<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, 1998
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, 1999, there were 399,017,268 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, 1998 and 1997 1
Consolidated Balance Sheet -
December 31, 1998 and June 30, 1998 2
Consolidated Statement of Cash Flows -
Six Months Ended December 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Exhibit Index 25
<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,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 3,327 $ 3,009 $ 5,574 $ 5,381
Cost of revenues 1,992 1,787 3,274 3,148
Selling, general and administrative expenses 1,149 991 1,935 1,742
Restructuring charge 405 -- 405 --
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (219) 231 (40) 491
Interest, net and other 76 76 117 120
--------- --------- --------- ---------
(295) 155 (157) 371
Provision (benefit) for income taxes (12) 114 75 207
Minority interest charge (credit) (23) 6 (17) 15
Equity earnings (losses) from unconsolidated companies 34 (27) 84 (25)
--------- --------- --------- ---------
Income (loss) from continuing operations (226) 8 (131) 124
--------- --------- --------- ---------
Discontinued Tropicana Operations:
Income (loss) from discontinued operations (net
of taxes of $0 in 1998 and $21 and $38 for the
quarter and six months ended December
31, 1997, respectively) -- 20 (3) 37
Gain on sale of discontinued operations (net of taxes of $373) -- -- 1,072 --
--------- --------- --------- ---------
-- 20 1,069 37
--------- --------- --------- ---------
NET INCOME (LOSS) (226) 28 938 161
Retained earnings at beginning of period 9,375 7,969 8,268 8,259
Dividends paid (58) (57) (115) (116)
Shares purchased and retired -- (343) -- (707)
--------- --------- --------- ---------
Retained earnings at end of period $ 9,091 $ 7,597 $ 9,091 $ 7,597
========= ========= ========= =========
Basic earnings (loss) per share $ (0.63) $ 0.08 $ 2.65 $ 0.45
========= ========= ========= =========
Diluted earnings (loss) per share $ (0.62) $ 0.08 $ 2.64 $ 0.45
========= ========= ========= =========
Dividends paid per share $ 0.165 $ 0.165 $ 0.33 $ 0.33
========= ========= ========= =========
Weighted average shares outstanding (thousands) 359,693 348,631 353,526 353,765
Dilutive potential common shares (thousands) 2,106 2,423 2,350 3,097
--------- --------- --------- ---------
Adjusted weighted average shares outstanding (thousands) 361,799 351,054 355,876 356,862
========= ========= ========= =========
</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,
1998 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments at cost $ 1,204 $ 1,174
Receivables, net 3,969 2,155
Inventories 2,767 2,555
Film costs, net of amortization 309 175
Deferred income taxes 782 282
Prepaid expenses and other current assets 987 630
-------- --------
TOTAL CURRENT ASSETS 10,018 6,971
-------- --------
Common stock of DuPont 873 1,228
Common stock of USAi 417 306
Film costs, net of amortization 1,374 1,272
Artists' contracts, advances and other entertainment assets 3,576 761
Property, plant and equipment, net 3,091 2,733
Investments in unconsolidated companies 3,975 3,437
Excess of cost over fair value of assets acquired 12,812 3,076
Deferred charges and other assets 887 661
Net assets held for sale 375 --
Net assets of Tropicana discontinued operations -- 1,734
-------- --------
$ 37,398 $ 22,179
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and indebtedness payable within one year $ 3,784 $ 1,653
Accrued royalties and participations 2,123 702
Payables and accrued liabilities 4,443 2,068
Income and other taxes 466 286
-------- --------
TOTAL CURRENT LIABILITIES 10,816 4,709
-------- --------
Long-term indebtedness 6,387 2,225
Accrued royalties and participations 678 421
Deferred income taxes 3,404 2,598
Other credits 2,100 995
Minority interest 1,890 1,915
Shareholders' Equity
Shares without par value (396,925,205 and 347,132,224 shares, respectively) 2,909 848
Cumulative currency translation adjustments (381) (499)
Cumulative gain on equity securities, net of tax 504 699
Retained earnings 9,091 8,268
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,123 9,316
-------- --------
$ 37,398 $ 22,179
======== ========
</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,
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations $ (131) $ 124
------- -------
Adjustments to reconcile income from continuing operations to net cash used
Depreciation and amortization of assets 171 143
Amortization of excess of cost over fair value of assets acquired 67 75
Minority interest charged (credited) to income (15) 15
Equity earnings from unconsolidated companies (greater) less than dividends received (47) 45
Sundry 64 (71)
Changes in assets and liabilities
Receivables 93 (611)
Inventories (52) 33
Film costs, net of amortization (42) (21)
Prepaid expenses and other current assets (11) (57)
Artists' contracts, advances and other entertainment assets (39) (8)
Payables and accrued liabilities 528 262
Income and other taxes (244) 84
Deferred income taxes 44 (20)
Other credits (175) (47)
------- -------
342 (178)
------- -------
Net cash provided by (used for) operating activities 211 (54)
------- -------
INVESTING ACTIVITIES
Proceeds from sale of Tropicana 3,288 --
Acquisition of PolyGram (8,607) --
Capital expenditures (216) (144)
Investment in USANi LLC (231) --
Acquisition of 50% interest in USA Networks -- (1,700)
Sundry investments (108) (60)
------- -------
Net cash used for investing activities (5,874) (1,904)
------- -------
FINANCING ACTIVITIES
Dividends paid (115) (116)
Issuance of shares upon exercise of stock options and
conversion of LYONs 61 13
Shares purchased and retired -- (753)
Increase in long-term indebtedness 4,168 12
Decrease in long-term indebtedness (226) --
Increase in short-term borrowings and indebtedness payable within one year 1,808 2,572
------- -------
Net cash provided by financing activities 5,696 1,728
------- -------
NET CASH PROVIDED BY (USED FOR) CONTINUING OPERATIONS 33 (230)
NET CASH (USED FOR) PROVIDED BY DISCONTINUED OPERATIONS (3) 105
------- -------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS $ 30 $ (125)
======= =======
</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 on Form 10-K for the fiscal year ended June 30, 1998, as amended (the
"Form 10-K"). 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.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
2. Sale of Discontinued Tropicana Operations
Discontinued Tropicana Operations is composed of the business of Tropicana
Products, Inc. and the Company's global fruit juice business ("Tropicana"). On
August 25, 1998, the Company completed the sale of Tropicana for $3,288 million
in cash, resulting in a pretax gain of $1,445 million ($1,072 million after tax)
reflected in Discontinued Tropicana Operations on the consolidated statement of
income and retained earnings. The operating results of Tropicana through August
25, 1998 are also included in Discontinued Tropicana Operations. Proceeds from
the sale were used to partially fund the acquisition of PolyGram N.V.
("PolyGram") described in Note 3.
3. Acquisition of PolyGram
On December 6, 1998, the Company announced that it had accepted the shares of
PolyGram tendered pursuant to the Company's tender offer, which shares
represented approximately 99.5% of the outstanding PolyGram shares. The Company
paid approximately $8.6 billion in cash and issued approximately 47.9 million
common shares (approximately 12% of the Company's outstanding common shares
after the transaction). Substantially all of the common shares were issued to
Koninklijke Philips Electronics N.V., which had owned 75% of the PolyGram
shares. The acquisition has been 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 $9.7 billion of unallocated excess of cost over fair value
of assets acquired and will be amortized over 40 years.
The tendered shares of PolyGram are currently held by Centenary Holding N.V., an
entity in which the Company has an indirect approximate 91.9% ownership interest
with the remaining approximate 8.1% interest owned indirectly by Matsushita
Electric Industrial Co., Ltd. ("Matsushita"). As part of the reorganization of
PolyGram, certain subsidiaries of PolyGram were transferred to affiliates of the
Company for fair market value. Matsushita, the indirect minority shareholder in
Universal Studios Holding I Corp. ("Universal Holding"), an entity which
indirectly owns Universal Studios, Inc. ("Universal"), declined to contribute
additional capital in connection with the acquisition of PolyGram and the
reorganization. As a result, the Company's ownership of Universal Holding has
increased from approximately 84% to approximately 91.9%.
4
<PAGE> 7
The unaudited condensed pro forma results of operations data presented below
assume the PolyGram acquisition, the sale of Tropicana and the USA Transactions
(described below), occurred at the beginning of each period presented. The USA
Transactions are (1) the acquisition on October 21, 1997 of an incremental 50%
interest in the USA Networks partnership for $1.7 billion and (2) the sale on
February 12, 1998 of a 50% interest in USA Networks to USA Networks, Inc.
("USAi") and the contribution of the remaining 50% interest in USA Networks, the
majority of the television assets of Universal and 50% of the international
operations of USA Networks to USANi LLC in a transaction in which Universal
received a 10.7% interest in USAi and a 45.8 % exchangeable interest in USANi
LLC, each as of the transaction date.
These pro forma results of operations were prepared based upon the historical
consolidated statement of operations of the Company and of PolyGram for the six
months ended December 31, 1998 and 1997, adjusted to reflect purchase
accounting. The unaudited pro forma information is not necessarily indicative of
the combined results of operations of the Company and PolyGram 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.
Pro Forma Income Statement Data
(millions, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
Revenues $ 8,606 $ 8,353
Net Income $ 44 $ 26
EARNINGS PER SHARE:
Basic $ 0.11 $ 0.06
Diluted $ 0.11 $ 0.06
</TABLE>
4. Restructuring Charge
In connection with management's plan to rationalize its entertainment operations
after the acquisition of PolyGram, the Company recorded a restructuring charge
in the second quarter of $405 million ($265 million after-tax or $0.74 per
share, basic and $0.73 per share, diluted). The charge related entirely to the
Company's existing global music and film production, financial, marketing and
distribution operations and includes severance, rationalization of facilities
and labels, termination of artists and distribution contracts and costs related
to exiting film production arrangements and properties in development. Music
operations account for the majority of the charge.
The components of the $405 million charge are $126 million for severance and
other employee related costs, $128 million for facility rationalization and $151
million of contract termination and other costs. The cash and noncash elements
of the restructuring charge approximate $318 million and $87 million,
respectively. As of December 31, 1998, no significant payments have been made
against the charge. The Company anticipates that substantially all of the
restructuring costs will be paid by December 31, 1999.
The severance and other employee related costs provide for a reduction of
approximately 1,200 employees worldwide related to facility closures,
duplicate position eliminations and streamlining of operations related to cost
reduction initiatives. The facility rationalization costs provide for domestic
and international lease terminations and the write-off of the net book value of
furniture, fixtures and equipment and leasehold improvements for vacated
properties. The costs of contract terminations are comprised primarily of artist
contracts, distribution contracts, story property commitments and term deals.
5
<PAGE> 8
5. Investment in DuPont
At December 31, 1998, the Company owned 16.4 million shares of the outstanding
common stock of E. I. du Pont de Nemours and Company ("DuPont"). The Company
accounts for the investment at market value. The underlying historical book
value of the DuPont shares is $187 million.
6. Investment in USAi
At December 31, 1998 the Company owned 8.5 million shares of the outstanding
common stock of USAi . The investment, which the Company accounts for at market
value ($281 million at December 31, 1998), has an underlying cost of $187
million. At December 31, 1998, the Company also owned 6.7 million shares of USAi
Class B common stock which is carried at its historical cost of $136 million.
7. Comprehensive Income
Comprehensive income for the six months ended December 31, 1998 was $861 million
comprised of net income of $938 million, foreign currency translation
adjustments of $118 million and unrealized holding losses on equity securities
of ($195 million) (net of a tax benefit of $102 million). Comprehensive income
for the six months ended December 31, 1997 was $318 million comprised of net
income of $161 million, foreign currency translation adjustments of ($52
million) and unrealized holding gains on equity securities of $209 million (net
of taxes of $113 million).
8. Supplementary Financial Statement Information
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998
------- -------
(millions)
<S> <C> <C>
INVENTORIES
Beverages $ 2,300 $ 2,239
Materials, supplies and other 467 316
------- -------
$ 2,767 $ 2,555
======= =======
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost $ 4,362 $ 3,911
Accumulated depreciation (1,271) (1,178)
------- -------
$ 3,091 $ 2,733
======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31
1998 1997 1998 1997
---- ---- ---- ----
(millions)
<S> <C> <C> <C> <C>
EXCISE TAXES (included in revenues and cost of revenues) $282 $250 $465 $400
---- ---- ---- ----
</TABLE>
6
<PAGE> 9
9. Long-Term Debt and Debt Guarantees
Joseph E. Seagram & Sons, Inc. ("JES"), the Company's principal 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 (299,006 shares at December 31, 1998). The Company has guaranteed
the LYONs on a subordinated basis.
In addition, the Company has unconditionally guaranteed JES's 6.250% Senior
Notes due 2001, 6.400% Senior Notes due 2003, 6.625% Senior Notes due 2005,
8 3/8% Debentures due February 15, 2007, 7% Debentures due April 15, 2008,
6.800% Senior Notes due 2008, 8 7/8% Debentures due September 15, 2011, 9.65%
Debentures due August 15, 2018, 7.500% Senior Debentures due 2018, 9% Debentures
due August 15, 2021, 7.600% Senior Debentures due 2028 and 8.000% Quarterly
Income Debt Securities due 2038 ("QUIDS").
With the exception of the summarized financial information for JES and its
subsidiaries presented below, the Company has not presented separate financial
statements and other disclosures concerning JES because management has
determined that such information is not material to holders of JES debt
securities.
Summarized financial information for JES and its subsidiaries follows:
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31
1998 1997 1998 1997
------- ------- ------- -------
(millions)
<S> <C> <C> <C> <C>
Revenues $ 677 $ 640 $ 1,183 $ 1,131
Cost of revenues $ 423 $ 358 $ 743 $ 709
Income from continuing operations $ 18 $ 13 $ 58 $ 52
Discontinued Tropicana operations -- $ (10) -- $ (16)
Net income $ 18 $ 3 $ 58 $ 36
</TABLE>
Consolidated Balance Sheet information for JES follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998
------- -------
(millions)
<S> <C> <C>
Current assets $ 1,568 $ 1,821
Noncurrent assets 17,775 12,201
------- -------
$19,343 $14,022
======= =======
Current liabilities $ 2,670 $ 843
Noncurrent liabilities 7,590 3,922
Shareholder's equity 9,083 9,257
------- -------
$19,343 $14,022
======= =======
</TABLE>
7
<PAGE> 10
10. Earnings Per Share and Common Shares
At December 31, 1998, there were 37,588,238 common shares potentially issuable
upon the conversion of the LYONs described in Note 9 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 reflected in
Diluted earnings (loss) per share on the income statement.
In the six months ended December 31, 1998, the Company issued 1,888,836 common
shares upon the exercise of employee stock options and the conversion of LYONs
and issued 47,904,145 common shares in partial payment of the acquisition of
PolyGram described in Note 3.
8
<PAGE> 11
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 in two global business segments: entertainment and spirits
and wine. The entertainment business segment produces and distributes recorded
music and motion picture, television and home video products; and operates theme
parks and retail stores. The spirits and wine business segment is engaged
principally in the production and marketing of distilled spirits, wines,
coolers, beers and mixers.
The analysis of total Company and business segment results is prepared in
accordance with U.S. generally accepted accounting principles ("GAAP") and
includes revenues and operating income. The discussion also includes revenues
and operating income for the three lines of business within the entertainment
segment: music, filmed entertainment and recreation and other.
The discussion will also include supplemental information concerning the
Company's proportionate share of the results of unconsolidated companies
reported in "Equity earnings from unconsolidated companies". When this
information is combined with the results from consolidated companies, the total
results are equivalent to the discussion of supplemental data regarding
attributed revenues and attributed earnings before interest, taxes, depreciation
and amortization presented in the Form 10-K. The Company believes this non-GAAP
financial information regarding its unconsolidated companies provides additional
information for understanding the underlying business results.
The supplemental information also includes earnings before interest, taxes,
depreciation and amortization ("EBITDA") from consolidated companies, which the
Company believes is an appropriate measure of the Company's operating
performance, given the significant goodwill associated with the Company's
acquisitions. 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 GAAP.
The discussion also includes pro forma financial information which illustrates
the effect of the acquisition of PolyGram and the USA Transactions as described
in Note 3, as if such transactions had been consummated on July 1, 1997.
9
<PAGE> 12
THE SEAGRAM COMPANY LTD.
(US$ IN MILLIONS EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Entertainment
Music $ 727 $ 434 $ 1,147 $ 769
Filmed Entertainment 737 839 1,355 1,668
Recreation & Other 242 223 430 404
------- ------- ------- -------
Entertainment 1,706 1,496 2,932 2,841
Spirits & Wine 1,621 1,513 2,642 2,540
------- ------- ------- -------
Total Revenues $ 3,327 $ 3,009 $ 5,574 $ 5,381
======= ======= ======= =======
Operating Income
Entertainment
Music $ 17 $ 13 $ 7 $ (4)
Filmed Entertainment (79) 64 (4) 175
Recreation & Other 15 15 29 37
------- ------- ------- -------
Entertainment (47) 92 32 208
Spirits & Wine 255 157 369 322
Restructuring Charge - Entertainment (405) -- (405) --
Corporate (22) (18) (36) (39)
------- ------- ------- -------
Total Operating Income (219) 231 (40) 491
Interest, Net & Other 76 76 117 120
Provision (benefit) for Income Taxes (12) 114 75 207
Minority Interest Charge (Credit) (23) 6 (17) 15
Equity Earnings (Losses) from Unconsolidated Companies 34 (27) 84 (25)
------- ------- ------- -------
NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (226) 8 (131) 124
Income (loss) from Discontinued Operations -- 20 (3) 37
Gain on Sale of Discontinued Operations -- -- 1,072 --
------- ------- ------- -------
NET INCOME (LOSS) $ (226) $ 28 $ 938 $ 161
======= ======= ======= =======
EARNINGS PER SHARE - Basic
Income (loss) from Continuing Operations $ (0.63) $ 0.02 $ (0.37) $ 0.35
Income (loss) from Discontinued Operations -- 0.06 (0.01) 0.10
Gain on sale of Discontinued Operations -- -- 3.03 --
------- ------- ------- -------
$ (0.63) $ 0.08 $ 2.65 $ 0.45
======= ======= ======= =======
EARNINGS PER SHARE - Diluted
Income (loss) from Continuing Operations $ (0.62) $ 0.02 $ (0.37) $ 0.35
Income (loss) from Discontinued Operations -- 0.06 (0.01) 0.10
Gain on sale of Discontinued Operations -- -- 3.02 --
------- ------- ------- -------
$ (0.62) $ 0.08 $ 2.64 $ 0.45
======= ======= ======= =======
Net cash provided by (used for) operating activities $ 660 $ 42 $ 211 $ (54)
Net cash used for investing activities $(8,776) $(1,794) $(5,874) $(1,904)
Net cash provided by financing activities $ 5,567 $ 1,725 $ 5,696 $ 1,728
</TABLE>
10
<PAGE> 13
THE SEAGRAM COMPANY LTD.
PRO FORMA
(US$ IN MILLIONS EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Entertainment
Music $ 2,220 $ 1,994 $ 3,732 $ 3,447
Filmed Entertainment 945 971 1,802 1,962
Recreation & Other 242 223 430 404
------- ------- ------- -------
Entertainment 3,407 3,188 5,964 5,813
Spirits & Wine 1,621 1,513 2,642 2,540
------- ------- ------- -------
Total Revenues $ 5,028 $ 4,701 $ 8,606 $ 8,353
======= ======= ======= =======
Operating Income
Entertainment
Music $ 246 $ 167 $ 208 $ 86
Filmed Entertainment (114) 1 (79) 86
Recreation & Other 15 15 29 37
------- ------- ------- -------
Entertainment 147 183 158 209
Spirits & Wine 255 157 369 322
Corporate (22) (18) (36) (39)
------- ------- ------- -------
Total Operating Income 380 322 491 492
Interest, Net & Other 186 167 342 302
Provision for Income Taxes 156 136 169 185
Minority Interest Charge (Credit) 19 (1) 13 (2)
Equity Earnings from Unconsolidated Companies 29 0 77 19
------- ------- ------- -------
NET INCOME $ 48 $ 20 $ 44 $ 26
======= ======= ======= =======
EARNINGS PER SHARE - Basic $ 0.12 $ 0.05 $ 0.11 $ 0.06
EARNINGS PER SHARE - Diluted $ 0.12 $ 0.05 $ 0.11 $ 0.06
</TABLE>
11
<PAGE> 14
SUPPLEMENTAL FINANCIAL INFORMATION
(US$ IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVENUES
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Entertainment
Music
Consolidated Companies $ 727 $ 434 $1,147 $ 769
Unconsolidated Companies 9 17 42 49
------ ------ ------ ------
Total 736 451 1,189 818
Filmed Entertainment
Consolidated Companies 737 839 1,355 1,668
Unconsolidated Companies 464 231 871 438
------ ------ ------ ------
Total 1,201 1,070 2,226 2,106
Recreation & Other
Consolidated Companies 242 223 430 404
Unconsolidated Companies 49 72 136 145
------ ------ ------ ------
Total 291 295 566 549
Entertainment
Consolidated Companies 1,706 1,496 2,932 2,841
Unconsolidated Companies 522 320 1,049 632
------ ------ ------ ------
TOTAL ENTERTAINMENT 2,228 1,816 3,981 3,473
------ ------ ------ ------
Spirits & Wine
Consolidated Companies 1,621 1,513 2,642 2,540
Unconsolidated Companies 62 83 80 144
------ ------ ------ ------
TOTAL SPIRITS & WINE 1,683 1,596 2,722 2,684
------ ------ ------ ------
Total Company
Consolidated Companies 3,327 3,009 5,574 5,381
Unconsolidated Companies 584 403 1,129 776
------ ------ ------ ------
TOTAL $3,911 $3,412 $6,703 $6,157
====== ====== ====== ======
</TABLE>
12
<PAGE> 15
SUPPLEMENTAL FINANCIAL INFORMATION
(US$ IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
EBITDA
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Entertainment
Music
Consolidated Companies $ 81 $ 46 $ 102 $ 60
Unconsolidated Companies 0 1 5 5
----- ----- ----- -----
Total 81 47 107 65
Filmed Entertainment
Consolidated Companies (63) 98 30 229
Unconsolidated Companies 107 15 185 42
----- ----- ----- -----
Total 44 113 215 271
Recreation & Other
Consolidated Companies 36 29 70 73
Unconsolidated Companies 10 10 49 29
----- ----- ----- -----
Total 46 39 119 102
Entertainment
Consolidated Companies 54 173 202 362
Unconsolidated Companies 117 26 239 76
----- ----- ----- -----
TOTAL ENTERTAINMENT 171 199 441 438
----- ----- ----- -----
Spirits & Wine
Consolidated Companies 288 250 432 442
Unconsolidated Companies 4 2 5 2
Charge for Asia -- (60) -- (60)
----- ----- ----- -----
TOTAL SPIRITS & WINE 292 192 437 384
----- ----- ----- -----
Total Company
Consolidated Companies 342 423 634 804
Unconsolidated Companies 121 28 244 78
Charge for Asia -- (60) -- (60)
----- ----- ----- -----
TOTAL 463 391 878 822
Unconsolidated Companies Adjustment (121) (28) (244) (78)
Depreciation Expense (69) (57) (130) (115)
Amortization of Goodwill & Step-Up of Assets (68) (59) (108) (103)
Restructuring Charge - Entertainment (405) -- (405) --
Corporate Expenses (19) (16) (31) (35)
----- ----- ----- -----
Operating Income (Loss) $(219) $ 231 $ (40) $ 491
===== ===== ===== =====
</TABLE>
13
<PAGE> 16
SUPPLEMENTAL FINANCIAL INFORMATION
PRO FORMA
(US$ IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
REVENUES
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Entertainment
Music
Consolidated Companies $2,220 $1,994 $3,732 $3,447
Unconsolidated Companies 9 17 42 49
------ ------ ------ ------
Total 2,229 2,011 3,774 3,496
Filmed Entertainment
Consolidated Companies 945 971 1,802 1,962
Unconsolidated Companies 464 409 871 738
------ ------ ------ ------
Total 1,409 1,380 2,673 2,700
Recreation & Other
Consolidated Companies 242 223 430 404
Unconsolidated Companies 49 72 136 145
------ ------ ------ ------
Total 291 295 566 549
Entertainment
Consolidated Companies 3,407 3,188 5,964 5,813
Unconsolidated Companies 522 498 1,049 932
------ ------ ------ ------
TOTAL ENTERTAINMENT 3,929 3,686 7,013 6,745
------ ------ ------ ------
Spirits & Wine
Consolidated Companies 1,621 1,513 2,642 2,540
Unconsolidated Companies 62 83 80 144
------ ------ ------ ------
TOTAL SPIRITS & WINE 1,683 1,596 2,722 2,684
------ ------ ------ ------
Total Company
Consolidated Companies 5,028 4,701 8,606 8,353
Unconsolidated Companies 584 581 1,129 1,076
------ ------ ------ ------
TOTAL $5,612 $5,282 $9,735 $9,429
====== ====== ====== ======
</TABLE>
14
<PAGE> 17
SUPPLEMENTAL FINANCIAL INFORMATION
PRO FORMA
(US$ IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
EBITDA
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Entertainment
Music
Consolidated Companies $ 451 $ 385 $ 616 $ 508
Unconsolidated Companies -- 1 5 5
------- ------- ------- -------
Total 451 386 621 513
Filmed Entertainment
Consolidated Companies (95) 25 (34) 130
Unconsolidated Companies 107 38 185 122
------- ------- ------- -------
Total 12 63 151 252
Recreation & Other
Consolidated Companies 36 29 70 73
Unconsolidated Companies 10 10 49 29
------- ------- ------- -------
Total 46 39 119 102
Entertainment
Consolidated Companies 392 439 652 711
Unconsolidated Companies 117 49 239 156
------- ------- ------- -------
TOTAL ENTERTAINMENT 509 488 891 867
------- ------- ------- -------
Spirits & Wine
Consolidated Companies 288 250 432 442
Unconsolidated Companies 4 2 5 2
Charge for Asia -- (60) -- (60)
------- ------- ------- -------
TOTAL SPIRITS & WINE 292 192 437 384
------- ------- ------- -------
Total Company
Consolidated Companies 680 689 1,084 1,153
Unconsolidated Companies 121 51 244 158
Charge for Asia -- (60) -- (60)
------- ------- ------- -------
TOTAL 801 680 1,328 1,251
Unconsolidated Companies Adjustment (121) (51) (244) (158)
Depreciation Expense (78) (76) (156) (152)
Amortization of Goodwill & Step-Up of Assets (203) (215) (406) (414)
Corporate Expenses (19) (16) (31) (35)
------- ------- ------- -------
Operating Income $ 380 $ 322 $ 491 $ 492
======= ======= ======= =======
</TABLE>
15
<PAGE> 18
The results for the second quarter and six months ended December 31, 1998
include PolyGram results for the twenty-one days from its acquisition by the
Company on December 10, 1998. The following discussion will also address the
results of the underlying businesses on a pro forma basis, as if the PolyGram
acquisition and the USA Transactions had occurred at July 1, 1997.
Revenues increased 11 percent in the quarter and four percent in the six months
primarily due to the PolyGram acquisition and to improved spirits and wine
results. Operating income was a loss of $219 million in the quarter and a loss
of $40 million in the six months, after a $405 million pre-tax restructuring
charge associated with the integration of PolyGram into the existing music and
film operations. The restructuring charge is discussed in detail below.
Operating income of $231 million in the second quarter of the prior year
included a $60 million charge for Asia Pacific spirits and wine operations.
Excluding the charges, operating income declined 36 percent in the quarter and
34 percent in the six months. The decrease reflects the disappointing box office
release of several motion pictures during the quarter ended December 31, 1998,
and higher amortization and depreciation expense.
EBITDA from consolidated and unconsolidated companies for the quarter increased
18 percent to $463 million on total revenues from consolidated and
unconsolidated companies of $3.9 billion. For the six months the EBITDA increase
was seven percent to $878 million on total revenues of $6.7 billion. Excluding
the $60 million charge for Asia Pacific spirits and wine operations from last
year's results, EBITDA from consolidated and unconsolidated companies increased
three percent for the quarter and was essentially flat for the six months.
On a pro forma basis, revenues increased seven percent in the quarter to $5.0
billion and three percent in the six months to $8.6 billion. Operating income is
18 percent higher in the quarter and essentially unchanged for the six months.
Excluding the $60 million charge for Asia Pacific spirits and wine operations in
the prior year, pro forma operating income was flat in the quarter and down 11
percent for the six months, primarily due to the poor performance of the filmed
entertainment business which more than offset improvements in all other
businesses.
Restructuring Charge
In connection with management's plan to rationalize its entertainment operations
after the acquisition of PolyGram, the Company recorded a restructuring charge
in the second quarter of $405 million ($244 million after taxes of $140 million
and minority interest of $21 million). The charge related entirely to the
Company's existing global music and film production, financial, marketing and
distribution operations and includes severance, rationalization of facilities
and labels, termination of artists and distribution contracts and costs related
to exiting film production arrangements and properties in development. Music
operations account for the majority of the charge. The discussions of EBITDA and
pro forma results described throughout this management's discussion and analysis
exclude this restructuring charge.
The components of the $405 million charge are $126 million for severance and
other employee related costs, $128 million for facility rationalization and $151
million of contract termination and other costs. The cash and noncash elements
of the restructuring charge approximate $318 million and $87 million,
respectively. As of December 31, 1998, no significant payments have been made
against the charge. The Company anticipates that substantially all of the
restructuring costs will be paid by December 31, 1999.
The severance and other employee related costs provide for a reduction of
approximately 1,200 employees worldwide related to facility closures, duplicate
position eliminations and streamlining of operations related to cost reduction
initiatives. The facility rationalization costs provide for domestic and
international lease terminations and the write-off of the net book value of
furniture, fixtures and equipment and leasehold improvements for vacated
properties. The costs of contract terminations are comprised primarily of artist
contracts, distribution contracts, story property commitments and term deals.
16
<PAGE> 19
Entertainment
The entertainment segment contributed $1.7 billion to revenues in the quarter,
14 percent more than the prior year period and $2.9 billion in the six months,
an increase of three percent over the prior year period. The increase was
primarily due to the acquisition of PolyGram, partially offset by lower filmed
entertainment revenues. Operating income for the quarter was a loss of $47
million compared to income of $92 million in the prior year and $32 million for
the six months versus $208 million in the prior year. The decline in operating
income was primarily due to lower motion picture results and increased
amortization and depreciation expense. Operating income as a percentage of
revenues decreased from 7.3 percent to 1.1 percent in the six months. Total
costs, which consist primarily of production and manufacturing costs,
distribution and selling expenses, artists' costs and participations, labor and
amortization, as a percentage of revenues increased from 92.7 percent to 98.9
percent. The prior year consolidated results include USA Networks from October
21, 1997, at which time the Company's interest increased to 100 percent. In the
current year, subsequent to the USA Transactions, the Company's interest is
approximately 50 percent of USANi LLC and the results are included in equity
earnings in unconsolidated companies. Equity in earnings from unconsolidated
companies increased to $33 million in the quarter and $83 million in the six
months versus losses last year of $29 million for the quarter and $24 million
for the six months. The increase in equity earnings reflects the impact of
owning approximately 50 percent of USANi LLC this year compared with 50 percent
of USA Networks for the period to October 21st in the prior year. In addition,
the Company benefited from the acquisition of a 37 percent interest in Port
Aventura in Spain in June 1998 and from improved operating results at Loews
Cineplex Entertainment Corporation ("Loews Cineplex") in the current year as
compared to Cineplex Odeon Corporation (owned in the prior year).
On a pro forma basis, revenues increased seven percent in the quarter to $3.4
billion and three percent in the six months to $6.0 billion. Operating income is
20 percent lower in the quarter and 24 percent lower for the six months.
Music
Consolidated Operations
The Music Group had a strong quarter. Revenues increased 68 percent in the
second quarter and increased 49 percent in the six months. Operating income
increased 31 percent in the quarter and improved from a loss of $4 million for
six months last year to income of $7 million this year. The improved performance
is largely due to the impact of owning PolyGram for twenty-one days of the
reporting period and to growth in domestic labels. In particular, Geffen Records
and Interscope had significant year-on-year improvement. EBITDA reflected the
growth and improved over 70 percent in both the quarter and six months. The
growth in operating income did not equal that of EBITDA due to higher
amortization and depreciation expense resulting from the PolyGram acquisition.
On a pro forma basis, revenues from companies increased 11 percent in the
quarter and eight percent in the six months. Operating income increased 47
percent in the quarter and more than doubled in the six months.
Unconsolidated Operations
The equity in earnings from unconsolidated companies was breakeven for the
quarter and $5 million for the six months which is essentially flat versus the
prior year. The unconsolidated companies are immaterial to the total music
segment. They include Universal Concerts Canada and Universal/PACE Amphitheaters
Group, L.P., which are both concert joint ventures.
Filmed Entertainment
Consolidated Operations
Filmed entertainment revenues declined 12 percent in the quarter and 19 percent
in the six months. Operating income decreased in the quarter from income of $64
million in the prior year to a loss of $79 million in the current year and on a
six-month basis from income of $175 million in the prior year to a loss of $4
million in the current year. The prior year second quarter results included
operating income of $56 million for USA Networks from October 21st. In the
current year the contribution of USANi LLC is included in equity from
unconsolidated companies, not in consolidated operations. Excluding the impact
of USA Networks, the decline in operating income quarter-on-quarter is less
significant. The Motion Picture group results declined because of the
disappointing box office performance of second quarter releases (Meet Joe Black,
Babe: Pig in the City and Psycho) and difficult comparisons with last year's
second quarter which benefited from the carryover of The Lost World: Jurassic
Park and Liar, Liar. The box office release of Patch Adams has been strong,
however, this film was released very late in the second quarter and did not have
much of an impact on
17
<PAGE> 20
the results. International Television and Library results declined year-on-year
due to start-up costs relating to the new international channels and lower
television library sales. EBITDA from consolidated companies declined from $98
million in the prior year to a loss of $63 million in the quarter. The prior
year results included $58 million of EBITDA related to USA Networks, which was
consolidated from October 21, 1997. There is no contribution from USA Networks
in consolidated EBITDA in the current year.
On a pro forma basis, Filmed Entertainment includes the results of PolyGram
Filmed Entertainment in the motion picture group and the prior year results
reflect the USA Transactions as though they had both occurred at July 1, 1997.
On a pro forma basis, revenues declined three percent in the quarter to $945
million and eight percent in the six months to $1.8 billion. Operating income
decreased in the quarter from income of $1 million in the prior year to a loss
of $114 million in the current year and on a six-month basis from income of $86
million in the prior year to a loss of $79 million in the current year.
Unconsolidated Operations
The equity in earnings from unconsolidated companies improved from a loss of $26
million in the second quarter of the prior year to income of $44 million in the
current quarter and from a loss of $29 million for six months in the prior year
to income of $71 million in the current year. Revenues from unconsolidated
companies essentially doubled in both the quarter and six months. The
significant improvement is due primarily to the impact of owning approximately
50 percent of USANi LLC in the current year compared with 50 percent of USA
Networks for the period to October 21st in the prior year and to improved
operating results at Loews Cineplex in the current year as compared to Cineplex
Odeon Corporation (owned in the prior year). In addition to USANi LLC and Loews
Cineplex, the unconsolidated companies principally include, United Cinemas
International Multiplex B.V., Cinema International Corporation N.V., Cinema
International B.V. and Brillstein Grey Entertainment.
Recreation and Other
Consolidated Operations
Revenues for recreation and other increased nine percent in the quarter and six
percent in the six months. Operating income was flat quarter-on-quarter at $15
million but declined $8 million in the six months. EBITDA increased 24 percent
in the quarter but declined four percent in the six months. The growth in
revenues and EBITDA in the quarter reflects the success of the Crash Bandicoot I
& II video games and improved sales by Spencer Gifts, partially offset by the
weakness of Universal Studios Hollywood. Attendance at the theme park in
Hollywood declined 10 percent for the quarter and 13 percent for the six months,
largely due to the impact of the Asian economic and currency crisis on tourism.
Per capita spending at the park was down slightly year-on-year.
Unconsolidated Operations
In the six months ended December 31, 1998, the equity in earnings from
unconsolidated companies increased from breakeven in the prior year to $7
million in the current year. Revenues from unconsolidated companies decreased
six percent while EBITDA increased 69 percent to $49 million. The significant
improvement in the six month results is largely due to the acquisition of the 37
percent interest in Port Aventura and a gain recognized by Sega GameWorks
L.L.C., on the sale of its game sales operation back to Sega in the first
quarter. In addition to Port Aventura and Sega GameWorks, the unconsolidated
companies principally include Universal Studios Florida and Interplay
Entertainment Corp. At Universal Studios Florida, paid attendance declined four
percent in the quarter and three percent year-to-date, while per capita spending
increased three percent in the quarter and one percent year-to-date, principally
driven by a higher admission price.
Spirits and Wine
Consolidated Operations
The spirits and wine segment performed strongly in the current quarter compared
with the prior year quarter which was severely impacted by market conditions in
Asia. Revenues increased seven percent in the quarter and four percent in the
six months while operating income increased 62 percent in the quarter and 15
percent in the six months. Operating income in the prior year included a $60
million charge related to operations in Asia. Excluding the impact of this
charge, operating income increased 18 percent in the quarter but was down three
percent for the six months.
18
<PAGE> 21
Revenues and operating income in North America were seven percent and 10 percent
higher in the quarter and four percent and seven percent higher for the six
months, respectively. These improvements reflect growth in certain key brands.
Revenues in Latin America were essentially even in the second quarter and
declined two percent for the six months while operating income decreased 11
percent in the quarter and 10 percent for the six months. These declines are due
to the difficult economic conditions in the region, particularly in Brazil. Asia
Pacific's revenues more than doubled in the quarter and operating income
increased significantly, compared to a very weak quarter last year. This
resulted primarily from increased shipments of higher margin products such as
Martell and Royal Salute into the region. For the six months, Asia Pacific's
operating income was down four percent, as the region has not yet fully
recovered from the difficult economic conditions experienced there after the
first quarter last year. Europe's revenues increased four percent in both the
quarter and six months while operating income grew 13 percent in the quarter and
seven percent in the six months, primarily due to growth in the U.K., Italy,
Spain and Portugal. Operating income, excluding the $60 million charge from the
prior year's results, as a percentage of revenues, increased from 14.3 percent
to 15.7 percent in the quarter reflecting the improvement in Asia Pacific, where
predominantly higher margin products are sold, price increases and cost
reductions.
In the six months ended December 31, 1998, cost of goods sold as a percentage of
revenues increased to 52.3 percent from 51.9 percent the prior year. Selling,
general and administrative expenses as a percentage of revenues decreased to
33.5 percent from 34.6 percent due to slight reductions in both brand spending
and overhead expenses coupled with improved revenues. Total brand spending
declined three percent at constant exchange rates in both the quarter and six
months. However, brand equity spending increased five percent in the quarter and
one percent for the six months.
Spirits and wine case volumes, including unconsolidated companies, increased two
percent in the quarter but declined one percent in the six months. In the
quarter, Martell case volumes increased 16 percent and Royal Salute case volumes
increased 74 percent, reflecting improved performance in Asia Pacific. Volumes
in North America remain very strong. Globally, Captain Morgan volumes grew 20
percent, ABSOLUT VODKA volumes increased six percent and Crown Royal volumes
grew five percent in the quarter. Chivas Regal volumes declined six percent in
the quarter due to lower shipments to Latin America which more than offset three
percent growth in North America and modest improvement in Asia. Mumm Sekt
volumes were five percent lower in the quarter following a strong first quarter
due to competitive pressures and trade inventory adjustments. For the six
months, Mumm Sekt volumes are up four percent.
EBITDA from consolidated companies increased 52 percent in the quarter and 13
percent in the six months. Excluding the impact of the $60 million charge for
Asia Pacific from the prior year results, EBITDA would have increased 15 percent
in the quarter but decreased two percent in the six months.
Unconsolidated Operations
The equity in earnings of unconsolidated companies was $1 million in both the
quarter and six months compared to $2 million in the prior year quarter and a
loss of $1 million in the prior year six months. Revenues from unconsolidated
companies declined by 25 percent in the quarter and 44 percent in the six
months. EBITDA, however, showed improvement, doubling in both the quarter and
six months. The year-on-year variances are primarily due to the entities that
are included in unconsolidated companies. In the current year they are
Kirin-Seagram Limited in Japan and Seagram (Thailand) Limited. In the second
quarter and six months ended December 31, 1997 they also included Doosan Seagram
Co., Ltd. in Korea. As a result of an additional investment in Doosan Seagram
Co., Ltd. at the end of June 1998, that affiliate's results are now
consolidated.
Corporate Expenses and Interest, Net and Other
Corporate expenses were $22 million in the current quarter as compared to $18
million in the prior year and $36 million for six months compared to $39 million
last year. The year-on-year variances are primarily due to increased costs
associated with certain stock-based compensation resulting from the change in
the market value of the Company's shares during the period. Interest, net and
other was $76 million in both the current and prior year quarters as the
additional debt to finance the acquisition of PolyGram was not incurred until
late in the quarter.
19
<PAGE> 22
Net Income
Net income was a loss of $226 million, or $0.63 per basic share and $0.62 per
diluted share in the quarter compared with net income of $28 million or $0.08
per share (basic and diluted) in the prior year. In the six months, which
includes the $1.1 billion after-tax gain on the sale of Tropicana, net income
was $938 million or $2.65 per basic share and $2.64 per diluted share. Net
income from continuing operations, excluding the entertainment restructuring
charge, the prior year charge for Asia Pacific spirits and wine operations and
discontinued Tropicana operations, was $18 million or $0.05 per share in the
quarter compared with $58 million or $0.17 per share in the prior year. In the
six months, net income from continuing operations was $113 million or $0.32 per
share compared with $174 million or $0.49 per share in the prior year.
Liquidity and Capital Resources
Current assets were $10.0 billion at December 31, 1998 as compared to $7.0
billion at June 30, 1998 due primarily to an increase in net receivables,
deferred income taxes and prepaid and other current assets resulting from the
consolidation of the PolyGram balance sheet as at December 31, 1998. Current
liabilities at December 31, 1998 were $10.8 billion compared to $4.7 billion at
June 30, 1998 due primarily to the acquisition of PolyGram. Shareholders' equity
was $12.1 billion at December 31, 1998 compared to $9.3 billion at June 30, 1998
primarily due to the $2 billion in shares issued as partial payment for the
acquisition of PolyGram. Net debt was $9.0 billion compared to $2.7 billion at
June 30, 1998 reflecting an increase in both short and long-term borrowings used
primarily to finance the acquisition of PolyGram.
Net cash of $211 million was provided by operating activities in the six months
ended December 31, 1998, an increase of $265 million compared to the prior year
period when net cash of $54 million was used for operating activities. The
improvement resulted primarily from the collection of receivables and the timing
of payments of accounts payable and accrued liabilities.
Cash used for investing activities was $5.9 billion in the six months ended
December 31, 1998. The $3.3 billion pre-tax proceeds from the Tropicana
disposition were more than offset by the use of $8.6 billion for the cash
portion of the acquisition of PolyGram, an additional investment in USANi LLC of
$231 million and capital expenditures of $216 million. In the prior year, cash
used for investing activities was $1.9 billion, primarily due to the $1.7
billion acquisition of the remaining 50 percent of USA Networks.
Financing activities in the six months ended December 31, 1998 provided $5.7
billion as compared to $1.7 billion in the six months ended December 31, 1997.
Long-term debt of $4.2 billion was issued in the second quarter to finance the
PolyGram acquisition.
Cash used for discontinued Tropicana operations to the disposition date of
August 25, 1998 was $3 million as compared to the $105 million of cash provided
by the discontinued Tropicana operations in the six months ended December 31,
1997.
The Company's working capital position is reinforced by credit facilities of
$6.6 billion. These facilities are used to support the Company's commercial
paper borrowings and are available for general corporate purposes. The Company
believes its access to external capital resources together with
internally-generated liquidity will be sufficient to satisfy existing
commitments and plans, and to provide adequate financial flexibility.
The Company's Value at Risk ("VaR"), which is the potential loss in fair value,
attributable to those interest rate sensitive exposures associated with the
Company's exposure to interest rates at December 31, 1998 was $44 million. This
exposure is primarily related to long-term debt with fixed interest rates. The
increase in the VaR attributable to interest rate sensitive exposures, as
compared to the VaR of $11 million at June 30, 1998, is due primarily to the
issuance by the Company, in the second quarter of the fiscal year ending June
30, 1999, of long-term debt with fixed interest rates to partially finance the
acquisition of PolyGram. There has been no significant change to the Company's
VaR which is the potential loss in earnings associated with the Company's
exposure to foreign exchange rates, as compared to June 30, 1998.
20
<PAGE> 23
Year 2000 Issue
The Company has a comprehensive program to address Year 2000 readiness in its
internal systems and with its customers and suppliers. The Company's program
addresses its most critical internal systems first and, with the exception of
PolyGram systems described below, targets to have them Year 2000-compliant by
July 1, 1999, the first day of the Company's fiscal year 2000.
Implementation/roll-out of the Year 2000 compliant systems would continue
through to September 30, 1999. These activities are intended to encompass all
major categories of information technology and non-information technology
systems in use by the Company, including manufacturing, sales, finance and human
resources.
The Company is still completing its evaluation of the Year 2000 readiness of
PolyGram which it acquired on December 10, 1998. The Company currently expects
that critical systems at PolyGram will be Year 2000 compliant on or prior to
December 31, 1999. However, due to the Company's recent decision to retain
PolyGram Filmed Entertainment ("PFE") unit of PolyGram, an assessment of the
Year 2000 readiness of PFE has only recently commenced. The Company does not
believe that a failure to fully identify and remediate or replace non-compliant
systems at PFE would have a material adverse effect on the Company's financial
condition.
To date the Company has incurred approximately $20 million in costs related to
its Year 2000 readiness program. Such costs are expensed as incurred. The
Company currently estimates that the total costs of its Year 2000 readiness
programs, including PolyGram, but excluding redeployed resources will not exceed
$75 million. The total cost estimate does not include potential costs related to
any customer or other claims or the costs of internal software or hardware
replaced in the normal course of business. The total cost estimate is based on
the current assessment of the Company's Year 2000 readiness needs and is subject
to change as the program progresses.
The Company is communicating with its major customers, suppliers and financial
institutions to determine the extent to which the Company is vulnerable to those
third parties' failure to remedy their own Year 2000 issues. While some of the
Company's major suppliers and customers contacted have confirmed that they
anticipate being Year 2000-compliant on or before December 31, 1999, most of the
customers, suppliers and financial institutions contacted have only indicated
that they have Year 2000 readiness programs.
The Company currently expects that the Year 2000 issue will not pose significant
operational problems. However, delays in the implementation of new systems, a
failure to fully identify all Year 2000 dependencies in the Company's systems
and in the systems of its suppliers, customers and financial institutions, or a
failure of such third parties to adequately address their respective Year 2000
issues could have a material adverse effect on the Company's business, financial
condition and results of operations. Therefore, the Company's Year 2000 Program
includes the development of contingency plans for continuing operations in the
event such problems arise. However, there can be no assurance that such
contingency plans will be sufficient to handle all problems which may arise.
Cautionary Statement Concerning Forward-Looking Statements
The statements herein relating to matters that are not historical facts are
forward-looking statements that are not guarantees of future performance and
involve risks and uncertainties, including but not limited to future global
economic conditions, foreign exchange rates, the actions of competitors and
other factors beyond the control of the Company including, in the case of the
Year 2000 issue, the actions of customers, suppliers and financial institutions.
21
<PAGE> 24
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to (i) the litigation entitled Digital Distribution Inc.
c/b/a/ Compact Disc Warehouse v. CEMA Distribution, Sony Music Entertainment,
Inc., Warner Elektra Atlantic Corporation, Universal Music & Video Distribution,
Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc.
and Polygram Group Distribution, Inc., No. 95-3596 JSL, described on page 8 of
the Form 10-K, (ii) the investigation of the Attorney General of the State of
Florida described on page 9 of the Form 10-K and (iii) the preliminary
investigation of the Federal Trade Commission described on page 9 of the Form
10-K. References in those descriptions to Universal Music & Video Distribution,
Inc. are hereby amended to also include PolyGram Group Distribution, Inc. as a
result of the completion of the Company's acquisition of PolyGram on December
10, 1998.
On or about July 15, 1995, Polygram was served with a civil investigation demand
from the U.S. Department of Justice ("DOJ") seeking information and
documentation relating to an investigation by the DOJ's Antitrust Division (the
"Antitrust Division") into certain alleged "collaborative undertakings between
PolyGram and other music companies related to cable, wire and
satellite-delivered music and music video programmers." In April 1998, PolyGram
and certain other major music companies, excluding Universal, were advised by
the Anti-Trust Division that it was their tentative recommendation to file a
complaint seeking a decree to prevent PolyGram and such major music companies
from using foreign collective licensing societies to license music video
broadcasters. The Antitrust Division also indicated that it was considering
adding to this complaint, a claim seeking to restrict PolyGram and such major
music companies from entering into music video broadcasting joint ventures
absent prior notice to, and approval from, the DOJ. Thereafter, at the
invitation of the Antitrust Division, PolyGram and the major music companies
jointly submitted a "White Paper" setting forth their collective view that no
complaint was warranted and the investigation should be closed. In July, 1998, a
further meeting was held among counsel for PolyGram and the other major music
companies and the Antitrust Division to discuss the Antitrust Division's
tentative recommendations. No further action has been taken by the DOJ.
In October 1998, the Australian Competition and Consumer Commission ("ACCC")
served a notice on PolyGram seeking written answers to questions and documents.
The ACCC is responsible for enforcing the Trade Practices Act, the statute which
governs antitrust law in Australia. The ACCC alleges that PolyGram has engaged
in the following anti-competitive conduct: acting in concert with the other
major record companies in Australia to prevent the export from Indonesia into
Australia of sound recordings; and ceasing to trade with and/or threatening to
cease to trade with retailers who stocked and/or imported parallel imports.
PolyGram answered the notice and thereafter received a further list of questions
relating to issues arising out of the answer to the notice and the documents
which were provided to the ACCC. PolyGram has now answered the supplemental
notice. PolyGram denies that it has contravened the Trade Practices Act and
intends to vigorously defend any enforcement proceedings which the ACCC may
commence against PolyGram.
On February 4, 1999, the Antitrust Division issued a civil investigative demand
to Universal as well as to a number of other motion picture film distributors
and exhibitors as part of a civil investigation into compliance with the consent
decrees entered in U.S. v. Paramount Pictures, et al. and various other
practices in the motion picture distribution and exhibition industry. The civil
investigative demands require the distributors and exhibitors to provide
documents and other information to the Antitrust Division. The scope of the
investigation and the extent, if any, to which it may relate to Universal, is
not known at this time.
22
<PAGE> 25
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index filed with this Form 10-Q is on page 25.
(b) Current Reports on Form 8-K
1. A Current Report on Form 8-K dated August 25, 1998, as amended, was
filed to report under Item 2 the completion of the sale of Tropicana
to PepsiCo, Inc. and to file under Item 7 pro forma financial
statements that give effect to the sale of Tropicana, the
acquisition of PolyGram and certain other transactions, historical
financial statements of PolyGram and the press release relating to
the completion of the Tropicana transaction.
2. A Current Report on Form 8-K dated September 1, 1998, as amended,
was filed to report under Item 5 and file under Item 7, the
Company's consolidated financial statements and management's
discussion and analysis for the fiscal year ended June 30, 1998.
3. A Current Report on Form 8-K dated November 10, 1998 was filed to
report under Item 5 execution by the Company of a definitive
agreement to sell certain film library assets of PolyGram Filmed
Entertainment to Orion Pictures Library Acquisition Co., Inc.
following the Company's acquisition of PolyGram.
4. A Current Report on Form 8-K dated November 13, 1998 was filed to
file under Item 7 certain documents relating to the Company's
Registration Statements Nos. 33-42877, 33-42959, 333-4136 and
333-62921.
5. A Current Report on Form 8-K dated November 16, 1998 was filed to
report under Item 5 and file under Item 7 a press release relating
to the Company's strategic reorganization of Universal and the
resignation of Frank J. Biondi from the Company's Board of Directors
and Universal.
6. A Current Report on Form 8-K dated November 24, 1998 was filed to
file under Item 7 (i) pro forma financial statements that give
effect to the sale of Tropicana on August 25, 1998 and the proposed
acquisition of PolyGram and (ii) historical financial statements of
PolyGram.
7. A Current Report on Form 8-K dated December 6, 1998 was filed to
report under Item 5 and file under Item 7 a press release relating
to the Company's acceptance on December 4, 1998 of all PolyGram
shares in the Company's tender offer for all such shares.
8. A Current Report on Form 8-K dated December 9, 1998 was filed to
report under Item 5 and file under Item 7 a press release relating
to the performance of Universal's filmed entertainment division in
the second quarter of the Company's fiscal year ending June 30,
1999.
9. A Current Report on Form 8-K dated December 10, 1998 was filed to
report under Item 2 the consummation of the Company's acquisition of
PolyGram and to file under Item 7 certain historical financial
statements of PolyGram.
10. A Current Report on Form 8-K dated December 14, 1998 was filed to
report under Item 5 and file under Item 7 (i) a press release
relating to the Company's investor conference on December 14, 1998
and (ii) pro forma financial statements and quarterly supplementary
financial information giving effect to the sale of Tropicana on
August 25, 1998 and the acquisition of PolyGram.
23
<PAGE> 26
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 Accounting Officer)
Dated: February 16, 1999
24
<PAGE> 27
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
10(a) 1996 Stock Incentive Plan of the Company, as amended
10(b) Letter Agreement dated September 30, 1998 between Joseph E. Seagram
& Sons, Inc. and Steven J. Kalagher
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
25
<PAGE> 1
EXHIBIT 10(a)
THE SEAGRAM COMPANY LTD.
1996 STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of The Seagram Company Ltd. 1996 Stock Incentive Plan is to
provide selected key employees of The Seagram Company Ltd. and its subsidiaries
an opportunity to benefit from the appreciation in the value of the common
shares of The Seagram Company Ltd., thus providing an increased incentive for
such employees to contribute to the future success and prosperity of The Seagram
Company Ltd., enhancing the value of the common shares for the benefit of the
shareholders and increasing the ability of The Seagram Company Ltd. and its
subsidiaries to attract and retain individuals of exceptional skill.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan have the respective
meanings set forth in this Article:
2.1 Act: The United States Securities Exchange Act of 1934, as
amended.
2.2 Affiliate: A person or entity controlling, controlled by, or
under common control with, The Seagram Company Ltd.
2.3 Approval Date: The later of the date of approval of the Plan (a)
by the shareholders of The Seagram Company Ltd. and (b) by the
applicable regulatory authorities and stock exchanges, each as
contemplated by Article XVIII of the Plan.
2.4 Award: An Option, Stock Appreciation Right or other award
granted under the Plan.
2.5 Board: The Board of Directors of The Seagram Company Ltd.
2.6 Code: The United States Internal Revenue Code of 1986, as
amended.
2.7 Committee: The Seagram Company Ltd. Human Resources Committee or
such other persons designated by the Board.
2.8 Common Shares: The common shares without nominal or par value of
The Seagram Company Ltd.
2.9 Company: The Seagram Company Ltd., any of its Subsidiaries or
any other Affiliate designated by the Board.
2.10 Disability: Inability to engage in any substantial gainful
activity by reason of a medically determinable physical or
mental impairment which constitutes a permanent and total
disability, as defined in Section 22(e)(3) of the Code. The
determination whether a Participant has suffered a Disability
shall be made by the Committee based upon such evidence as it
deems necessary and appropriate.
2.11 Disinterested Persons: Members of the Board who are not full
time employees of the Company and who are eligible to serve as
Plan administrators or to approve Awards under the provisions of
Rule 16b-3 promulgated under the Act. The preceding sentence
shall have no effect if any specification of such persons is
eliminated from the rules promulgated under Section 16 of the
Act. This Section 2.11 shall apply only to the Plan and not to
any other employee benefit plan of the Company.
2.12 Employer: The Company that employs the employee or Participant.
2.13 Fair Market Value: The mean between high and low prices of the
Common Shares as reported on the composite tape for securities
traded on the New York Stock Exchange (or, if such exchange is
not open on such date, the immediately preceding date on which
such exchange is open), or, if the Common Shares are not so
listed or traded, the average trading price for the day of the
Common Shares as reported on The Toronto Stock Exchange (or, if
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<PAGE> 2
such exchange is not open on such date, the immediately
preceding date on which such exchange is open) or, if the Common
Shares are not listed or traded, the mean between high and low
prices of the Common Shares as reported on the principal United
States national securities exchange on which such shares are
listed or admitted to trading (or, if such exchange is not open
on such date, the immediately preceding date on which such
exchange is open), or, if the Common Shares are not so listed or
traded, the mean between the closing bid price and the closing
asked price as quoted on the National Association of Securities
Dealers Automated Quotation System, or such other market in
which such prices are regularly quoted, or, if there have been
no published bid or asked quotations with respect to the Common
Shares, the Fair Market Value shall be the value established by
the Committee in good faith and, in the case of an ISO, in
accordance with Section 422 of the Code.
2.14 ISO: An incentive stock option within the meaning of Section 422
of the Code.
2.15 Non-ISO: A stock option that is not an ISO.
2.16 Option: A stock option (whether ISO or Non-ISO) granted under
the Plan.
2.17 Option Price: The purchase price of one Common Share under an
Option.
2.18 Participant: A key employee of the Company who has been selected
by the Committee to receive an Award under the Plan.
2.19 Parent Corporation: A parent corporation, as defined in Section
424(e) of the Code.
2.20 Plan: The Seagram Company Ltd. 1996 Stock Incentive Plan, as
from time to time amended.
2.21 Retirement: Separation from service with the Company on or after
attainment of age 65 or, with the prior written consent of the
Company, retirement at an earlier age.
2.22 Stock Appreciation Right: A stock appreciation right granted
under the Plan.
2.23 Subsidiary: A subsidiary corporation, as defined in Section
424(f) of the Code.
2.24 Termination Date: With respect to each Award, a date fixed by
the Committee; provided that with respect to an Option, such
date shall not be later than the day preceding the tenth
anniversary of its date of grant.
2.25 Termination For Cause: A Participant's termination of employment
with the Company due to insubordination, willful misconduct,
willful failure to implement corrective actions,
misappropriation of any funds or property of the Company,
unreasonable neglect or refusal to perform duties assigned
during employment or the conviction of a felony.
ARTICLE III
ADMINISTRATION
3.1 Except as otherwise provided in the Plan, the Committee (or any
subcommittee thereof) shall administer the Plan and shall have full power to
grant Awards, construe and interpret the Plan, establish and amend rules and
regulations for its administration, and perform all other acts relating to the
Plan, including the delegation of administrative responsibilities, that it
believes reasonable and proper.
3.2 The Committee shall consist of not less than three persons, (a) all
of whom shall be (i) Disinterested Persons or (ii) if applicable, "non-employee
directors" as defined in the rules promulgated under Section 16 of the Act and
(b) at least two of whom shall be "outside directors" as defined in Section
162(m) of the Code and the regulations promulgated thereunder.
3.3 Subject to the provisions of the Plan, the Committee (or any
Subcommittee thereof) or the Board shall, in its discretion, determine which
employees shall be granted Awards and the terms and conditions of Awards.
3.4 Any decision made, or action taken, by the Committee, any
Subcommittee thereof or the Board arising out of or in connection with the
interpretation and administration of the Plan shall be final and conclusive.
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<PAGE> 3
ARTICLE IV
LIMITATIONS ON THE AMOUNT OF AWARD GRANTS
4.1 Common Shares Subject to the Plan: The total number of Common
Shares upon which Awards may be based shall be 45,000,000, subject to adjustment
in accordance with Article XIV of the Plan. These Common Shares shall be
authorized but unissued Common Shares. For purposes of this Section, a Stock
Appreciation Right granted pursuant to clause (b) of Section 7.1 shall not be
deemed to be an Award separate from the Option, or portion thereof, to which it
relates. For purposes of this Section, an Option, or portion thereof, exercised
through the exercise of such a Stock Appreciation Right shall be treated, to the
extent settled in Common Shares, as though the Option, or portion thereof, had
been exercised through the purchase of Common Shares, with the result that the
Common Shares subject to the Option, or portion thereof, that was so exercised
shall not be available for future grants of Awards.
4.2 Common Shares to be Granted to a Participant: During the period
from the Approval Date through the sixth anniversary of the Approval Date, the
total number of Common Shares available for grants to any one Participant of (a)
Awards under the Plan and (b) awards under any other plan of the Company which
provides for the grant of Common Shares shall not exceed the lesser of (i) 5% of
the outstanding Common Shares on the date when the Plan is adopted by the Board
and (ii) 5% of the outstanding Common Shares.
4.3 Cash-Only Awards: With respect to any fiscal year of the Company,
the aggregate value (as determined by the Committee) of Awards granted which are
exercisable solely for cash, or which upon maturity are payable solely in cash,
shall not exceed the aggregate salaries paid or accrued with respect to such
fiscal year to all Participants who receive grants of any Awards with respect to
such fiscal year; provided, however, that any such Award which may be redeemed
or exercised only upon a fixed date or dates at least six months after grant, or
incident to death, Retirement, Disability or cessation of employment shall not
be included in the foregoing calculation of the aggregate value of Awards
granted with respect to any fiscal year. This Section 4.3 (or any part thereof)
shall be effective only to the extent that it is required under the rules
promulgated under Section 16 of the Act or any other law, rule or regulation
applicable to the Company.
4.4 Common Shares to be Granted to Insiders: Under the Plan and any
other plan of the Company which provides for the issuance of Common Shares (i)
the total number of Common Shares reserved for issuance to all Insiders (as
defined below) shall not exceed 10% of the then outstanding Common Shares; (ii)
the total number of Common Shares issued to Insiders, within one-year period,
shall not exceed 10% of the then outstanding Common Shares; and (iii) the total
number of Common Shares issued to any one Insider and to such Insider's
associates, within a one-year period, shall not exceed 5% of the then
outstanding Common Shares. For purpose hereof, "Insider" means an insider as
defined by applicable laws, rules, by-laws or policies of regulatory authorities
or stock exchanges.
ARTICLE V
ELIGIBILITY
5.1 Awards may be granted to selected key employees of the Company.
ARTICLE VI
TERMS OF OPTIONS
6.1 Option Price: Except as provided in Section 6.3 of the Plan, the
Option Price shall be no less than the Fair Market Value of a Common Share on
the date the Option is granted, but in no event shall the Option Price be less
than that permitted by applicable laws, rules, by-laws or policies of regulatory
authorities or stock exchanges.
6.2 Period of Exercise: The Committee shall determine the dates after
which Options may be exercised in whole or in part; provided, however, that an
Option shall not be exercised prior to the Approval Date nor later than its
Termination Date. The Committee may amend an Option to accelerate the date after
which such Option may be exercised in whole or in part, provided that the
Company has obtained
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<PAGE> 4
all applicable approvals, if any, of regulatory authorities and stock exchanges.
An Option which has not been exercised on or prior to its Termination Date shall
be cancelled.
6.3 Special Rules Regarding ISOs Granted to Certain Employees:
Notwithstanding any contrary provisions of Sections 6.1 and 6.2 of the Plan, no
ISO shall be granted to any employee who, at the time the Option is granted,
owns (directly or within the meaning of Section 424(d) of the Code) more than
ten percent of the total combined voting power of all classes of stock of the
Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the
Option Price under such Option is at least 110% of the Fair Market Value of a
Common Share on the date the Option is granted and (b) the Termination Date of
such Option is a date not later than the day preceding the fifth anniversary of
the date on which the Option is granted.
6.4 Manner of Exercise and Payment: Subject to Section 6.2 of the Plan,
an Option, or portion thereof, shall be exercised by delivery of a written
notice of exercise to the Company and payment of the full price of the Common
Shares being purchased pursuant to the Option. A Participant or his or her legal
representative may exercise an Option with respect to less than the full number
of Common Shares for which the Option may then be exercised, but a Participant
must exercise the Option in full Common Shares. The price of Common Shares
purchased pursuant to an Option, or portion thereof, may be paid:
a) in United States dollars in cash or by check, bank draft or
money order payable to the order of the Company;
b) through the delivery of Common Shares with an aggregate Fair
Market Value on the date of exercise equal to the Option
Price;
c) with the consent of the Committee, through the withholding of
Common Shares issuable upon exercise with an aggregate Fair
Market Value on the date of exercise equal to the Option
Price;
d) through the delivery of irrevocable instructions to a broker
to deliver promptly to the Company an amount equal to the
Option Price; or
e) by any combination of the above methods of payment;
provided, however, that the Company shall not be obligated to purchase or accept
the surrender in payment of any such Common Shares if any such action would be
prohibited by the applicable laws governing the Company or the Committee shall
determine that such action is not in the best interests of the Company. The
Committee shall determine acceptable methods for providing notice of exercise,
for tendering Common Shares or for delivering irrevocable instructions to a
broker and may impose such limitations and prohibitions on the use of Common
Shares or irrevocable instructions to a broker to exercise an Option as it deems
appropriate.
6.5 Notification of Sales of Common Shares: Any Participant who
disposes of Common Shares acquired upon the exercise of an ISO either (a) within
two years after the date of the grant of the ISO under which the Common Shares
were acquired or (b) within one year after the transfer of such Common Shares to
the Participant, shall notify the Company of such disposition and of the amount
realized upon such disposition.
ARTICLE VII
TERMS OF STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights: A Stock Appreciation Right may
be granted (a) independent of an Option or (b) in conjunction with an Option, or
portion thereof. A Stock Appreciation Right granted pursuant to clause (b) of
the preceding sentence may be granted at the time the related Option is granted
or at any time prior to the exercise or cancellation of the related Option.
7.2 Exercise Price: The exercise price per Common Share of a Stock
Appreciation Right shall be an amount determined by the Committee but in no
event shall such amount be less than the greater of
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(a) the Fair Market Value of a Common Share on the date the Stock Appreciation
Right is granted or, in the case of a Stock Appreciation Right granted in
conjunction with an Option, or portion thereof, the Option Price of the related
Option and (b) an amount permitted by applicable laws, rules, by-laws or
policies of regulatory authorities or stock exchanges.
7.3 Period of Exercise: The Committee shall determine the dates after
which Stock Appreciation Rights may be exercised in whole or in part; provided,
however, that a Stock Appreciation Right shall not be exercised prior to the
Approval Date nor later than its Termination Date. The Committee may amend a
Stock Appreciation Right to accelerate the date after which it may be exercised
in whole or in part, provided that the Company has obtained all applicable
approvals, if any, of regulatory authorities and stock exchanges. A Stock
Appreciation Right which has not been exercised on or prior to its Termination
Date shall be cancelled. A Stock Appreciation Right granted in conjunction with
an Option, or portion thereof, shall not be exercised unless such Option, or
portion thereof, is otherwise exercisable, and such a Stock Appreciation Right
shall be cancelled to the extent the Option to which it relates has been
exercised, or has expired, been terminated or been cancelled for any reason.
7.4 Exercise of Stock Appreciation Rights: A Stock Appreciation Right,
or portion thereof, shall be exercised in accordance with such procedures as may
be established by the Committee. Upon the exercise of a Stock Appreciation
Right, the Participant or his or her legal representative shall be entitled to
receive from the Company with respect to each Common Share to which such Stock
Appreciation Right relates an amount equal to the excess of (a) the Fair Market
Value of a Common Share on the date of exercise over (b) the exercise price of
the Stock Appreciation Right. Such amount shall be paid in cash and/or Common
Shares at the discretion of the Committee. The number of Common Shares, if any,
issued as a result of the exercise of a Stock Appreciation Right shall be based
on the Fair Market Value of such Common Shares on the date of exercise. Upon the
exercise of a Stock Appreciation Right, or portion thereof, granted in
conjunction with an Option, or portion thereof, the Option, or portion thereof,
to which such Stock Appreciation Right relates shall be deemed in the case of a
cash payment to have been cancelled and in the case of a payment in Common
Shares to have been exercised.
ARTICLE VIII
OTHER SHARE-BASED AWARDS
8.1 Other Awards of Common Shares and Awards that are valued in whole
or in part by reference to, or are otherwise based on the Fair Market Value of,
Common Shares may be granted under the Plan in the discretion of the Committee.
Such Awards shall be in such form, and dependent on such conditions, as the
Committee shall determine, including, without limitation, the right to receive
one or more Common Shares, or the equivalent cash value of such Common Shares,
upon the completion of a specified period of service, the occurrence of an event
and/or the attainment of performance objectives. Such Awards may be granted
alone or in addition to any other Awards granted under the Plan. Subject to the
provisions of the Plan, the Committee shall determine to whom and when such
Awards will be made, the number of Common Shares to be awarded under (or
otherwise related to) such Awards, whether such Awards shall be settled in cash,
Common Shares or a combination of cash and Common Shares, and all other terms
and conditions of such Awards. Notwithstanding the foregoing, certain Awards
granted under this Section 8.1 of the Plan may be granted in a manner which is
deductible by the Company under Section 162(m) of the Code. Such Awards (the
"Performance-Based Awards") shall be based upon stock price, market share,
sales, earnings per share, return on equity or costs.
ARTICLE IX
DIVIDEND EQUIVALENTS
9.1 At or after the grant of an Award, the Committee, in its
discretion, may provide the Participant with dividend equivalents with respect
to such Award.
ARTICLE X
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AWARD AGREEMENTS
10.1 All Awards shall be evidenced by written agreements executed by
the Company and the Participant. Such agreements shall be subject to the
applicable provisions of the Plan, and shall contain such provisions as are
required by the Plan and any other provisions the Committee may prescribe;
provided that with respect to Options, those Options that are intended to be
ISOs shall be so designated and all other Options shall be designated Non-ISOs.
Notwithstanding Section 2.13, an Award agreement may provide that Fair Market
Value shall be determined based on the monetary currency of a Participant's
country of residence. Notwithstanding Section 6.4, an Award agreement may
require that payment of the Option Price shall be made in such currency and may
otherwise restrict the manner of exercise and payment of an Option.
ARTICLE XI
NONTRANSFERABILITY OF AWARDS
11.1 Each Award shall, during the Participant's lifetime, be
exercisable only by the Participant, and neither it nor any right hereunder
shall be transferable otherwise than by will, the laws of descent and
distribution or be subject to attachment, execution or other similar process;
provided, however, that to the extent permitted by applicable law, with respect
to any Award, a Participant may designate a beneficiary pursuant to procedures
which may be established by the Committee. In the event of any attempt by the
Participant to alienate, assign, pledge, hypothecate or otherwise dispose of an
Award or of any right hereunder, except as provided for herein, or in the event
of any levy or any attachment, execution or similar process upon the rights or
interest hereby conferred, the Company may terminate the Award by notice to the
Participant and the Award shall thereupon be cancelled. This Section 11.1 (or
any part thereof) may be altered by the Committee to the extent that it is no
longer required under the rules promulgated under Section 16 of the Act or any
other law, rule or regulation applicable to the Company.
ARTICLE XII
CESSATION OF EMPLOYMENT OF PARTICIPANT
12.1 Cessation of Employment other than by Reason of Retirement,
Disability, Death or Termination For Cause: If a Participant shall cease to be
employed by the Company other than by reason of Retirement, Disability, Death or
Termination For Cause, each Award other than, to the extent provided by the
Committee, an Award granted under Article VIII of the Plan, held by the
Participant shall be cancelled to the extent not previously exercised and all
rights hereunder shall terminate at the end of the three-month period commencing
on the last day of the month in which the cessation of employment occurred.
12.2 Cessation of Employment by Reason of Termination For Cause: If a
Participant shall cease to be employed by the Company by reason of Termination
For Cause, each Award, other than, to the extent provided by the Committee, an
Award granted under Article VIII of the Plan, held by the Participant shall be
cancelled to the extent not previously exercised and all rights hereunder shall
terminate on the date of cessation of employment.
12.3 Cessation of Employment by Reason of Retirement or Disability: If
a Participant shall cease to be employed by the Company by reason of Retirement
or Disability, each Award, other than, to the extent provided by the Committee,
an Award granted under Article VIII of the Plan, held by the Participant shall
be exercisable until the Termination Date set forth in the Award.
Notwithstanding the foregoing, an Award, [other than, to the extent provided by
the Committee, an Award granted under Article VIII of the Plan,] shall be
cancelled if after Retirement, in the sole determination of the Committee, the
Participant (i) engages in activity which is competitive with that of the
Company or its Affiliates or (ii) at any time, divulges to any person or entity
(other than the Company or any of its Affiliates) any of the trade secrets,
methods, processes or other proprietary or confidential information of the
Company or any of its Affiliates.
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12.4 Cessation of Employment by Reason of Death: If a Participant shall
die while employed by the Company, or at any time after cessation of employment
by reason of Retirement or Disability, an Award may be exercised at any time or
from time to time prior to the Termination Date set forth in the Award, by the
person or persons to whom the Participant's rights under each Award shall pass
by will or by the applicable laws of descent and distribution. Any person or
persons to whom a Participant's rights under an Award have passed by will or by
the applicable laws of descent and distribution shall be subject to all terms
and conditions of the Plan and the Award applicable to the Participant.
ARTICLE XIII
WITHHOLDING TAXES
13.1 The Company may, in its discretion, require a Participant to pay
to the Company the amount, or make other arrangements (including, without
limitation, the withholding of Common Shares which would otherwise be delivered
as part of or upon exercise of an Award), at the time of exercise or thereafter,
that the Company deems necessary to satisfy its obligation to withhold federal,
provincial, state or local income or other taxes.
ARTICLE XIV
ADJUSTMENTS
14.1 If (a) the Company shall at any time be involved in a transaction
to which Section 424(a) of the Code is applicable, (b) the Company shall declare
a dividend payable in, or shall subdivide or combine, its Common Shares or (c)
any other event shall occur which in the judgment of the Committee necessitates
action by way of adjusting the terms of the outstanding Awards, the Committee
may take any such action as in its judgment shall be necessary to preserve the
Participant's rights substantially proportionate to the rights existing prior to
such event and, to the extent that such action shall include an increase or
decrease in the number of Awards and/or Common Shares subject to outstanding
Awards, the number of Awards and/or Common Shares available under Article IV
above may be increased or decreased, as the case may be, proportionately. The
judgment of the Committee with respect to any matters referred to in this
Article shall be conclusive and binding upon each Participant. The exercise by
the Committee of its authority under this Article is subject to the approval of
the Board as and when required by applicable laws, rules, by-laws or policies of
regulatory authorities or stock exchanges.
ARTICLE XV
AMENDMENT AND TERMINATION OF THE PLAN
15.1 The Board may at any time, or from time to time, suspend or
terminate the Plan in whole or in part or amend it in such respects as the Board
may deem appropriate; provided, however, that no such amendment shall be made
without approval of the shareholders if such approval is required by Rule 16b-3
under the Act or by any regulatory authorities or stock exchanges.
15.2 No amendment, suspension or termination of the Plan shall, without
the Participant's consent, impair any of the rights or obligations under any
Award theretofore granted to a Participant under the Plan.
15.3 The Committee may amend the Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of future amendments or issued regulations, if any, to
the Code, the Act or other applicable laws, rules, by-laws or policies of
regulatory authorities or stock exchanges.
15.4 No amendment shall be effective until all applicable approvals, if
any, of regulatory authorities and stock exchanges have been obtained.
-7-
<PAGE> 8
ARTICLE XVI
GOVERNMENT AND OTHER REGULATIONS
16.1 The obligation of the Company to issue, or transfer and deliver,
Common Shares for Awards exercised under the Plan shall be subject to all
applicable laws, regulations, rules, orders and approvals which shall then be in
effect and required by regulatory authorities and any stock exchanges on which
Common Shares are traded.
16.2 Notwithstanding any other provision of the Plan, (a) during any
period in which a Participant is subject to Section 16 of the Act, if the
Participant shall exercise any Award or engage in any other transaction
involving an Award or Common Shares received upon the exercise of an Award, the
Participant shall comply with the rules promulgated under Section 16 of the Act
(and any comparable rules of any other U.S. and non-U.S. regulatory authority),
including, without limitation, rules which restrict the exercise of Awards,
which limit the resale of Common Shares obtained upon exercise of Awards and
which require the reporting of transactions and (b) the Committee may impose any
conditions on an Award necessary to render any transaction involving such Award
exempt under the rules promulgated under Section 16 of the Act.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 The Plan Does Not Confer Employment or Shareholder Rights: The
right of the Company to terminate at will (whether by dismissal, discharge or
otherwise) the Participant's employment with it at any time is specifically
reserved. Neither the Participant nor any person entitled to exercise the
Participant's rights in the event of the Participant's death shall have any
rights of a shareholder with respect to the Common Shares subject to each Award,
except to the extent that, and until, such Common Shares shall have been issued
upon the exercise or maturity of each Award.
17.2 The Plan Does Not Confer Rights to Assets: Neither the Participant
nor any person entitled to exercise the Participant's rights in the event of the
Participant's death shall have any rights to or interest in any specific asset
of the Company.
17.3 Plan Expenses: Any expenses of administering the Plan shall be
borne by the Company.
17.4 Use of Exercise Proceeds: Cash payments received from Participants
upon the exercise of Options shall be used for the general corporate purposes of
the Company.
17.5 Indemnification: In addition to such other rights of
indemnification as they may have as members of the Board, or the Committee, the
members of the Board and the Committee shall be indemnified by the Company
against all costs and expenses reasonably incurred by them in connection with
any action, suit or proceeding to which they or any of them may be party by
reason of any action taken or failure to act under or in connection with the
Plan or any Award granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except a judgment based upon a finding
of bad faith; provided that upon the institution of any such action, suit or
proceeding, a Committee or Board member shall, in writing, give the Company
notice thereof and an opportunity, at its own expense, to handle and defend the
same before such Committee or Board member undertakes to handle and defend it on
such member's own behalf.
17.6 Governing Law: The Plan shall be construed, interpreted and the
rights of the Company and Participants (and all other parties) determined in
accordance with the internal laws of the State of New York, without regard to
the conflict of law principles thereof.
ARTICLE XVIII
SHAREHOLDER APPROVAL AND EFFECTIVE DATES
18.1 The Plan shall become effective when it is adopted by the Board.
However, if (a) the Plan is not approved by the affirmative vote of the holders
of a majority of the Common Shares present, or
-8-
<PAGE> 9
represented by proxy, and entitled to vote at the Annual Meeting of Shareholders
of The Seagram Company Ltd. to be held on May 29, 1996, or at any adjournment
thereof or (b) the necessary regulatory and stock exchange approvals are not
obtained within one year after the date the Plan is adopted by the Board, the
Plan and all Awards shall terminate. Awards may not be granted under the Plan
after the sixth anniversary of the Approval Date.
-9-
<PAGE> 10
APPENDIX A
TO
THE SEAGRAM COMPANY LTD.
1996 STOCK INCENTIVE PLAN
ADDITIONAL ARTICLES FOR THE GRANT OF APPROVED OPTIONS TO
UNITED KINGDOM PARTICIPANTS
ARTICLE XIX
PURPOSE
19.1 The purpose of these additional articles ("Additional Articles")
for UK Participants is to obtain Approved Option status in respect of Options
granted up to the Limit under the Plan to UK Participants. These Additional
Articles are to be read as a continuation of the Plan and only modify the Plan
in respect of the grant of Approved Options under the Plan to UK Participants.
These Additional Articles do not add to or modify the Plan in respect of any
other category of Participant.
19.2 The Committee has adopted these Additional Articles in accordance
with Section 15.3.
ARTICLE XX
DEFINITIONS
20.1 The definition of Award contained in Article II of the Plan shall
be modified to include Options only and shall be so construed throughout the
Plan.
20.2 The definition of Fair Market Value contained in Article II of the
Plan shall be modified so that if the Common Shares are not listed or traded on
the New York Stock Exchange, the Fair Market Value of a Common Share shall be
its market value as determined in accordance with Part VIII of the UK Chargeable
Gains Act 1992 and agreed in advance with the Shares Valuation Division of the
UK Board of Inland Revenue.
20.3 The definition of Option shall include "Approved Option" unless
the context otherwise requires.
20.4 The following additional capitalized terms used in the Plan shall
have the respective meanings set forth in this Section:
a) Approved Option: An Option granted under the Plan up to the
Limit to a UK Participant while the Plan is approved by the UK
Board of Inland Revenue under Schedule 9 to the UK Act.
b) Limit: The Limit set out in paragraph 28(1) of Schedule 9 to
the UK Act which at the time these Additional Articles were
adopted was (pound sterling) 30,000 and for purposes of that
paragraph, "market value" shall be construed in accordance
with paragraph 28(3) of Schedule 9 to the UK Act.
c) UK Act: The United Kingdom Income and Corporation Taxes Act
1988.
d) UK Participant: A key employee of the Company who has been
selected by the Committee to receive an Award under the Plan
and who is:
(i) resident in the UK for UK income tax purposes; and
(ii) is not ineligible to participate in the Plan by virtue
of paragraph 8 of Schedule 9 to the UK Act (material
interest provisions); and
(iii) if he a director of the Company, is required to work,
under the terms of his employment with the Company as at
the date of grant of the Option, for at least 25 hours
per week (excluding meal breaks).
-10-
<PAGE> 11
e) Shares: Common Shares which satisfy the provisions of
paragraphs 10 to 14 inclusive of Schedule 9 to the UK
Act.
ARTICLE XXI
FURTHER LIMITATION ON THE AMOUNT OF AWARD GRANTS
21.1 No Approved Option shall be granted to a UK Participant in excess
of the Limit.
ARTICLE XXII
ELIGIBILITY
22.1 Section 5.1 shall be modified by inserting "who satisfy the
definition of UK Participant" at the end of that Section.
ARTICLE XXIII
TERMS OF OPTIONS
23.1 The first sentence of Section 6.2 shall be deleted and replaced
with the following:
"The Committee shall determine, as at the date of grant of Approved Options, the
date after which such Options may be exercised in whole or in part; provided,
however, that an Approved Option shall not be exercised prior to the Approval
Date nor later than its Termination Date".
23.2 The second sentence of Section 6.2 shall not apply to Approved
Options.
23.3 An Approved Option may not be exercised by any person who is
precluded from participation in the Plan by virtue of paragraph 8 of Schedule 9
to the UK Act (material interest provisions).
23.4 The provisions of Section 6.4(b), (c) and (e) of the Plan shall
not apply to Approved Options.
23.5 The provisions of Section 6.4 shall read as follows:
"provided, however, that the Committee shall determine acceptable methods for
providing notice of exercise or for delivering irrevocable instructions to a
broker and may impose such limitations on instructions to a broker as it deems
appropriate."
23.6 The terms of an Approved Option shall not be amended without the
prior approval of the UK Board of Inland Revenue.
23.7 The appropriate number of Common Shares shall be allotted or
transferred (as the case may be) within 30 days following the exercise of an
Approved Option.
ARTICLE XXIV
TERMS OF STOCK APPRECIATION
24.1 The provisions of Article VII shall not apply to Approved Options.
ARTICLE XXV
OTHER SHARE-BASED AWARDS
25.1 The provisions of Article VIII shall not apply to Approved
Options.
ARTICLE XXVI
DIVIDEND EQUIVALENTS
26.1 The provisions of Article IX shall not apply to Approved Options.
ARTICLE XXVII
-11-
<PAGE> 12
AWARD AGREEMENTS
27.1 The provisions of Section 10.1 shall be modified in relation to
Approved Options as follows:
(i) the word "objective" shall be inserted before "provisions" in
the third line; and
(ii) the last sentence thereof commencing with the words:
"Notwithstanding Section 6.4" shall be omitted therefrom.
ARTICLE XXVIII
NONTRANSFERABILITY OF AWARDS
28.1 Section 11.1 shall be modified by inserting at the end of that
Section: "provided that, in respect of Approved Options, no such alternation
shall be effective unless and until it is approved by the UK Board of Inland
Revenue".
ARTICLE XXIX
CESSATION OF EMPLOYMENT OF PARTICIPANT
29.1 The provisions of Section 12.4 shall be modified so that upon the
death of a UK Participant, Approved Options will be exercisable until the
earlier of: -
(i) the expiry of a period of 12 months following such death; and
(ii) the Termination Date.
ARTICLE XXX
ADJUSTMENTS
30.1 Section 14.1 shall be modified so that in respect of Approved
Options:
(i) any adjustments made by the Committee pursuant to this Section
14.1 shall be made only to the Option Price and/or to the
number of Common Shares subject to Approved Options and only
in the event of a variation in the Common Stock; and
(ii) any adjustment to be made under this Section 14.1 shall be
subject to prior approval of the UK Board of Inland Revenue.
ARTICLE XXXI
AMENDMENT AND TERMINATION OF THE PLAN
31.1 Subject to the provisions of Article XV of the Plan, the Board and
the Committee may amend the Plan but no such amendments shall become effective
with respect to Approved Options unless and until they are approved by the UK
Board of Inland Revenue.
-12-
<PAGE> 1
Exhibit 10(b)
September 30, 1998
PERSONAL AND CONFIDENTIAL
Mr. Steven J. Kalagher
56 Abbey Road
Manhasset, NY 11030
Dear Steve:
This letter confirms our understanding regarding certain aspects of
your continued employment as President and Chief Executive Officer - The Seagram
Spirits And Wine Group and as Executive Vice President of The Seagram Company
Ltd. and of Joseph E. Seagram & Sons, Inc., (the "Company" or "Seagram"),
subject to the terms and conditions set forth herein. This letter supersedes and
replaces the prior letter between you and the Company, dated November 4, 1997.
1. Pension
In connection with Seagram's pension, retirement and similar plans
applicable to senior executives generally in which you currently participate,
the Company agrees to treat separation from employment for purposes of pension
benefits in the following manner:
(a) In the event your employment is terminated (i) by the Company
at any time without cause, or (ii) by you voluntarily with the
Company's consent your pension benefit will be calculated
pursuant to the provisions of the Benefit Equalization Plan
("BEP") or any replacement plan, including, but not limited to
the Additional Service Credit provision. Further, your total
annual compensation for purposes of calculating your
retirement benefit
<PAGE> 2
under BEP will be determined in accordance with paragraph 1(b)
hereof.
(b) In the event that your employment is terminated under the
conditions described in paragraph 1(a) the Company shall use
the following formula for determining your annual compensation
for fiscal year 1997, and each subsequent year in which you
remain employed, for purposes of determining your average
final compensation necessary to calculate your pension benefit
pursuant to the BEP and the Executive Supplement Plan (the
"ESP"), or any replacement plans. To determine such total
annual compensation, the Company agrees to use the higher of
(a) your base salary plus your actual annual management
incentive award under the Management Incentive Plan ("Bonus"),
or any replacement plan or (b) your base salary plus your
target Bonus, whichever is greater. As we have also agreed,
your target Bonus for Fiscal Year 1999, and all future fiscal
years, is equal to ninety (90) percent of your annual base
salary. The Company further agrees that, for purposes of
determining your average final compensation under the BEP and
ESP, it will count your last year's salary and bonus twice in
making such a determination.
(c) Notwithstanding the provisions of paragraph 1(b) above, in the
event your employment is terminated by the Company with cause
at any time, or you leave without the Company's consent prior
to December 27, 2002, your pension benefit will be calculated
solely pursuant to the terms of the Pension Plan for Employees
of Joseph E. Seagram & Sons, Inc. ("Qualified Plan") and the
ESP, or any replacement plans; provided, however, that the
determination of your total annual compensation for purposes
of calculating your retirement benefit pursuant to the ESP
will be in accordance with the provisions of paragraph 1(b)
hereof;
(d) In the event of your death at any time while you are actively
employed the Company will pay benefits under the Qualified
Plan and BEP as if you had retired on the date of your death
and were qualified for a BEP benefit pursuant to paragraph
1(a) hereof or otherwise and calculated in accordance with the
provisions of paragraph 1(b) hereof with respect to your BEP
benefit. Accordingly, your spouse, Lynne Kalagher, will
receive the two-thirds surviving spouse benefit provided by
the Senior Executive Group Term Life Insurance Policy or any
replacement program
2
<PAGE> 3
("Group Term Life") which will be payable in accordance with
Seagram's normal practices.
(e) In the event your employment is terminated under any other
circumstances or at any other time, your pension and surviving
spouse benefits will be calculated in accordance with the
terms of the Qualified Plan, ESP, BEP, Group Term Life, or
replacement plans, as are applicable to you based upon then
actual service and age, provided, however, that the
determination of total annual compensation necessary to
calculate your retirement benefit under BEP or ESP will be
made in accordance with paragraph 1(b) hereof.
2. Separation Benefits
(a) In the event your employment is terminated by the Company
without cause or by you with the Company's consent, the
Company will provide (i) your annual base salary, (ii) your
target Bonus, and (iii) continued participation in the
medical, dental and life insurance aspects of our Senior
Executive Benefits Program for three (3) years after the date
of termination.
(b) In the event your employment is terminated for any other
reason, severance or separation benefits, if any, will be
payable in accordance with the terms of any applicable plans.
3. Confidentiality
You represent and agree, as appropriate, that you (i) have not
disclosed and shall not disclose the terms of this Agreement to anyone,
provided, however, that this shall not preclude disclosure to your counsel,
financial advisor and immediate family, (ii) have instructed your counsel,
financial advisor and immediate family to whom you have disclosed or may
disclose the terms of this Agreement not to disclose such information to anyone,
and (iii) have abided by and will continue to abide by The Seagram Company
Ltd.'s policies and procedures for worldwide business conduct.
4. General Provisions
Except as required by any applicable law, no benefit provided herein
shall in any manner be anticipated, assigned or alienated, and any attempt to do
so shall be void. This Agreement shall not confer on you any right to be
retained in the employ of the Company and the right of the Company to terminate
your employment at will, for no reason (whether by dismissal, discharge or
otherwise) at any time is specifically
3
<PAGE> 4
reserved. This Agreement shall be construed, interpreted and governed in
accordance with the laws of the State of New York without reference to rules
relating to conflicts of law.
If this letter accurately reflects our Agreement, please sign and
return it to me. An executed original is enclosed for your records.
Very truly yours,
/s/ J. Borgia
READ, ACCEPTED AND AGREED
/s/ S.J. Kalagher
- --------------------
Steven J. Kalagher
10/1/98
- -----------
Date
4
<PAGE> 1
Exhibit 12(a)
THE SEAGRAM COMPANY LTD.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Fiscal
Six Months Ended Year Ended Year Ended
December 31, June 30, June 30,
1998 1997 1998 1997
------- ------- ------- -------
(millions)
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations before tax $ (157) $ 371 $ 1,611 $ 726
Add (deduct):
Dividends from equity companies 37 28 56 107
Fixed charges 211 158 406 376
Interest capitalized, net of amortization (7) (1) (2) (2)
------- ------- ------- -------
Earnings available for fixed charges $ 84 $ 556 $ 2,071 $ 1,207
------- ------- ------- -------
Fixed Charges:
Interest Expense $ 182 $ 133 $ 357 $ 326
Portion of rent expense deemed to
represent interest factor 29 25 49 50
------- ------- ------- -------
Fixed Charges $ 211 $ 158 $ 406 $ 376
------- ------- ------- -------
Ratio of Earnings to Fixed Charges (a) 3.5x 5.1x 3.2x
======= ======= ======= =======
</TABLE>
(a) Fixed charges exceeded earnings by $127 million for the six month period
ended December 31, 1998.
<PAGE> 1
Exhibit 12(b)
JOSEPH E. SEAGRAM & SONS, INC.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Fiscal
Six Months Ended Year Ended Year Ended
December 31, June 30, June 30,
1998 1997 1998 1997
----- ----- ----- -----
(millions)
<S> <C> <C> <C> <C>
Income from continuing operations before tax $ 88 $ 68 $ 17 $ 122
Add (deduct):
Dividends from equity companies 1 1 2 1
Fixed charges 99 85 182 172
Interest capitalized, net of amortization -- -- -- (1)
----- ----- ----- -----
Earnings available for fixed charges $ 188 $ 154 $ 201 $ 294
----- ----- ----- -----
Fixed charges:
Interest Expense $ 93 $ 79 $ 170 $ 159
Portion of rent expense deemed to
represent interest factor 6 6 12 13
----- ----- ----- -----
Fixed Charges 99 85 182 $ 172
----- ----- ----- -----
Ratio of Earnings to Fixed Charges 1.9x 1.8x 1.1x 1.7x
===== ===== ===== =====
</TABLE>
<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 DECEMBER
31, 1998 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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,204
<SECURITIES> 0
<RECEIVABLES> 3,969
<ALLOWANCES> 0
<INVENTORY> 2,767
<CURRENT-ASSETS> 10,018
<PP&E> 4,362
<DEPRECIATION> (1,271)
<TOTAL-ASSETS> 37,398
<CURRENT-LIABILITIES> 10,816
<BONDS> 6,387
0
0
<COMMON> 2,909
<OTHER-SE> 9,214
<TOTAL-LIABILITY-AND-EQUITY> 37,398
<SALES> 0
<TOTAL-REVENUES> 5,574
<CGS> 3,274
<TOTAL-COSTS> 3,274
<OTHER-EXPENSES> 2,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> (157)
<INCOME-TAX> 75
<INCOME-CONTINUING> (131)
<DISCONTINUED> 1,069
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 938
<EPS-PRIMARY> 2.65
<EPS-DILUTED> 2.64
</TABLE>
