<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 March 31, 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.
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(Exact name of registrant as specified in its charter)
Canada None
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Peel Street, Montreal, Quebec, Canada H3A 1S9
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(Address of principal executive offices) (Zip Code)
514-849-5271
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(Registrant's telephone number, including area code)
No Change
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(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 April 30, 1997, there were 366,817,402 common shares without nominal or
par value issued and outstanding.
<PAGE> 2
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statement of Income and
Retained Earnings -
Quarter and Nine Months Ended
March 31, 1997 and 1996 1
Consolidated Balance Sheet -
March 31, 1997 and June 30, 1996 2
Consolidated Statement of Cash Flows -
Nine Months Ended March 31, 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 7-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
</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 NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 2,847 $ 2,635 $ 9,540 $ 9,166
Cost of revenues 1,755 1,652 5,771 5,855
Selling, general and administrative expenses 966 875 2,957 2,909
--------- --------- --------- ---------
OPERATING INCOME 126 108 812 402
Interest, net and other 61 66 134 206
--------- --------- --------- ---------
65 42 678 196
Provision for income taxes 34 28 312 124
Minority interest 4 1 12 19
--------- --------- --------- ---------
NET INCOME 27 13 354 53
Retained earnings at beginning of period 8,450 8,463 8,389 8,535
Dividends paid (61) (56) (178) (168)
Shares purchased and retired (50) (19) (199) (19)
--------- --------- --------- ---------
Retained earnings at end of period $ 8,366 $ 8,401 $ 8,366 $ 8,401
========= ========= ========= =========
Net income per share $ 0.07 $ 0.04 $ 0.96 $ 0.15
========= ========= ========= =========
Dividends paid per share $ 0.165 $ 0.15 $ 0.48 $ 0.45
========= ========= ========= =========
Average shares outstanding (thousands) 370,659 374,444 370,520 373,713
========= ========= ========= =========
</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>
MARCH 31, JUNE 30,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments at cost, which approximates market $ 423 $ 279
Receivables, net 1,884 1,770
Inventories 2,946 3,142
Film costs, net of amortization 637 471
DuPont warrants -- 440
Deferred income taxes 369 402
Prepaid expenses and other current assets 327 382
-------- --------
TOTAL CURRENT ASSETS 6,586 6,886
-------- --------
Common stock of DuPont 871 651
Common stock of Time Warner 2,455 2,228
Film costs, net of amortization 780 783
Artists' contracts, advances and other entertainment assets 525 646
Deferred charges and other assets 805 770
Property, plant and equipment, net 3,044 2,951
Investments in unconsolidated companies 2,125 2,162
Excess of cost over fair value of assets acquired 4,374 4,551
-------- --------
$ 21,565 $ 21,628
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and indebtedness payable within one year $ 1,369 $ 1,850
Accrued royalties and participations 720 602
Payables and accrued liabilities 1,957 2,086
Income and other taxes 313 149
-------- --------
TOTAL CURRENT LIABILITIES 4,359 4,687
-------- --------
Long-term indebtedness 2,480 2,562
Accrued royalties and participations 384 388
Deferred income taxes 747 623
Deferred income taxes - DuPont share redemption 1,540 1,540
Other credits 784 784
Minority interest 1,851 1,839
Shareholders' Equity
Shares without par value (369,601,274 and 373,059,014 shares, respectively) 789 725
Cumulative currency translation adjustments (363) (246)
Cumulative gain on equity securities, net of tax 628 337
Retained earnings 8,366 8,389
-------- --------
TOTAL SHAREHOLDERS' EQUITY 9,420 9,205
-------- --------
$ 21,565 $ 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>
NINE MONTHS
ENDED MARCH 31,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 354 $ 53
------- -------
Adjustments to reconcile net income to net cash provided
Amortization of film costs 817 861
Depreciation and amortization of assets 261 246
Amortization of excess of cost over fair value of assets acquired 146 121
Gain on sale of DuPont warrants, pre-tax (60) --
Gain on sale of Putnam, pre-tax (64) --
Minority interest charged to income 12 19
Sundry 77 7
Changes in assets and liabilities
Receivables (224) 151
Inventories 39 (9)
Prepaid expenses and other current assets 7 (18)
Artists' contracts, advances and other entertainment assets 30 28
Payables and accrued liabilities (77) 246
Accrued royalties and participations 155 95
Income and other taxes 151 (592)
Deferred income taxes 9 27
Other credits (8) 36
------- -------
1,271 1,218
------- -------
Net cash provided by operating activities 1,625 1,271
------- -------
INVESTING ACTIVITIES
Film production (992) (879)
Capital expenditures (336) (353)
Proceeds from sale of DuPont warrants 500 --
Proceeds from sale of Putnam 330 --
Acquisition of Multimedia Entertainment (55) --
Acquisition of interest in Interscope Records -- (200)
Sundry (113) (141)
------- -------
Net cash used for investing activities (666) (1,573)
------- -------
FINANCING ACTIVITIES
Dividends paid (178) (168)
Issuance of shares upon exercise of stock options and conversion of LYONs 75 63
Shares purchased and retired (210) (21)
Increase in long-term indebtedness 7 276
Decrease in long-term indebtedness (32) (72)
(Decrease) increase in short-term borrowings and indebtedness payable within (477) 343
one year ------- -------
Net cash (used for) provided by financing activities (815) 421
------- -------
NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ 144 $ 119
======= =======
</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 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 nine 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 prior year fiscal quarters have been restated
on the new fiscal year basis to reflect results for the three and nine month
periods ended March 31, 1996.
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. Proceeds from the sale, after giving
effect to the repayment of an intercompany account, post closing adjustments and
certain expense reimbursements, were $330 million. The results for the nine
months ended March 31, 1997 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 nine months ended March 31, 1997 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 March 31, 1997, 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 March 31, 1997, 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>
MARCH 31, JUNE 30,
1997 1996
---- ----
(millions)
<S> <C> <C>
INVENTORIES
Beverages $2,652 $2,789
Materials, supplies and other 294 353
------ ------
$2,946 $3,142
====== ======
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost $4,323 $4,084
Accumulated depreciation (1,279) (1,133)
------ ------
$3,044 $2,951
====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
EXCISE TAXES (included in revenues and cost of revenues) $ 154 $ 142 $ 619 $ 638
----- ----- ----- -----
</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 (359,599 shares at March 31, 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 NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Revenues $925 $847 $2,908 $2,863
Cost of revenues $645 $667 $2,157 $2,230
Net income (loss) $16 ($38) $100 ($41)
</TABLE>
5
<PAGE> 8
Consolidated Balance Sheet information for JES follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
---- ----
(millions)
<S> <C> <C>
Current assets $ 2,297 $ 1,348
Noncurrent assets 11,669 11,702
------ ------
$13,966 $13,050
======= =======
Current liabilities $ 1,578 $ 1,028
Noncurrent liabilities 3,298 3,175
Shareholder's equity 9,090 8,847
----- -----
$13,966 $13,050
======= =======
</TABLE>
8. Earnings Per Share and Common Shares
At March 31, 1997, there were 27,789,131 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 nine months ended March 31, 1997, the Company retired 5,984,600 common
shares which were purchased on the open market and issued 2,526,860 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 fiscal year ending June 30, 1998. Had FAS 128 been
implemented as of July 1, 1996, the Company would have reported Basic and
Diluted earnings per share of $0.07 for the quarter ended March 31, 1997. For
the nine months ended March 31, 1997, Basic earnings per share of $0.96 and
Diluted earnings per share of $0.95 would have been reported.
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 nine months ended March 31, 1996. 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
------- ------- ------- -------
(millions)
<S> <C> <C> <C> <C>
Reported Revenues $ 2,847 $ 2,635 $ 9,540 $ 9,166
======= ======= ======= =======
Beverages - EBITDA
Spirits and Wine $ 143 $ 131 $ 640 $ 590
Fruit Juices and Other 50 43 178 155
------- ------- ------- -------
Total Beverages EBITDA 193 174 818 745
Adjustment for Equity Companies (1) (1) (6) (7)
Depreciation and Amortization (55) (53) (165) (163)
Reengineering Charge -- -- -- (290)
------- ------- ------- -------
Beverages - Operating Income 137 120 647 285
Entertainment - EBITDA
Filmed Entertainment 87 109 304 312
Music Entertainment 10 (13) 62 35
Recreation and Other 17 12 132 115
------- ------- ------- -------
Total Entertainment EBITDA 114 108 498 462
Adjustment for Equity Companies (25) (22) (72) (66)
Depreciation and Amortization (77) (67) (242) (204)
Gain on Sale of Putnam -- -- 64 --
------- ------- ------- -------
Entertainment - Operating Income 12 19 248 192
Corporate Expenses (23) (31) (83) (75)
------- ------- ------- -------
TOTAL OPERATING INCOME $ 126 $ 108 $ 812 $ 402
======= ======= ======= =======
</TABLE>
7
<PAGE> 10
Reported revenues for the quarter ended March 31, 1997 increased eight percent
to over $2.8 billion reflecting revenue gains at all business units. Spirits and
Wine revenues were up three percent, The Seagram Beverage Group rose seven
percent and Universal revenues increased 13 percent. Operating income for the
quarter increased 17 percent to $126 million. Reported revenues for the nine
months ended March 31, 1997 increased four percent including a $64 million
pre-tax gain on the Putnam sale. Excluding the gain on the sale of Putnam and
the $290 million pre-tax reengineering charge for the beverage operations last
year, reported revenues increased three percent to almost $9.5 billion and
operating income for the nine months increased eight percent to $748 million.
Attributed revenues for the third quarter rose nine percent to $3.2 billion and
EBITDA also increased nine percent to $307 million. EBITDA for the beverages
segment increased 11 percent in the quarter versus the prior year reflecting
strong growth in both the Spirits and Wine and the Fruit Juices and Other
operations. Universal also reflected strong results as EBITDA increased six
percent. The Universal results are impacted by the sale of the publishing
operations in December 1996. Excluding the Putnam operations, Universal's EBITDA
increased 12 percent in the quarter.
Beverage Operations
In the quarter ended March 31, 1997, the Beverages segment contributed $1.56
billion to reported revenues and $137 million to operating income versus $1.49
billion of reported revenues and $120 million of operating income in the prior
year.
For the nine months, reported revenues were flat with the prior year at $5.27
billion. Excluding the $290 million prior year reengineering charge principally
related to Spirits and Wine operations, operating income for the nine months
ended March 31, 1997 increased 13 percent to $647 million reflecting
year-to-date improvements in both Spirits and Wine and Fruit Juices and Other
operations.
Spirits and Wine
In the third quarter, reported and attributed revenues increased three percent
and one percent, respectively, following two quarters of decline. Revenues in
Europe grew slightly in the quarter as Mumm Sekt volumes rose. Revenues in the
Americas declined largely due to weakness in Venezuela. A decrease in Asia
Pacific attributed revenues was primarily caused by lower spirits consumption in
Korea due to difficult economic and market conditions. Excluding the impact of
unfavorable foreign currency translation on reported results, Spirits and Wine
reported revenues would have grown six percent in the quarter.
In the current quarter, Spirits and Wine volumes fell one percent as the
performance of global brands continued to be mixed. Volumes for both Royal
Salute (+12 percent) and Mumm Sekt (+45 percent), which were down substantially
in the first half of the year, increased in the quarter. Captain Morgan (+15
percent) and Absolut (+5 percent) continued their strong volume growth. Certain
key international brands, while continuing to be down, have moderated their
declines, including Chivas Regal (-7 percent) and Martell (-5 percent). Crown
Royal volumes (-5 percent) declined in the quarter as a result of timing, but
were up for the nine months.
EBITDA was $143 million for the quarter, up nine percent despite the modest
decline in volumes. The $12 million increase reflects continued growth in the
Americas, improvements in both Europe and Asia Pacific, higher per case margins
from recent price increases and continuing efficiencies from reengineering.
Brand spending for the quarter was down slightly in total although consumer
advertising was up over ten percent. Quarterly results include a gain on sale of
Heidsieck Monopole, a French champagne production company, which was almost
entirely offset by an adjustment to the carrying value of inventory held by
joint ventures in the Far East.
8
<PAGE> 11
Fruit Juices and Other
In the current quarter, reported and attributed revenues for Fruit Juices and
Other increased seven percent and eight percent, respectively as results in
North America continued to be strong. Tropicana Pure Premium volumes increased
12 percent in North America in the quarter. The Tropicana Dole Beverages* share
of the not-from-concentrate juice market in the United States is almost 72%, up
two percentage points over last year, led by the continued success of Tropicana
Pure Premium and the introduction of new flavors including Tangerine Orange.
Internationally, volumes grew 11 percent in the quarter primarily due to
increases in the United Kingdom and Asia.
EBITDA for Fruit Juices and Other increased 16 percent in the quarter to $50
million reflecting the strong performance of Tropicana Pure Premium in North
America. Overall, Fruit Juices and Other margins increased in the third quarter
to 9.4 percent from 8.7 percent in the prior year, despite a significant
increase in advertising expenditures. Improved operating efficiencies from
reengineering initiatives have contributed to the margin growth.
Entertainment
In the current quarter, reported and attributed revenues increased 13 percent
and 16 percent, respectively. Operating income declined $7 million to $12
million as improved results in music and recreation were more than offset by a
decline in filmed entertainment, the absence of Putnam and the 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 eight
percent and nine percent, respectively, for the nine months ended March 31,
1997. For the nine months, operating income excluding the gain on Putnam
declined $8 million, due to a decline in filmed entertainment and higher
goodwill amortization from the Interscope and Brillstein-Grey Entertainment
investments.
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 10 percent and 11
percent, respectively, but EBITDA declined to $87 million in the quarter, a
decrease of 20 percent. Television EBITDA declined, despite income from new
international pay and free television agreements. Deficit spending on network
television production was considerably higher this year and several shows from
last year, which were in a profit position, were cancelled. The motion picture
group's results were slightly above last year's primarily due to the strong
worldwide video results for Babe and Twister. Liar, Liar, which opened with only
ten days remaining in the quarter, has been very successful. However, its
contribution in the quarter has been limited by the timing of the opening and
the expensing of all advertising costs. In addition, the favorable results were
partially offset by the relatively weak box office performance of Dante's Peak
and Fierce Creatures.
Music Entertainment
Reported and attributed revenues increased 51 percent and 61 percent,
respectively, in the current quarter compared to the prior year quarter and
EBITDA increased $23 million to $10 million. The music division continues to
have strong volume results from current period releases as well as from certain
prior period releases. New releases included albums by LIVE and Erykah Badu, and
the GRIDLOCK'd and Lost Highway soundtracks. Shipments of prior period releases
for No Doubt, The Wallflowers, BLACKstreet and Sublime continued to be strong.
The improvement in EBITDA was mitigated by the continued investment in new
artists and labels and international expansion.
*The Dole brand name is licensed from Dole Food Company, Inc.
9
<PAGE> 12
Recreation and Other
Reported and attributed revenues decreased 21 percent and eight percent,
respectively, however EBITDA increased $5 million to $17 million. The decline in
revenues results from the sale of the publishing operation, which is included in
last year's results, in December 1996. 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
increased 23 percent and per capita spending rose eight percent. At Universal
Studios Florida, attendance was up five percent and per capita spending was up
12 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 $23 million in the current quarter as compared to $31
million in the prior year, primarily reflecting a decline in reengineering
activities. Interest, net and other for the quarter was $61 million and included
net interest expense of $71 million, which was partially offset by $10 million
in dividend income from the DuPont and Time Warner investments. In the prior
year, Interest, net and other was $66 million. The $5 million decrease in the
quarter versus the prior year is due to a lower average debt balance, which
reflects the proceeds from the Putnam sale, and lower average borrowing rates.
For the nine months ended March 31, 1997 and 1996, corporate expenses were $83
million and $75 million, respectively. The higher expenses in the current period
were mainly due to reengineering initiatives and to the increased stock bonus
liability charge resulting from the higher share price versus the prior year.
Interest, net and other for the nine months ended March 31, 1997 was $134
million compared to $206 million in the prior year period. The current year
period reflects a $60 million pre-tax gain on the sale of DuPont warrants in the
first quarter.
Net Income
In the third quarter, net income was $27 million or $0.07 per share compared
with $13 million or $0.04 per share last year. For the nine months ended March
31, 1997, net income excluding non-recurring items (sale of DuPont warrants and
Putnam) was $315 million or $0.85 per share compared with $264 million or $0.72
per share excluding the reengineering charge last year. Including the special,
non-recurring items in both periods, net income for the nine months ended March
31, 1997 was $354 million or $0.96 per share compared to $53 million or $0.15
per share for the nine months ended March 31, 1996.
The income tax provision for the nine months ended March 31, 1997 includes $64
million of taxes on the gain on the sale of Putnam and $21 million on the gain
on sale of DuPont warrants. The tax provision in the prior year nine month
period reflected a $79 million tax benefit related to the reengineering charge.
Excluding non-recurring items, the effective tax rate for the nine months ended
March 31, 1997 was 41 percent as compared to 42 percent in the prior year.
However, the effective income tax rate was 52 percent in the quarter ended March
31, 1997 compared to 67 percent in the prior year. The high tax rates in the
current and prior year quarters result from the seasonally low taxable earnings
compared with goodwill amortization, which is not tax deductible.
Liquidity and Capital Resources
Current assets were $6.6 billion at March 31, 1997 as compared to $6.9 billion
at June 30, 1996 due primarily to the sale of the DuPont warrants. Current
liabilities at March 31, 1997 were $4.4 billion compared to $4.7 billion at June
30, 1996 as a portion of the proceeds from the sale of Putnam and the DuPont
equity warrants was used to reduce short-term borrowings. Shareholders' equity
was $9.4 billion at March 31, 1997 compared to $9.2 billion at June 30, 1996.
Net debt was $3.4 billion compared to $4.1 billion at June 30, 1996 reflecting a
reduction in short term borrowings.
Net cash flow from operating activities was $1.6 billion in the nine months
ended March 31, 1997 compared to $1.3 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 nine months ended March 31, 1996.
10
<PAGE> 13
Net cash used for investing activities was $666 million in the nine months ended
March 31, 1997 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 ($992 million), capital expenditures ($336 million) and other
investments. In the prior year, cash used for investing activities reflected
film production of $879 million, capital expenditures of $353 million and the
acquisition of an interest in Interscope Records ($200 million). The Company's
liquidity is enhanced by its investment in Time Warner stock which had a market
value of $2.5 billion on March 31, 1997. As previously indicated, management
continues to evaluate its options relating to this investment, including a
possible sale.
Financing activities in the nine months ended March 31, 1997 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 for $210 million in cash and paid
dividends totalling $178 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 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. The parties are now awaiting the
decision of the Court of Chancery.
On November 17, 1995, a class action was filed in the Superior
Court for the State of California, Los Angeles County, entitled The Estate of
Jim Garrison, etc. v. Warner Bros., Inc., Paramount Pictures Corp., Twentieth
Century Fox Film Corp., Universal City Studios, Inc., United Artists
Corporation, Metro-Goldwyn-Mayer, Inc., Sony Pictures Entertainment, Inc.,
Columbia Pictures, Inc., The Walt Disney Company, Walt Disney Productions, Inc.,
Touchstone Pictures, Inc., Hollywood Pictures, Inc., Tristar Pictures, Inc., and
Motion Picture Association of America, No. 95-8328-RMT. The plaintiffs are
representatives of the Estate of Jim Garrison, who was the author of the book On
the Trail of the Assassin, on which the motion picture JFK was based. JFK was
distributed by Warner Bros. Universal had no involvement in the production or
distribution of JFK. Plaintiffs allege that the major motion picture studios,
including Universal, have conspired, in alleged violation of antitrust laws, to
fix the terms of so-called "net profits" provisions in contracts between the
studios and actors, writers, directors, producers and other talent. Plaintiffs
have brought the lawsuit on behalf of a class of all "talent" who have entered
into allegedly "standard" net profits agreements with one or more of the
defendants during the period January 1, 1988 to the present. Plaintiffs seek
three times their unspecified actual damages under the antitrust laws. Universal
has denied the allegations of the complaint and intends vigorously to defend
this action. The action was removed to the United States District Court for the
Central District of California on December 15, 1995. On August 29, 1996, the
District Court issued an order granting class certification for this action. On
February 21, 1997, the United States Court of Appeals for the Ninth Circuit
denied the defendants' request for permission to file an interlocutory appeal of
the class certification. The defendants filed a motion for a re-hearing en banc
on March 14, 1997.
By letter dated April 11, 1997, the Federal Trade Commission
("FTC") advised Universal Music & Video Distributing that it is conducting a
preliminary investigation to determine whether minimum advertised pricing
programs used by major record distributors constitute an unfair method of
competition in violation of Section 5 of the Federal Trade Commission Act. No
allegations of unlawful conduct have been made against the Company.
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
None.
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: May 15, 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>
Transition Fiscal
Nine Months Ended Period Ended Year Ended
March 31, June 30, January 31,
1997 1996 1996 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes and minority interest $ 678 $ 196 $ 65 $ 349
Add (deduct):
Equity in net earnings of less than 50% owned
companies
(22) (27) (4) (20)
Dividends from less than 50% owned
companies 5 4 9 4
Fixed charges 297 312 183 426
Interest capitalized, net of amortization (3) (2) (4) (2)
----- ----- ----- -----
Earnings available for fixed charges $ 955 $ 483 $ 249 $ 757
----- ----- ----- -----
Interest Expense $ 245 $ 261 $ 151 $ 378
Proportionate share of 50% owned companies'
fixed charges
12 12 8 6
Portion of rent expense deemed to represent
interest factor
40 39 24 42
----- ----- ----- -----
Fixed Charges $ 297 $ 312 $ 183 $ 426
----- ----- ----- -----
Ratio of Earnings to Fixed Charges 3.22x 1.55x 1.36x 1.78x
===== ===== ===== =====
</TABLE>
<PAGE> 1
Exhibit 12(b)
JOSEPH E. SEAGRAM & SONS, INC.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Transition Fiscal
Nine Months Ended Period Ended Year Ended
March 31, June 30, January 31,
1997 1996 1996 1996
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
Earnings before income taxes and minority
interest $ 156 ($64) ($30) $ 84
Add (deduct):
Fixed charges 130 146 72 169
----- ----- --- ----
Earnings available for fixed charges $ 286 $ 82 $42 $253
----- ----- --- ----
Fixed charges:
Interest Expense $ 117 $ 128 $65 $145
Portion of rent expense deemed to represent
interest factor
13 18 7 24
----- ----- --- ----
Fixed Charges $ 130 $ 146 72 $169
----- ----- --- ----
Ratio of Earnings to Fixed Charges 2.20x --(a) --(b) 1.50x
===== ===== === ====
</TABLE>
(a) Fixed charges exceeded earnings by $64 million for the nine months ended
March 31, 1996.
(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 NINE MONTHS ENDED MARCH
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 423
<SECURITIES> 0
<RECEIVABLES> 1,884
<ALLOWANCES> 0
<INVENTORY> 2,946
<CURRENT-ASSETS> 6,586
<PP&E> 4,323
<DEPRECIATION> (1,279)
<TOTAL-ASSETS> 21,565
<CURRENT-LIABILITIES> 4,359
<BONDS> 2,480
0
0
<COMMON> 789
<OTHER-SE> 8,631
<TOTAL-LIABILITY-AND-EQUITY> 21,565
<SALES> 0
<TOTAL-REVENUES> 9,540
<CGS> 5,771
<TOTAL-COSTS> 5,771
<OTHER-EXPENSES> 2,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> 678
<INCOME-TAX> 312
<INCOME-CONTINUING> 366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.96
</TABLE>
