<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2275
THE SEAGRAM COMPANY LTD.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Canada None
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Peel Street, Montreal, Quebec, Canada H3A 1S9
_______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
514-849-5271
________________________________________________________________________________
(Registrant's telephone number, including area code)
No Change
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of 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 ___
As of October 31, 1996, there were 369,800,414 common shares without nominal or
par value issued and outstanding.
<PAGE> 2
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Income and Retained Earnings --
Quarter Ended September 30, 1996 and 1995......................... 1
Consolidated Balance Sheet --
September 30 and June 30, 1996.................................... 2
Consolidated Statement of Cash Flows --
Quarter Ended September 30, 1996 and 1995......................... 3
Notes to Consolidated Financial Statements........................... 4-6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 7-10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders.................. 11-12
ITEM 6. Exhibits and Reports on Form 8-K..................................... 12
Signatures.......................................................................... 13
Exhibit Index....................................................................... 14
</TABLE>
<PAGE> 3
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(United States dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Revenues............................................................... $ 2,944 $ 2,971
Cost of revenues....................................................... 1,718 1,839
Selling, general and administrative expenses........................... 941 842
------- -------
OPERATING INCOME....................................................... 285 290
Interest, net and other................................................ 7 70
------- -------
278 220
Provision for income taxes............................................. 106 140
Minority interest...................................................... 6 14
------- -------
NET INCOME............................................................. 166 66
Retained earnings at beginning of period............................... 8,389 8,535
Dividends paid......................................................... (56) (56)
Shares purchased and retired........................................... (86) --
------- -------
Retained earnings at end of period..................................... $ 8,413 $ 8,545
======= =======
Net income per share................................................... $ .45 $ .18
Dividends paid per share............................................... $ .15 $ .15
======= =======
Average shares outstanding (thousands)................................. 370,746 373,029
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(United States Dollars in millions)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments at cost, which approximates
market......................................................... $ 248 $ 279
Receivables, net................................................ 1,779 1,770
Inventories..................................................... 3,170 3,142
Film costs, net of amortization................................. 497 471
DuPont warrants................................................. -- 440
Deferred income taxes........................................... 402 402
Prepaid expenses and other current assets....................... 389 382
------- -------
TOTAL CURRENT ASSETS....................................... 6,485 6,886
------- -------
Common stock of DuPont............................................... 725 651
Common stock of Time Warner.......................................... 2,185 2,228
Film costs, net of amortization...................................... 870 783
Artists' contracts, advances and other entertainment assets.......... 669 646
Deferred charges and other assets.................................... 768 770
Property, plant and equipment, net................................... 2,904 2,951
Investment in unconsolidated companies............................... 2,187 2,162
Excess of cost over fair value of assets acquired.................... 4,504 4,551
------- -------
$21,297 $ 21,628
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and indebtedness payable within one
year........................................................... $ 1,487 $ 1,850
Accrued royalties and participations............................ 637 602
Payables and accrued liabilities................................ 1,987 2,086
Income and other taxes.......................................... 236 149
------- -------
TOTAL CURRENT LIABILITIES.................................. 4,347 4,687
------- -------
Long-term indebtedness............................................... 2,543 2,562
Accrued royalties and participations................................. 389 388
Deferred income taxes................................................ 620 623
Deferred income taxes -- DuPont share redemption..................... 1,540 1,540
Other credits........................................................ 775 784
Minority interest.................................................... 1,845 1,839
Shareholders' Equity
Shares without par value (370,710,587 and 373,059,014 shares,
respectively).................................................. 733 725
Cumulative currency translation adjustments..................... (265) (246)
Cumulative gain on equity securities, net of tax................ 357 337
Retained earnings............................................... 8,413 8,389
------- -------
TOTAL SHAREHOLDERS' EQUITY................................. 9,238 9,205
------- -------
$21,297 $ 21,628
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(United States dollars in millions)
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
-----------------
1996 1995
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income................................................................ $ 166 $ 66
----- -----
Adjustments to reconcile net income to net cash provided
Amortization of film costs........................................... 233 370
Depreciation and amortization of assets.............................. 92 80
Amortization of excess of cost over fair value of assets acquired.... 47 40
Gain on sale of DuPont warrants...................................... (60) --
Minority interest charged to income.................................. 6 14
Sundry............................................................... 54 7
Changes in assets and liabilities
Receivables..................................................... (18) (173)
Inventories..................................................... (38) 138
Prepaid expenses and other current assets....................... (17) (29)
Artists' contracts, advances and other entertainment assets..... (38) 18
Payables and accrued liabilities................................ (50) 144
Income and other taxes.......................................... 88 (337)
Deferred income taxes........................................... (13) (61)
Other credits................................................... (6) 29
----- -----
280 240
----- -----
Net cash provided by operating activities................................. 446 306
----- -----
INVESTING ACTIVITIES
Film production........................................................... (351) (443)
Capital expenditures...................................................... (117) (118)
Proceeds from sale of DuPont warrants..................................... 500 --
Sundry.................................................................... 4 28
----- -----
Net cash provided by (used for) investing activities...................... 36 (533)
----- -----
FINANCING ACTIVITIES
Dividends paid............................................................ (56) (56)
Issuance of shares upon exercise of stock options and conversion of
LYONs................................................................... 13 24
Shares purchased and retired.............................................. (91) --
Increase in long-term indebtedness........................................ 2 1
Decrease in long-term indebtedness........................................ (19) (1)
(Decrease) Increase in short-term borrowings and indebtedness payable
within one year......................................................... (362) 371
----- -----
Net cash (used for) provided by financing activities...................... (513) 339
----- -----
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS................ $ (31) $ 112
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the requirements of Form 10-Q and, therefore, do not include
all information and notes necessary for a presentation of results of
operations, financial position and cash flows in conformity with generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements and related notes in the Company's
Transition Report to Shareholders for the five-month transition period ended
June 30, 1996 (the "Transition Period"). In the opinion of the Company, the
unaudited interim financial statements include all adjustments, comprising only
normal recurring adjustments, necessary for a fair presentation of operating
results. Results of operations for the three months are not necessarily
indicative of those expected for the fiscal year.
The Company changed its fiscal year end to June 30, effective June 30,
1996. For comparative purposes the Company's fiscal quarter ended October 31,
1995 has been restated on the new fiscal year basis to reflect results for the
three month period ended September 30, 1995.
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
2. SALE OF DUPONT WARRANTS
On July 24, 1996, DuPont repurchased the 156 million equity warrants
owned by the Company for $500 million in cash. The Company had received the
warrants in April, 1995 when DuPont redeemed 156 million shares of its common
stock owned by the Company. The warrants were valued at $440 million at the
date of the 1995 transaction. The results for the quarter ended September 30,
1996 included a $60 million pre-tax gain ($39 million after-tax) from the sale
of the warrants. The pre-tax gain is included in Interest, net and other on
the consolidated statement of income.
3. INVESTMENT IN E.I. DU PONT DE NEMOURS ("DUPONT")
At September 30, 1996, the Company owned 8.2 million shares or
approximately 1.5 percent of the outstanding common stock of DuPont. The
Company accounts for the investment at market value. The underlying
historical book value of the DuPont shares is $187 million.
4. INVESTMENT IN TIME WARNER INC. ("TIME WARNER")
At September 30, 1996, the Company owned 56.8 million shares or
approximately 14.5 percent of the outstanding common stock of Time Warner. The
Company's ownership percentage in Time Warner was reduced in connection with
the merger involving Time Warner and Turner Broadcasting Systems, Inc. Time
Warner's Joint Proxy Statement/Prospectus dated September 6, 1996 estimated
that after the transaction the Company's ownership percentage would be 11.15%.
The Company accounts for the investment at market value. The total
cost of the investment was $2.17 billion.
4
<PAGE> 7
5. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION
<TABLE>
<CAPTION>
1996
--------------------------
SEPTEMBER 30, JUNE 30,
------------- --------
(millions)
<S> <C> <C>
Inventories
Beverages.................................................... $ 2,735 $ 2,789
Materials, supplies and other................................ 435 353
---------- --------
$ 3,170 $ 3,142
========== ========
Property, Plant and Equipment, net
Property, plant and equipment, at cost....................... $ 4,093 $ 4,084
Accumulated depreciation..................................... (1,189) (1,133)
---------- --------
$ 2,904 $ 2,951
========== ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
--------------------------
1996 1995
---------- ---------
<S> <C> <C>
Excise Taxes (included in sales and cost of sales)........... $ 181 $ 186
========== =========
</TABLE>
6. LONG-TERM DEBT AND DEBT GUARANTEES
Joseph E. Seagram & Sons, Inc. ("JES"), the Company's U.S. spirits and wine
subsidiary, has outstanding debt securities guaranteed by the Company. JES
issued Liquid Yield Option Notes (LYONs), which are zero coupon notes with no
interest payments due until maturity on March 5, 2006. Each $1,000 face amount
LYON may be converted, at the option of the holder, into 18.44 of the Company's
common shares (648,609 shares at September 30, 1996). The Company has guaranteed
the LYONs on a subordinated basis.
In addition, the Company has unconditionally guaranteed JES's 8 3/8%
Debentures due February 15, 2007, 7% Debentures due April 15, 2008, 8 7/8%
Debentures due September 15, 2011, 9.65% Debentures due August 15, 2018, and 9%
Debentures due August 15, 2021.
Summarized financial information for JES and its subsidiaries follows:
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
(millions)
<S> <C> <C>
Revenues...................................................... $ 941 $1,000
Cost of revenues.............................................. 715 757
Net income.................................................... 65 31
</TABLE>
5
<PAGE> 8
Consolidated Balance Sheet information for JES follows:
<TABLE>
<CAPTION>
1996
------------------------------
SEPTEMBER 30, JUNE 30,
------------- --------
(millions)
<S> <C> <C>
Current assets...................................................... $ 967 $ 1,348
Noncurrent assets................................................... 12,577 11,702
------------- --------
$13,544 $13,050
============= ========
Current liabilities................................................. $ 1,080 $ 1,028
Noncurrent liabilities.............................................. 3,503 3,175
Shareholder's equity................................................ 8,961 8,847
------------- --------
$13,544 $13,050
============= ========
</TABLE>
7. EARNINGS PER SHARE AND COMMON SHARES
At September 30, 1996, 29,917,644 common shares were potentially issuable
upon the conversion of the LYONs described in Note 6 and the exercise of
outstanding employee stock options. The dilutive effect on the Company's
earnings per share from these shares is less than 3 percent.
In the three months ended September 30, 1996, the Company retired 2,787,500
common shares which were purchased on the open market and issued 439,073 shares
upon the exercise of employee stock options and the conversion of LYONs.
6
<PAGE> 9
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The Company operates two core, global businesses: beverages and
entertainment. The Company's beverage businesses are engaged principally in the
production and marketing of distilled spirits, wines, fruit juices, coolers,
beers and mixers. The Company's entertainment unit, MCA INC., produces and
distributes motion picture, television and home video products; produces and
distributes recorded music; operates theme parks and retail stores; and
publishes books.
The discussion of business unit performance includes attributed earnings
before interest, taxes, depreciation and amortization ("EBITDA") for the
Company's operations which reflects the proportionate share of the EBITDA of the
Company's equity companies. The adjustment for equity companies eliminates the
Company's proportionate share of the EBITDA in order to reflect equity income as
calculated under generally accepted accounting principles. Financial analysts
generally consider EBITDA to be an important measure of comparative operating
performance. However, EBITDA should be considered in addition to, not as a
substitute for operating income, net income, cash flows and other measures of
financial performance in accordance with generallly accepted accounting
principles.
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
---------------------
1996 1995
------ ------
(millions)
<S> <C> <C>
Reported Revenues........................................ $2,944 $2,971
Beverages -- EBITDA
Spirits and Wine....................................... $ 182 $ 169
Fruit Juices and Other................................. 63 55
------ ------
Total Beverages EBITDA............................ 245 224
Adjustment for Equity Companies.......................... (3) (2)
Depreciation and Amortization............................ (55) (50)
------ ------
Beverages -- Operating Income............................ 187 172
Entertainment -- EBITDA
Filmed Entertainment................................... 152 139
Music Entertainment.................................... 7 21
Recreation............................................. 60 50
Publishing and Other................................... 15 11
------ ------
Total Entertainment EBITDA........................ 234 221
Adjustment for Equity Companies.......................... (24) (21)
Depreciation and Amortization............................ (84) (70)
------ ------
Entertainment -- Operating Income........................ 126 130
Corporate Expenses....................................... (28) (12)
TOTAL OPERATING INCOME................................... $ 285 $ 290
====== ======
</TABLE>
7
<PAGE> 10
Reported revenues and operating income were $2.94 billion and $285 million,
respectively, for the quarter ended September 30, 1996, compared to $2.97
billion and $290 million in the prior year period. Reported revenues for the
quarter declined one percent, driven by a seven percent decrease in reported
revenues from spirits and wine operations. Reported revenues for fruit juices
and other and entertainment increased six percent and two percent, respectively.
Operating income declined $5 million to $285 million as improvements in
operating results were more than offset by higher corporate expenses from
reengineering activities and an increase in amortization expense associated with
the Company's investments in Interscope Records and Brillstein-Grey
Entertainment.
Attributed revenues for the first quarter declined slightly ($11 million)
to $3.27 billion as weakness in the spirits and wine operations in Europe and
Asia more than offset strong results in spirits and wine in North America and
increases in fruit juices and other and the entertainment segment. EBITDA for
the quarter increased eight percent to $479 million from $445 million in 1995
reflecting increases in both beverage and entertainment operations.
BEVERAGE OPERATIONS
In the quarter ended September 30, 1996, the Beverages segment contributed
$1.59 billion to reported revenues and $187 million to operating income versus
$1.65 billion of reported revenues and $172 million of operating income in the
prior year.
Spirits and Wine
Reported and attributed revenues declined seven percent and eight percent,
respectively, as weakness in the Europe and Asia Pacific regions more than
offset growth in North America. Foreign exchange had a negligible effect on
results in the quarter. The 13 percent decrease in Europe is primarily
attributable to Germany where Mumm Sekt sales continued to be adversely impacted
by a price increase taken in the early spring. In the Asia Pacific region,
increased competitive pressures and the Company's relatively tight credit
practices combined with the discontinuation of unprofitable stock keeping units
in certain markets, including Japan, resulted in a $73 million decline in
attributed revenues. Revenues in the Americas increased four percent on an
exceptionally strong performance in North America which more than offset a
decline in Latin America, primarily related to economic difficulties in
Venezuela. Spirits and wine volumes fell six percent in the quarter, in line
with the decline in revenues. Several international brands experienced volume
declines including Chivas Regal Scotch Whisky (-14 percent), Martell Cognac (-11
percent), Mumm Sekt (-22 percent) and Royal Salute Scotch Whisky (-28 percent).
The impact of these declines was partially offset by growth in Crown Royal
Canadian Whisky (32 percent) which included some buy-in in advance of a late
summer price increase, Captain Morgan Original Spiced Rum (10 percent) and
Absolut Vodka (10 percent).
EBITDA was $182 million in the current year quarter, up from $169 million
in the prior year, reflecting an eight percent increase despite the revenue
shortfall. The improved results were attributable to a strong performance in
North America, higher per case margins from price increases, the beginning of
the realization of benefits from reengineering initiatives and lower brand
spending. The decline in brand spending is due, in part, to timing as well as
reduced spending on certain programs relating to the volume shortfall.
Fruit Juices and Other
Reported and attributed revenues for fruit juices and other increased six
percent in the quarter driven by the continued strength of Tropicana Pure
Premium in the United States, where Tropicana Pure Premium volume increased six
percent. Tropicana's value share of the chilled orange juice market was 40
percent for the quarter, a slight drop of less than one percent, attributable to
Tropicana's more price sensitive Season's Best line (from concentrate products).
Internationally, Tropicana Dole Beverages volumes were up three percent as sales
in Asia continued to be strong, but Europe experienced softness due to
8
<PAGE> 11
unusually cool weather. However, international revenues were essentially
unchanged versus the prior year due to an unfavorable exchange variance.
EBITDA for fruit juices and other increased 15 percent in the quarter to
$63 million driven by the strong performance in North America. The improved
results reflect the Pure Premium volume increases as well as higher margins
resulting from the benefits of reengineering activities. The margin growth was
achieved despite a substantial increase in advertising designed to enhance
Tropicana Pure Premium's leadership market position.
ENTERTAINMENT
Reported and attributed revenues for entertainment operations increased two
percent and four percent, respectively, versus the prior year period as all
divisions except filmed entertainment posted gains. EBITDA increased six percent
to $234 million as improvements in filmed entertainment, recreation and
publishing more than offset lower EBITDA in music entertainment. Operating
income declined three percent reflecting higher amortization of goodwill
relating to the Interscope Records and Brillstein-Grey Entertainment
investments.
Filmed Entertainment
Reported and attributed revenues decreased five percent and three percent,
respectively, while EBITDA increased nine percent in the quarter to $152
million. The motion picture group declined from the prior year as the theatrical
results of Twister (a joint venture with Warner Brothers) and The Nutty
Professor did not match last summer's strong movie slate of Apollo 13, Babe and
Casper. EBITDA from the television group improved as a result of the new pay and
free television agreements in Germany with the Kirch Group and RTL,
respectively, and higher domestic library sales. The contribution of USA
Networks, our 50 percent owned joint venture, was higher than last year mainly
due to greater advertising and affiliate revenues from increased subscribers.
Music Entertainment
Reported and attributed revenues increased $6 million or two percent
compared to the prior year quarter while EBITDA declined $14 million to $7
million. The decline in EBITDA reflects the planned investment program in music
entertainment as spending for new artists and labels and the expansion of
international operations continued. The impact of the investment spending in the
first quarter was partially offset by an increase in the number of new releases
and particularly strong unit sales of new releases including New Edition,
BLACKstreet and Tricia Yearwood.
Recreation
Reported and attributed revenues increased 34 percent and 38 percent,
respectively, and EBITDA increased $10 million or 20 percent versus the prior
year quarter. The increase in both revenues and EBITDA reflects the success of
the two new attractions: Jurassic Park-The Ride in Hollywood and Terminator 2:
3-D in Florida. At Universal Studios Hollywood, attendance increased 35 percent,
while Universal Studios Florida had a nine percent increase in attendance. Per
capita spending increased six percent at both parks. The earnings from the
increased attendance associated with the new attractions were partially offset
by higher marketing expenses and business development spending associated with
potential theme park and CityWalk expansion opportunities in Asia and Europe.
Publishing and Other
Reported and attributed revenues increased 21 percent and 19 percent,
respectively, and EBITDA increased $4 million to $15 million due to the release
of Tom Clancy's Executive Orders in hardcover. Spencer Gifts results increased
as comparable stores sales rose five percent versus the prior year.
9
<PAGE> 12
CORPORATE EXPENSES AND INTEREST, NET AND OTHER
Corporate expenses increased to $28 million from $12 million in the prior
year primarily reflecting expenses associated with reengineering initiatives.
Interest, net and other for the period was $7 million and included net interest
expense of $77 million, which was substantially offset by the $60 million gain
on the sale of the DuPont warrants as well as $10 million in dividend income
from the DuPont and Time Warner investments.
NET INCOME
Net income was $166 million or $.45 per share for the current quarter
compared to $66 million or $.18 per share in the prior year quarter. Excluding
the $39 million after tax gain on the sale of the DuPont warrants, net income
was $127 million or $.34 per share. The effective tax rate for the current
quarter was 38 percent, significantly lower than the prior year rate of 64
percent which included an adjustment to reflect the inclusion of MCA for the
first time.
LIQUIDITY AND CAPITAL RESOURCES
Current assets decreased to $6.5 billion at September 30, 1996 from $6.9
billion at June 30, 1996, reflecting the sale of the DuPont warrants. Current
liabilities at September 30, 1996 were $4.3 billion compared to $4.7 billion at
June 30, 1996 as a portion of the proceeds from the sale of the DuPont equity
warrants was used to reduce short-term borrowings. Shareholders' equity was $9.2
billion at September 30, 1996. Net debt was $3.8 billion compared to $4.1
billion at June 30, 1996 reflecting a reduction in short-term borrowings.
Net cash flow from operating activities was $446 million in the quarter
ended September 30, 1996 compared to $306 million in the prior year quarter. In
the current year, working capital, excluding current income tax liabilities,
utilized approximately $200 million more cash than the prior year. The higher
working capital requirements were primarily due to the timing of expenses. In
the prior year, a tax payment associated with the redemption by DuPont of 156
million shares of its common stock owned by the Company reduced cash flow from
operations by approximately $500 million.
Net cash provided from investing activities was $36 million in the quarter
reflecting the $500 million in proceeds from the sale of the DuPont warrants,
which was substantially offset by film production costs of $351 million and
capital expenditures of $117 million. The prior year reflected a net use of
funds of $533 million, primarily representing film production costs of $443
million and capital expenditures of $118 million. In addition, the Company's
liquidity is enhanced by its investment in Time Warner stock which had a market
value of $2.2 billion on September 30, 1996. As previously indicated, management
continues to evaluate options relating to this investment, including a possible
sale of the investment.
Financing activities in the current quarter reflect a decrease in
short-term borrowings as a portion of the proceeds from the DuPont warrants was
used to reduce outstanding short-term borrowings. In addition, the Company
repurchased shares at a cost of $91 million and paid dividends totalling $56
million. The Company recently announced a ten percent increase in the quarterly
dividend to $.165 per share effective in December 1996. In the comparable prior
year period financing activities reflected an increase in short-term borrowings,
primarily to fund the tax payment related to the DuPont redemption.
The Company's financial condition remains strong. Management believes that
its strong financial position provides it with sufficient financial flexibility
to meet future financial obligations.
10
<PAGE> 13
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the description of the Federal Trade Commission
investigation described on pages 12-13 of the Company's Transition Report on
Form 10-K for the transition period ended June 30, 1996 (the "Form 10-K"). By
letters dated October 3, 1996 and October 22, 1996, the Federal Trade Commission
notified MCA that it was closing its investigation.
Reference is made to the litigation entitled Robinson and Silvey v. EMI
Music Distribution, Inc., Sony Music Entertainment, Inc., Warner Elektra
Atlantic Corporation, UNI Distribution Corporation, Bertelsmann Music Group,
Inc. and Polygram Group Distribution, Inc., described on page 13 of the Form
10-K. The action was removed to Federal court on August 5, 1996. A motion to
remand to state court was filed on August 21, 1996.
Reference is made to the litigations entitled MCA INC. v. Viacom Inc.,
Viacom International Inc. and Eighth Century Corporation and Viacom Inc. and
Eighth Century Corporation v. The Seagram Company Ltd., MCA INC. and Universal
City Studios, Inc., described on page 14 of the Form 10-K. The trial of both
actions commenced on October 15, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
A total of 316,058,148 common shares were voted in person or by proxy at
the Annual Meeting of Shareholders on October 30, 1996 representing 84.63
percent of the shares entitled to be voted. Business was transacted as follows:
1. Election of Directors: The persons listed below were elected to serve
on the Board of Directors until the next annual meeting. The vote tabulation
with respect to each person follows:
<TABLE>
<CAPTION>
VOTES CAST VOTES CAST AGAINST
DIRECTOR FOR OR WITHHELD
----------------------------------- ----------- ------------------
<S> <C> <C>
Edgar M. Bronfman.................. 314,321,058 1,737,090
The Hon. Charles R. Bronfman....... 314,323,678 1,734,470
Edgar Bronfman, Jr................. 314,304,698 1,753,450
Samuel Bronfman II................. 314,329,998 1,728,150
Matthew W. Barrett................. 313,624,820 2,433,328
Frank J. Biondi, Jr................ 314,238,546 1,819,602
The Hon. William G. Davis.......... 314,253,518 1,804,630
The Hon. Paul Desmarais............ 289,654,897 26,403,251
Michele J. Hooper.................. 314,287,814 1,770,334
David L. Johnston.................. 314,325,372 1,732,776
The Hon. E. Leo Kolber............. 314,273,262 1,784,886
Marie-Josee Kravis................. 314,324,661 1,733,487
Robert W. Matschullat.............. 314,329,469 1,728,679
C. Edward Medland.................. 314,289,933 1,768,215
Lew R. Wasserman................... 309,529,068 6,529,080
John S. Weinberg................... 313,611,785 2,446,363
</TABLE>
2. Approval of Senior Executive Short-term Incentive Plan: The proposal
to approve the Company's Senior Executive Short-term Incentive Plan was approved
by a vote of 304,444,090 shares for and 11,614,058 shares against, withheld,
abstentions and broker nonvotes.
3. Shareholder Proposal: A shareholder proposal regarding, among other
things, the separation of the Company's entertainment and beverage businesses
was rejected by a
11
<PAGE> 14
vote of 303,235,284 shares against, withheld, abstentions and broker nonvotes
and 12,882,864 shares for.
4. Ratification of Independent Accountants: The proposal to ratify the
appointment of Price Waterhouse as independent accountants to serve until the
next annual meeting was approved by a vote of 315,771,881 shares for and 286,267
shares against, withheld, abstentions and broker nonvotes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index filed with this Form 10-Q is on page 14.
(b) Current Reports on Form 8-K
1. A Current Report on Form 8-K dated July 24, 1996 was filed (i) to
report under Item 5 the repurchase by DuPont from the Company of the DuPont
warrants, and (ii) to file under Item 7 a press release announcing, among other
things, such repurchase.
12
<PAGE> 15
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
THE SEAGRAM COMPANY LTD.
(Registrant)
By: /s/ Robert W. Matschullat
Robert W. Matschullat
Vice Chairman and Chief Financial Officer
(Principal Financial Officer)
Dated: November 14, 1996
13
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------------------------
<S> <C>
12(a) -- Computation of Ratio of Earnings to Fixed Charges -- The Seagram Company Ltd.
12(b) -- Computation of Ratio of Earnings to Fixed Charges -- Joseph E. Seagram & Sons,
Inc.
27 -- Financial Data Schedule
</TABLE>
14
<PAGE> 1
THE SEAGRAM COMPANY LTD.
AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
TRANSITION FISCAL
QUARTER ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30, JANUARY 31,
1996 1995 1996 1996
---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
Earnings before income taxes
and minority interest $277 $220 $ 65 $349
Add (deduct):
Equity in net earnings of less
than 50% owned companies (9) (14) (4) (20)
Dividends from less than 50%
owned companies 1 - 9 4
Fixed charges 101 103 183 426
Interest capitalized, net of
amortization - (1) (4) (2)
----- ----- ----- -----
Earnings available for fixed
charges $370 $308 $249 $757
----- ----- ----- -----
Interest Expense $ 83 $ 86 $151 $378
Proportionate share of 50%
owned companies fixed charges 4 5 8 6
Portion of rent expense deemed
to represent interest factor 14 12 24 42
----- ----- ----- -----
Fixed Charges $101 $103 $183 $426
Ratio of Earnings to Fixed
Charges 3.7x 3.0x 1.4x 1.8x
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<PAGE> 1
JOSEPH E. SEAGRAM & SONS, INC.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
Transition Fiscal
Quarter Ended Period Ended Year Ended
September 30, June 30, January 31,
1996 1995 1996 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes $101 $ 49 ($30) $ 83
Add (deduct):
Fixed charges 45 68 72 169
Minority interest - - - 1
---- ---- ---- ----
Earnings available for fixed
charges $146 $117 $ 42 $253
---- ---- ---- ----
Fixed charges:
Interest Expense $ 41 $ 62 $ 65 $145
Portion of rent expense deemed
to represent interest factor 4 6 7 24
---- ---- ---- ----
Fixed Charges $ 45 $ 68 $ 72 $169
---- ---- ---- ----
Ratio of Earnings to Fixed
Charges 3.2x 1.7x -(a) 1.5x
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
__________
(a) Fixed charges exceeded earnings by $30 million for the transition period
ended June 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE SEAGRAM COMPANY LTD. FOR THE QUARTER ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 248
<SECURITIES> 0
<RECEIVABLES> 1,779
<ALLOWANCES> 0
<INVENTORY> 3,170
<CURRENT-ASSETS> 6,485
<PP&E> 4,093
<DEPRECIATION> (1,189)
<TOTAL-ASSETS> 21,297
<CURRENT-LIABILITIES> 4,347
<BONDS> 2,543
0
0
<COMMON> 733
<OTHER-SE> 8,505
<TOTAL-LIABILITY-AND-EQUITY> 21,297
<SALES> 0
<TOTAL-REVENUES> 2,944
<CGS> 1,718
<TOTAL-COSTS> 1,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 278
<INCOME-TAX> 106
<INCOME-CONTINUING> 166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
