aggregate
purchase price of $1.00. Universal Studios intends to use the tax loss from the
sale to offset gains on other capital transactions.
Cancelation of shares. On June 28, 2001, the Vivendi Universal board
authorized the cancelation of 22 million shares, reducing the number of
outstanding shares by approximately 2%.
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173
EXHIBIT INDEX
EXHIBIT
-------
1.1 Vivendi Universal Restated Corporate statuts (organizational
document) (English translation)
2.1 Deposit Agreement dated as of April 19, 1995, as amended and
restated as of September 11, 2000, and as further amended
and restated as of December 8, 2000, among Vivendi
Universal, S.A., The Bank of New York, as Depositary, and
all the Owners and Beneficial Owners from time to time of
American Depositary Shares issued thereunder (incorporated
by reference to the Vivendi Universal Registration Statement
on Form 8-A dated December 29, 2000)
2.2 Vivendi Universal agrees to furnish to the Commission on
request a copy of any instrument defining the rights of
holders of long-term debt of Vivendi Universal and of any
subsidiary for which consolidated or unconsolidated
financial statements are required to be filed
4.1 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. (incorporated by reference
to the Vivendi Universal Registration Statement on Form F-4
dated October 30, 2000)
4.2 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. (incorporated by
reference to the Vivendi Universal Registration Statement on
Form F-4 dated October 30, 2000)
4.3 Stock and Asset Purchase Agreement, dated as of December 19,
2000, among Vivendi Universal S.A., Pernod Ricard S.A. and
Diageo plc (incorporated by reference to the Vivendi
Universal Registration Statement on Form F-4 dated
February 5, 2001)
8.1 Subsidiaries of Vivendi Universal, S.A.
10.1 Indenture among Joseph E. Seagram & Sons, Inc., as issuer,
The Seagram Company Ltd., as guarantor, and The Bank of New
York, as Trustee dated September 15, 1991 (incorporated by
reference to the Seagram Current Report on Form 8-K dated
November 8, 1991, as amended (file number 001-02275))
10.2 Form of First Supplemental Indenture among Joseph E. Seagram
& Sons, Inc., The Seagram Company Ltd. and The Bank of New
York, as Trustee, dated as of June 21, 1999 (incorporated by
reference to Amendment No. 2 to the Seagram Registration
Statement on Form S-3/A dated June 10, 1999)
10.3 Second Supplemental Indenture among Joseph E. Seagram &
Sons, Inc., The Seagram Company Ltd. and The Bank of New
York, as Trustee, dated as of November 15, 1999
(incorporated by reference to the Vivendi Universal
Registration Statement on Form F-4 dated February 5, 2001)
10.4 Third Supplemental Indenture among Joseph E. Seagram & Sons,
Inc., The Seagram Company Ltd. and The Bank of New York, as
Trustee, dated as of January 5, 2001 (incorporated by
reference to the Vivendi Universal Registration Statement on
Form F-4 dated February 5, 2001)
10.5 Form of Fourth Supplemental Indenture, dated as of March 7,
2001, among Joseph E. Seagram & Sons, Inc., The Seagram
Company Ltd. and The Bank of New York, as Trustee
(incorporated by reference to the Vivendi Universal
Registration Statement on Form F-4 dated February 5, 2001)
10.6 Form of Purchase Contract Agreement between The Seagram
Company Ltd. and The Bank of New York, as purchase contract
agent, dated as of June 21, 1999 (incorporated by reference
to Amendment No. 2 to the Seagram Registration Statement on
Form S-3/A dated June 10, 1999)
10.7 Supplemental Agreement to the Purchase Contract Agreement
entered into by Vivendi Universal, S.A. dated December 8,
2000 (incorporated by reference to the Vivendi Universal
Registration Statement on Form F-4 dated February 5, 2001)
10.8 Form of Supplemental Agreement to the Purchase Contract
Agreement between The Seagram Company Ltd. and The Bank of
New York, as purchase contract agent (incorporated by
reference to the Vivendi Universal Registration Statement on
Form F-4 dated February 5, 2001)