PolyGram

PolyGram
Annual Repoil
Contents
１
Finanrial tliqhlighh
２
President's Statem€nt
４
0perational Review
３
PolyGram in the Far East
Report
ol the
lvlanageflent
０ ０
２ ４
Bspoi ol the Board ol
& financial fleview
Sup€ruisory Board
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9.1
Llit
The Evolution ol PolyGram
'fhe beginnings oI Pohclraol can trc traccd back nearlv a c-ontur\' to 1B9g
an.l the iou,ciins
Grammophon Gesellschaft. one olthc \\'orld's pre-LrmiDcnt classical
nrLrsic
,,1
Deutsche
labels. Ll rLc g-1\'ears sincc
thousands of reno ncd popular and crlassical artists have rccortled on the labels thai toLlav (x)nstitute
tLe Pol\,Gram []roup.
i hen,
Poh'G.am itselll;egan orr-"rations in 1s62 as a j(rinr \,enture bct\\.een N-v. philips' Gloeir€mpenfabrieken
{now Philips Eleetronics N.V} and Siemens AG. llnderlLcjoiitvcntrue,slentensassigil-.(lloPhililrs
50% ol its subsidiary Deutsche Grammophon ceseltschaft, io rcturr for 50oir of philips
Phonographische lndustrie. a subsi(liary oiphrlips foundcd in 1S50.
'lhe subsidiaries \\'ere reorgaDlserL in 1972 as polycram. and in rraDsactions
i. 198i nnd 1987, pfililrs
-t989,
Siemcns
;0!o
interest.
hl
De{rerirbcr
];urchased
Potycram N.v be.aole r public rrrxrparv rrler
Philfus sold approxinlatc]!, 16cb of its intercst and ]tlvGran offer.cd ne lr- issued rlrares in an i jtial
publir oflijring.
Todali Poll'Grarn is one of tlre three largest recorded music proclucers anrl publish-"rs rr or.ldu'irle alld in
additioD to ils louncling tornpan]: tlcuts.he Gtamnophon, its r|orld famous lab-"ls includo \l-"rcur\l poh,rlor.
vertigo, Fontana r\&\I, Islard and \brlc lbr popular music. and Decco.rlonclon and l,hil\rs classics lbr
ciassical music,
PollGramh plintripalacti!
and
it)
is
th€(lrealion, acctuisiti()ll and produ.fion ol recorclccl rI1usirj \\.hich itrnarkcts
clistrihtes iD the lirrm of r ompact discs, alburns, mrrsic cassett.rs. \'ideo tapcs all(l laser.cliscs tLrorrgb
ils rctr\'ork ol subsi(liarics i'ol'c1
:10
courtrics and through lice'sccs elser'hlr-. *,orldn'irle.
91
I am delighted to be able to report that 1991 was a year
of real progress for PolyGram, despite the recession
several of our major
in
markets. Net sales were a record
NLG 6,326 million, an increase of over
2\o/o,
producing record net income of NLG 446 million, an
increase of
25%. Earnings per
share increased from
talent who
will provide
NLG 2.10 to NLG 2.62, an increase of 25%.
for managing that talent.
Throughout the year,
Our acquisition of a
we defined and started to
implement our strategy for the'gOs which, in many
instances, required us to challenge our edsting
businesses by focusing on the
future.
We consistently
3O%
Holdings, and the
acquire the remaining shares
Working Title, our two joint
need to examine the origins of our profits to ensure
were all steps towards this aim.
that we can correctly anticipate changes in the
surprise for you to know that this
entertainment market,
seventeenth
It is imperative that PolyGramb image is attractive to
in 1985. Our progress
enabling us to build
a
managing the risks associated
ists, since it is only by 'breaking new talent' that we
can renew our assets as public tastes change. This
process is continuous and needs constantfine tuning as
we build both new artists and our own management
team on a truly worldwide basis.
film since our
has
As the next step in this
September
inャ estmel■
a three year plan
tofuS s200milliOn
mid to low budget movies
Our long-term aim is to position PolyGram as a fully
Los Angeles.
fledged multi-cultural global ente ainment group.
In our interim report, I urote
This is driven by the increasingly complementary
natures of the audio and visual fields. which share
that our North American
increasingly the new digital technologies. Artists
have multi-faceted careers and we
will only attract
will
the
positive by the year end. Iam
confidence was well placed
outcome for the year.
best if we are able to offer multiple avenues for exploiting
in
their talents. Movies, TV production and music, while
presence in North
vastly different, especially
in terms of
monetary
commitment, involve the same search for the creative
o
Butitis
context, as the first stage
America.
We
structure in terms of A&R I
distribution and we have had
still have a way to go before being satisfied that
we have reached our goals, both in market share
In the course of our on-going review of distribution, it
and profitability.
paramount importance to
We
In Octoberwe announced
a
distribution agreementwith
Motolrm Records for the U.S.A. and
for the rest of the
world.
a
license agreement
These agreements add
significantly to our U.S. distribution throughput and
to the product flow of all our operations outside the
U.S.A., and make PolyGram a significant force in the
black music market, one of the most vibrant and
became apparent that security of CD supply was of
Polycram. Without
that
securitlt our artists and our distribution infmstructure
were inevitably r.ulnerable. When the Hanover
(Germany) and Louviers [France) CD plants became
available, we seized the opportunity to acquire them.
Not only were we able to secure an optimum supplier
over 66% of our CDs are now manufactured in-house
-
but we can now control our working capital more
efficiently through inventory control since both plants
dynamic in the industry.
are conveniently Iocated.
With the dramatic rcconstruction of Eastern Europe
during 1991,
it is appropriate to focus on PolyGram's
position in Germanli Germany is now the third largest
market for recorded music in the world and at the year
end our market share had increased to 27.5o/o ftom 2o1o.
If the formerEast Germany is anindicator, we should see
extremely rapid growth
in music consumption in all
Eastern European markets in the com ing yea rs as music
is the
natural way for the young people ofthese countries
At the end oftheyear, we moved ourtape manufacturing
to
a
new plant at Amersfoort in The Netherlands which
year.
can manufacture up to 30 million DCCs a
DCC
stands for Digital Compact Cassette, the latest sound
technology which combines high definition sound
with a backward compatible system, which means that
traditional music cassettes can be played on the new
hardware. PolyGram has from the beginning backed
this exciting new consumer concept and the reception to
to embrace the West.
datebyboth the music industryand retailers aroundthe
In these emerging markets our licensed income more
world has been highly encouraging.
than doubled, as did our sales of finished products, but a
note of caution needs to be sounded on copyright. Unless
an enforceable legal structure is put in place, there is a
real risk that piracy could become prevalent- to the det-
riment ofall entertainment companies and their artists.
Our business is about
balance the balance
Finally our business is about people, and I would like to
thank the dedicated management team who together
have made
it all
happen;
our 10,568
employees
worldwide who have worked long and hard in support
of our artists and customers: our
licensees and
between
distributors: and our artists whose contribution across
exploiting back catalogue and breaking new acts,
all of our activities has been so outstandingly crcative
between national and international repertoire, In the Far
and, above all, popular with their audiences.
East, after acquiring the maiority interest
in Nippon
Phonogram lastyear, we increased our share in our other
Japanese company Polydor K.K., to 74.6%. No less than
We look forward to continued progress
in the year
ahead.
two fifths ofthe world's teenagers live in this part ofthe
world and we have the challenge of supplying the full
range of our repertoire to this huge and enthusiastic
audience. Japan is now the world's second largest music
market after the US.A. and later in this reportyou
will be
able to read in detail about our Far Eastern operations.
Aanldw lL
Presidenl and Ch ief Execu live
MarLh 2s.
1992
Officcr ,
I
I
I
.
0pemtional Review
PollGram's excellent results were due to our increased worldwide
market share and characterised by a good across-the-board
performance, not dependent on any one 'supeNtar'. In contmst,
worldwide popular music markets showed little gro$'th in
19s1
with the exception of Germany
Best selling albums in the first half of the year
featued five artists
-
Sting 'The Soul Cages', Elton John 'The Very Best of', Scorpions
'Crazy World', Amy Grant 'Heart in Motion' and 'Extreme II
Pornograffitti' by Extreme - who collectively sold over
units and fifteen other artists who sold over
betrveen
them. This in-depth strength
I
8. 5
mil lion
million units
shows just how broadly
based the Pol1Gram pop portfolio was in 1991. It was only in the
last quarter that our second wave of major international artists
released their albums - Brlan Adams'Waking up the Neighboursl
Dire Stmits 'On Every Strcet', the songs of Elton John and Bernie
Thupin 'Two Rooms', U2 Achtung Babyl John Mellencamp
'\A/henevet We Wanted', INXS 'Live Baby Live' and
BryaI Adams
PoPi.:'"*",,,*il'-""",,'*
No, 1 in the U.S. charts for 11 weeks, No. 1 in the U.K. charts for 16
weeks, and
with significant chart
success in every world market,
building into sales ofover6 million singles worldwide. The Bryan
Adams effect propelled A&M and Polycram to their highest ever
share of the UK. market making PolyGram top singles company
and distributor bv a wide margin.
The single was also included in Bryan Adams' 'Waking up the
Neighbours' which was one of out best selling albums in 1991,
selling nearly 6 million units worldwide,
One of the otherbest selling albums ofthe yearwas U2's Achtung
Baby' on Island Records. PollGram has the worldwide rights to
the album, and byyear end sales were in excess of4 million units
with strong
sales cally-over into 1992 expected.
In common with the rest ofthe group,
a
firm foundation for the pop
division comes from underlying catalogue sales. Supported by
carefully targeted TV marketing, back catalogue produces
steady stream of
profits. Compilation chart
successes
in
a
1991
included Andrew Lloyd Webber's 'Phantom of the Opera Highlights', Van Morrison's 'Grcatest Hits', Jean Michel larre's 'Images',
'The Verv Best of the Bee Gees' and the run-on sales of 'The Very
Joftn M€llercamp
with
Best of Elton John'
sales
now totalling over 6 million units.
Theremixed'Grease' soundtrackalbum reachedNo.
1
in anumber
of tenitories, with a particularly extended run at the top of the
charts in The Netherlands.
Discovering new talent is a process which, by definition, starts at
national level. For instance in April 1991, out of the top 20 pop
singles on US. radio only four were established acts, which indi-
priority to seeking out and
'hot' discoveries included PM.
cates why Pol1Gram attaches such
signing emerging
Dar.r.n
talent.
1991
[Island), Cathy Dennis (Polydor], Oleta Adams (Mercury],
Crystal Waters (Mercury), Extreme (A&M), The Triplets
(Mercury), Ce CePeniston (A&M)and The Soupdragons (Big Life).
Our U.S. performance over the year gives grounds for cautious
optimism. fohn Mellencamp's 'Whenever
Sambora's 'Stranger
We Wanted', Richie
in this Town', Oleta Adams' 'Circle of One',
Vanessa Williams' 'The Comfort Zone', Aldo Nova,
Billy
Falcon,
Blackeyed Susan and Ed O.G. and Da Bulldogs are all part of the
maior rcvival of Mercury Records. A&M had a very successful
with Sting, Amy Grant, Bryan Adams and Extreme as the
highlights. Island released the long awaited U2 album Achtung
year
Baby' which by year end had sold 2.5 million units, broke PM.
Dan"n in both the U.S.A. and UK. charts and showed good results
with Mica Paris, Drivin n Cryin and Will Downing.
Our ability to tmnsfer national artists into international stars was
of Polydor U.S.A. in breaking
Dennis. Her chart topping album
demonstrated by the success
Polydor UK. signed Cathy
'Move to This' has now sold over 600,000 worldwide and her
single 'Touch Me made No. 1 in the Billboard 'Hot 100' singles
chart.
National acts which have travelled well in 1991 include Matthias
Reim from Germany who sold well in Austria and Switzerland
and Zucchero from
Italy
Zucchero was one of the phenomenal
successes of 1991with the Paul Young joint recording ofthe single
'Senza Una Donna' selling over 800,000
units.
His English
language album has sold over 600,000 units in addition to his 1.4
million Italian album sales. Mylene Farmer
40,000 units
of France sold over
in both Germany and Switzerland of her million
selling album'l.lAutrd.
Halfway through the year,
a
new international pop marketing and
creative services function was established for the exploitation of
the group's pop repertoire worldwide, Within the space of a few
months. this team had achiel,ed impressi\'e results, identii'ingthe
Robin Hood soundtrack albLrm as a potential !\ inner, and
drivilg
expected sales of 200,000 into actual sales of over 700,000
ktenc
Our stake in Really Useful Holdings, lbunded b1' Andreu' Lloyd
!\rebber in :l97ti,
will provide
us
rvith the business framen'ork lbr
the development and rtoridrvide exploitation of his r.'orks, utilising the theatrical catalogue anrl copyrights togetherl'\'ith Andre$'
Lloyd Webber's creative input. Since the beginning of our relation
ship in 1980 w€ have sold ol,er 13 million units of Lloyti Webber
recordings. One ofthe most recent successes of the Reall]' Useful
Group iD conjunction n ith PolyGram has been the cast recording
of'Joseph and the Amazing Technicolor Dreamcoat', lead sung b1'
Jason Donovan, a Polydor
recording artist, $'ho
aLso
stars in this
best selling sholr'.
In October, PolyGram and Moto\,r'n Records announced agreerrents
b-v
r'r.hich ue
n'ill distribute Moto$'n
Records in the United
its recordings for the rest of the l'orld
Motou.n is an important source of catalogue and new talent 'ith
States, and license
llorldrvide potential to 'cross-over' from the black to mainstream
pop charts. In 1991, Motovnhas achieved enormous success. In
the U.S.A. both Stevie I\bnder's 'Music from the Mor,ie Iungle
Ferer' and Bo-vz II Men's Cooleyhighharmony'reached
Top Rhlthm & Blues {R&Bl album
1inthe
charts. Cooleyhighharmony'
crosscd over to the pop charts and reached the No.
has achieved sales of more than 3
No.
million units
so
3
position and
far. Mototl'lt
Josslh snd
the Anning
T[ch!icolor
l)ruancoal
also had three No, 1 R&B singles; Joirnny Gill's'Wrap Nly Bodl'
Tight', Bolz II Men! Its So Hard to Say Goodbye' and Shanice's
'I Love Your Smile' and
a
further 6 Top
10 R&B singles,
In July PolyGram acquired Sonet, Scandinavia's Iargest independent record company Scaldinavia has historicall-v been one ofthe
most fertile European sources of world'"\'ide pop talent, and Sonet
is a very important player in this market. The Sonet publishing
companies, it'hich lvere part of the acquisition, olvn local copy
rights acquired over 30 years. The songs ofPaul Simon and Bruce
Springsteen are among the international copyrights represented
b,t Sonet Music ln Scandinar,ia.
PolyGram's Music Publishing division nou' has
title to over
100,000 song cop]Tights, acquircd during the last fi\'e ]'ears. Our
songs ha\re been charting
all
over the
norld ilith
notable
successes {rom lvriter/artists such as The Scorpions, -fames,
TIo Tllplet3
Metallica, Zucchero and Van Morrison. Tracks by our songtririters
have also been recorded by artists as diverse as Cher, Kylie
Minogue, Stevie Nicks and Alice Cooper.
Catalogue exploitation is the corc of our business and $€ constantly search for outlets for our songs. Our success is not alurays
immediately obvious, for example Warner Music artist Rod
Stewart's smash hit earlyintheyear, 'Rhlthm of MyHeart', rvas co-
rritten by John
Capek and was one of the 35,000 songs u'e
obtained two years ago when
vv'e
acquired the Welk catalogue.
Exploitation also involves seeking out cross-over opportunities
betn'een differing genres, The Munich Symphonic
工壼壺
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At 11｀
Twl ffouns
Orchestra's
ABBA Classic'album illustrates how we can achievethis through
mixing classical u'ith pop.
The highlight of our publishing year was the November launch of
the tribute to the songs of Elton John and Bernie Taupin 'Tn'o Rooms'. We had originally acquired Elton and Bernie's
copyrights when we bought the Dick James Music Company in
1S86; the idea of approaching top
selling artists to sing them
\,vas
vear. Five Vears later, with sixteen artists on
board, this album represents in our view the best in creative
hatched the same
catalogue marketing.
Income from advertising n'orldwide was significant this year. For
example Renault used Robert Palmer's 'Johnny and Mary' for a
campaign which startedinFrance andis now running throughout
Eurcpe; Gerry and the Pacemakers' song 'I Like It' found fame
again, courtesy ofthe dogs'chorus in the U.K. Winaiot advertisement; Free's
All Right Nor'\l continues to stimulate
sales of
Miller
Draft Beerin the US.A., lr'hilst in the UK. Wrigleys used the same
in a cher,"ing gum commercial, propelling the re-issued
single into the Top 10 . Julia Fordham'.s 'Talk Walk Drive' became a
song
hit single in Japan through an advertisement for Toyota cars.
Movie soundtrack uses
\4,ere
consistent with last year; our major
success was the use oi the Van Morrison track'Bronn Eved Girl'
in 'Sleeping With the Enemy'.
71
Classics u'ent from strength to strength in
expectation at PolyGram,
a
1'ear
r"hich exceeded
uith Decca/London, l)eutsche
rnophon and Philips Classics collectir,ely achieving
a
sales
Gram-
grorvth
of B% on the prer,ious year.
In
1gg1
Deccat 'Three Tenors' relnarkable
success continued.
This fastest seliing classical record er,ertonthree au,ards
a Gramml'and an
a
Brit,
Edison. Pavarotti's llyde Park concert video
followed it straight to the top of the charts. Essential Pavarotti '
also rear Ired No. I in lhF U.K.
Ilecca 1\'on 5 Cramophone A$,ards, testimony to the qualit-v and
diversity of its catalogue. The Ninners \,l'ere Peter Schreier (Best
Solo Vocal) accompanied by Andr6s Schiff, Herbert Blomstedt
and the San Francisco Sltnphonl' Orchestra [Best Orchestral
RecordingJ, G6rard Souzay fBest Historical Vocal Recording],
Dame loan Sutherland flifetime Achievement) and Luciano
Pavarotti lArtist of the Year].
In his 44th exclusive yealivith Decca, conductor Sir Georg Solti
Classicslfii+$ffi
making his debut in the title role.
Recorded live in Chicago and Nen York, this release has met rt,ith
the highest criticai acclaim. Sir Georgis neia'recordinil
ofMozartt
'Die Zauberfliite' coincided $'ith his production ofthe opera
at
the
Salzburg Festival.
Decca continues to build forthe future n ith top quaLitvrecordings
from outstanding artists including \rladimir Ashkenazy Charles
Dutoit, Christopher Hogrvood, and Cecilia Bartoli the foremost
mezzo soprano
oftoday Having received an exceLlent reception
after its initial launch, 1991 also sa\r,Decca's Argo label sign contemporarJ' composer Michael Nyman and cellist Robert Cohen.
1991
brought the first fruits of a number of important ne\r artist
contracts signed to Deutsche Grammophon
in the
previous
year. Thesc included the debut recordings of Deutsche Grammophons nelrest exclusive conductor M1.ung-lVhun Chung, and star
soprano Cheryl Studer's first opera recording on the 'Yellorv Label'
in Richard Strauss' 'Salorne'rvith conductor Giuseppe Sinopoli.
Deutsche Gramrnophon's celebration of the N{ozart bicentenary
salr,the completion of James Levineb Mozart s1,mphon1'cycle u'ith
the Menna Philharmonic Orchestra. and Levines stellar neu'rec-
ording of 'Le Nozze di Figaro' from the Metropolitan Opem.
lllyunq Whun Chunq
[]milri Hvorostovsly
Works by Mozart figured prominently as u'ell in this I'ear's
Produktion' programme.
\,t
ith
Archiv
'Idomeneo' from John Eliot
Gardineru'inning theGramophone'BestOperaRecording'
Award.
Among other ma;or 'Yellow Label' releases in 1991 u€re the annual
New Year's Colcert from Vienna, this year conducted by Claudio
Abbado; 'Spirituals in Concert' the Billboard 'Crossover Album of
the Year' consisting of a gala programme of traditional American
music featuring Kathleen Battle,lessye t'Norman andJames Levine;
'Horo\{'itz the Poet'
a
tribute to the late VladimirHororvitz: and the
live recording of Claudio Abbado conducting Mahler's First
St1nphony in Berlin.
Finalll,l 1991 featured a series of major rcleases from the late
Leonard Bernstein both as a conductor and as a composer. After
recordings of n'orks by Hindemith, Tchaikovsky Copland and
Mahler came the undisputed audio and video highlight of the
Deutsche Grammophon year: Bernstein's'Candide'.
1991 u'as cro!,vned
CD Complete
with
success for Philips Classics by the 180
Mozart Edition winning the Gramophone A$,ard for
'Special Achievement'. Total sales of this series have already
reached over 7 million units, and the many world premiere and
outstanding recordings in the Edition
rdll
ensure its continued
popularity well beyond the bicentenary year.
Breaking nevv talent is a constant challenge
in the recording
Sir Gcorq Solti
industry and in 1991 Philips Classics achieved tremendous
success in this respect with Russian baritone Dmitri
Hvorostovsky His first album reached No. 2 in the Billboard
classical charts.
In lune
1991, Philips Classics mourned the passing of Claudio
Arrau, a legend n'ho
r,'ras
closely associated vr'ith the label for
almost thirty years. On his eighty-eighth birthday Philips had
prcsented to the Maestro the first copies ofThe Auau Edition (44
CDs of solo piano recitals) and the Arrau Collection (25 CDs of
orchestral and solo works].
Through its exclusive contract rl.ith Valery Gergiev and the Kirov
Theatrc Orchestra Philips released its first Russian recording,
Prokofiev's 'Romeo and
Juliet'.
In July the international co-
production of Prokofiev's 'War and Peace' u,as broadcast by the
BBC live from the
Kircv in
St. Petersburg for subsequent release
on
audio and video.
In
1s91 Philips Classics and Jessye Norman celebrated 20
successful years ofrecording together. To markthis event, Philips
cornpiled a special collection spanning her recording career;
a
host of ne!,!'exciting releases and recordings are planned for the
future with this outstanding artist.
@:-r
r-'
---a
lD September 199:1. Polvcram announc(r(l an expaDsion of its
film
rictivities. l'he dif ision responsible for these activities has b{lerr
renamed PollCrarn Filmed Entertainment in plar:e of Poll'Cram
Media I)ivision. The decision to cxpand our film actilities is part
of PolyCrarns stated goal of becoming
entertainment
a
group. Ti has both
\\,orldu'ide rnulti-cultural
■111■ ￨ギ
defensive ancl strategic
=￨:■
￨●
メ1111til
adrrantages. Key music artists expect their record conpanics to be
capable of offering opportunities in film as
somc of our conpetjtors har,e that
ltell
abilitll
as
in audio and
\Nc consider our
rvorldivide operating infrastructure and distribution sJ'stem oflors
us a competiii\.e advantaile over the majority of
film studios in
extracting the maximum distribution margin from the I'ideo
iucon-re
stream. \\ie have decided on a step by step approach
so
that
our inr.ostment in film is alr\,ays u'ithin our means, and rvc have
entered into agreernents u'hich lirnit our do\\'nsicle risk nhile
prr:sel\'ing the potential for upside in our film at:tir,ities.
In September $€ announced our decision to plLrchase in :1992. the
oulstanding third parti'shares in Propa
Filmed
ganda Fihns and \{orking Title li'ihns. our
t$'o joint \rntLrres in film production.
Together u,ith .,\&\l Films, these
companies \\,ill give us a strong pro
(hLction platlorm on r\'hirfi lo builrl our filnr activities.
We also announced our
intention
per -vear 1n thr: U.S.$15-25
tcr
1un.l a
nininun]
nillion rangc and 4 mo\,ies
of 4 moYics
Ba on Fink
per J'ear in
the LlS.S7-10 million range over lhe next 3 1,ears, to be producccl
by our production subsidiaries Propaganda Iiln]s, \\/orking Title
Films ancl A&II
Filnls. LlS. distributioD
for the films
\\,ill
be:
through the adr.antageous distribution agreements filr theatrical.
r,icleo and television r'r,hich \\'e acquired from Nelson Holrlings
International Ltd.
Outside of the Ilnited States, onr iDternational sales conlpan)'
Manifesto rvill continue to sell our mo!ies to third parties.
In order to take aclvantalle of our strong international distribttion
netu,ork, in some national markets ue
u'ill begin distribution of
lilms. in addition to rnusic and r.ideo. \\b also intend to
our policy of expanding national film production
cont inue
bl addjng pro-
duction iD Hong Kong to our existing production activities
in France.
PolyGram Filmed Entertainment is headq uattered in Los Angeles
$,ith efl'ecl fron lanuar!' 1992.
W‖d al踊面
Close
1991
.
highlights includedl
lvlanilesto u.inning the Palme d'Or for the second year running
at the Cannes Film Festival n ith its acquired
film 'Barton Fink',
directed by Joel and Ethan Coen.
r'Drop
Dead Fred' fbudget U.S.S6.6 miliion] grossed orcr
U.S.$14 million
in the U.S.A., and u'as the No. 1 independent
release in tbe U.S.A. for 6
neeks. This Working Title film
$.as
directed by Ate de Jong, starring Rik Mayall and Phoebe Cates.
a Propaganda moving into the production of 'mainstream'movies
with'Close to Eden', starring Melanie Griffith and directed by
Sidney Lumet, due for release late
in
1992. Propaganda also
commenced photography on'Ruby' stauing Dannv Aiello and
directed by John MacKenzie, 'Red Rock \Vest' starring Nicolas
Cage and Dennis Hopper and directed by
lohn Dahl,
'Candyman' starring Virginia Madsen and Tony'lbdd
and
and
directed bv Bernard Rose.
Entertainment
a
\
Iorking Title completed principal photography on their major
movie Map of the Human Heart' directed by Vincent \\hrd and
starring \Villem Dafoe and Anne Parillaud. \\brking Title also
produced 'London Kills Me' starring Justin Chadn'ick and
directed by Hanif Kureishi and 'Edu,ard
Jarmans most critically acclaimed
ll'
ir.hich \\as Derek
lilm in recent
y€ars.
o Both Propaganda and llbrking Title u.on a 'ards at the Venice
Film Festir,al.
.
A&NI Films produced three
filns for third parties'Midnight
Clear' for Beacon, 'Crooked Hearts' for NIGM and 'House of Cards'
for PentAmerica Pictures.
lo [don
Sales
in our video opemlions, after strong gro\a'th in
1990, were
held backby the recessionary environment in the U.S A. and to a
lesser extent in the
UK.
Nevertheless, outstandingly good results
were achieved by the very popular 'Three Tenors' video, 'The Wall'
which was No. 1 in the U.S. video charts for six reeks, 'INXS"
'Story of Genesis', 'The Cure and'Two Rooms', celebrating the
songs of Elton John and Bernie Taupin. In the U.K , Status Quo,
Tina Turner and Bon fovi videos sold particularll' r.t'ell.
At the end of the year, PolyGram'svideo operations consisting of 16
n'holly orvned companies
',vere
re-organised into one division,
Video production and marketing is
a
highly complex operation;for
example, the INXS live performance at Wembley Stadium in
iuly
before a crowd of 72,000 fans, required 15 sepamte camera teams
under the skilful direction of David
Mallet
Then, in October, the
100 minute INXS video 'Live Baby Live'lvas simultaneously
released
u'ith the live album and laser disc, supported by an
integrated international marketing campaign involving ertensil'e
in-store display materials, merchandising and an extensive
advertising carnpaign on MTV
During the second half of 1gg1 a re-alignment of interests in the
area of nerv technology occurred betu'een Philips and PolyGram.
Philips is committed to expanding its soft$'are interests in
interactive publishing whereas PolyGram is expanding its linear
(audio and visual) soft\,vare interests. As a result CD-I [CDInteractive) interests which have previously been the responsi-
bility ofPolyGram
rvere sold to
Philips, PolyGram rvill continue
to act in a supporting role, making its repedoire available on
music related CD-l discs.
The W“ Colceni
ulv 21 1990
Be7 il」
PolUGram
in the
Hong Kong is PolyGram's regional headquarters for the
Far East, headed by Norman Cheng
with responsibility
for South East Asia and
These markets are
fapan.
dominated by national repertoire, which generally ta}es
of each market, with intemational
about 65%
pop
and classics taling second place.
Hong Kong is a creative centre with its or.m pop culture
in both Mandarin and Cantonese, which it exports to
reach a large public throughout the region particularly
in Thiwan and the huge untapped market ofChina itself.
The Hong Kong market has grown by 25% on average
o!€r the past five years and in 1991 was worth over US.
$110
million.
Japan is the world's largest market for classical music,
but again national pop repertoire dominates the music
scene
with
Japanese pop music accounting for three
quarters of all sales, Our jazz catalogues also
fill
an
important niche demand. The Japanese music market
has grown by 9o/o on average over the past five years and
is predominantly a CD market,
with
CDs accounting for
around 88% of retail sales in 1991.
PollGram is growing in these important markets by
investing substantially in national artists as well
as
exploiting traditional strengths in international pop and
classics. This feature section is designed to highlight
our progress.
AlsrAbnnofl
Ctisl
[rerutin l]tfimr
ipnon PhonognmCo.,
[td.. Japan
Hong Kong and South East Asia
region, As a result, PolyGram Hong Kong was success-
PolyGram Records Hong Kong, South East Asia's key
company headed by Managing Diector Douglas Chan,
ful in breaking new artists such as Cathy Dennis and
Amy Grant, whose album 'Heart in Motion' sold over
compound rate of over 3 0% during the last
100,000 units in SouthEastAsia, the album'Waking Up
five years, gaining a significant local market share
The Neighbours' reached gold status [100,000 units] for
Over the last 15 years, Hong Kong has created its own
the first time for artist Bryan Adams, and the Scorpions'
pop culture and has now begun to export it around the
'Crazy World' sold over 400,000 units making
has
grown
at a
world. This
was epitomised by the world tour of our
band's biggest album so far in South East
it
the
Asia. Due to
artist, Alan Tiim, in 1988 whichwill be repeatedin 1992'
successful marketing and promotional efforts, sales of
this time including China. Other PollGram Hong Kong
Dire Shaits'latest album 'On Every Street'
acts include Jacky Cheung, Leon Lai, Shirley Kwan,
surpassed all previous Dire Straits albums
Hacken Lee, Grasshopper and Andy Lau.
month of release, selling 250,000 units
China represents
a
huge and relatively untapped market
for Hong Kong based artists recording in both Can-
has
within one
In line with PollGram's announcement to expand its
film activities, the decision was taken in 1991 to begin
"Ghina represents a huge and lelatively
untapped markot fol Hong Kong based artists"
tonese and
Mandarin. During his career Alan
T?rm
has
enjoyed sales in China of over 4 million units, Teresa
Teng 4
million units and Angus Thng 5 million units.
Recorded exclusively on music cassettes, thdir songs are
production of films in Hong Kong in
Records Hong Kong
1992
PolyGram
will make 2 to 3 films per year for
distribution in Hong Kong and the other Far Eastern
markets such as Thiwan, Singapore and Malaysia.
promoted via radio, press advertising and personal
appearances, and tours sometimes lasting up
months
-
to six
Angus Thng for example has toured China
three times in recent years, This vast market of
1'15
billion people is increasingly opening up to external
In the rest of South East Asia, PollGram has operating
companies
in
Malaysia, Singapore and
Thiwalr. In
South Korea we have a majority held company of which
we oftTr 60%.
cultural influences and we are well placed in the future
to become its prime supplier of recorded music.
Japan
market, is a key priority of PolyGram Hong Kong and
In Japan, Poly4ram controls Polydor K.K. where our
ownership increased from 51% to 74.61o in 1991 and
with the strong produci from
Nippon Phonogram Co. Ltd., of which we own 65%.
our UK, and US. companies. To further strengthen the
Together they increased the group's Japanese market
International pop repertoire, although only 30% of the
was particularly so in 1991
marketing of international pop
in South
East Asia, a
share significantly to become the second largest music
in
company in Japan in 1991, even without A&M or Island
regional pop marketing function was established
Hong Kong to co-ordinate key priority acts within the
14
repertoire which
is still
contractually handled
in Japan by third parties until April and October 1992
focused their efforts on a stream of new UK. acts which
respectively
have recently made their debui
in their home country
They include Happy Mondays, Stone Roses, Wonder
licenses
Stuff, Power of Dreams, Trash Can Sinatras, The
PollGram's Polydor, Deutsche Grammophon, Verve and
Beautiful South and The LAs. To capitalise on the flow
with Decca repertoire being
of new repertoire, Polydor K.K. planned a two-stage
sold on the London label. Polydor K.K. also distributes
campaign called 'What's Next UK.' which ran from
local labels Kitty Polystar and Funhouse. The distribu-
April
tion of music in Japan has its own special characteristics,
video concerts held throughout fapan and sponsored by
with mail-order and door-to-door selling dominating.
Polydor K.K. in conjunction with record stores. The
Polydor K.K. began its door-to-door sales company
chief editor of 'Rockin On',
PoMor Culture Club in
specialising in the UK. music scene, was the featured
Po$or K.K.,
headed
by Terumi Mizuta,
Decca repertoire for Japan,
teams, covering
1981, and now has 29 sales
all major population centres.
To
to November, Its key component was a series of 50
Japan's leading magazine
'\rJ' and 'DJ' for these concerts.
celebrate its 10th anniversary in 1991 Polydor Culture
Club released two compilation CD sets, 'Mozart Collec-
..r"o."
J a p a Jl
end of the year had sold 2 million cDs.
On the pop front, Polydor K.K.'s biggest news of 1991
was their success with local act Kan whom they signed
[a
urique
Japanese singles
mat) AiWa Katsu'(LoveWillWin) sold nearly
2
for'
million
from strong sales of Mozart collections on both
Deutsche Grammophon and London. 'Carreras,
Domingo, Pavarotti
in Concert'has sold over
10,000
videos on laserdisc and VHS while in jazz, the priceless
Verve catalogue of jazz recordings is a best seller in the
niche lapanese iazz market.
Sales
Nippon Phonogmm, headed by Alex Abramoff, Iicenses
were boosted by TV Channel 8's use of the song as the
the repertoire ofthe Mercurll Vertigo and Fontana pop
copies and held the No.
theme for a variety
l position foreightweeks.
show.
Kan's fourth album, from
which the single was taken, has sold nearly 500,000
units and reached No.
1
in the charts.
labels, and Philips Classics.
In
a
drive for newlocal artists, active talent scouting has
been conducted throughout the year including seven
Anotherlocal artist signed to Polydor K.K., Zard, clocked
auditions in six major cities, to which o\,€r 1,000 tapes
up sales of 200,000 units with her debut single which
\a€re sent, and at which over 100 acts performed live.
reached No.
I
in the charts. It also benefited from being
chosen as the opening song for a TV Channel 8 drama.
16
classical repertoire Polydor K.K. has benefited
is now the worrd.s second rarsosr mus.c market,,
tion'(128 CDs) and'Liberta Gold' (66 CDs), which by the
in 1987. Kan's 3'miniCD
ln
The first
young
fruit from this drive
- the
is The Rokka Babl's. This
average age of its members is 22
rockln roll band
- and en-
International acts from outside the US.A. are, in
ergetic four-man
general, difficult to break in Japan. This year the team
Artists, the biggest promoter of international acts in
is managed by Udo
К
olko
Utsuni CD
ぐ
た
ヽ
ヽ
、
、．
〓
ヽ
．
．ｒ
・
・
／
The nnkla B8bys
К:iko
:
￨≫
ulsulni
｀
電
膠
￨
￨￨′
マ￨
￨‡
17
tヽ
way
Japan. The association of Nippon Phonogram and Udo
(over 1 million CDs) have been sold this
Artists presents
unique opportunity to discover, breal
biggest releases in 1991 werc the two recordings from
end establish local artists in the lapanese marketplace.
the Saito Kinen Orchestra, conducted by Seiji Ozawa.
In international repertoire, Jon Bon Jovi's album 'Blaz
'Brahms
a
e
of
-
Our
S1'rnphony No. 1', has so far sold or€r 15,000
Glory' won the International Rock Album of the Year
units and topped the clissical charts for six consecutive
Award at the Japan Grand Prix 1991, having sold over
weeks, and the second recording of this sarne musical
150,000 copies in
Other international album
partnership, Takemitsu's 'November Steps', was re-
sales above the 30,000 mark included Richie Sambora's
leased in September and entered the classical charts at
'stranger in This Town', L.A. Guns' 'Hollywood Vam-
No. 1. AIlotherJapanese artist signed to Philips Classics
pires' and Dire Straits' 'On Every Street'.
is the
lapan.
world famous pianist, Mitsuko Uchida, who conti-
nued to enjoy widespread popularity
At the beginning of the year, the popular US. rock act
Cinderella took part in the New Year's Eve Final Count-
The Karaoke Craze
down concert, headlined by Bon fovi, and played to an
Karaoke
audience of 50,000
in the Tokyo Dome. Cinderella
is a
combined hardware/software system
which enables a pemon to sing along, microphone in
"FolyGram supplies ove.
5O7o
of th€ softwaie for this fast
growang market"
revisited Japan
in October and we released
a special
hand, to original backing tracks whilst reading the
commemorative album of previously umeleased live
lyrics.
tracks of the band, which has sold over 20,000 units.
which, in addition to the music and a video, displays the
Their 1990 hit'Heartbreak Station enioyed cross-over
words to the song and prompts the singer when to sing.
sales into 1991, totalling close to 55,000 units.
The Karaoke craze has spread like wildfire
The latest technology is Karaoke on laser disc
thoughout
the Far East alld is also well established in some Euro-
ln tune, the country's employee bonus period, Nippon
Phonogram released 23 different four-CD compilation
sets featuring the 'crearn of the Phonogram catalogue,
Called 'Great Boxes', the sats were promoted via 700
record stores and
a
major advertising campaign in both
the music and general press. Total sales hal'e exceeded
200,000 CDs so far.
for this fast growing market which we service exclusively with laser disc. The Karaoke craze shows no sign
of abating and in addition to night clubs where Karaoke
originally started, over 40,000 'boxes' are nowinstalled
in
Japan where
smaller groups.
The classical department of Nippon Phonogram continues to lead the world with the largest net sales of
Philips Classics repertoire. Philips Classics''Complete
Mozart Edition', released
pean cities. Po\Gram supplies over 50% ofthe software
in late
1990,
is sold in
bookshops inJapan. Bythe endof1991,2000 boxed sets
all
ages can enjoy singing in
糧
■■ ■
,lt‐
Report of the Boad of Management
I
FinancialReview
Fin.nci.l Oblectives
PolvGramb financial goal is to maximise shareholder
value by using the following general strategy:
a Active management and acquiaition ol intollgctual
property rights.
a
St ct financial controli.
.
Low financi.l go..ing.
In
1991 through using this strategy PollGram achieved
record levels for net sales, income from operations and
net
income. PolyGram also acquired
3o% of Really
Useful Holdings, negotiated a multi-year distribution
agreement for the United States
with Motorron Records
and a license agreement for the rest of the world,
acquired Sonet, Scandinavia's largest independent
record company and stepped up its controlled presence
in the filmed entertainment business.
Net sales rvere NLG 6.326 million from NLG 5,252
in the film business. Our film activities generated
million in 1990, an increase of 20%.
sales of NLG 65
Currency
million, an increase of 59% on
1990.
fluctuations had a positive effect of 2% on the grou,'th
Sales of laser disc and video increased bv 42% and
of net sales.
accounted for B% of sales.
PolyGram's core business continues to be
music, and this division enjoyed
a
in popular
fantastic year in 1991
PolyGram experienced improved US. chart performance throughout 19S1,
with
success both from
net'
Dire
artists such as Cathy Dennis, Extreme, Amy Grant,
Total sales
PM. Dau,'n and established acts including Brlan Adams,
with bestselling albums from Bryan Adams,
Straits, Extreme, Amy Grant, Sting and
U2.
of the popular music division gre$'by
22L in
1gg7,
Po! :i: Cla$si$
Filmedfitsdainment
fohn Mellencamp, The Scorpions, Sting and U2.
The iletfterlads
0lher
Asia
[Jfope{ex Nethe18nd9
苺luSA&Cana」 o
BoW
Following a very strong 1990, classics' sales gren'by
Our traditional strength in Europe continued, with the
B%. Highlights included sales of over 0.5 million for
combination of strong international release schedules
Decca's 'Essential Opera',
the tenonned
'Complete
and further exploitation ol national rcpertoire from
Mozart Edition' on Philips Classics has nor,u' sold
artists such as Stephen Eicher, Mylene
42,000 sets or over 7 million CDs and on Deutsche
Zucchero and Matthias Reim.
Farmer,
Grammophon, Leonard Bernstein's recording of
'Candide' proved
a
lasting tribute to the late composer.
The outslanding periormdnce of our companies in
ln October we announced the acquisition of US. film
in the first half of the year
continued in the second half - particularly in Hong
distribution rights from Nelson Holdings International
Kong and Singapore from acts such as Grasshopper,
Ltd., and our intention to purchase remaining stakes
Teresa Teng and Alan 'lam, and aided by the success of
in Working Title and Propaganda Films. All of these
Japanese artists
acquisitions n'ill help PolyGram increase its presence
accordance rvith our stated objective of increasing our
Japan and the Far East
Kan and The Rokka Babys. In
21
presence in the FarEast, weincreased our stake in one of
Philips. In addition to the initial
our Japanese companies, Polydor K,K., from 51% to
receive a royalty on sales of the PolyGram developed
in our Taiwan company
74.6%, increased the holding
from 60% to 100% and with effect fromJanuary
1, 1992,
software which
arise,
supply music products
sale price we
will
will continue to
in the CD-I format. Total
PolyGram
reached agreementto acquire 60% of Linfair, the second
Research and Development costs
largest music company in Thiwan.
NLG 25 million versus NLG 38 million for total 1990.
The penetration ofthe compact disc has continued once
Financial income and expense turned from
again, with the CD nou' accounting fot
ol
loss of NLG 6 million to a gain of NLG 18 million.
cassettes
Cash generated during the year was used for the
PollGram's sales of recorded
music. Music
7'1o/o
in
1991 amounled lo
a
net
84
1990
︱［
５¨
円 ■■
９ ■■
︲
I
-8
furopo
Irsso
t0
\:\
14g
declined
in
percentage terms
expected
to remain a viable mass market product
to 23%. Vinyl is not
ll.S.A. &
Canada
Asia
R(lW
Irgsr
acquisitions mentioned above and working capital
required.
in the longer term.
The effective taxrate of 32% u'as 2% Iowerthan in 1990.
Gross income increased almost in line with the growth
Net income grew by 25% to NLG 446 million, an
in
improvement of NLG 89 million on
sales,
whilst both selling and general
and
1990. The net
administrative expenses decreased as a percentage of
results for both 1990 and 1gg1 did not include any
net sales. As a result, income frorn operations grew over
extraordinary items.
25% to NLG 735 million, an improvement of NLG
:145
million over 1990,
Total Group Equitl! comprising Shareholders' Equity
and Other Group Equitla recorded a net increase of
Effective from July 1, PolyGram withdrelv from its
direct investment
in
CD-I. and sold its activities to
2% lrom NLG 1,109 million to NLG 1,131 million.
Shareholders' Equity increased
by earnings net of
dividend of NLG 344 million, but decreased due to the
slowing of economic growth elsewhere, PolyGram is
million arising primarily
looking forward to further grolr,.th in net sales and
goodwill vvrite-off of NLG
274
from the acquisitions of our stake in Really Useful
Holdings, Sonet and the factories
in
Hanover and
Louviers, translation differences and revaluation of
NLC 35
m
illion and other movementsof NLC4 million.
Other new consolidations included a new PolyGram
company in Chile.
Despite the acquisitions made
net income
in 1992.
This is expected particularly
from our US. activities and new consolidations. The
opening of our new cassette factory
The Netherlands,
in
in
Amersfoort,
early 1992, heralds the release
of the Digital Compact Cassette (DCC), the latest
sound technology which combines high definition
sound with a backward compatible system. Looking
in
1991, PolyGram's
further into the future we anticipate a positive
'
:i:
The llethedands
Eurole
{e[ l{elhe
ands}
u.s-A. & cansds
Asia
rA4.iM
balance sheet remains strong. Liquid assets were NLG
contribution from the new Digital Compact Cassette
328 million at year end and bank loans marginally
caIIier-
increased by NLG 8 million to NLG 138 million.
No major acquisitions or major restructurings, apart
PolyGram's total nurnber of employees increased from
8,576 at the end of 1990 to 10,568 at the end of 1991.
1,938 of this was due to new consolidations.
in
over 30 countries worldrvide, and an
extensive and broadranging portfolio
of
the facilities in Hanover, which would malerially effect
the normal level of capital investments or the total
number of employees are anticipated at this time.
The 1991 sales growth of 2oE" is the result of having
operations
from the recently announced intended rcstructuring of
March 25, 1gg2
The Board of Management
national,
international and classical artists, Despite recessions
in
the U.S.A, and the United Kingdom, and a general
23
Accountin$ Policies
Consolidated linancial statements ol the Poly0tam Gmup
The consolidated financial statements of the Pollcram Group include the accounts of PollGrarn N.V and its subsidiaries
(the "PolyGram Group"l,
The PolyGram Group includes businesses around the world which are chiefly involved in the acquisition, production and
marketing ol rcpedoire as well as the manufacture, sales and distribution of pre-recorded sound carriels, such as compact
discs, music cassettes and records. In addition PolyGram is engaged in activities with respect to music video, in the
production of films and television programming and in music publishing.
Policies ol eonsolidation
The consolidated financial statements include all of the subsidiaries in which a contrclling interest is held by PolyGram
N.V, or through any of its subsidiaries directly or indirectly These companies are included in full in the consolidation; the
aggregate of rninority intercsts of third pa ies are disclosed sepamtely,
With regard to the financial statements of the majority of the Dutch private limited liability companies, included in the
consolidated financial statements, the exemption is applied as referred to in article 403, section 1, Book 2 of the Civil Code.
Policies lollowed in valuation and income calculation
Historic cost coovgntion
The valuation as well as the depreciation and/or consumption of fixed assets and inventories, is based on the histodc cost
convention with the exception of entities in highly inflationary economies [h]?er-inflation countries) where the valuation of
these assets and also deprcciation and/or consumption arc based on current value.
Fo16ign currencies
AII foreign cunency amounts in the balance
sheets have been translated to Netherlands guilders
("NLG") at the official
exchange rates at the balance sheet date. Gains and losses resulting from foreign currcncy tmnsactions are included in the
consolidated statements of income. Exchange differences due to the translation into NLG ol investments in foreign
subsidiaries, including financing considered a hedge towards those investments, have been accounted for as translation
differences in Shareholders' Equity.
In the consolidated statements of income, the amounts stated for sales, expenses and results of foreign participations have
been tmnslated to NLG based upon the rates of exchange for the periods involved.
Acqui.ition of subsidia.ies
Newly acquired companies arc valued at their net asset value. Goodwill arising from a difference between the purchase
pdce and net asset value is accounted fol directly in Shareholde$' Equity.
Face Yaluo
Unless specifically mentioned otherwise, all items in the financial statement6 are valued at face value.
Balance sheets
lntangible fixed .s3etr
Catalogues of recorded music, catalogues of music publishing dghts and the catalogue of theatrical rights are considered
intangible assets if they are purchased as part of a major acquisition and are valued based upon either the actual amounts paid
to third parties upon acquisition or the present value of expected income, whichever is lower. They are amortised
il and to
the extent that the present value of the expected income generated by the acquired catalogues falls below their book value.
Tangible tired .asota
Tangible fixed assets are generally valued at theh acquisition cost less depreciation.
Depreciation is calculated on a straight line basis taking into account the assets' economic lives.
24
Accounting Policies
Balance sheeh {continued}
llon-con.olid.tod comp.niot
The valuation of the investnents in non-consolidated companies in which a significant influence is exercised over the
business and finaucial policies is based on net asset value. The valuation of assets, liabilities, equity and income of these
non-consolidated companies rcflects, in all material aspects, the accounting policies established for these consolidated
financial statements. Non-consolidated companies in which no significant influence is exercised are valued at purchase
price. Downward value adjustments of a structural nature arc taken into consideration.
lnvontoriaa
Recording costs are valued at cost less depreciation, which is based on the average economic life.
Films are valued at cost or the estimated net realisable value, whichever ig lower, generally using the individual film
forecast method.
Other inventories are valued at cost, based on a first-in first-out method, reduced by a provision for the risk of obsolescence.
Any income derived frcm intercompany transfers of goods and materials has been eliminated.
Rocoivablgi and propaid expen3es
Tlade accounts and other receivables are valued at face value less an allowance for the risk of doubtful accounts.
individually and the value of the unrecouped
ion is determined by the prospects of futrue recoupment taking into account currcnt popula ty and recent sales.
For advances to artists and repertoire owners, each contmct is appraised
po
Group aquity
Other group equity includes minodty interests in total equity of consolidated companies which are shom at net asset value,
calculated in accordance with the accounting policies established in the preparation of these consolidated financial
statements.
Liabilitios
Provisions are not associated with specific ass€ts, but are created to cover certain business obligations and risks. Provisions
arc stated at face value, with the exception of provisions for employee pension benefits and severance payrnents, which are
stated at the prcsent value of the future obligations.
The provision for employee pension benefits is based on actuarial calculations and relates to those pension obligations that
are not funded by separate pension funds or by third parties. The total pension coverage provided by this provision together
with the various separate pension funds is equal to at least the prcsent value of existing pension benefits based upon the
mrmber of prior years of emplolnnent with PolyGram.
Deferred income taxes, which are determined for each fiscal entity, include the deferred income taxes arising frcm timing
dilferences between book (commercial) and taxable (fiscal) income. In the event that the deferred income tax benefits exceed
the deferred income tax liability for a given fiscal entity, the net income t6,\ benefit is shown as an asset.
Statements ol lncome
Net income is determined taking into account the following accounting policies:
Net sales represent the revenues derived from products delivered to, and services performed for, third parties, net of returns.
The costs rclated to the products and services sold are calculated on the basis of historic cost, including write-downs of any
invento
es or
fixed assets.
The costs of research and development are charged to income when incurred.
Equity in net income of nol-consolidated companies in which
a
significant influence is exercised has been recognised, in
all material aspects, in accordance with the accounting policies followed in the preparation of these consolidated financial
statements. Where no significant inlluence is exercised in a non-consolidated compan5r, dividends received are recognised
8s income.
Consolidated Statements of lncome of the PolyGram Gtoup
"a,S Onded Docember1990
31
in millioN of N€therlatrds guilders €xcept per share date and shar€ amounts
Net sa:o3(1)
INect costs of sales(2)
Grott income
Selling expens€s (2J
General and administrative expenses {2}
lrrcom. Irom opgr.tiont (3)
Financial income and expenses (4)
6.326
5,252
(3.391)
(2,774)
2,915
2,478
tl.712)
(1,441〕
(488}
(447)
735
590
18
(6)
753
584
{238)
(201)
lncofie aftor tata!
515
383
Equity in net loss of non-consolidated companies
(28)
lncoma boforg taxot
Income taxos {5)
Group incomo
Mino ty intercsts
lllet income
487
(41)
(5)
373
(21)
446
Avorago numbor of sh.?e. (p!r v.luo ItlJG o.5ol
1,0,000,000
17Q000,000
IIet incomq por ahoro
NLG 2.62
NLG 2.10
Propo.od dividond Par th.?o
NLG 0 60
NLC 0 50
ossum.d ouiltandine duting tho ye.?
Consolidated Balance Sheets ol the PolyGram Group
after pЮ Posed diStribu● On of illccIIle
as ofIDectmber 31
1990
in mlll10ns OfNethenalld3 gundeFs
Assets
Fixod as“ tこ
Intanglble f■ xed assets(6)
Tangtte臓 ed
assetsレ 〕
NoniConsolidOtd companies(3)
Other llclll curent inallc● aSSas(9)
Total llxod
.r.ota
1,931
CuFant lraata
Inventories (10)
Receivables and prepaid expenses (11)
Liquid
sssets
ToLl curant aaaeta
4,975
CmupEquwanduaЫ
Ⅲes
G=oup Fquitv
Shareholders'Equity(12)
Other CrOup Equty(13)
Tot.l Group Fquity
Long-torm provi.iont
1,131
(141
668
Short-to.m provi.ion! l14l
476
Long-torm.li.bilitiot (l 5l
296
Cur.ont
lirbiliti..
(16)
2.404
Consolidated Statements of Cash Flows ol the PolyGmm Gtoup
in millions of Netherlands guilders
C.sh tlowr Irom op.r.ting
.ctivitie.
Netincom
Adiurtmong to roconcilo not incono to not ca.h
p.ovidod by opg.ating
.ctivitie.
56
Deprcciation and amortisation of tangible and intangible assets
182
Prcvision for losses on rcceivables and prepaid expenses
5
Equity in net loss of non-consoiidated companies
Minority interests
Ch.ngo in e$ott and li.bilitio!, not ol
Decreose {increase) in ossets;
21
oftoct ttom .Gquititionr
Receivables and prepaid expenses
Long-term receivatrles
(543)
3
(7)
(38)
Inventodes
(86)
1
Othor assets
Increcse fdecreose)
Accounts payable
(371}
(5)
in liobilitiesi
79
Other current and accrued liabilities
Provisions
`36〕
264
42
138
o7)
(31}
othe! liabilities
(31)
Tot l adlu.tmont.
168
l{ot c..h provided by opetating rctivitio.
614
Ca3h
(228)
tlow. trom invorting activitiea
PaJrments for new consolidations, net of cash acquired
(200)
(776)
Net investments in tangible and intangible assets
(121)
(108)
Non-consolidated companies
{300〕
(21)
ilot c.sh u.od in illvo.ting .ctivitio.
(9o5)
Ca.h flow! from flnlncing activitios
18
(39)
Payables to banks
Long-terrn debts (including to Philips)
36
(5)
338
Issuance of subordinated notes
Pal.rrents to minority interests
(22)
Dividend paid
(35)
l\lgt cash u.od lor finlncing activitiot
Net incrcase (decrease) in cash
Tlanslation diflerences
Cash as of
lanuary
1
`110)
(117)
6
(425)
(5〕
439
869
68
155
56
Carh .3 per the ond of poriod
Intercst paid
Income taxes paid
28
181
Notes to the [onsolidated FinancialStatements of the PolyGram Group
All
amounts are expressed in millions of Netherlands guilders unless otherwise stated. The comparable figures are
reclassified to conform to currently adopted prcsentation methods where necessarlr
The financial data of PolyGram N.V are included in the consolidated financial statements of the Group. The statements of
income for PolyGram N.V, themfore, report only the net income frcm participations, and other income after taxes.
Effective from July 1, 1s91, Polycram acquired the CD factories in Hanover and Louviers from Philips and withdrew from
its direct investment in CD Interactive, selling its activities to Philips. Together with defered payments, the net amount
payable was NLG 156 million, of which NLG 150 million was paid in 1991.
Effective from July 1, 1991, Polycmln purchased a 30% shareholding in Really Useful Holdings for a total consideration of
NLG 288 rnillion, including deferred payments and earn-outs.
Notes to the Consolidated Statements ol lncome
l.
in%of
l{et Sales by geogmphical area
lotal
in%of
1990
1otal
246
4
219
4
3.570
1,137
1,085
56
2,954
56
18
17
16
288
5
979
844
256
Tota:
100
5,252
2. Costs ol sales
1991
1990
Direct costs of sales
3.391
Selling expenses
General and administmtive expenses
1,712
2,774
1,441
488
447
The Netherlands
Europe excluding The Netherlands
US.A. and Canada
Rest of World
19
5
4,662
Roaeerch and Development
The expenditures for research and development activities amounted to NLG 25 million (last year, NLG 38 million) and have
been included in the costs of sales.
Salafi6s rnd wages
Included in costs of sales are salaries and wages amounting to NLG 685 million [last year, NLG 546 million). The costs for
related social security and similar benefits totalled NLG 143 million [last year, NLG 113 million). Included in the costs for
social security are the costs for pension plans totalling NLG 30 million [last year, NLG 32 million). In 1991 remunemtion of
members and former members of the Board of Management paid by the Group totalled NLG 9.2 million [last year NLG 6.s
million), and for the Supervisory Board totalled NLG 0.1 million (last year, nil).
29
ilotes to the Consolidated Statements ol lncome
2. Costs ol silos lconunueay
gqogr.phlcal .r6a
９
０
７
０
８ ２
９． ∝ ４ ・ ３．
９
Rest oftrlbrld
３
Europe excluding The Netherlands
U.S.A. and Canada
７
The Netherlands
１
５
６
６
５“ １３３
・
3. lncome lrum 0perations by geognDhical arca
752
547
４
７
８
Rest of urorld
2,114
９
０
２
Asia
一
４，
１，
uS A alld Caneda
770
5,441
1990
８
２
８
The Netherlands
EШ ope excluding■I NOtherlands
Average number oF emplosees
1991
4. financial incoms and erpenses
２
０
２
Etthange galns a“ 10SS6s
Other flnaicね l Ⅸpens甲
６
lnterestincome
４
０
“ ６
３．
Interest expense
18
Included in the iutercst expense is NLG 2 million, representing iutsrcst o(pense to Philips [last year, NLG 1 million intercst
income).
30
Notes to the Consolidated Statements of lncome
5. lncome taxes
Income taxes amounted to NLG 238 million (last year, NLG 201 million) rcsulting in an effective tax rate of 327o {last year,
34%), The income taxes were reduced by NLG 21 million resulting ftom the utilisation of loss carryforwards from operating
losses of previous periods (last year, NLG 15 million). At December 31, 1991 the total opemting loss carryforwards
I
million will expirc within live years.
Withholding taxes relating to income of subsidiaries to be paid as dividends in the near future are generally deducted from
the income in the year in which the income is generated.
Poll,Cram's opeEtions are subject to income taxes in vadous foreign judsdictions with varying statutory tax rates.
aggrcgated approximately NLG 436 million, of which approximately NLG
The weighted average statutory tax mtes reflected in the following table are computed by applying the applicable statutory
。％
９
Weighted average percentage, based on statutory tax mtes
Tax effect of t&x loss cauyforwards utilised
Tax effect of current losses not recognised
T&x effect ol costs deductible for tax purposes but not for financial repoding
Tax effect of exempt income
Effect of tax incentives, non-deductible expenses and other tax effects
。
３に い 一
４に
Reconciliation of incoma tax rate
”％
rates to Polycram's earnings in each country
39
(3)
11
(6)
(6)
(1)
Effective tax rate
The deferred income tax positions are determined for each fiscal entity; such an entity represents a cornpany or a group of
companies, the latter having perrnission of the tax authorities to file one consolidated tax return and to be taxed as one entitli
Income taxes arc included in the balance sheet under receivables in the event, and to the extent, that the total deferred income
tax debits exceed the total of deferred income tax liabilities. Conversely income taxes are included in the balance sheet under
provisions in the event, and to the extent, that the total delerred income tax liabilities exceed the total of deferred income tax
debits.
1990
Analyais of income tax Positiona
Balance as olJanuary
1
(192)
(244)
(2381
(2o11
r55
181
(2B)
Changes:
Income taxes acclued
Income taxes paid
New consolidations
Tiansfer to equity
Other changes (including translation differences)
Balance es of Decombsr 31
59
49
41
51
{175}
(1s2)
(3O3)
{27s)
This balance include3:
Deferred Iiabilities
Liabilities payable
DefeIred assets
Other receivables
(75)
(72)
195
t34
a
21
31
Notes to the Consolidated Balance Sheets
6::ntangluelxedassets
1123
Book value as of |anuary 1, 1991
Change.:
21
Investments
2
Tlanslation differcnces
Book
v.luo.r of Docombor 31,1991
1 140
Acquisition price
1 182
Amortisation
{36)
Total
1_146
The book value as of December 31, 1991, includes NLG g20 million for the catalogues of recorded music and NLG 226
million for the catalogue of music publishing rights.
As frcm January 1, 1991, the catalogue of music publishing rights is amortised if and to the exteni ihat the present valge of
the expected incorne generated by the catalogue falls below its book value. Prior to 1991, the catalogue was amortised based
on its estimated income pattem. If this change had been implerneuted
witi
effect from January 1, lgg0, income froE
l.
Tangible lixed
rotar
ossets
LsDd Machinery
o"uo,ilt
218
(183)
(4η
lnvestments
109
25
New coDsolidations
208
56
Depr€ciation
(77)
(12)
Sales
(19)
(1)
Other changes
(15)
4
Depreciation
Book
Assets
"'",*Ti
".""o"T*li
115
8
０ ０
478
Gross value as of January 1, 1991
Olher
o"o'":llo"t;
喘
¨
赫
operations in 1990 would have incrcased by NLG 16 million.
(54〕
v.he .. of JFnurry I ; I 99t
４
８
４
46
β)
14
49
(25)
＜
４
１ ９ ０ η．
Cb.ngo.:
Book v.luo a. of D.conrbo.3l,
l99l
f.
131
843
309
328
(342)
(62)
(197〕
4
169
(801
ilon-consolidaled companies
(201
４ 一
３
Gross value as of Decembe! 31, 1991
Depreciation
247
(11)
(3)
Equity
39
31
Net investments
245
205
Equity in n€t income [loss)
Balances as of January 1, 1991
3
Changg.:
(201
(2)
(2)
Othor changes
(1)
3
B.l.nc!. a. ot Decembo.3i, l99l
253
As ofDeclmbO■ 31,1991 the equity includes catalogues of theatrical,publlsblllg and recorded music righ“
million
32
21,
。
４ ● “
．
(23)
Dividends
36
valued at NLCr 152
‖otOS
tothe Consolidated Balanoo ShOols
9. 0ther non-cullent linancial assds
Securities
Other accounts receivable
l0.lnwntodes
８
１
５
３
２
４
Raw Daterials
Finished goods
６
３
７ ０
１ ２
４ ３
４ ７
１ ２
Recording costs
Filrns
Tot● I
11. Receivables and pepaid sxporsss
３
・
６
８
７
８
３．
Deferred tax cl,aims
Advances and loans to artists and rcpertoire owners
Other receivables
Prcpaid expenses and accrued income
4
74
195
339
167
４
３
Non-consolidated conpanies
０
５
Shareholders
３
1.336
Thade accounls
111
Tct● :
The receivables from non'consolidated comptnies are maiuly trade debt!.
In accordance with industry practices, advancas to artists and repertoire owners include certain arrounts with
excoss of oneフ
a
life in
oar
12 SharebddeFJ[quitv
Balance as of JaDuary 1, 1991
Chrngo.r
Net income
Dividend
Goodwill
tauslation dif ferences
■ ansactons ln PolsCram N V shares,6n balallce
Revaluatお n
B● :￨● co● 3 0f D●
●●mbor
31,1091
33
Notes to the Consolidated Balance Sheets
13.lllher Grou「 Equ:ty
1991
Balance as olJanuary 1, 1991
403
Ch.nges:
New consolidations/deconsolidations
Share in group income
Distributions, net
Translation diflerences
Other movements
B.bnce .s of Decembo. 31, 1991
(33)
41
{25)
10
(2〕
394
Included in Other Group Equity are US.S200 million of Subordinated Notes ["The Notes") issued by PolyGram Finance
B.V, a group company oi PolyGrarn N.V The Notes are mandatorily exchangeable into Non-voting Redeemable Prelerence
Shares of another group company, PolyGram Luxembourg Finance S.A. The Notes and the Preference Sharcs are only
redeemable at the option of Polycram and carry financing rates at December 31, 1991 ranging from 7.6% to 10.3%, which
are subiect to periodic adiustment. Financing charges (NLG 33 million] and taxes thereon (NLG 11
millionl
are recorded
under minority interests in the 1991 Consolidated Statements of Income.
14. Provisions
Provisionr for:
Pensions
Deferred income taxes
203
303
Returns
Earn-outs regarding acquired companies
Other obligations and risks
141
Tot6l provirions
149
348
147
275
133
113
242
1,144
Conrilting of:
Long-term provisions
Short-term provisions
668
476
531
379
PolyGram has several pension plans covering its employees. Employee pension plans have been established in many
countries in accordance with the legal requircments, customs and the local situation in the countries involved. The pension
obligations have, in most cases, been transfe ed to separate pension funds or to third parties, which limit any further
obligations ol the PollCram Group to the beneficiaries.
The provision for pensions covers the pension plan for the PolyGram employees in Germany (1991, NLG 182 million; 1s90,
NLG 129 million). The remaining amount (1991, NLG 21 million; 1990, NLG 18 million) relates to pension plans in other
countdes. The provision is calculated taking into account an average discount mte of 8.5%.
The provision for rcturns covers the costs of expected rcturns of goods sold. Expected returns are estimated on the basis of
past experience as well as current sales.
The provision for earn-outs relates to additional amounts payable to the vendors of Island and A&M based on earnings
before taxes of PolyGram during 1990 through 1999 and is valued at the prcsent value of the estimated amounts payable and
an ealn-out relating to the participation in Really Useful Holdings, based on earnings of that company
34
‖QteS
to the ColsduatedBalance sheets
long-tem liabillties
1991
Long-term bank loans
Other long-term debts
226
Totd
296
I 5.
Included in other long-term debtg are notes at present value (interest mte
70
70,6),
13
psyable on Decembor 31, 1994, with a
nomiaal value of US.S20 million (NLC 34 million) and on December 31, 1996. with a nominal volue of U.S.S50 million
(NLG 85 million) issuod as part 9f the cousidemtion for the Island acquisition in 1989.
10. Cunent
liahilities
Payables to banks
Accounts pa]'able to trade crefitom
Accounts payable to non-consolidated coDpauie€
lncome tsxes payable
Dividend payable
Other debts payeble
Accrued license fees payable
Otber accrued expenses
Total
1eq,
6A
777
616
592
4a
5
72
64
1tJz
B5
251
173
924
83,t.
347
257
2,4o4
2,15L
On January 15, 1991, Polycram entercd lnto a irulti-currency relplving credit facility agrcem€nt with a syndicate of banks.
This is a committed facility expidng January 1996 for U.S.S180 million or its equivslent in other currencies. Included in the
amount is a swingline facility of US.$a0 million which would allow the facility to be used to eupport
a
U.S. commercial
paper programme if that ie rgquired in the future. The minimum draw down under the facility is U.S.$5 million. As at
December 31, 1991, no amounts have been drawo under lhis fscility.
The PolyGram Group has sweral uncommitted credit lines with banks in a mrmber of countdes. The unused portion of
these credil liqes was NLG 944 million at December 31, 1991.
In December 1991, PolyCram reacbed agreement to anange a NI,G 250 million Ilutch commercial paper prcgramme to
provide both an alternative and an addltional source of filrds to existing uncommitted credit lines.
35
NOtestd the ConsolidatedBdance Sheets
lL
Commitments and Contingencies
Lgftoa
Futば
\tar euding
■
ontal
cα nmltnents relatlng to o"nting leasё
s at DetembeF 3■ 199■ amOunttl:
３
２ ４ ６
５ ５ ４ γ ３ ７
．
emnm―
December 31, 1992
1993
1994
1995
‐
1996
thereafter
203
Gra?antaga
CuaraEtees on behalf of non-consolidated companies and third parties
Guarantees to artists and rcpe$oire owners
Logal Proccodlng!
PotlGram has extensive international operati,ons, and is subject to a number of legal proceedings incidental to these
operations. PolyGrarn does not expoct that the outcome of Gurlendy pending probeedings agaiDst Polycram
individually or in the aggr€gate, have
a
will, either
material adverse effect upon the financial condition of PolyGmm.
Erm-outa
In addition to the puchase price of Island and to the earn-outs provided for (see note 14), amoults ar€ payabl€ to the rcndqr
based ou earnings before taxes of the acquired business for any thre6 consecutivo years dudng 1992 thtoug} 1999.
In addition to the purchaso pdco of A&M and to the earn-outs provided for (see note
14), amounts are payable to the
vendor
if
earniqgs beforc taxos of A&M exceed speci{ied levels during 1992 thrcug} 1994 oI if certain A&M developing adisls r€lesse
albums that sell at least one milllon LP units floog playing vinyl recorils, CDs or cassette tapes) prior to December 31, 1994.
36
日nandJ
Statementsof PdYGram‖
.■
OJance sheets d Poけ GFam‖ .u
arter propOsed distrlbutlol1 0f inclDme
as of Decemller 31
1
in mllllons of Netherlands guilders
1990
田on‐ ollrretlt flnanci● :a88018
Paritlpatlons(A)
Current a8● ●t●
１ ．
５
４
389
Recelt/ables(3)
Liquti assets
1.002
Shareho‖ oぼ [qlily and uaЫ hLs
Sh.r.hold!6' Equity
85
85
Resen€s (D)
652
621
Total Sharehoid● お'E● II“ v
737
706
Long‐ torm ilabi::tio●
156
144
100
91
Share capital, issued and paid [C)
lE〕
Current:iab::itio,
1,002
Statemenls 0t lncuns ol PolyGrarn lLV.
yeem ended December 31
'lggo
in milllons of Netherlands guilde●
IIct lncome lrom p..ticipationa
(Xhor lncome attor
t ror
418
343
28
14
lllot lncomo
37
Itlotes to the FinancialStatements of PolyGnm N.V.
All amounts ate exprossed in millions of Netherlande guilders ur
ess
otherwise stated.
A. hrticiprtiom
Participations am included in the balance sheets based on the net asset value in accordance with the aforementioned
policios. Other receivebles due from parlicipatioos and liabilities to participations are accouDted for in tbe respective asset
and liability accounts,
A list of participations, draum up in accordance with the relevant legal requirements, is available at the 1}ade Register office
in Amersfoort, The Netherlands.
Balance as oflanuary 1, 1991
435
Chlnger:
Equity in net incorne
414
Revaluation
Goodwi
9
ll
12741
Inveshents
204
Dividond paid
(851
Tbansactions in Polycram N.V shares, ou balance
Thanslation dif ferences
l44l
Balanc● ●8 0f Docombo『
l4l
31,1991
L Recelttbleζ
Participations
329
Other
C. Sharu capital, issuod and
10
prirl
At December 31, 1991 the slrarc capital, issued and paid, amounted to NLG 85 million and consisted of 120 milliou sbares
with a par value o[ NLC 0.50. per share. Appmximately 79% of tbe shares sr€ held by philips.
As of January 1, 1990, Po\Gram granted to the sellers of A&M Records Inc. the options to purchase 1,000,000 shares of
Pollcram at a price equal to the price to the pr.rblic of Polycram's initial public offering in 1989, being U.S.$16.00 per share.
Since August 1, 1990, the Company has implemeDted an execntive share option plan for senior management. In total options
for 2,935,000 thar€s have been granted of which options for 140,000 sharcs hsve beeo exercised. The outstanding optioqs as
of Deceriber 31, 1991 for 2,795,000 shares have been granted at subscription prices of NI,G a3,00 aud NLG 30.70 (weighted
averoge NLG 32.6S) and unless previously exercised
38
will expire
at various dates betweeD,uly 31,
1996andAp l30,'1992.
Notes to the FinancialStatements ol PolyGmm N.V.
amounts arc expressed itr millions of Netherlands guilders unless otherwise stated.
All
Other
D.
Feserws
627
Balances as of lanuary 1, 1991
747
Ch.ngc.:
Distribution of income
Goodwill
344
4)
(44)
(27
Translation dif ferences
Tfansartions in Polycmm N.V shares, on balance
Rwaluation
344
4)
(27
(4)
(44)
' (4)
I
I
Balrnco... ot Docombor 31, 199t
Mainly in connection with the executive share option plan PolyGram acquired in 1gg7 227,777 sharcs with a nominal value
of NLG 0.S0 each for an average price of NLG 38.40, and rc-issued 145,363 shar€s with a nomiual value of NLG 0.50 each
Ior an awrage price of NLG 30.76.
As of December 31, 1991 an amount of NLG 10 million has been deducted fmm other reserves in rcspect of 276,4Oa
PolyGram N.V shares held by the Group.
liahilities
Long-term liabilities represent the provisions for the Island earn-outs and the present value of th€ notes issued in lg8g a8
E. Long-term
part of the consideration for the Island acquisition.
Baarn, March 25, 1gg2
Tho Bo..d ot Man.gemont:
Tho Suporvisory Bo.rd:
A. L6vy President
D.G. Fine, Chatman
J. Cook,
Executive Vice Prcsident
C. Blackwell
Dr.
J.
\./U
Hix
Moss
R.A.E. Stu)'t
L.PH. Das
J.A. Rutgers
0ther lnformation Begarding PolyGram N.V.
Auditor'. R.po.t
We have audited the
iinancial statements of Polycram N.V, Baarn, for the year 1991, as included on pages 24 to 39 inclusive.
We conducted our audit
in accordance with generally accepted auditing standards.
In our opinion, these financial statements present fairly the financial position of the Company at December 31, 1991, and the
rcsults of its operations for the year then ended and also comply with the other Dutch legal requirements lor financial statements.
Amsterdam, March 25 , 1992
KPMG Klynveld
Diltribution of lncomo according to tho Articlos of A..ooiation ot Polyc..m Il.V. .3.tipulatod in
Articl.r
33, 35 and 36
Upon proposal of the Board of Management, which proposal must be approved by the Superui$ory Board, the General
Meeting of Shareholders of PollGram N.V may decide to make distdbutions in ca6h or in shares ol PolyGram N.V payable out of
the distributable profit of the year, "other reserves" and/or "share premium account" as shown in the financial statements.
P.opo.ed Di.tribution ot lncorne
In view of the stipulation of Article 35 of the Articles of Association, it has been proposed that a dividend of NLG 102
million (NLG 0.60 per share) be paid and the rcmaining amount of net income of NLG 344 million be added to "Reserves".
Repoil ol the Supervisory Boad of PolyGram N.V.
Polycmm N.V's financial statements for 1991 have been audited by independent public accountants KPMG Klynveld. We ask
you to adopt these statements in accordance with the recommendation of the Board of Management and to accept the
proposal to declare a dividend of NLG 0.60 per sharc in rcspect of 1991.
1991 was another year ol
significant progress for PolyGram as detailed in the preceding pages of this annual report. The
integmtion of A&M Records and Island Records inio the Grcup's operations has progrcssed very satisfactorily and has had
an impo ant influence on the Groupl performance in the United Stat€s of America. PolyGram has again made some
stmtegic acquisitions during the year to strengthen its business for the future, the most notewo hy of these being the
acquisition of 30% of Andrew Lloyd Webber's Really Useful Holdings, the purchase ol Sonet in Scandinavia, the acquisition
of compact disc manufacturing facilities in Hanover (Germany) and Louvie$ (France) and the agreements reached
with
Motown Records detailed elsewhere in this report. The Group has also announced the controlled expansion of filmed
entertainment activities which it conside$ to be a strategic investment for the future.
The consolidated balance sheet of PolyGram shows little debt and considerable unused financial facilities. A substantial
part of the grcwth in Shareholde.s' Equity has been used to cover the write-off of goodwill on acquisitions, which is likely
to continue to be a featurc due to the nature of Polycrarnt business.
At the Geneml Meeting of Shareholders to be held on April 23, 1gs2 Mr. L.PH. Das will retire by rotation as a member of
the Supervisory Board. Mr. Das has offered himself for re-appointment.
1991 has been another excellent year for PolyGram. The Supervisory Board wishes to acknowledge the eflorts of PolyGram
personnel worldwide whose skill, dedicalion and commitrnent have made it possible to achieve these results. We would like
in particular to express our appreciation of the outstanding contribution made by the Prcsident and the members of
PolyGram Management who have steered the group so successfully in a challenging and dynamic industry
We
look forward to fudher gto\ath and success in 1992.
Baam, March 25, 1992
The Supervisory Board
40
Applicatiun of Generally Accepted Accounting Pdnciples in the U.S.A.
The accounting policies followed in the prcparatioD of the consolidated financial statements differ in some respects to those
generally accepted in the United States of America (US. GAAP).
Those diJferences which have a material effect on Net lncome and/or Shareholders' Equity are as followsl
a. Goodwill arising from a difference between the purchase price including contingent consideration and net asset value of
newly acquired companies and palticipations is accounted for directly in Shareholders' Equity For US. GAAP purposes,
goodwill has been recorded as an asset and is being amoriised over 40 years. Under U.S. GAAE contingent consideration
is not recognised at the date oI acquisition, but instead is rccognised as additional goodwill at the date the contingency is
resolved and the additional consideration is payable.
b. Intangible assets are
amo
ised if and to the extent that the prcsent value of the expected income generated by each
category of asset is less than the book value, For US. GAAP purposes, catalogues of recorded music are amortised
straightline over 25 years, and catalogues of music publishing rights and the catalogue of theatrical dghts straightline
over 15 years.
c. The functioual currencies of the hyper-inflation countdes are their local curencies. For U,S. GAAP purposes, the
Netherlands guilder should be the functional cunency
d. In 1991 Pol)Gmm purchased from Philips certain CD manufacturing facilities {PDO) and valued the assets and lisbilities
at fair value on the acquisition date. Futher PolyGram sold its CD-I investments to Philips and recorded a gain in the
statement of income. For U.S. GAAP puposes the purchase of PDO would be recorded using Philips'
histo cal cost, the
difference in the purchaso price being treated as an increase in capital. In addition, under U.S. GAAP the gain on the sale
of our CD-I investments is recorded as a capital contribution.
The calculation of Net Income and Shareholders' Equity substantially in accordance with US, GAAR is as follows:
in milliorrs of Netherlands
suilders
l\l.t incomo !3 per Conlolid.ted Statomon$ ot
lncomo of ths Polycram Grolrp
1ss1
19s0
446
Adiu$ment. to .oport.d incomo:
goodwill
19〕
〔
(16)
b. amodisation of intangible assets
c. rcmeasurement of financial gtatements of entities in h]?erinflation countries
(37)
(32)
(16}
(22)
d. bansactions with Philips
(27)
a. amortisation of
- other
6
5
948
687
App.orimatg not iDcomq ln .ccordance with U.S. GAAP
.. po. Con.olid.tad
B.lanco Shoet. of tho Folyc..m G.oup
3h!r9hold...' Eq[ity
Adiu.tmonir to toportrd oquitY;
a.
goodwill
b. intangible assets
d. transactious with Philips
- other
Approxim.to Shat holdert' Equity ln tccotdancr with U.S. GAAP
(118〕
(85)
24
15)
1.586
(7)
1,301
Summary ol FinancialStatements of the PolyGram Group in U.S. [lollarc*
in million3 ofUS,Dollarζ
except per share alnounts
lncome atat6m6nt data
3.700
Net sales
Direct costs of sales
(1,983)
Selling, general and administrative expenses
430
lncomc from opgr€tion3
Financial income and expenses
10
440
lncomo baforo taror
Income tares
lncomo
７ ７
１ ８
７ ２
Gaoss incoma
(139)
lftor tar93
Net income
田etincome
154
per eharo
Bal.nco thgst drta
l.t
poriod ond)
Total firod asletr
Total curaont
a$ott
Total eaiet3
Sharoholdorr' Equity
Other Group Equity
Totrl Group Equiny
Long-term bank loans
Other long-term provisions and liabilities
Short-lerm bank loons
Other short-term provisions and liabilities
Total,iabilitioo
Tot l Sh..ohold...' Eqrity per.haro
*Merely for the convenience ofthe reader, Netherlands
guilder amounts have been converted to U.S. Dollars at a rate of
uS.S1 - NLG 1,71, being the rate which was applied for the conversion of uS. Dollar amounts in the Consolidated Balance
Sheet as per December
42
3l,
1991.
PolyGram Management
fxeculiw
0perational Management
Boad ol Managenent, PolyGnm il.V.
Abin L6vy
Altin L6vy
Alai.r L6w, President
Prcsident snd Chief Executive Officer
Chief Executive Off icer,
Jan Cook
Po\Grarn Holding, Irrc. US.A.
Executive Vice Prcsident and
Chief Finaucial Officer
Chrb Blsckwall
Tim
Management
H.rold
Executiw Vice Prcsident,
Classical Music
lliaurice
L Ob6r.tein
Execudve Vico PrcsideDt,
and Chairman aad Chief Executive
Officer, PollGran U,K. Ltd., U.K.
Filmed EntertaiDment
l{orman Chong
Prcsident, Far East
Allon DlYii
Executive Vice President
Ch.i! Bl.ckwell
Chief Executive Officer,
Island Records
Jerry Motg
Dr. Wolfglng Hir
Jgrry
llor3
Robort A.E. Stuyt
Chairman, A&M Records
llorb Alpo.t
Vice
Chaimsn, A&M Records
ichrel Kshn
Seuior Vice Presldent,
and President, PolyGram
Jsn Cook,
aurlca L- Ober3tein
irman and Cbief Executive Officer,
Polycram U.K. Ltd., UK.
Cha
Supeuisory Boud, PolyGnm il.V,
David G. Fln€
Chairman
Ul6lf D. Gr.matke
President and Chief Executive Officer,
PolyGram GmbH, Germany
Prcsident, Continental Eulope
Efic Klonfold
Dr, Andrea. Holrchneid.r
Prcsideut and Chief Openting Officec
PolyGrarn Holding, Inc. US.A.
President, Deutsche Grammophon
GmbH, C,ermany
Corponle filicem
Dr. Johanner H. Kin.l .
Presidenl Philips Classics Prcductions,
The Netherlands
Lour.nr
P-H- Da.
Senior Directot Corporate Office
Merge$ & Acquisitions, Pbllips
Intelnational B.V
Joh.n A. Rutgert
Geneml Secrctary .
Philips Electrcnic6 N.V
Pete? Bouwans
Senior Vice President,
Rotand Kommerell
Intemational Manufacturing
and Logistics
President, De6ca Interndtional, U.K.
D.vid llockmln
Torunl
Chief Executive,
Music Publishing
David l5unnr
Senior Vice Prcsident,
Pop Morketing
lllirut!
Chairmau, PolyGrarn K.K. and Frcsident,
PolydorK.K.. lapan
Responsibility for the managemeni ol
PolyGram is with the Board of
Management: it is accountable to the
Supervisory Boand and the shareholders.
Gillas Paire
Chief Executive Officea
PollGram S.A., Flance
Richrrd Conrtant
Genoral Counsel
Stowart Tlll
Foter Matthow!
Preeident,
Vice President F&A,
PolyGEm FilEed Entertainment,
International
RegionalOpemtions
Don.ld llilloFJon€r
Vice P$sident,
Tleasury and Investor Relations
Anthony Preody
Vice Presiden! Personnel
Willirm Foony
Corporate Controller
Han! Gov€at
Director ofThx
43
PolyGram Woildwide
Ih€t{sdndats
Lurcmbourg
Polr€Em InterDstiotrel Publiddn8, Inc.
Pollcram N.V
Polycram Luxemboug FinaDce S.A.
A&M Records, Inc.
Pobcram International Holding B.V
llorw.y
Propaganda Films
Polycme International Musrc B:V
PolyCram Records A/S
Metropolitan EDlertainmeDt Co., Ina.
Polycras Finance B.V
Fortug.l
Polycram Record Service B.V
Polycrao Discos S.A.
htfuAmsico
Pol]Gram Nederland B.v
Spain
Argantln.
Polycmm Ib€rica S.A.
Polycrsm Discos s.A.
Swodon
Br.zil
Pobcmm AB
Potycram do Brasil Ltda.
Phonog.aE B.V
Polydor B.v
wisselood Shrdiob B.v
Maqifesto Film Sal€s B.V
SwedeD Music Ffulags
Sotrot Grsmmofan
hlqeexfidnglhlhtMflds
Au!trir
Polycmm Ges.m.b.H.
.
B.lgium
Pol'€i€m Recor& S.A
AB
.................,.... :,...... 49%
- DistdbuidGa
Fonobras
Fonogralica
AB
Srvltze.lrnd
Chil.
Polycrsm Records AG
Pollcmm Discos Limitada
Unitod Kingdom
Uaxlco
Polycran (UK) Holdings Plc
Polycram Discos S.A. de C.V
Polycram Letuue Ltd.
Africo
Polycram Int€national Ltd.
Kanya
Germany
Polyclam lntemationsl Music PublishiDg Ltd.
Polycrom Recrrds Ltd.
PolrcraE GmbH
Island EBtertainment GFup Ltd.
Polrcmm Records A/S
40%
Bra.silsim Ltda ....................... 50%
Polycram UK Ltd.
Donmr.k
....
Deutlche GlaErnophotr G€sellschrft mbH
Phonogmm Ltd.
Asia
Phonogmm GmbH
Polydor Ltd.
Hong Kong
Polycram Record Operatiotrs Ltd.
Polycram Recods Ltd.
Metmnome Musik GmbH
A&M Records Ltd.
Polycram Music Publishiry Hong Kong Ltd.
PollGram Songs Musikverlag GmbH
Britanda Music Conps{ry Ltd.
Jrpan
Karussell Musik & vidso GIubH
FFRR Records
PoIyGmm Recdd Service CmbH
The Decca Record Company Ltd.
PoMor K.K. ..................,.,............. 74.6%
Polycram Filmprodlktion GmbH
Polycrsm Musicvideo Ltd.
Nippon Phonograrn Co., Ltd. ,............... 65%
Polydor
imbH
Finland
Polycram FiEl€nd Oy
France
Ltd. ........................... 49%
al.ysia
Dick Janes Music Ltd.
Pobclam Video Ltd.
PolyGrom Records Sdn. Bhd.
..,............
30%
Sing6poro
Lld. ...................
49%
Polycrom Rscods Private Ltd.
Really Useful Holdings Ltd.
Polyctam S.A.
Wbrking Titla Fil.ms
Polycram Recod Service S.A.
Island Edtsrteinh€nt Gmup S.A.
Polycram Music S.A.R.L.
D.[.A-L. - Diffusion lnternationsle d'Arts €t
LoisiB S.A.
Polycra.e Disques
Polycmm K,K.
South Koaor
ilufi
Amcica
Polycram Ltd.
. Crn.da
...................................
60%
T!lw!n
Polycram Records of Canada Inc.
Polycram Records Ltd.
Itland Reclds of Canada Ltd.
AsrdhaihwZe#d
Gaagce
A&M Records of Cdneda Ltd.
Polycram Records S.A.
United Strtos of
lrolrnd
Pollcranl ltolding, Inc.
Polycram Pty Ltd.
Polycrum Rscords Ltd.
Polycrae Records, IDc.
Polycram Music Publishing Austlalia Ptla Ltd.
Italy
Polycr€m Gloup Distribution, Inc.
llew Z..l!nd
Pobcram ltalia S.rL.
IslaDd EntertaiDJD€nt Group, Inc.
Polycrsn Leisure Ltd.
Am..lc!
AuaiaaIa
PolyGnm l{.V.
Gerrit van del veonlaan 4
3143 0l{ Baan
The l{sthe alds
PolyGram