<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, 1997
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 October 31, 1997, there were 349,013,166 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 Ended
September 30, 1997 and 1996 1
Consolidated Balance Sheet -
September 30, 1997 and June 30, 1997 2
Consolidated Statement of Cash Flows -
Quarter Ended September 30, 1997 and 1996 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
Item 6. Exhibits and Reports on Form 8-K 11
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
ENDED SEPTEMBER 30,
1997 1996
--------- ---------
<S> <C> <C>
Revenues $ 2,939 $ 2,944
Cost of revenues 1,746 1,718
Selling, general and administrative expenses 888 941
--------- ---------
OPERATING INCOME 305 285
Interest, net and other 53 7
--------- ---------
252 278
Provision for income taxes 110 106
Minority interest 9 6
--------- ---------
NET INCOME 133 166
Retained earnings at beginning of period 8,259 8,389
Dividends paid (59) (56)
Shares purchased and retired (364) (86)
--------- ---------
Retained earnings at end of period $ 7,969 $ 8,413
========= =========
Net income per share $ 0.37 $ 0.45
========= =========
Dividends paid per share $ 0.165 $ 0.15
========= =========
Average shares outstanding (thousands) 358,899 370,746
========= =========
</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,
1997 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments at cost $ 334 $ 504
Receivables, net 1,977 1,931
Inventories 2,860 2,974
Film costs, net of amortization 482 538
Deferred income taxes 525 521
Prepaid expenses and other current assets 443 402
-------- --------
TOTAL CURRENT ASSETS 6,621 6,870
-------- --------
Common stock of DuPont 1,012 1,034
Common stock of Time Warner 1,450 1,291
Film costs, net of amortization 968 840
Artists' contracts, advances and other entertainment assets 661 645
Deferred charges and other assets 746 714
Property, plant and equipment, net 3,130 3,125
Investments in unconsolidated companies 2,117 2,097
Excess of cost over fair value of assets acquired 4,204 4,236
-------- --------
$ 20,909 $ 20,852
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and indebtedness payable within one year $ 685 $ 255
Accrued royalties and participations 650 726
Payables and accrued liabilities 1,929 2,077
Income and other taxes 305 314
-------- --------
TOTAL CURRENT LIABILITIES 3,569 3,372
-------- --------
Long-term indebtedness 2,495 2,494
Accrued royalties and participations 465 339
Deferred income taxes 2,493 2,461
Other credits 868 913
Minority interest 1,860 1,851
Shareholders' Equity
Shares without par value (355,267,015 and 365,280,735 shares, respectively) 795 809
Cumulative currency translation adjustments (475) (427)
Cumulative gain on equity securities, net of tax 870 781
Retained earnings 7,969 8,259
-------- --------
TOTAL SHAREHOLDERS' EQUITY 9,159 9,422
-------- --------
$ 20,909 $ 20,852
======== ========
</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,
1997 1996
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 133 $ 166
----- -----
Adjustments to reconcile net income to net cash provided
Depreciation and amortization of assets 90 92
Amortization of excess of cost over fair value of assets acquired 56 47
Gain on sale of DuPont warrants, pre-tax -- (60)
Minority interest charged to income 9 6
Sundry (8) 65
Changes in assets and liabilities
Receivables (55) (18)
Inventories 66 (38)
Film costs, net of amortization (75) (118)
Prepaid expenses and other current assets (40) (17)
Artists' contracts, advances and other entertainment assets (25) (43)
Payables and accrued liabilities (97) (50)
Income and other taxes (6) 88
Deferred income taxes (19) (13)
Other credits (45) (12)
----- -----
(149) (71)
----- -----
Net cash (used for) provided by operating activities (16) 95
----- -----
INVESTING ACTIVITIES
Capital expenditures (94) (117)
Proceeds from sale of DuPont warrants -- 500
Sundry (63) 4
----- -----
Net cash (used for) provided by investing activities (157) 387
----- -----
FINANCING ACTIVITIES
Dividends paid (59) (56)
Issuance of shares upon exercise of stock options and conversion of LYONs 8 13
Shares purchased and retired (387) (91)
Increase in long-term indebtedness 11 2
Decrease in long-term indebtedness -- (19)
Increase (decrease) in short-term borrowings and indebtedness payable within one year 430 (362)
----- -----
Net cash provided by (used for) financing activities 3 (513)
----- -----
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS $(170) $ (31)
===== =====
</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 Annual
Report to Shareholders for the fiscal year ended June 30, 1997. 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.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
2. Purchase of USA Networks and proposed combination with HSN, Inc. ("HSNi")
On September 22, 1997, the Company and Viacom Inc. ("Viacom") announced that
they have agreed to resolve all litigation regarding jointly-owned USA Networks.
Under the terms of the agreement, Universal Studios, Inc. ("Universal"), on
October 21, 1997, acquired Viacom's 50% interest in USA Networks, including the
Sci-Fi Channel, for $1.7 billion in cash. The acquisition will be accounted for
under the purchase method of accounting. The cost of the acquisition has been
allocated on the basis of the estimated fair market value of the assets acquired
and liabilities assumed. This valuation resulted in $1.6 billion of unallocated
excess of cost over fair value of assets acquired which will be amortized over
40 years.
The unaudited condensed pro forma results of operations data presented below
assume the USA Networks acquisition occurred at the beginning of each quarter
presented. These pro forma results of operations were prepared based upon the
historical consolidated statements of operations of the Company and of USA
Networks for the quarters ended September 30, 1997 and 1996, adjusted to reflect
purchase accounting. The unaudited pro forma information is not necessarily
indicative of the combined results of operations of the Company and USA Networks
that would have resulted if the transactions had occurred on the dates
previously indicated, nor is it necessarily indicative of future operating
results of the Company.
<TABLE>
<CAPTION>
Pro Forma Income Statement Data
(millions, except per share amounts) QUARTER ENDED
SEPTEMBER 30,
1997 1996
------ ------
<S> <C> <C>
Revenues $3,111 $3,099
------ ------
Net income $ 120 $ 156
====== ======
PER SHARE DATA:
Net income $ 0.33 $ 0.42
------ ------
</TABLE>
On October 20, 1997, Universal and HSNi announced that Universal will contribute
the majority of its television assets, including all of the domestic operations
and 50% of the international operations of USA Networks, to HSNi in a
transaction in which Universal will receive 45% of HSNi's outstanding common
equity equivalents plus approximately $1.2 billion in cash. The 45% interest in
HSNi will be accounted for under the equity method. In addition, HSNi intends to
change its corporate name to USA Networks, Inc. The transaction is subject to
customary conditions, including HSNi shareholder approval, which is expected to
occur early in the third quarter of the Company's current fiscal year.
4
<PAGE> 7
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 three months 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.
4. Investment in DuPont
At September 30, 1997, the Company owned 16.4 million shares 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 September 30, 1997, the Company owned 26.8 million shares of the outstanding
common stock of Time Warner. The Company accounts for the investment at market
value. The total cost of the investment was $937 million.
6. Supplementary Financial Statement Information
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------- -------
(millions)
INVENTORIES
<S> <C> <C>
Beverages $ 2,530 $ 2,704
Materials, supplies and other 330 270
------- -------
$ 2,860 $ 2,974
======= =======
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost $ 4,505 $ 4,435
Accumulated depreciation (1,375) (1,310)
------- -------
$ 3,130 $ 3,125
======= =======
<CAPTION>
QUARTER
ENDED SEPTEMBER 30,
1997 1996
------- -------
(millions)
<S> <C> <C>
EXCISE TAXES (included in revenues and
cost of revenues) $ 162 $ 181
------- -------
</TABLE>
5
<PAGE> 8
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 (326,961 shares at September 30, 1997). 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,
1997 1996
---- ----
(millions)
<S> <C> <C>
Revenues $918 $941
Cost of revenues $705 $715
Net income $33 $65
</TABLE>
Consolidated Balance Sheet information for JES follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------- -------
(millions)
<S> <C> <C>
Current assets $ 1,235 $ 957
Noncurrent assets 12,834 12,666
------- -------
$14,069 $13,623
======= =======
Current liabilities $ 1,068 $ 671
Noncurrent liabilities 3,831 3,809
Shareholder's equity 9,170 9,143
------- -------
$14,069 $13,623
======= =======
</TABLE>
8. Earnings Per Share and Common Shares
At September 30, 1997, there were 33,228,178 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 three months ended September 30, 1997, the Company cancelled 10,278,000
common shares which were purchased on the open market and issued 264,000 shares
upon the exercise of employee stock options and the conversion of LYONs.
The Company plans to implement FAS 128, Earnings per Share, effective with the
second quarter of the current fiscal year. Had FAS 128 been implemented as of
July 1, 1996, the Company would have reported Basic and Diluted earnings per
share of $0.37 for the quarter ended September 30, 1997. For the quarter ended
September 30, 1996, Basic earnings per share of $0.45 and Diluted earnings per
share of $0.44 would have been reported.
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
SEPTEMBER 30,
1997 1996
------- -------
(millions)
<S> <C> <C>
Reported Revenues $ 2,939 $ 2,944
======= =======
Beverages - EBITDA
Spirits and Wine $ 191 $ 182
Fruit Juices and Other 69 63
------- -------
Total Beverages EBITDA 260 245
Adjustment for Equity Companies (2) (3)
Depreciation and Amortization (55) (55)
------- -------
Beverages - Operating Income 203 187
Entertainment - EBITDA
Filmed Entertainment 158 152
Music Entertainment 18 7
Recreation and Other 63 75
------- -------
Total Entertainment EBITDA 239 234
Adjustment for Equity Companies (27) (24)
Depreciation and Amortization (91) (84)
------- -------
Entertainment - Operating Income 121 126
Corporate Expenses (19) (28)
------- -------
TOTAL OPERATING INCOME $ 305 $ 285
======= =======
</TABLE>
7
<PAGE> 10
Reported revenues for the quarter ended September 30, 1997 were flat at $2.9
billion as revenue gains at Universal were offset by a decline in Spirits and
Wine revenues. Spirits and Wine revenues declined three percent, The Tropicana
Beverage Group revenues were flat year on year and Universal revenues increased
two percent. Operating income for the quarter increased seven percent to $305
million. Excluding the prior year results of Putnam, the publishing unit which
was sold in December 1996, reported revenues and operating income rose three
percent and 14 percent, respectively.
Attributed revenues for the first quarter were flat at $3.3 billion while EBITDA
increased four percent to $499 million. EBITDA for the beverages segment
increased six percent in the quarter versus the prior year reflecting growth in
both the Spirits and Wine and the Fruit Juices and Other operations. Universal
reflected improved results as EBITDA increased two percent. The comparison of
the Universal results is impacted by the sale of the publishing operations in
December 1996. Excluding the Putnam operations from the prior year, Universal's
EBITDA increased by 12 percent in this quarter.
Beverage Operations
In the quarter ended September 30, 1997, the Beverages segment contributed $1.56
billion to reported revenues and $204 million to operating income versus $1.59
billion of reported revenues and $188 million of operating income in the prior
year.
Spirits and Wine
In the first quarter, reported and attributed revenues declined three percent
and six percent, respectively. Excluding the unfavorable impact of foreign
exchange, reported revenues would have declined less than one percent. Revenues
were below last year because of the economic and currency crises in Asia
Pacific, lower Mumm Sekt sales in Germany and difficult comparisons in North
America where there was significant buy-in last year in anticipation of a Crown
Royal price increase.
Spirits and Wine volumes fell three percent as the performance of global brands
was mixed. Captain Morgan continued to be very strong with eight percent volume
growth, and both Martell and Royal Salute showed improvement (up three percent
and six percent, respectively). However, several key international brands were
down in the quarter, including Chivas Regal (-10 percent) and Mumm Sekt (-20
percent). Crown Royal volumes (-9 percent) declined in the quarter as a result
of an unfavorable comparison versus the prior year which benefited from buy-in
ahead of a price increase.
EBITDA was $191 million for the quarter, up five percent despite the modest
decline in volumes. Excluding the impact of unfavorable foreign exchange, EBITDA
would have increased seven percent. The EBITDA improvement results from growth
in Latin America, in particular Argentina and Mexico, and continued benefits
from reengineering and other cost-saving initiatives. Although total brand
spending declined primarily due to the impact of foreign exchange, brand equity
spending was higher than in the first quarter of last year.
Fruit Juices and Other
Reported revenues for Fruit Juices and Other were flat with the prior year while
attributed revenues increased one percent. Revenue growth was mitigated by an
unfavorable foreign exchange variance and difficult comparisons with the prior
year in North America which included an extra week of sales due to the change in
the fiscal year end. Excluding the impact of these two items, reported revenues
would have increased eight percent over the prior year. The flagship brand,
Tropicana Pure Premium, experienced volume growth of three percent in North
America. Tropicana's share of the chilled orange juice market and the
not-from-concentrate juice market in the United States was 40 percent and 69
percent, respectively. Both of these share percentages were slightly ahead of
the first quarter last year. Internationally, volume increased 12 percent
reflecting growth in all regions. European volumes increased seven percent, Asia
Pacific grew 17 percent and Latin America was up 11 percent.
EBITDA for Fruit Juices and Other increased 10 percent in the quarter to $69
million reflecting the strong performance of Tropicana Pure Premium in North
America and the improved performance of the low alcohol portfolio resulting from
better cooler contribution and advances with Grolsch and Devil Mountain beers.
Overall, Fruit Juices and Other margins increased in the quarter to 12.8 percent
from 11.8 percent in the prior year as a result of continued improvement in
operating efficiencies from reengineering initiatives.
8
<PAGE> 11
Entertainment
Reported and attributed revenues increased two percent and four percent,
respectively. Operating income declined $5 million to $121 million as improved
results in all segments were more than offset by the absence of Putnam in the
current year. Excluding Putnam from the prior year results, reported and
attributed revenues increased ten percent and operating income was up 11
percent.
As a result of the sale of Universal's book publishing business in December
1996, the Entertainment segment's operations are presented in 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 increased 18 percent and 16
percent, respectively, reflecting the success of the foreign theatrical release
of The Lost World: Jurassic Park and the domestic video release of Liar, Liar.
EBITDA increased four percent to $158 million as the strong performance of these
two blockbusters was largely offset by the disappointing performance of several
first quarter releases and higher programming costs at USA Networks.
Music Entertainment
Reported and attributed revenues increased two percent and six percent,
respectively, in the quarter compared to the prior year. EBITDA more than
doubled to $18 million. The growth results from strong sales of new releases by
Aqua and Trisha Yearwood, as well as prior period releases including albums by
Sublime, God's Property and The Wallflowers. Margins improved substantially
reflecting lower manufacturing and distribution costs due to cost reduction
programs and higher volumes.
Recreation and Other
Reported and attributed revenues decreased 35 percent and 30 percent,
respectively, and EBITDA decreased $12 million to $63 million. Excluding the
results of Putnam from the prior year, reported and attributed revenues
decreased six percent and five percent, respectively, while EBITDA increased 17
percent. As expected, attendance was down at both the Hollywood and Florida
theme parks compared with very strong attendance figures in last year's first
quarter. The prior period benefited from the opening of Jurassic Park - The Ride
in Hollywood and Terminator-2: 3-D in Florida in late spring 1996. The EBITDA
increase resulted from increased per capita spending at both parks, with
spending up six percent in Hollywood and seven percent in Florida, combined with
reduced new business development spending.
Corporate Expenses and Interest, Net and Other
Corporate expenses were $19 million in the current quarter as compared to $28
million in the prior year, primarily due to reduced costs associated with
stock-based compensation as a result of the decline in the market value of the
Company's shares during the quarter. Interest, net and other for the quarter was
$53 million and included net interest expense of $60 million, which was
partially offset by $7 million in dividend income from the DuPont and Time
Warner investments. In the prior year, Interest, net and other was $7 million
which was comprised of net interest expense of $77 million offset by a $60
million pre-tax gain on the sale of DuPont warrants and $10 million of dividend
income from the DuPont and Time Warner investments. The $17 million interest
expense decline versus the prior year is due primarily to a lower average debt
balance, which reflects the proceeds from the Company's sales of Putnam
(December 1996) and 30 million Time Warner shares (May 1997) partly offset by
funds used for share repurchases.
9
<PAGE> 12
Net Income
In the first quarter, net income was $133 million or $0.37 per share compared
with net income excluding non-recurring items (sale of DuPont warrants) of $127
million or $0.34 per share last year. Including non-recurring items, net income
for the quarter ended September 30, 1996 was $166 million or $0.45 per share.
The effective tax rate for the quarter ended September 30, 1997 was 44 percent
as compared to an effective tax rate of 38 percent in the prior year. The
increase in the effective tax rate is due to the inclusion of reserves for
possible income tax assessments in the current year tax provision.
Liquidity and Capital Resources
Current assets were $6.6 billion at September 30, 1997 as compared to $6.9
billion at June 30, 1997 due primarily to a lower Cash and short-term
investments balance and a seasonal decline in inventories in the juice beverage
business. Current liabilities at September 30, 1997 were $3.6 billion compared
to $3.4 billion at June 30, 1997 due primarily to an increase in short-term
borrowings to fund share repurchases. Shareholders' equity was $9.2 billion at
September 30, 1997 compared to $9.4 billion at June 30, 1997. Net debt was $2.8
billion compared to $2.2 billion at June 30, 1997 reflecting an increase in
short term borrowings primarily to finance share repurchases in the first
quarter.
Net cash of $16 million was used for operating activities in the three months
ended September 30, 1997, a variance of $111 million compared to the $95 million
of cash provided by operating activities in the prior year period, which
resulted from normal working capital fluctuations.
Cash used for investing activities was $157 million in the three months ended
September 30, 1997, primarily for capital expenditures. In the prior year, cash
provided by investing activities of $387 million reflected proceeds of $500
million on the sale of the DuPont warrants offset by capital expenditures of
$117 million. The Company's liquidity is enhanced by its investment in Time
Warner stock which had a market value of $1.45 billion on September 30, 1997. As
previously indicated, the Company does not view its remaining investment in Time
Warner as a strategic asset.
Financing activities in the three months ended September 30, 1997 reflect an
increase in short-term borrowings used primarily to finance the repurchase of
the Company's shares for $387 million and to pay dividends of $59 million. In
the comparable prior year period, financing activities reflected a decrease in
short-term borrowings due to the receipt of proceeds from the sale of the DuPont
warrants, the Company's repurchase of shares at a cost of $91 million and
dividend payments totaling $56 million.
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 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 9 of the Company's Form 10-K for the
fiscal year ended June 30, 1997 ("Form 10-K"). On October 21, 1997, Universal
completed the purchase of Viacom's 50 percent interest in USA Networks and
Sci-Fi Europe L.L.C. for $1.7 billion in cash. Pursuant to the settlement
agreement between the parties, an order dismissing the action was entered on
October 23, 1997.
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 10 of the Form
10-K. An order dismissing the action without prejudice was entered on August 1,
1997.
Item 4. Submission of Matters to a Vote of Security Holders
A total of 296,165,514 common shares were voted in person or by proxy at
the Annual Meeting of Shareholders on November 5, 1997 representing 83.37
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 VOTES CAST AGAINST
DIRECTOR CAST FOR OR WITHHELD
- -------- -------- -----------
<S> <C> <C>
Edgar M. Bronfman 294,730,844 1,347,428
The Hon. Charles R. Bronfman 294,742,326 1,335,946
Edgar Bronfman, Jr 294,706,770 1,371,502
Samuel Bronfman II 294,744,179 1,334,093
Matthew W. Barrett 294,744,173 1,334,099
Laurent Beaudoin 294,887,547 1,190,725
Frank J. Biondi, Jr 294,745,402 1,332,870
Richard H. Brown 294,887,053 1,191,219
The Hon. William G. Davis 290,054,359 6,023,913
Andre Desmarais 290,204,081 5,874,191
Michele J. Hooper 294,894,771 1,183,501
David L. Johnston 294,884,626 1,193,646
The Hon. E. Leo Kolber 294,735,123 1,343,149
Marie-Josee Kravis 294,883,650 1,194,622
Robert W. Matschullat 294,747,189 1,331,083
C. Edward Medland 294,878,903 1,199,369
Lew R. Wasserman 294,686,676 1,391,596
John S. Weinberg 294,747,092 1,331,180
</TABLE>
2. Ratification of Independent Accountants: The proposal to ratify the
appointment of Price Waterhouse LLP as independent accountants to serve until
the next annual meeting was approved by a vote of 295,995,780 shares for and
82,492 shares against, withheld, abstentions and broker nonvotes.
11
<PAGE> 14
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 August 29, 1997 to report under item 5 and
file under item 7 the Company's consolidated financial statements for the fiscal
year ended June 30, 1997.
2. A Current Report on Form 8-K dated September 23, 1997 to report under item 5
and file under item 7 a press release announcing that the Company and Viacom had
agreed to resolve all litigation regarding USA Networks and that Universal had
agreed to acquire Viacom's 50 percent interest in USA Networks, including Sci-Fi
Channel, for $1.7 billion in cash.
3. A Current Report on Form 8-K dated October 21, 1997 to report under item 5
and file under item 7 a press release announcing that Universal will contribute
the majority of its television assets, including all of the domestic operations
and 50% of the international operations of USA Networks, to HSNi in a
transaction in which Universal will receive 45% of HSNi's outstanding common
equity equivalents plus approximately $1.2 billion in cash.
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, 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
14
<PAGE> 1
Exhibit 12(a)
THE SEAGRAM COMPANY LTD.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Transition
Quarter Ended Year Ended Period Ended
September 30, June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes and $ 252 $ 278 $ 899 $ 65
minority interest
Add (deduct):
Equity in net earnings of less than 50%
owned companies (2) (9) (32) (4)
Dividends from less than 50% owned 3 1 12 9
companies
Fixed charges 87 101 398 183
Interest capitalized, net of amortization (1) -- (2) (4)
------- ------- ------- -------
Earnings available for fixed charges $ 339 $ 371 $ 1,275 $ 249
------- ------- ------- -------
Fixed Charges:
Interest Expense $ 68 $ 83 $ 326 $ 151
Proportionate share of 50% owned
companies' fixed charges 5 4 16 8
Portion of rent expense deemed to
represent interest factor 14 14 56 24
------- ------- ------- -------
Fixed Charges $ 87 $ 101 $ 398 $ 183
------- ------- ------- -------
Ratio of Earnings to Fixed Charges 3.9x 3.7x 3.2x 1.4x
======= ======= ======= =======
</TABLE>
<PAGE> 1
Exhibit 12(b)
JOSEPH E. SEAGRAM & SONS, INC.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Transition
Quarter Ended Year Ended Period Ended
September 30, June 30, June 30,
1997 1996 1997 1996
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes and minority $ 62 $ 101 $ 151 $ (30)
interest
Add (deduct):
Fixed charges 41 45 176 72
Interest capitalized, net of amortization -- -- (1) --
----- ----- ----- -----
Earnings available for fixed charges $ 103 $ 146 $ 326 $ 42
----- ----- ----- -----
Fixed charges:
Interest Expense $ 38 $ 41 $ 159 $ 65
Portion of rent expense deemed to
represent interest factor 3 4 17 7
----- ----- ----- -----
Fixed Charges $ 41 $ 45 176 $ 72
----- ----- ----- -----
Ratio of Earnings to Fixed Charges 2.5x 3.2x 1.9x -(a)
===== ===== ===== =====
</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, 1997 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-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 334
<SECURITIES> 0
<RECEIVABLES> 1,977
<ALLOWANCES> 0
<INVENTORY> 2,860
<CURRENT-ASSETS> 6,621
<PP&E> 4,505
<DEPRECIATION> (1,375)
<TOTAL-ASSETS> 20,909
<CURRENT-LIABILITIES> 3,569
<BONDS> 2,495
0
0
<COMMON> 795
<OTHER-SE> 8,364
<TOTAL-LIABILITY-AND-EQUITY> 20,909
<SALES> 0
<TOTAL-REVENUES> 2,939
<CGS> 1,746
<TOTAL-COSTS> 1,746
<OTHER-EXPENSES> 888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 252
<INCOME-TAX> 110
<INCOME-CONTINUING> 133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
