<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 December 31, 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 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 January 31, 1997, there were 370,758,256 common shares without nominal or
par value issued and outstanding.
<PAGE> 2
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income and
Retained Earnings -
Quarter and Six Months Ended
December 31, 1996 and 1995 1
Consolidated Balance Sheet -
December 31 and June 30, 1996 2
Consolidated Statement of Cash Flows -
Six Months Ended December 31, 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 7-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
<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 SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------ ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 3,749 $ 3,560 $ 6,693 $ 6,531
Cost of revenues 2,298 2,364 4,016 4,203
Selling, general and
administrative expenses 1,050 1,192 1,991 2,034
--------- --------- --------- ---------
OPERATING INCOME 401 4 686 294
Interest, net and other 66 70 73 140
--------- --------- --------- ---------
335 (66) 613 154
Provision (Benefit) for income taxes 172 (44) 278 96
Minority interest 2 4 8 18
--------- --------- --------- ---------
NET INCOME (LOSS) 161 (26) 327 40
Retained earnings at beginning
of period 8,413 8,545 8,389 8,535
Dividends paid (61) (56) (117) (112)
Shares purchased and retired (63) -- (149) --
--------- --------- --------- ---------
Retained earnings at end of period $ 8,450 $ 8,463 $ 8,450 $ 8,463
========= ========= ========= =========
Net income (loss) per share $ .43 $ (.07) $ .88 $ .11
========= ========= ========= =========
Dividends paid per share $ .165 $ .15 $ .315 $ .30
========= ========= ========= =========
Average shares outstanding (thousands) 370,159 373,675 370,452 373,352
========= ========= ========= =========
</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>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments at cost,
which approximates market $ 331 $ 279
Receivables, net 2,323 1,770
Inventories 3,022 3,142
Film costs, net of amortization 520 471
DuPont warrants -- 440
Deferred income taxes 402 402
Prepaid expenses and other current assets 338 382
-------- --------
TOTAL CURRENT ASSETS 6,936 6,886
-------- --------
Common stock of DuPont 774 651
Common stock of Time Warner 2,129 2,228
Film costs, net of amortization 942 783
Artists' contracts, advances and
other entertainment assets 575 646
Deferred charges and other assets 762 770
Property, plant and equipment, net 2,923 2,951
Investments in unconsolidated companies 2,184 2,162
Excess of cost over fair value of assets acquired 4,431 4,551
-------- --------
$ 21,656 $ 21,628
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and indebtedness
payable within one year $ 1,328 $ 1,850
Accrued royalties and participations 686 602
Payables and accrued liabilities 2,194 2,086
Income and other taxes 395 149
-------- --------
TOTAL CURRENT LIABILITIES 4,603 4,687
-------- --------
Long-term indebtedness 2,539 2,562
Accrued royalties and participations 353 388
Deferred income taxes 598 623
Deferred income taxes - DuPont share redemption 1,540 1,540
Other credits 762 784
Minority interest 1,847 1,839
Shareholders' Equity
Shares without par value (370,350,591 and
373,059,014 shares, respectively) 773 725
Cumulative currency translation adjustments (161) (246)
Cumulative gain on equity securities, net of tax 352 337
Retained earnings 8,450 8,389
-------- --------
TOTAL SHAREHOLDERS' EQUITY 9,414 9,205
-------- --------
$ 21,656 $ 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>
SIX MONTHS
ENDED DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 327 $ 40
----- -----
Adjustments to reconcile net income
to net cash provided
Amortization of film costs 514 587
Depreciation and amortization of assets 179 167
Amortization of excess of cost over fair
value of assets acquired 96 80
Gain on sale of DuPont warrants, pre-tax (60) --
Gain on sale of Putnam, pre-tax (64) --
Minority interest charged to income 8 18
Sundry 42 (24)
Changes in assets and liabilities
Receivables (629) (434)
Inventories 130 136
Prepaid expenses and other current assets 1 13
Artists' contracts, advances and
other entertainment assets (7) 56
Payables and accrued liabilities 126 529
Accrued royalties and participations 90 119
Income and other taxes 235 (615)
Deferred income taxes (33) 47
Other credits 20 (26)
----- -----
648 653
----- -----
Net cash provided by operating activities 975 693
----- -----
INVESTING ACTIVITIES
Film production (731) (607)
Capital expenditures (226) (253)
Proceeds from sale of DuPont warrants 500 --
Proceeds from sale of Putnam 330 --
Acquisition of Multimedia Entertainment (54) --
Sundry (3) 15
----- -----
Net cash used for investing activities (184) (845)
----- -----
FINANCING ACTIVITIES
Dividends paid (117) (112)
Issuance of shares upon exercise of stock options
and conversion of LYONs 56 54
Shares purchased and retired (157) --
Increase in long-term indebtedness 4 233
Decrease in long-term indebtedness (8) (10)
(Decrease) Increase in short-term borrowings and
indebtedness payable within one year (517) 244
----- -----
Net cash (used for) provided by financing activities (739) 409
----- -----
NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ 52 $ 257
===== =====
</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 interim 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 six 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 and six months ended January
31, 1996 have been restated on the new fiscal year basis to reflect results for
the three and six month periods ended December 31, 1995.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
2. Sale of The Putnam Berkley Group, Inc. ("Putnam")
On December 16, 1996, the Company completed the sale of Putnam, the book
publishing division of Universal Studios Inc. ("Universal"), formerly known as
MCA INC., to a subsidiary of Pearson plc for $330 million in cash. The results
for the three months ended December 31, 1996 reflect a $64 million pre-tax gain
($0 after-tax) from the sale which is included in "Revenues" on the consolidated
statement of income. There was no after-tax gain due to the write-off of
goodwill allocated to Putnam, which has no associated tax benefit.
3. Sale of the Warrants of E.I. du Pont de Nemours ("DuPont")
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 six months ended December 31, 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.
4. Investment in DuPont
At December 31, 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.
5. Investment in Time Warner Inc. ("Time Warner")
At December 31, 1996, the Company owned 56.8 million shares or approximately 11
percent of the outstanding common stock of Time Warner. The Company accounts for
the investment at market value. The total cost of the investment was $2.17
billion.
4
<PAGE> 7
6. Supplementary Financial Statement Information
<TABLE>
<CAPTION>
1996
-------------------------
DECEMBER 31, JUNE 30,
------------ --------
(millions)
<S> <C> <C>
INVENTORIES
Beverages $ 2,704 $ 2,789
Materials, supplies and other 318 353
------- -------
$ 3,022 $ 3,142
======= =======
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost $ 4,176 $ 4,084
Accumulated depreciation (1,253) (1,133)
------- -------
$ 2,923 $ 2,951
======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
EXCISE TAXES (included in
revenues and cost of revenues) $284 $310 $465 $496
==== ==== ==== ====
</TABLE>
7. 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 (373,872 shares at December 31, 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 SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Revenues $1,042 $1,030 $1,983 $2,016
Cost of revenues 797 820 1,512 1,563
Net income (loss) 18 (34) 84 (3)
</TABLE>
5
<PAGE> 8
Consolidated Balance Sheet information for JES follows:
<TABLE>
<CAPTION>
1996
------------------------------
DECEMBER 31, JUNE 30,
------------ --------
(millions)
<S> <C> <C>
Current assets $ 1,613 $ 1,348
Noncurrent assets 12,067 11,702
------- -------
$13,680 $13,050
======= =======
Current liabilities $ 1,084 $ 1,028
Noncurrent liabilities 3,586 3,175
Shareholder's equity 9,010 8,847
------- -------
$13,680 $13,050
======= =======
</TABLE>
8. Earnings Per Share and Common Shares
At December 31, 1996, there were 28,410,037 common shares potentially issuable
upon the conversion of the LYONs described in Note 7 and the exercise of
outstanding employee stock options. The dilutive effect on the Company's
earnings per share from the assumed issuance of these shares is less than 3
percent.
In the six months ended December 31, 1996, the Company retired 4,601,400 common
shares which were purchased on the open market and issued 1,892,977 shares upon
the exercise of employee stock options and the conversion of LYONs.
9. Reengineering Charge
In connection with a program to better position its beverage operations to
achieve strategic growth objectives, the Company recorded a pretax charge of
$290 million in the quarter ended December 31, 1995. The charge related
principally to the Company's global spirits and wine manufacturing, financial,
marketing and distribution systems and included rationalization of facilities in
the U.S. and Europe and other costs related to the redesign of processes
associated with the fulfillment of customer orders and the organizational
structure under which the spirits and wine business operates.
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, Universal Studios, Inc., produces and
distributes motion picture, television and home video products; produces and
distributes recorded music; and operates theme parks and retail stores.
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 generally accepted accounting
principles.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Reported Revenues $ 3,749 $ 3,560 $ 6,693 $ 6,531
======= ======= ======= =======
Beverages - EBITDA
Spirits and Wine $ 315 $ 290 $ 497 $ 459
Fruit Juices and Other 65 57 128 112
------- ------- ------- -------
Total Beverages EBITDA 380 347 625 571
Adjustment for Equity Companies (2) (4) (5) (6)
Depreciation and Amortization (55) (60) (110) (110)
Reengineering Charge -- (290) -- (290)
------- ------- ------- -------
Beverages - Operating Income (Loss) 323 (7) 510 165
Entertainment - EBITDA
Filmed Entertainment 65 64 217 203
Music Entertainment 45 27 52 48
Recreation and Other 40 42 115 103
------- ------- ------- -------
Total Entertainment EBITDA 150 133 384 354
Adjustment for Equity Companies (23) (23) (47) (44)
Depreciation and Amortization (81) (67) (165) (137)
Gain on Sale of Putnam 64 -- 64 --
------- ------- ------- -------
Entertainment - Operating Income 110 43 236 173
Corporate Expenses (32) (32) (60) (44)
------- ------- ------- -------
TOTAL OPERATING INCOME $ 401 $ 4 $ 686 $ 294
======= ======= ======= =======
</TABLE>
7
<PAGE> 10
Reported revenues for the quarter ended December 31, 1996 increased five percent
to over $3.7 billion as gains at the Tropicana Dole Beverages unit (five
percent) and Universal (nine percent) more than offset a two percent decline in
spirits and wine revenues. Reported revenues for the quarter ended December 31,
1996 included a $64 million pre-tax gain on the Putnam sale. Excluding the gain
on the sale of Putnam and the reengineering charge, operating income increased
15 percent to $337 million. The operating income comparison excludes the $290
million pre-tax reengineering charge for the beverage operations last year and
the $64 million pre-tax gain on the sale of Putnam in this year's quarter.
Attributed revenues for the second quarter rose to over $4.0 billion and EBITDA
increased ten percent to $530 million. EBITDA for the beverage operations
increased ten percent in the quarter versus the prior year reflecting strong
growth in both spirits and wine and the fruit juices and other operations.
Universal also reflected strong results as EBITDA increased 13 percent.
Beverage Operations
In the quarter ended December 31, 1996, the Beverages segment contributed $2.12
billion to reported revenues and $323 million to operating income versus $2.13
billion of reported revenues and $283 million of operating income in the prior
year, excluding the $290 million reengineering charge principally attributable
to spirits and wine operations.
For the six months, reported revenues were $3.7 billion, compared to $3.8
billion in the prior year. Excluding the reengineering charge in the prior year,
operating income for the six months ended December 31, 1996 increased twelve
percent to $510 million reflecting year-to-date improvements in both spirits and
wine and fruit juices and other operations.
Spirits and Wine
In the second quarter, reported and attributed revenues declined two percent as
growth in North America was more than offset by lower revenues in Europe and
Asia. The impact of foreign currency translation on reported results was
insignificant in the quarter. The lower revenues in Europe and Asia resulted
from continued competitive pressures and were negatively impacted by price
increases taken last spring. In Europe revenue declines were largely
attributable to Germany, where Mumm Sekt volumes were down significantly.
Excluding Germany, revenues in Europe were up two percent in the quarter.
Revenues in Asia were impacted by volume declines in Greater China and the
duty free business. In the Americas, revenues increased five percent as North
America, driven by Absolut and Captain Morgan, increased sales by $39 million
in the quarter. The growth in North America was partially offset by a $7 million
decline in revenues in Latin America as weakness in Venezuela more than offset
improvements in Brazil and Mexico.
In the current quarter, spirits and wine volumes fell four percent as the
performance of key brands was mixed. In North America, results reflect strong
sales volume for several brands, including Captain Morgan (+13 percent) and
Seagram's Gin (+3 percent). Certain key international brands were down, however,
including Mumm Sekt (-41 percent), Chivas (-10 percent), and Martell (-6
percent). The declines were partially offset by higher worldwide Absolut volumes
(+28 percent), a portion of which was due to timing of shipments.
EBITDA was $315 million for the quarter, up nine percent despite the decline in
revenues. The $25 million increase was driven principally by a particularly
strong performance in North America, higher per case margins from recent price
increases and continuing
8
<PAGE> 11
efficiencies from reengineering. Brand spending for the quarter was down in
total although spending levels varied from region to region. The overall decline
in brand spending reflected the timing of expenses and the volume shortfall.
Fruit Juices and Other
In the current quarter, reported and attributed revenues for fruit juices and
other increased four percent and five percent, respectively as results in North
America continue to be strong. Tropicana Pure Premium volumes increased eight
percent in North America in the quarter. Our share of the growing not from
concentrate juice market in the United States was maintained at 71% during the
quarter, led by the continued success of Tropicana Pure Premium and the
introduction of a new flavor - Tangerine Orange. Internationally, improved
volumes in Asia and the United Kingdom, were offset by volume shortfalls in
France. The volume shortfall in France was mainly due to a change in reporting
periods in the prior year when the Tropicana Dole Beverages International
operations changed to a current reporting basis in France from a one month lag.
As a result of the change, the current year quarter ended December 31, 1996 is
compared to a four month period in the prior year.
EBITDA for fruit juices and other increased 14 percent in the quarter to $65
million reflecting the strong performance of Tropicana Pure Premium in North
America. Overall, Fruit Juices and Other margins increased in the second quarter
to 12.8 percent from 11.7 percent in the prior year, despite a significant
increase in advertising expenditures. The improved margins reflect increased
operating efficiencies from reengineering activities.
Entertainment
In the current quarter, reported and attributed revenues increased nine percent,
before the pre-tax gain from the sale of Putnam. Operating income increased
seven percent on improved music results, despite higher amortization of goodwill
in the current year relating to the Interscope Records and Brillstein-Grey
Entertainment investments.
Excluding the gain on Putnam, reported and attributed revenues increased six
percent for the six months ended December 31, 1996. For the six months,
operating income declined $1 million, despite improvements in all business
lines, as higher goodwill amortization from the Interscope and Brillstein-Grey
Entertainment investments offset the increase in operating results.
As a result of the sale of Universal's book publishing business, the
Entertainment segment's operations are presented with three components: Filmed
Entertainment, Music Entertainment and Recreation and Other. Recreation and
Other includes recreation operations, retail stores, the Company's share of the
earnings of Sega GameWorks and new media ventures as well as publishing results
through December 16, 1996.
Filmed Entertainment
Reported and attributed revenues for the quarter decreased two percent and one
percent, respectively, while EBITDA increased two percent in the quarter to $65
million. Results for the motion picture group improved, primarily due to
successful theatrical results from The Nutty Professor and Twister (a joint
venture with Warner Brothers). Television EBITDA declined as higher income from
new international pay and free television agreements was more than offset by
deficit spending on network production. In December, Universal acquired
Gannett's Multimedia Entertainment unit which includes several syndicated talk
shows.
Music Entertainment
Reported and attributed revenues increased 41 percent in the current quarter
compared to the prior year quarter and EBITDA increased $18 million to $45
million. The improvement in EBITDA was achieved despite continued investment in
new artists and labels and international expansion. The music group benefitted
from a strong product release
9
<PAGE> 12
schedule. During the quarter ended December 31, 1996, Universal's share of the
U.S. music business was 13.7 percent compared to 8.7 percent a year ago. While
Universal's interest in Interscope Records, purchased in February 1996,
contributed heavily to the market share gain, the improvement was broadly based.
Recreation and Other
Reported and attributed revenues increased five percent and seven percent,
respectively, and EBITDA declined $2 million to $40 million. The five percent
decline in EBITDA this quarter was primarily due to publishing, which had
several strong releases last year. In addition, the lower results reflected
start up costs for Sega GameWorks, which will open its first location based
entertainment center in Seattle in March. Theme park revenues and EBITDA rose
significantly due to higher attendance and per capita spending in both the
Hollywood and Orlando parks. At Universal Studios Hollywood, attendance and
spending both rose nine percent. At Universal Studios Florida, attendance and
spending were up seven percent. The two new attractions, Jurassic Park - The
Ride in Hollywood and Terminator 2: 3-D in Florida were primarily responsible
for the improved results.
Corporate Expenses and Interest, Net and Other
Corporate expenses were $32 million in both the current and prior year quarters.
Interest, net and other for the quarter was $66 million and included net
interest expense of $75 million, which was partially offset by $9 million in
dividend income from the DuPont and Time Warner investments. In the prior year,
"Interest, net and other" was $70 million, reflecting higher interest costs for
the period reported in the first quarter.
For the six months ended December 31, 1996 and 1995, corporate expenses were $60
million and $44 million, respectively. The higher expenses in the current period
were mainly due to reengineering initiatives. Interest, net and other for the
six months ended December 31, 1996 was $73 million compared to $140 million in
the prior year period. The current year period reflects a $60 million pre-tax
gain on the sale of DuPont warrants reported in the first quarter.
Net Income
In the second quarter, net income was $161 million or $0.43 per share compared
with $185 million or $0.50 per share excluding the reengineering charge last
year. Including the reengineering charge, the prior year results reflected a net
loss of $26 million or $0.07 per share. Excluding the impact of special,
non-recurring items in both periods, net income for the six months ended
December 31, 1996 and 1995 was $288 million and $251 million, respectively.
The income tax provision for the current quarter included $64 million of taxes
on the gain on the sale of Putnam. The tax provision in the prior year quarter
reflected a $79 million tax benefit related to the reengineering charge. The
effective tax rate for the six months ended December 31, 1996 and 1995 was 39
percent for both periods. However, the effective income tax rate was 40 percent
in the quarter ended December 31, 1996 compared to 16 percent in the prior year.
The prior year reflects an adjustment to the anticipated full year rate.
Liquidity and Capital Resources
Current assets were $6.9 billion at December 31, 1996 and June 30, 1996 as a
seasonal increase in trade receivables offset the impact of the sale of DuPont
warrants. Current liabilities at December 31, 1996 were $4.6 billion compared to
$4.7 billion at June 30, 1996 as a portion of the proceeds from the sales of
Putnam and the DuPont equity warrants was used to reduce short-term borrowings.
Shareholders' equity was $9.4 billion at December 31, 1996. Net debt was $3.5
billion compared to $4.1 billion at June 30, 1996 reflecting a reduction in
short term borrowings.
10
<PAGE> 13
Net cash flow from operating activities was $1.0 billion in the six months ended
December 31, 1996 compared to $0.7 billion in the prior year period. A tax
payment associated with DuPont's redemption of 156 million shares of its
common stock owned by the Company reduced cash flow from operations by
approximately $500 million in the 1995 period.
Net cash used for investing activities was $184 million in the six months ended
December 31, 1996 as the proceeds from the sale of the DuPont warrants ($500
million) and the Putnam sale ($330 million) were more than offset by investments
in film production, capital expenditures and other investments. In the prior
year, cash used for investing activities reflected film production of $607
million and capital expenditures of $253 million. In addition, the Company's
liquidity is enhanced by its investment in Time Warner stock which had a market
value of $2.1 billion on December 31, 1996. As previously indicated, management
continues to evaluate its options relating to this investment, including a
possible sale of the investment.
Financing activities in the six months ended December 31, 1996 reflect a
decrease in short-term borrowings as a portion of the proceeds from the sale of
Putnam and the DuPont warrants was used to reduce outstanding short-term
borrowings. In addition, the Company repurchased shares at a cost of $157
million and paid dividends totalling $117 million which reflects 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- and long-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.
11
<PAGE> 14
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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, and remanded
back to state court on January 31, 1997, where it is now pending.
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 concluded on December 6, 1996. Following the consideration of post-trial
briefs, the matter will be submitted for decision by the court.
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 November 27, 1996 was filed to (i) report
under Item 5 an agreement to sell The Putnam Berkley Group, Inc. to a subsidiary
of Pearson plc and (ii) file under Item 7 a press release announcing such
agreement.
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: February 14, 1997
13
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
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
<PAGE> 1
THE SEAGRAM COMPANY LTD.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Transition Fiscal
Six Months Ended Period Ended Year Ended
December 31, June 30, January 31,
1996 1995 1996 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes
and minority interest $ 613 $ 154 $ 65 $ 349
Add (deduct):
Equity in net earnings of less
than 50% owned companies (11) (20) (4) (20)
Dividends from less than 50% owned
companies 1 1 9 4
Fixed charges 198 212 183 426
Interest capitalized, net of
amortization -- (1) (4) (2)
----- ----- ----- -----
Earnings available for fixed
charges $ 801 $ 346 $ 249 $ 757
----- ----- ----- -----
Interest Expense $ 163 $ 178 $ 151 $ 378
Proportionate share of 50% owned
companies' fixed charges 8 8 8 6
Portion of rent expense deemed to
represent interest factor 27 26 24 42
----- ----- ----- -----
Fixed Charges $ 198 $ 212 $ 183 $ 426
----- ----- ----- -----
Ratio of Earnings to Fixed Charges 4.05x 1.63x 1.36x 1.78x
===== ===== ===== =====
</TABLE>
<PAGE> 1
JOSEPH E. SEAGRAM & SONS, INC.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Transition Fiscal
Six Months Ended Period Ended Year Ended
December 31, June 30, January 31,
1996 1995 1996 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes $129 $ (4) $(30) $ 83
Add (deduct):
Fixed charges 90 105 72 169
Minority interest -- -- -- 1
---- ----- ---- ----
Earnings available for fixed charges $219 $ 101 $ 42 $253
---- ----- ---- ----
Fixed charges:
Interest Expense $ 82 $ 93 $ 65 $145
Portion of rent expense deemed to
represent interest factor 8 12 7 24
---- ----- ---- ----
Fixed Charges $ 80 $ 105 72 $169
---- ----- ---- ----
Ratio of Earnings to Fixed Charges 2.43x -- (a) -- (b) 1.50x
==== ===== ==== ====
</TABLE>
(a) Fixed charges exceeded earnings by $4 million for the Six Months Ended
December 31, 1995.
(b) 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 SIX MONTHS
ENDED DECEMBER 31, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 331
<SECURITIES> 0
<RECEIVABLES> 2,323
<ALLOWANCES> 0
<INVENTORY> 3,022
<CURRENT-ASSETS> 6,936
<PP&E> 4,176
<DEPRECIATION> (1,253)
<TOTAL-ASSETS> 21,656
<CURRENT-LIABILITIES> 4,603
<BONDS> 2,539
0
0
<COMMON> 773
<OTHER-SE> 8,641
<TOTAL-LIABILITY-AND-EQUITY> 21,656
<SALES> 0
<TOTAL-REVENUES> 6,693
<CGS> 4,016
<TOTAL-COSTS> 4,016
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> 613
<INCOME-TAX> 278
<INCOME-CONTINUING> 327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 327
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
</TABLE>
