-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pc98ubskZy6E67imWy+Jj7C61l7LHpew2GB9RRFw7MVAvOpybIFoUjHJ5Xzwl2Cj Pp4o0SQhp4YvU2K5doGgjg== 0000950123-96-005242.txt : 19960930 0000950123-96-005242.hdr.sgml : 19960930 ACCESSION NUMBER: 0000950123-96-005242 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGRAM CO LTD CENTRAL INDEX KEY: 0000088188 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] STATE OF INCORPORATION: CA FISCAL YEAR END: 0701 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-02275 FILM NUMBER: 96635873 BUSINESS ADDRESS: STREET 1: 1430 PEEL ST STREET 2: H3A 1S9 CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148495271 MAIL ADDRESS: STREET 1: C/O JOSEPH E SEAGRAM & SONS INC STREET 2: 375 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10152 10-K405 1 THE SEAGRAM COMPANY LTD. 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended ___________________ OR [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from February 1, 1996 to June 30, 1996 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) Registrant's telephone number, including area code: (514) 849-5271 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common shares without New York Stock Exchange Vancouver Stock Exchange nominal or par value Montreal Stock Exchange London Stock Exchange Toronto Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of common shares held by non-affiliates of the registrant as of August 31, 1996 (64% of the outstanding common shares) was approximately $7.8 billion. At August 31, 1996, there were 370,491,354 common shares outstanding. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for the transition period ended June 30, 1996. Parts I, II Proxy Circular for the Annual Meeting of Shareholders to be held on October 30, 1996. Parts I, III Annual Report on Form 10-K of E.I. du Pont de Nemours and Company for the year ended December 31, 1994. Part IV 2 2 PART I Items 1 and 2. - Business and Properties The Seagram Company Ltd., a corporation organized under Canadian federal law on March 2, 1928, operates two core, global businesses: beverages and entertainment. The Corporation's beverage businesses are engaged principally in the production and marketing of distilled spirits, wines, fruit juices, coolers, beers and mixers. The Corporation's entertainment company, MCA INC., produces and distributes motion picture, television and home video products, and recorded music; operates theme parks and retail stores; and publishes books. For information as to revenues, operating income and identifiable assets by business segment see Note 12 of Notes to Consolidated Financial Statements included in the Corporation's Transition Report to Shareholders for the Transition Period ended June 30, 1996 (the "Transition Report"). Unless the context otherwise requires, the term "Corporation", as used herein, refers collectively to The Seagram Company Ltd. and its subsidiaries and affiliates. Unless otherwise specified, all dollar amounts stated herein are expressed in U.S. currency. The Corporation's executive offices are located at 1430 Peel Street, Montreal, Quebec, Canada H3A 1S9 and its registered office is located at 57 Erb Street West, Waterloo, Ontario, Canada N2L 6C2. Effective June 30, 1996, the Corporation changed its fiscal year-end to June 30 from January 31. Accordingly, this Report has been prepared for the five-month period ended June 30, 1996 (the "Transition Period"). Financial results for the Transition Period are not necessarily indicative of results for a full year. BEVERAGES The Corporation's beverage operations are divided into two principal worldwide business units -- The Seagram Spirits And Wine Group and The Seagram Beverage Group. The Seagram Spirits And Wine Group, directly and through affiliates and joint ventures in 41 countries and territories, produces, markets and distributes more than 225 brands of distilled spirits and more than 210 brands of wines, Champagnes, Ports and Sherries, which are sold in over 150 countries and territories. Some of these products are sold worldwide and others only in the geographic area where they are produced. In addition to marketing company-owned brands, the Group also distributes spirits and wines produced by others. The Seagram Beverage Group includes Tropicana Products, Inc. ("Tropicana"), a leading producer of high-quality branded fruit juices and juice beverages, and The Seagram Beverage Company, a producer, 3 3 marketer and distributor of coolers, beers, mixers and other low-alcohol and non-alcohol adult beverages. SPIRITS AND WINES Some of the Corporation's best-known brand names include Crown Royal and Seagram's V.O. Canadian whiskies; Seagram's 7 Crown blended whiskey; Four Roses bourbon; Chivas Regal, Royal Salute and Passport Scotch whiskies; The Glenlivet and Glen Grant single malt Scotch whiskies; Martell Cognacs; Seagram's Extra Dry Gin; and Captain Morgan and Myers's rums. The Corporation also distributes Absolut Vodka, which is owned by V&S Vin & Sprit Aktiebolag, in the United States and in certain major European and other international markets. The Corporation maintains distilleries and spirits bottling plants in 19 countries in North America, South America, Europe, Asia and Australia which have aggregate daily distillation capacities of approximately 272,000 U.S. proof gallons and aggregate daily bottling capacities of approximately 277,000 standard cases. As required by the nature of its business, the Corporation maintains large inventories of aging spirits in warehousing facilities located primarily in Canada, France, the United Kingdom and the United States. At June 30, 1996, such inventories aggregated approximately 494,000,000 U.S. proof gallons. The basic raw materials used in the production of the Corporation's spirits are grains, principally corn and barley, which are purchased from a large number of suppliers. Fluctuations in the prices of these commodities have not had a material effect upon operating results. The Corporation acquires substantially all of its American white oak barrels (used for the storage of whiskey during the aging period) from one supplier in the United States. The Corporation purchases plastic bottles from two suppliers and glass bottles and packaging materials from several suppliers. The Corporation believes that its relationships with its various suppliers are good. Among the wines produced by the Corporation are Mumm and Perrier-Jouet French Champagnes; Sterling Vineyards wines; Mumm Cuvee Napa California sparkling wine; Sandeman Ports and Sherries; and Matheus Muller and Mumm German sekt. The Monterey Vineyard California wines and Barton & Guestier (B&G) French wines are produced for the Corporation. The Corporation imports fine wines, principally French wines and Champagnes, into the United States and markets premium California wines, including Sterling Vineyards wines, The Monterey Vineyard wines and Mumm Cuvee Napa California sparkling wines. The Corporation's wines, Champagnes and Cognacs are produced primarily from grapes grown by others. Grapes are, from time to time, adversely affected by weather and other forces which occasionally have 4 4 limited production. The Corporation believes that its relationships with its growers are good. The Corporation operates wineries and wine bottling plants in Argentina, Brazil, Canada, France, Germany, Italy, Portugal, Spain and the United States. At June 30, 1996, the Corporation's bulk wine inventory aggregated approximately 32,000,000 wine gallons. FRUIT JUICES AND OTHER Tropicana, which was acquired by the Corporation in 1988, produces and markets the leading brand of chilled orange juice in the world. Tropicana pioneered not-from-concentrate orange juice in the United States with Tropicana Pure Premium Orange Juice. Today, Tropicana Pure Premium Orange Juice is offered in seven varieties Original, Home Style, Grovestand, Ruby Red Orange Juice, Tangerine Orange, Plus with Calcium and extra Vitamin C and Plus with Vitamins A, C and E. Tropicana also offers a number of other juices which are not made from concentrate, including Home Style Golden and Ruby Red Grapefruit Juices, and in Canada, Orchard Stand Apple Juice. In addition, Tropicana produces the Tropicana Season's Best and Pure Tropics brands of juices made from concentrate and frozen concentrate juices, and Tropicana Twister as well as Twister Light, unique blends of fruit juice beverages. On May 19, 1995, the Corporation acquired the worldwide juice and juice beverage business of Dole Food Company, Inc. ("Dole"), including juices and juice beverages sold under the Dole, Juice Bowl, Fruvita and Looza brand names, but excluding Dole's canned pineapple juice business. This acquisition has significantly expanded Tropicana's international juice business and international production capabilities. Tropicana's products are available throughout the United States and in a growing number of other countries, including, Argentina, Belgium, Canada, China, Finland, France, Germany, Hong Kong, Ireland, Italy, The Netherlands, Japan, South Korea, Sweden, Switzerland, Taiwan and the United Kingdom. Tropicana operates three production facilities in Florida and one in each of California, Belgium, France and China. In addition, products are manufactured for Tropicana by third parties at 14 facilities in the United States and internationally. Tropicana manufactures most of its corrugated cardboard cases. Tropicana acquires substantially all of its paperboard containers from a single supplier and substantially all of its plastic containers from another single supplier. Tropicana acquires most of its glass containers through a joint venture of which it is a partner. Distribution facilities are located in California, Florida, New Jersey, Port Ghent, Belgium and various other locations. 5 5 Oranges are the largest single raw material purchased by Tropicana and Tropicana is the largest processor of Florida oranges. Approximately 95% of its Florida oranges are provided by growers under agreements ranging from one to twenty years. In addition to oranges, Tropicana purchases fruit juice concentrate from several suppliers. Tropicana believes its relationships with its growers and suppliers are good. Prices of citrus fruit and fruit juice concentrate fluctuate due to various seasonal, climatic and economic factors, which generally affect Tropicana's competitors as well. The Seagram Beverage Company markets low-alcohol and non- alcohol adult beverages. Seagram's Coolers are sold in a wide variety of flavors, while Seagram's Mixers include Ginger Ale, Club Soda, Seltzer and Tonic Water. The Seagram Beverage Company is the exclusive U.S. importer of Grolsch lagers which are owned by Royal Grolsch N.V. It also distributes Devil Mountain ales and Coyote lagers. BEVERAGES - MARKETING AND DISTRIBUTION The Corporation derives a significant portion of its revenues from its beverage operations outside of the United States and Canada. In recent years, the Corporation has sought to increase the presence of such beverage operations through internal expansion, joint ventures and acquisitions. The Corporation's foreign operations involve risks including governmental regulation, embargoes, expropriation, export controls, burdensome taxes, government price restraints, exchange controls and currency fluctuations. See Note 12 of the Notes to Consolidated Financial Statements for information as to sales and other income, operating income and total assets by geographic area. In the United States, spirits, wines, coolers and beers are sold to two general classes of customers. In 32 states and the District of Columbia, sales are made to approximately 380 wholesale distributors who also purchase and market other brands of distilled spirits, wines, coolers and beers. In 18 "control" states (where the government engages in distribution), sales are made to state and local liquor boards and commissions; in certain of these states, sales of wines, coolers and beers also are made to approximately 280 wholesale distributors. In Canada, sales are made exclusively to ten provincial and two territorial government liquor boards and commissions. Outside the United States and Canada, the Corporation's spirits and wines are marketed either through affiliates, joint ventures or independent distributors. Such affiliates and joint ventures are located in Argentina, Australia, Austria, Belgium, Brazil, Chile, the People's Republic of China, Colombia, Costa Rica, the Czech Republic, the Dominican Republic, France, Germany, Greece, Hungary, Hong Kong, India, Israel, Italy, Jamaica, Japan, Mexico, The Netherlands, New Zealand, Philippines, Poland, Portugal, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Ukraine, the United Kingdom and Venezuela. Tropicana markets its products primarily through independent brokers or distributors in the United States and Canada, distributors 6 6 in Finland, Hong Kong, Ireland, Italy, South Korea, Sweden and Taiwan and a direct sales force in Argentina, Belgium, France, Switzerland, The Netherlands and the United Kingdom. Tropicana markets its products in Japan through a joint venture of which it is a party and in China and Germany through a direct sales force as well as independent distributors. Tropicana is expanding the distribution of its products in other markets throughout the world. Seagram's Mixers are marketed through approximately 50 distributors. During the Transition Period, no independent customer (or group of related customers) of the Corporation's beverage operations accounted for as much as 10% of the Corporation's revenues. BEVERAGES - COMPETITION The beverage industry is highly competitive. In particular, the spirits and wine business in Europe has become intensely competitive. The trend toward retailer concentration continues with both national and pan-European retailers and buying groups becoming more powerful. All marketers of beverage alcohol brands have confronted severe pricing pressure across Europe. However, the Corporation is investing in its key brand franchises to build image and grow distribution in European markets. To maintain or improve its market position the Corporation makes extensive use of magazine, newspaper and outdoor advertising. The Corporation also utilizes radio and television advertising, although the use of such advertising in connection with the sale of beverage alcohol is restricted in certain countries. BEVERAGES - REGULATION AND TAXES The beverage alcohol business is subject to strict governmental regulation covering virtually every aspect of operations, including production, marketing, pricing, labeling, packaging and advertising. In the United States, the Corporation must file or publish prices for its beverage alcohol products in some states as much as three months in advance of their implementation. In the United States, Canada and many other countries, beverage alcohol products are subject to substantial excise taxes or custom duties and additional taxation by governmental subdivisions. ENTERTAINMENT The Corporation acquired an 80% interest in MCA Holding I Corp., the indirect parent of MCA INC., on June 5, 1995. MCA INC. has four major business units: filmed entertainment, music entertainment, recreation, and publishing and other. Unless the context otherwise requires, the term "MCA" includes MCA INC. and its subsidiaries and affiliates. 7 7 FILMED ENTERTAINMENT MCA's filmed entertainment business produces and distributes films worldwide in the theatrical, television, home video and pay television markets, engages in the licensing of merchandising rights and film property publishing rights and has interests in USA Networks, Cineplex Odeon Corporation, United Cinemas International Multiplex B.V. ("UCI"), Cinema International Corporation N.V. ("CIC"), United International Pictures ("UIP") and Cinema International B.V. ("CIBV"). MCA is currently engaged, through Universal Pictures Production, in the production of feature length films intended for initial theatrical exhibition ("theatrical films") and, through Universal Television and its interest in Brillstein Grey Entertainment, in the production of motion picture films intended for initial exhibition on television ("television films"). MCA TV develops original programming for local television stations. MCA Television Entertainment, Inc. develops original programming for pay television, basic cable and home video. Universal Family Entertainment, Inc., MCA Family Entertainment, Inc. and Universal Cartoon Studios, Inc. produce animated and live action children's and family programming for networks, basic cable and local television stations as well as home video. Universal Pictures Production and Universal Television are headquartered at Universal City Studios, located at the Corporation's 418 acre property in Universal City, California. Production generally includes four steps: acquisition of story rights, pre-production, principal photography and post-production. The production/distribution cycle represents the period of time from acquisition of a property through distribution and varies depending upon such factors as type of product and release pattern. Production activities for both theatrical films and television films are centered in the Corporation's Universal City Studios. Production facilities are also leased to outside parties. Some motion picture and television films are produced, in whole or in part, at other locations both in and outside the United States. MCA produces film product for network primetime television. Programming consists of various weekly series, additional hours of special programming and "made for television" feature length films. In the initial telecast season, the network license provides for a minimum number of episodes, with the network having the option to order additional episodes for both the current and future television seasons. Network licenses give the networks the exclusive right to telecast, as well as select the time a series will be telecast, and the success of any one series may be influenced by the strength of the programs against which it competes. Generally, television films for the networks are produced under contracts which provide for license fees which cover only a portion of the anticipated production costs. The recoverability of the balance of the production costs and the realization of profits, if any, are 8 8 dependent upon the success of foreign syndication licenses, additional network exhibition in non-primetime hours, subsequent domestic syndication licenses and other uses. The arrangements under which MCA's theatrical films and television films are owned, produced and distributed vary widely. Other parties may participate in varying degrees in revenues or other contractually defined amounts. Generally, MCA or its affiliated companies own the films and control worldwide distribution except where they act as a subdistributor in specified territories or contract for specifically defined distribution rights. The rights to use the characters, titles and other material and rights from television and theatrical films and other sources are licensed to manufacturers, retailers and others by MCA/Universal Merchandising, Inc. Distribution. Generally, theatrical films are first distributed in the theatrical, home video and pay television markets. Subsequently, theatrical films are made available for worldwide television network exhibition and/or television syndication. The license agreements with theater operators are on an individual picture basis, and rentals under these agreements are generally a percentage of the theater's receipts with, in some instances, a minimum guaranteed amount. Certain television films are initially licensed for network exhibition in the United States and are simultaneously syndicated in foreign countries. Subsequent to their network telecast, series may be licensed in the United States for airing on local television stations, airing on basic cable or for additional network exhibition in non-primetime hours. Certain films are produced and/or distributed for initial exhibition on local television. In addition, certain television films are distributed in the home video market. Licensing agreements are recognized in the period that the films are available for telecast. Theatrical product is distributed in the United States and Canada to motion picture theaters by Universal Pictures Distribution and to pay television by Universal Pay Television, Inc. Theatrical distribution throughout the rest of the world is primarily conducted by UIP, which is equally owned by the Corporation, MGM and Viacom Inc. Pay television distribution for the rest of the world is conducted by MCA International B.V. Television distribution is handled by MCA TV domestically and throughout the rest of the world primarily by MCA TV International. Videocassettes and videodiscs are marketed in the United States and Canada by MCA Home Video, Inc. and outside the U.S. and Canada by CIBV, which is 49% owned by each of the Corporation and Viacom Inc. Certain Other Joint Ventures and Equity Interests. USA Networks, which is equally owned by MCA and Viacom Inc., owns and operates three advertiser-supported cable television services: USA 9 9 Network, a general entertainment channel, Sci-Fi Channel and Sci-Fi Europe, science fiction channels. MCA has a more than 40% equity interest in Cineplex Odeon Corporation which owns and operates motion picture theaters and related food service concessions in the United States and Canada. MCA also has a 49% interest in UCI and CIC, joint ventures with Viacom Inc., which operate motion picture theaters outside the United States and Canada. MUSIC ENTERTAINMENT The Music Entertainment Group encompasses record labels; manufacturing, sales, and distribution operations; music publishing; and MCA Concerts, a live event/concert promotion division. MCA's record companies create and market prerecorded music, principally on compact discs and cassettes. Their music appears on such labels as MCA Records; Universal Records; MCA Records/Nashville; Geffen and DGC Records; GRP Recording Company, which includes the Impulse!, Decca Jazz and Blue Thumb labels; Rising Tide/Nashville; Uptown Records; and Interscope Records (50 percent ownership). New labels marketed by Geffen Records include Almo Sounds, Outpost Recordings, and DreamWorks SKG Records. UNI Distribution Corporation manufactures and distributes recorded music for all of the labels in the group, affiliated label ventures, and others, and distributes video product for MCA Home Video, Inc. and others in the United States. MCA Music Entertainment International Limited has subsidiaries in major markets outside the United States for the release and marketing of recorded music. In foreign countries other than Canada and the United Kingdom, the Music Entertainment Group's record product is manufactured and distributed by third parties, principally BMG Music. The Corporation also releases soundtrack albums for motion pictures. MCA Music Publishing licenses music from a catalog of more than 155,000 copyrights for a wide variety of uses including recorded music, videocassettes, videodiscs, video games, radio, television and motion pictures. Concerts and live events are presented at and promoted by the Corporation's Universal Amphitheatre in Los Angeles, Fiddler's Green in Denver, Blossom Music Center in Cleveland and the Gorge Amphitheatre in George, Washington and through joint ventures at the Starplex Amphitheatre in Dallas, the Lakewood Amphitheatre in Atlanta and the Molson Amphitheatre in Toronto, Canada. In connection with the Corporation's music entertainment activities, MCA owns manufacturing facilities in New York and Illinois and an office building in Los Angeles. The Corporation leases warehouses at six facilities in the United States and Canada and leases office and/or warehouse space in 27 countries outside of the United States. RECREATION MCA owns and operates Universal Studios Hollywood, a theme park attraction based on the Corporation's filmed entertainment businesses located at Universal City Studios. MCA has a 50% interest in Universal City Florida Partners, a joint venture which owns Universal Studios 10 10 Florida, a motion picture and television themed tourist attraction and production facility on approximately 440 acres owned by the joint venture in Orlando, Florida. Universal City Development Partners, a partnership in which MCA has a 50% interest, has begun development of an additional themed tourist attraction, Universal's Islands of Adventure, and related commercial real estate on approximately 385 acres of land owned by such partnership which is adjacent to Universal Studios Florida. In early 1996, the Corporation announced plans for Universal Studios Japan in Osaka, the Corporation's first theme park venture outside the United States. It is anticipated that the Corporation will hold a 17% equity interest in Universal Studios Japan. Construction is expected to begin in 1998, with the opening expected in 2001. MCA develops and manages commercial buildings with about 1.5 million rentable square feet of office space in Universal CityWalk and Universal City which are occupied by the Corporation or leased to outside tenants; owns the Sheraton Universal Hotel; and has a 50% joint venture interest in the 10 Universal City Plaza office building. Universal CityWalk, which is located on the Corporation's property in Universal City, is an integrated retail/entertainment zone which offers shopping, dining, cinemas and entertainment adjacent to Universal Studios Hollywood. PUBLISHING AND OTHER MCA Publishing Group (also known in the book industry as The Putnam Berkley Group, Inc.) is composed of three divisions: The Berkley Publishing Group, G.P. Putnam's Sons and The Putnam & Grosset Group. The Berkley Publishing Group publishes mass market and trade paperback books which are either reprints of hardcover books or paperback originals. The Berkley Publishing Group releases books through book imprints: Berkley, Jove, Ace, Boulevard, Perigee Books, HP Books and Riverhead Books. G.P. Putnam's Sons publishes adult books, principally through G.P. Putnam's Sons, Grosset & Dunlap, Inc., Jeremy P. Tarcher, Inc. and Riverhead Books. The Putnam & Grosset Group releases young adult and children's books through G.P. Putnam's Sons, Philomel Books, Grosset & Dunlap, Inc., Price Stern Sloan and Paperstar Books. Generally, each of these operations maintains its own independent editorial staff. MCA Publishing Group also distributes product for other publishers. The Putnam Berkley Group does not own printing or binding facilities; printing and binding are performed by several outside firms with which the Group has maintained long-standing relationships. Spencer Gifts, Inc. operates approximately 500 retail gift stores throughout the United States through two groups of stores: the Spencer and DAPY gift shops. Spencer and DAPY sell novelties, electronics, accessories, books and trend driven products. Universal Interactive Studios, Inc. develops entertainment software and manages the Corporation's 49% interest (45% on a fully- 11 11 diluted basis) in Interplay Productions, an entertainment software developer. For the Corporation's book publishing activities, it leases office space in New York City, Los Angeles and New Jersey and distribution facilities in New York and Pennsylvania. In connection with the activities of Spencer Gifts, Inc., the Corporation owns a building in New Jersey and leases approximately 500 stores in various cities in the United States and a warehouse in North Carolina. ENTERTAINMENT - COMPETITION Filmed Entertainment. The Corporation's filmed entertainment business competes with all other forms of entertainment. The Corporation competes with other major film studios and independent producers for creative talent and story products, essential ingredients of the Corporation's filmed entertainment business. The profitability of the Corporation's filmed entertainment business is dependent upon public taste which is volatile, shifts in demand, economic conditions and technological developments. Music Entertainment. The music entertainment industry is highly competitive. The profitability of a company's recorded music business depends on its ability to attract and develop recording artists, the public acceptance of such artists and the recordings released in a particular year. The Corporation's music business competes for creative talent both from new artists and those artists who have already established themselves through another label. Over expansion of retail outlets for recorded music over the past several years resulted in the closing of many such stores which is expected to further increase competition among recorded music companies. The recorded music business continues to be adversely affected by counterfeiting and piracy, in particular through the home taping of recorded music. Recreation. The Corporation's theme parks compete with other theme parks in their respective geographic regions and other leisure- time activities. The profitability of the leisure-time industry is influenced by various factors which are not directly controllable such as economic conditions, amount of available leisure time, oil and transportation prices and weather patterns. Publishing and Other. The book publishing industry is highly competitive. The Corporation competes with numerous other publishers for book titles, authors and retail shelf space. The book publishing industry also competes with other media and entertainment. Spencer Gifts and Dapy stores compete with numerous retail firms of various sizes throughout the United States, including department, variety and drug stores. 12 12 INTERESTS IN TIME WARNER AND DUPONT TIME WARNER At June 30, 1996, the Corporation owned 56.8 million shares or approximately 14.5% of the outstanding common stock of Time Warner Inc., a Delaware corporation ("Time Warner"), which had a market value of approximately $2.2 billion as of such date. The Corporation's ownership percentage would be reduced if the merger with Turner Broadcasting System, Inc. ("TBS") previously announced by Time Warner is consummated. Time Warner has included information with respect to its business and its proposed merger with TBS in its Annual Report on Form 10-K for the year ended December 31, 1995 and in its Joint Proxy Statement/Prospectus for the special meeting of its stockholders to be held on October 10, 1996. DUPONT On April 6, 1995, E.I. du Pont de Nemours and Company, a Delaware corporation ("DuPont"), redeemed 156 million shares of its common stock owned by the Corporation in exchange for $8.3 billion in cash and 90-day DuPont notes, plus warrants (the "DuPont Warrants") to purchase 156 million shares of DuPont common stock, which had a value of approximately $440 million as of the date of the transaction. On July 24, 1996, DuPont repurchased the DuPont Warrants from the Corporation for $500 million in cash. The Corporation has retained 8.2 million shares of DuPont common stock which had a market value of $651 million as of June 30, 1996. DuPont has included information relating to its business in its Annual Report on Form 10-K for the year ended December 31, 1995. EMPLOYEES As of June 30, 1996, the Corporation had approximately 30,000 employees. The number of employees is subject to seasonal fluctuations. The Corporation has collective bargaining agreements with a number of labor unions governing wages and benefits, hours, working conditions and similar matters and covering approximately 11,500 of its employees in the United States and certain other countries. Such agreements expire at various times between 1996 and 2000. In general, the Corporation believes its labor relations are good. Item 3. - Legal Proceedings In 1993, the Federal Trade Commission ("FTC") commenced an investigation of the practices of the major record distributors with respect to advertising allowances, pricing policies and related matters. MCA received a voluntary request for information in 1993 and produced a substantial volume of documents at that time. In September 1994, MCA received a subpoena for the production of documents, stating that the FTC is investigating whether members of the prerecorded music 13 13 distributing industry may be engaging or may have engaged in any unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act and the Robinson-Patman Act by fixing prices or by limiting, or engaging in concerted activities to limit, the availability of cooperative advertising or promotional funds, allowances, services, or facilities to retailers who distribute used compact discs or advertise prices of compact discs below specified levels. No allegations of unlawful conduct have been made against MCA at this time. On May 30, 1995, a purported class action was filed in the United States District Court for the Central District of California, entitled Digital Distribution Inc. d/b/a Compact Disc Warehouse v. CEMA Distribution, Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, UNI Distribution Corporation, Bertelsmann Music Group, Inc. and Polygram Group Distribution, Inc., No. 95-3596 JSL. The plaintiffs brought the action on behalf of direct purchasers of compact discs alleging that defendants, including UNI Distribution Corporation, violated the federal and/or state antitrust laws and unfair competition laws by engaging in a conspiracy to fix prices of compact discs, and seek an injunction and treble damages. The defendants' motion to dismiss the amended complaint was granted and the action was dismissed, with prejudice, on January 9, 1996. Plaintiffs filed a notice of appeal on February 12, 1996. On June 13, 1996, plaintiffs filed their brief in support of the appeal. Defendants filed their opposition brief on July 26, 1996 and plaintiffs filed a reply brief on August 26, 1996. On July 8, 1996, a purported class action was filed in the Circuit Court of Blount County, Tennessee at Maryville, entitled Robinson and Silvey v. EMI Music Distribution, Inc., Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, UNI Distribution Corporation, Bertelsmann Music Group, Inc. and Polygram Group Distribution, Inc., No. L-10462. The action was brought on behalf of persons who, from June 26, 1992 to the present, purchased recorded music compact discs indirectly from the defendants in Tennessee, Alabama, California, Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New Mexico, North Dakota, South Dakota, West Virginia, Wisconsin and the District of Colombia, and alleges that the defendants are engaged in a conspiracy to fix the prices of compact discs, in violation of the antitrust, unfair trade practices and consumer protection statutes of each of those jurisdictions. On July 8, 1996, the Circuit Court issued an order conditionally granting class certification, subject to the defendants' right to move to decertify the class. On July 25, 1996, UNI Distribution Corporation was served with an antitrust civil investigation demand from the Office of the Attorney General of the State of Florida that calls for the production of documents in connection with an investigation to determine whether there "is, has been or may be" a "conspiracy to fix the prices" of compact discs or conduct consisting of "unfair methods of competition" or "unfair trade practices" in the sale and marketing of compact discs. 14 14 On April 29, 1996, MCA commenced an action entitled MCA INC. v. Viacom Inc., Viacom International Inc. and Eighth Century Corporation, C.A. No. 14971, in the Court of Chancery of the State of Delaware (the "Court of Chancery") alleging breaches by Viacom Inc. ("Viacom") and affiliated entities of the USA Networks joint venture agreement between affiliates of Viacom and MCA, by reason, among others, of Viacom operating certain cable television networks in violation of the joint venture agreement and in competition with USA Networks. The action seeks, among other things, to enforce the joint venture agreement's exclusivity provision in the fields of advertiser-supported basic cable television and pay-per-view programming services. Shortly thereafter Viacom and Eighth Century Corporation, an indirect, wholly owned subsidiary of Viacom, commenced an action in the Court of Chancery entitled Viacom Inc. and Eighth Century Corporation v. The Seagram Company Ltd., MCA INC. and Universal City Studios, Inc., C.A. No. 14973, against the Corporation, MCA and Universal City Studios, Inc. The action alleges, among other things, that MCA sought to force Viacom to sell its 50 percent interest in USA Networks to MCA at an unfairly low price. The action seeks compensatory damages in an unspecified amount and a declaration that Viacom has not violated, or has been released from a claim for violating, the exclusivity provision of the USA Networks joint venture agreement. The Court of Chancery has currently scheduled the trial of both actions to commence on October 15, 1996. The Corporation and its subsidiaries and affiliates are defendants or respondents in a number of other actions arising in the ordinary course of business. Item 4. - Submission of Matters to a Vote of Security Holders Not applicable. 15 15 PART II Item 5. - Market for Registrant's Common Equity and Related Shareholder Matters Information as to the number of holders of record of the Corporation's common shares, the markets on which such common shares are traded, the quarterly high and low prices for such common shares on Canadian and New York stock exchanges and the quarterly dividends declared with respect thereto during the Transition Period and during fiscal years ended January 31, 1996 and 1995 is incorporated herein by reference to the Management's Discussion and Analysis section captioned "Return to Shareholders" on page 14 of the Transition Report. Payment of dividends by the Corporation to shareholders not resident in Canada is subject under Canadian law to Canadian withholding tax. For shareholders resident in the United States, 15% of the dividends must be withheld pursuant to currently existing treaty arrangements between the United States and Canada. For shareholders resident in other countries, the withholding rate varies depending upon the existence and terms of applicable treaties between each such other country and Canada. Item 6. - Selected Financial Data Selected financial data for the Transition Period and for each of the five fiscal years ended January 31, 1996, 1995, 1994, 1993 and 1992 are incorporated herein by reference to the Financial Summary on pages 34 and 35 of the Corporation's Transition Report. Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations is incorporated herein by reference to pages 6 through 14 of the Corporation's Transition Report. Item 8. - Financial Statements and Supplementary Data The Consolidated Financial Statements, together with the report thereon of Price Waterhouse dated September 5, 1996, and the supplementary quarterly data are incorporated herein by reference to pages 15 through 33 of the Corporation's Transition Report. Item 9. - Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. 16 16 PART III Item 10. - Directors and Executive Officers of the Registrant Information as to the Corporation's directors is incorporated by reference to pages 5 through 7 of the Proxy Circular for the Meeting of Shareholders to be held on October 30, 1996 (the "Proxy Circular") under the caption "Election of Directors -- Nominees for Directors". Set forth below is certain information with respect to the Corporation's executive officers. Title and Other Office Held Name Age Information Since ---- --- --------------- ----------- Edgar M. Bronfman 67 Chairman of the Board and 1975 Director. For more than five years prior to June 1994, he was also Chief Executive Officer. Charles R. Bronfman 65 Co-Chairman of the Board, 1986 Chairman of the Executive Committee and Director. Edgar Bronfman, Jr. 41 President, Chief Executive 1994 Officer and Director. From June 1989 to June 1994, he was President, Chief Operating Officer and Director. Robert W. Matschullat 48 Vice Chairman, Chief 1995 Financial Officer and Director. From January 1, 1992 to July 1, 1995 he was Managing Director and Head of Worldwide Investment Banking for Morgan Stanley & Co., Inc. and a director of Morgan Stanley Group Inc. From February 1986 to January 1992, he was Managing Director of Morgan Stanley & Co., Inc. Frank J. Biondi, Jr. 51 Director, Chairman and 1996 Chief Executive Officer, MCA INC. From July 1987 until January 1996, he was President, Chief Executive Officer and a director of Viacom Inc. 17 17 Title and Other Office Held Name Age Information Since ---- --- --------------- ----------- John D. Borgia 48 Executive Vice President, 1995 Human Resources. From March 1991 to April 1995, he was Senior Vice President, Human Resources & Administration, Bristol- Myers Squibb Pharmaceutical Group. Stephen E. Herbits 54 Executive Vice President, 1989 Corporate Policy and External Affairs. Steven J. Kalagher 53 Executive Vice President 1995 and President, The Seagram Spirits And Wine Group (a division of Joseph E. Seagram & Sons, Inc.). From May 1994 to May 1995 he was Reengineering Leader. From February 1993 to May 1995 he was also President, Seagram North America (a division of The Seagram Spirits And Wine Group). From March 1991 to January 1993 he was Executive Vice President, Staff Operations of The Seagram Spirits And Wine Group. Ellen R. Marram 49 Executive Vice President 1993 and President, The Seagram Beverage Group (a division of Joseph E. Seagram & Sons, Inc.). From June 1988 to April 1993, she was President of Nabisco Biscuit Company, an operating unit of RJR Nabisco Holdings Corp. Edward Falkenberg 55 Vice President and 1993 Controller. From August 1986 to January 1993, he was Controller. Jeananne K. Hauswald 52 Vice President and 1993 Treasurer. From May 1990 to January 1993, she was Vice President, Human Resources. 18 18 Title and Other Office Held Name Age Information Since ---- --- --------------- ----------- Gabor Jellinek 61 Vice President, Production 1987 and Executive Vice President, Manufacturing, The Seagram Spirits And Wine Group (a division of Joseph E. Seagram & Sons, Inc.) since February 1991. Arnold M. Ludwick 58 Vice President. 1982 Daniel R. Paladino 53 Vice President, Legal and 1993 Environmental Affairs. From August 1986 to February 1993, he was Vice President, Legal Affairs. Michael C.L. Hallows 55 Secretary. 1979 Pursuant to the Corporation's By-Laws, executive officers are chosen annually by the Board of Directors and hold office until they resign, are removed or otherwise become disqualified to serve. Item 11. - Executive Compensation The information required hereunder is incorporated herein by reference to pages 11 through 18 of the Proxy Circular under the captions "Summary Compensation Table" through "Performance Graph". Item 12. - Security Ownership of Certain Beneficial Owners and Management Information required hereunder as to the ownership of the Corporation's common shares by certain beneficial owners and management is incorporated herein by reference to pages 2 through 4 of the Proxy Circular under the caption "Share Ownership". Item 13. - Certain Relationships and Related Transactions The information required hereunder is incorporated herein by reference to page 19 of the Proxy Circular under the captions "Human Resources Committee Interlocks and Insider Participation" and "Transactions with Directors and Others". 19 19 PART IV Item 14. - Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1&2. Financial Statements and Financial Statement Schedules The financial statements and schedules filed as part of or incorporated by reference in this Report are listed in the accompanying Index to Financial Statements. 3. Exhibits The exhibits filed as part of or incorporated by reference in this Report are listed in the accompanying Exhibit Index. Exhibits 10(g) through 10(cc) listed in the accompanying Exhibit Index identify management contracts or compensatory plans or arrangements. (b) Current Reports on Form 8-K 1. A Current Report on Form 8-K dated July 24, 1996 was filed (i) to report under Item 5 the repurchase by DuPont from the Corporation of the DuPont Warrants, and (ii) to file under Item 7 a press release announcing, among other things, such repurchase. 20 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) Date: September 27, 1996 By /s/ Edgar Bronfman, Jr. ----------------------- Edgar Bronfman, Jr. President and Chief Executive Officer (Principal Executive Officer) 21 21 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on September 27, 1996 by the following persons on behalf of the Registrant and in the capacities indicated. Principal Executive Officer: /s/ Edgar Bronfman, Jr. Director, President and Chief - ----------------------------- Executive Officer Edgar Bronfman, Jr. Principal Financial Officer: /s/ Robert W. Matschullat Director, Vice Chairman and - ----------------------------- Chief Financial Officer Robert W. Matschullat Principal Accounting Officer: /s/ Edward Falkenberg Vice President and Controller - ----------------------------- Edward Falkenberg Directors: Edgar M. Bronfman* Director, Chairman of the Board The Hon. Charles R. Bronfman* Director, Co-Chairman of the Board and Chairman of the Executive Committee Samuel Bronfman II* Director Matthew W. Barrett* Director Frank J. Biondi, Jr.* Director David M. Culver* Director The Hon. William G. Davis* Director The Hon. Paul Desmarais* Director David L. Johnston* Director The Hon. E. Leo Kolber* Director Marie-Josee Kravis* Director C. Edward Medland* Director Lew R. Wasserman* Director John L. Weinberg* Director John S. Weinberg* Director * By signing his name hereto, Robert W. Matschullat signs this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. By /s/ Robert W. Matschullat --------------------------------------- Robert W. Matschullat, Attorney-in-fact 22 22 THE SEAGRAM COMPANY LTD. TRANSITION REPORT ON FORM 10-K FOR THE FIVE MONTH TRANSITION PERIOD ENDED JUNE 30, 1996 INDEX TO FINANCIAL STATEMENTS 1. Consolidated Financial Statements for The Seagram Company Ltd. and subsidiary companies, together with the report thereon of Price Waterhouse dated September 5, 1996, incorporated herein by reference to the Corporation's Annual Report to Shareholders for the five-month period ended June 30, 1996 (the "Transition Period"): Consolidated Balance Sheet at June 30, 1996, January 31, 1996 and January 31, 1995; For the Transition Period, and the twelve months ended January 31, 1996, 1995 and 1994: Consolidated Statement of Income; Consolidated Statement of Cash Flows; Consolidated Statement of Shareholders' Equity; Summary of Significant Accounting Policies; Notes to Consolidated Financial Statements; Auditors' Report; Quarterly Data (Unaudited). 2. Financial Statement Schedules and Report: Report of Chartered Accountants on Financial Statement Schedule; Schedule for The Seagram Company Ltd. and Subsidiary Companies: II. Valuation and Qualifying Accounts. Schedules not included have been omitted because they are not applicable or the required information is shown in the Corporation's Consolidated Financial Statements or Notes thereto. 3. The Consolidated Financial Statements of E.I. du Pont de Nemours and Company (approximately 24.1% owned by the Corporation at January 31, 1995 and accounted for during the 23 23 fiscal year then ended using the equity method), as listed under Item 14(a)1 of its Annual Report on Form 10-K for the year ended December 31, 1994, are incorporated herein by reference. 24 24 SCHEDULE II THE SEAGRAM COMPANY LTD. (Incorporated under the Canada Business Corporations Act) AND SUBSIDIARY COMPANIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (U.S. dollars in millions)
Additions Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions of Period - ----------- ---------- ---------- ---------- --------- Reserves Deducted from Receivables: Transition Period Ended June 30, 1996: Reserve for Doubtful Accounts $ 78 $ 25 $ 15 $ 88 Reserve for Merchandise Returns and Allowances 205 130 66 269 ---- ---- ---- ---- $283 $155 $ 81 $357 ==== ==== ==== ==== Fiscal Year Ended January 31, 1996: Reserve for Doubtful Accounts $ 47 $ 38 $ 7 $ 78 Reserve for Merchandise Returns and Allowances 6 245 46 205 ---- ---- ---- ---- $ 53 $283 $ 53 $283 ==== ==== ==== ==== Fiscal Year Ended January 31, 1995: Reserve for Doubtful Accounts $ 35 $ 15 $ 3 $ 47 Reserve for Allowances 14 6 14 6 ---- ---- ---- ---- $ 49 $ 21 $ 17 $ 53 ==== ==== ==== ====
25 25 REPORT OF CHARTERED ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of The Seagram Company Ltd. Our audits of the consolidated financial statements referred to in our report dated September 5, 1996 appearing on page 32 of the Transition Report to Shareholders of The Seagram Company Ltd. for the transition period ended June 30, 1996 (which report and consolidated financial statements are incorporated by reference in this Transition Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in the Index to Financial Statements appearing on page 22 of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse PRICE WATERHOUSE Chartered Accountants Montreal, Canada September 27, 1996 26 26 THE SEAGRAM COMPANY LTD. TRANSITION REPORT ON FORM 10-K FOR THE TRANSITION PERIOD ENDED JUNE 30, 1996 EXHIBIT INDEX Exhibit Number Per Item 601 of Description of Document and Incorporation Regulation S-K Reference Where Applicable - --------------- ----------------------------------------- 3 (a) Articles of Amalgamation dated February 1, 1995 between the Corporation and Centenary Distillers Ltd. (incorporated by reference to Exhibit 3(a) of the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1995), as amended by Certificate and Articles of Amendment dated May 31, 1995 (incorporated by reference to Exhibit 3(a) of the Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1995). (b) General By-Laws of the Corporation, as amended (incorporated by reference to Exhibit 3(b) to the Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1996). 4 Long-term debt instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Corporation agrees to furnish to the Commission on request a copy of any instrument defining the rights of holders of long-term debt of the Corporation and of any subsidiary for which consolidated or unconsolidated financial statements are required to be filed. 10 (a) Amended and Restated Stock Purchase Agreement dated as of June 5, 1995 among the Corporation, Matsushita Electric Industrial Co., Inc., Home Holding Inc. and Home Holding II Inc. (incorporated by reference to the Exhibit 2(a) to the Corporation's Current Report on Form 8-K dated June 5, 1995). (b) Stockholders' Agreement dated as of June 5, 1995 among the Corporation, MEI Holding Inc. (formerly known as Home Holding Inc.) and MCA Holding I Corp. (formerly known as Home Holding II Inc.) (incorporated by reference to the Exhibit 10(a) to the Corporation's 27 27 Current Report on Form 8-K dated June 5, 1995). (c) Credit Agreement (the "Credit Agreement"), dated as of November 23, 1994, among Joseph E. Seagram & Sons, Inc., J.E. Seagram Corp., Bank of Montreal, Citibank N.A. and Chemical Bank and the banks named therein (incorporated by reference to Exhibit 10 (f) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1995). (d) First Amendment, dated as of June 14, 1996, to the Credit Agreement among Joseph E. Seagram & Sons, Inc., J.E. Seagram Corp., Bank of Montreal, Citibank N.A. and Chemical Bank and the banks named therein. (e) 5-Year Credit Agreement (the "Five Year Credit Agreement") dated as of December 21, 1994, among The Seagram Company Ltd., Bank of Montreal and the banks named therein (incorporated by reference to Exhibit 10 (h) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1995). (f) First Amendment, dated as of June 14, 1996, to the 5-Year Credit Agreement among The Seagram Company Ltd., Bank of Montreal and the banks named therein. (g) 1983 Stock Appreciation Right and Stock Unit Plan of the Corporation, as amended (incorporated by reference to Exhibit 10(e) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1987). (h) Written description of Management Incentive Plan of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1994). (i) Senior Executive Long-Term Incentive Plan of the Corporation (incorporated by reference to Exhibit 10(f) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1990). 28 28 (j) Form of Deferred Compensation Agreement, as amended, between Joseph E. Seagram & Sons, Inc. and certain of its executives (incorporated by reference to Exhibit 10(n) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (k) 1988 Stock Option Plan of the Corporation, as amended (incorporated by reference to Exhibit 10(f) to the Corporation's Annual Report on Form 10-K for this fiscal year ended January 31, 1992). (l) 1992 Stock Incentive Plan of the Corporation, as amended (incorporated by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (m) 1996 Stock Incentive Plan of the Corporation. (n) Senior Executive Basic Life Insurance Program, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(i) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (o) Retirement Salary Continuation Plan, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(j) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (p) Benefit Equalization Plan, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(k) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (q) Senior Executive Group Term Life Insurance Arrangement, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(k) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1992). (r) Personal Excess Liability Insurance Policy for Senior Executives of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(m) to the Corporation's Annual 29 29 Report on Form 10-K for the fiscal year ended January 31, 1993). (s) Flexible Perquisite Program for Seagram Senior Executives (incorporated by reference to Exhibit 10(s) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1994). (t) Senior Executive Disability Salary Continuation Arrangement of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10 (w) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1995). (u) Post Retirement Consulting Plan, as amended, of Joseph E. Seagram & Sons, Limited (incorporated by reference to Exhibit 10(r) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (v) Canadian Executive Pension Plan of Joseph E. Seagram & Sons, Limited, as amended (incorporated by reference to Exhibit 10(s) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (w) Executive Long-Term Incentive Arrangement among the Corporation, Joseph E. Seagram & Sons, Limited and Charles R. Bronfman dated February 4, 1982 (incorporated by reference to Exhibit 10(r) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1992). (x) Employment Agreement between Joseph E. Seagram & Sons, Inc. and Robert W. Matschullat dated July 3, 1995 (incorporated by reference to Exhibit 10(aa) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (y) Employment Agreement among MCA INC., the Corporation and Frank J. Biondi, Jr. dated April 23, 1996 (incorporated by reference to Exhibit 10(bb) to the Corporation's Annual Report on Form 10- K for the fiscal year ended January 31, 1996). (z) Agreement between Joseph E. Seagram & Sons, Inc. and Steven J. Kalagher dated December 30 30 28, 1995 (incorporated by reference to Exhibit 10(cc) to the Corporation's Annual Report on Form 10- K for the fiscal year ended January 31, 1996). (aa) Employment Agreement between Joseph E. Seagram & Sons, Inc. and Ellen R. Marram dated April 12, 1993 (incorporated by reference to Exhibit 10(dd) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (bb) Employment Agreement between MCA INC. and Lew R. Wasserman dated December 6, 1988 (incorporated by reference to Exhibit 10(ee) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (cc) Amendment to Employment Agreement between MCA INC. and Lew R. Wasserman dated November 26, 1990 (incorporated by reference to Exhibit 10(ff) to the Corporation's Annual Report on Form 10- K for the fiscal year ended January 31, 1996). 11 Computation of fully diluted earnings per share. 12 (a) Computation of ratio of earnings to fixed charges - The Seagram Company Ltd. (b) Computation of ratio of earnings to fixed charges - Joseph E. Seagram & Sons, Inc. 13 Report to Shareholders for the Transition Period ended June 30, 1996. Only those sections (or portions thereof) specifically referred to in this Report as being incorporated by reference are deemed to be filed herewith. 21 Subsidiaries. 23 (a) Consent of Price Waterhouse, chartered accountants. (b) Consent of Price Waterhouse LLP, independent accountants. 24 Power of Attorney. 27 Financial Data Schedule. 99 Supplemental Quarterly Financial Information on New Fiscal Year Basis. EX-10.D 2 FIRST AMENDMENT TO THE CREDIT AGREEMENT 1 Exhibit 10(d) FIRST AMENDMENT FIRST AMENDMENT, dated as of June 14, 1996 (this "Amendment"), to the 5-Year Credit Agreement, dated as of November 23, 1994 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Joseph E. Seagram & Sons, Inc. (the "Borrower"), J.E. Seagram Corp. (the "Guarantor"), the financial institutions from time to time parties thereto (the "Banks"), Bank of Montreal, Citibank, N.A. and Chemical Bank, as co-arrangers, Citibank, N.A., as syndication agent, Bank of Montreal, as documentation agent, and Chemical Bank, as administrative agent (in such capacity, the "Administrative Agent") for the Banks. W I T N E S S E T H : WHEREAS, the Borrower, the Banks and the Administrative Agent are parties to the Credit Agreement; WHEREAS, the Borrower has requested that the Banks amend certain provisions of the Credit Agreement, as more fully described herein; WHEREAS, the Banks are willing to amend such provisions of the Credit Agreement only upon the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms which are defined in the Credit Agreement are used herein as therein defined. 2. Amendment of Section 1.01. Section 1.01 of the Credit Agreement hereby is amended by: (a) deleting therefrom in their entireties the definitions of the terms "Applicable Margin," "Applicable Utilization Fee Rate" and "Facility Fee"; (b) inserting therein, in proper alphabetical order, the following new defined terms: "Applicable Margin" means, for each day during the Interest Period for each Eurodollar Rate Advance, the rate of interest per annum (expressed in basis points, i.e., 1/100 of 1%) set forth in Column B below opposite the category in Column A below which describes the Applicable Public Debt Rating in effect on such day:
----------------------------------------------------------------- Column A Column B -------- -------- ----------------------------------------------------------------- Level 1 12.50 ----------------------------------------------------------------- Level 2 15.00 -----------------------------------------------------------------
2 2 ----------------------------------------------------------------- Level 3 20.00 ----------------------------------------------------------------- Level 4 25.00 ----------------------------------------------------------------- Level 5 42.50 -----------------------------------------------------------------
"Applicable Utilization Fee Rate" means, for each day, the rate of interest per annum (expressed in basis points, i.e., 1/100 of 1%) set forth in Column B below opposite the category in Column A below which describes the Applicable Public Debt Rating in effect on such day:
------------------------------------------------- Column A Column B -------- -------- ------------------------------------------------- Level 1 0.00 ------------------------------------------------- Level 2 0.00 ------------------------------------------------- Level 3 0.00 ------------------------------------------------- Level 4 7.50 ------------------------------------------------- Level 5 7.50 -------------------------------------------------
"Facility Fee" means, for each day, the rate per annum (expressed in basis points, i.e., 1/100 of 1%) set forth in Column B below opposite the category in Column A below which describes the Applicable Public Debt Rating in effect on such day:
------------------------------------------------- Column A Column B -------- -------- ------------------------------------------------- Level 1 7.00 ------------------------------------------------- Level 2 7.50 ------------------------------------------------- Level 3 10.00 ------------------------------------------------- Level 4 12.50 ------------------------------------------------- Level 5 20.00 -------------------------------------------------
3. Amendment of Signature Pages. (a) Each Bank hereby agrees that the aggregate amount of the Commitments shall be increased to $2,000,000,000 and hereby agrees to provide a Commitment (as defined in the Credit Agreement) under the Credit Agreement in an amount up to the amount set forth opposite the signature of such Bank hereto; provided that any Bank which agrees to provide a Commitment (i.e., inserts an amount greater than $0) shall provide a Commitment of not less than $25,000,000. 3 3 (b) Each Bank hereby agrees that, simultaneously with the effectiveness of this Amendment, the Administrative Agent and the Borrower shall (in their sole discretion) reallocate the Commitments of the Banks such that the aggregate amount of the Commitments under the Credit Agreement shall be increased to $2,000,000,000. Notwithstanding the provisions of Section 9.06 of the Credit Agreement (which provisions hereby are waived to the extent necessary to permit such re-allocation and assignment), such re-allocation shall be deemed to be an assignment of the relevant portions of the Commitments of the Banks affected thereby on the Effective Date of this Amendment. Following the Effective Date hereof, (i) the Administrative Agent shall distribute to each Bank a schedule reflecting the new allocation of Commitments and (ii) the Commitment set forth for each Bank on its signature page to the Credit Agreement shall be deemed to have been amended (without any notice to or consent of the Borrower, any Bank or any other Person) to reflect the allocation set forth for such Bank in new schedule (with any Bank which has no allocation after the Effective Date then ceasing to be a "Bank" under the Credit Agreement). (c) Notwithstanding anything to the contrary contained herein, the Commitment of each Bank (after giving effect to such re-allocation) shall not be greater than the amount set forth opposite its signature hereto and shall not be less than the lesser of (i) the amount set forth opposite its signature hereto and (ii) the aggregate amount of such Bank's Commitments under (and as defined in) the Credit Agreement and the 364-Day Credit Agreement immediately prior to the effectiveness of such re-allocation. 4. Extension of Termination Date. Notwithstanding anything to the contrary contained in the Credit Agreement, the Termination Date presently in effect shall be extended to the date which is the fifth anniversary of the Effective Date (as hereinafter defined), such that (unless terminated pursuant to Section 2.05, 2.08(b), 2.11(c), 2.13(h) or 6.01 of the Credit Agreement) the "Termination Date" for each Bank shall occur the later of the fifth anniversary of the Effective Date or the date to which the Commitment of such Bank is extended pursuant to Section 9.09 of the Credit Agreement. 5. Termination of 364-Day Credit Agreement. By its execution and delivery hereof, the Borrower hereby terminates the Commitments under (and as defined in) the 364-Day Credit Agreement. Each Bank hereby agrees to waive the provisions of Section 2.05 of the 364-Day Credit Agreement to the extent and only to the extent necessary to permit such termination to become effective on the Effective Date of this Amendment. Notwithstanding anything to the contrary contained herein or in the 364-Day Credit Agreement, any interest, fees and other amounts (other than principal) owing on account of the 364-Day Credit Agreement on such date of termination shall be due and payable on June 30, 1996 (or such later date upon which the 364-Day Credit Agreement shall terminate). 6. Representations and Warranties. Each of the Borrower and the Guarantor hereby confirms, reaffirms and restates the representations and warranties made by it which are set forth in Article IV of the Credit Agreement, provided that each reference to the Credit Agreement therein shall be deemed to be a reference to the Credit Agreement after giving effect to this Amendment. Each of the Borrower and the Guarantor represents and warrants that no Default or Event of Default has occurred and is continuing. 4 4 7. Effectiveness. This Amendment shall become effective (the date of such effectiveness being the "Effective Date") upon receipt by the Administrative Agent of the following: (i) counterparts hereof, duly executed and delivered by the Borrower, the Guarantor and each Bank; (ii) promissory notes in substantially the form of Exhibit A to the Credit Agreement, (the "A Notes"), referencing the Credit Agreement, as amended by this Amendment No. 1, drawn to the order of each of the respective Banks in the aggregate principal amount of each such Bank's Commitment as re-allocated pursuant to the foregoing paragraph 3 of this Amendment; (iii) certified copies of the resolutions of the Board of Directors of each of the Borrower and the Guarantor approving the Credit Agreement, as amended by this Amendment No. 1, and (in the case of the Borrower) the Notes and (in the case of the Borrower and the Guarantor) all documents evidencing other necessary corporate action and governmental authorizations and approvals, if any, required in connection with the execution, delivery and performance of this Amendment by the Guarantor, and this Amendment and the Notes by the Borrower; (iv) a signed copy of a certificate of the Secretary or an Assistant Secretary or other appropriate officer of each of the Borrower and the Guarantor certifying the names and true signatures of the officers of the Borrower and the Guarantor, respectively, authorized to sign this Amendment and, in the case of the Borrower, the Notes, and in each case the other documents or certificates to be delivered pursuant to this Amendment. The Administrative Agent and the Banks each may conclusively rely on such certificate until it shall receive a further certificate of the Secretary or an Assistant Secretary of the Borrower or the Guarantor, as the case may be, cancelling or amending the prior certificate of the Borrower or the Guarantor, as the case may be, and submitting the signatures of the officers named in such further certificate; (v) A favorable opinion of Simpson Thacher & Bartlett, New York counsel for the Borrower and the Guarantor, referencing the Credit Agreement, as amended by this Amendment No. 1, in form and substance reasonably satisfactory to the Administrative Agent, which opinion the Borrower and the Guarantor hereby instruct such counsel to prepare and deliver; (vi) A favorable opinion of Barnes and Thornburg, special Indiana counsel for the Borrower, referencing the Credit Agreement, as amended by this Amendment No. 1, in form and substance reasonably satisfactory to the Administrative Agent, which opinion the Borrower and the Guarantor hereby instruct such counsel to prepare and deliver; and (vii) A favorable opinion of Shearman & Sterling, special New York counsel for the Co-Agents and the Administrative Agent, referencing the Credit Agreement, as 5 5 amended by this Amendment No. 1, in form and substance reasonably satisfactory to the Administrative Agent. Notwithstanding anything to the contrary contained in the Credit Agreement, each of the Applicable Margin, Applicable Utilization Fee and Facility Fee shall accrue for each day from and after the Effective Date at the rates set forth herein. 8. Continuing Effect of Credit Agreement. This Amendment shall not constitute a waiver or amendment of any other provision of the Credit Agreement not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of the Borrower that would require a waiver or consent of the Banks or the Administrative Agent. Except as expressly amended herein, the provisions of the Credit Agreement are and shall remain in full force and effect. Without limiting the foregoing, the undersigned, J.E. Seagram Corp., a Delaware corporation, as Guarantor under Section 8.01 (the "Guaranty") of the Credit Agreement, hereby consents to this Amendment and hereby confirms and agrees that the Guaranty is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects. 9. Counterparts. This Amendment may be executed by the parties hereto in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 6 6 10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. JOSEPH E. SEAGRAM & SONS, INC. By: /s/ Daniel R. Paladino ------------------------------------- Name: Daniel R. Paladino Title: Vice President - Legal and Environmental Affairs, General Counsel and Secretary CHEMICAL BANK, as Administrative Agent and on behalf of each Bank By: /s/ Carol A. Ulmer ------------------------------------- Name: Carol A. Ulmer Title: Vice President Name of Bank: CHEMICAL BANK Maximum Commitment By: /s/ Carol A. Ulmer Amount: $ 150,000,000 ------------------------------------- Name: Carol A. Ulmer Title: Vice President Name of Bank: ABN AMRO BANK Maximum Commitment By: /s/ Frances O'R. Logan Amount: $ 60,000,000 ------------------------------------- Name: Frances O'R. Logan Title: Vice President By: /s/ Margaret P. Hannahoe ------------------------------------- Name: Margaret P. Hannahoe Title: Assistant Vice President 7 7 Name of Bank: BANK OF AMERICA ILLINOIS Maximum Commitment By: /s/ Ambrish D. Thanawala Amount: $ 100,000,000 ------------------------------------- Name: Ambrish D. Thanawala Title: Authorized Officer Name of Bank: BANK OF MONTREAL Maximum Commitment By: /s/ Thruston W. Pettus Amount: $ 150,000,000 ------------------------------------- Name: Thruston W. Pettus Title: Director Name of Bank: BANK OF TOKYO-MITSUBISHI TRUST COMPANY Maximum Commitment By: /s/ Michael C. Irwin Amount: $ 75,000,000 ------------------------------------- Name: Michael C. Irwin Title: Vice President Name of Bank: BANQUE NATIONALE DE PARIS Maximum Commitment By: /s/ Richard L. Sted Amount: $ 100,000,000 ------------------------------------- Name: Richard L. Sted Title: Senior Vice President By: /s/ Sophie Revillard Kaufman ------------------------------------- Name: Sophie Revillard Kaufman Title: Vice President Name of Bank: BANQUE PARIBAS Maximum Commitment By: /s/ Ann C. Pifer Amount: $ 100,000,000 ------------------------------------- Name: Ann C. Pifer Title: Vice President 8 8 By: /s/ John J. McCormick, III ------------------------------------- Name: John J. McCormick, III Title: Vice President Name of Bank: CIBC, INC. Maximum Commitment By: /s/ J. Domkowski Amount: $ 100,000,000 ------------------------------------- Name: J. Domkowski Title: Authorized Signatory Name of Bank: CITIBANK Maximum Commitment By: /s/ Andrew R. Sriubas Amount: $ 150,000,000 ------------------------------------- Name: Andrew R. Sriubas Title: Attorney-in-Fact Name of Bank: CREDIT LYONNAIS NEW YORK BRANCH Maximum Commitment By: /s/ Mark Campellone Amount: $ 60,000,000 ------------------------------------- Name: Mark Campellone Title: Vice President Name of Bank: CREDIT SUISSE Maximum Commitment By: /s/ Robert B. Potter Amount: $ 75,000,000 ------------------------------------- Name: Robert B. Potter Title: Member of Senior Management By: /s/ Lynn Allegaert ------------------------------------- Name: Lynn Allegaert Title: Member of Senior Management 9 9 Name of Bank: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLAND BRANCHES Maximum Commitment By: /s/ Stephen A. Wiedemann Amount: $ 100,000,000 ------------------------------------- Name: Stephen A. Wiedemann Title: Vice President By: /s/ Iain Stewart ------------------------------------- Name: Iain Stewart Title: Assistant Vice President Name of Bank: DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES Maximum Commitment By: /s/ B. Craig Erickson Amount: $ 100,000,000 ------------------------------------- Name: B. Craig Erickson Title: Vice President By: /s/ Lucas Missong ------------------------------------- Name: Lucas Missong Title: Assistant Treasurer Name of Bank: ISTITUTO BANCARIO SAN PAOLO DI TORINO SpA Maximum Commitment By: /s/ Wendell Jones Amount: $ 50,000,000 ------------------------------------- Name: Wendell Jones Title: Vice President By: /s/ Robert Wurster ------------------------------------- Name: Robert Wurster Title: First Vice President 10 10 Name of Bank: LLOYDS BANK PLC Maximum Commitment By: /s/ A. Micklethwaite Amount: $ 25,000,000 ------------------------------------- Name: A. Micklethwaite Title: Executive Officer M-141 By: /s/ Stephen J. Attree ------------------------------------- Name: Stephen J. Attree Title: Assistant Vice President Name of Bank: MELLON BANK, N.A. Maximum Commitment By: /s/ Caroline R. Walsh Amount: $ 75,000,000 ------------------------------------- Name: Caroline R. Walsh Title: Assistant Vice President Name of Bank: MORGAN GUARANTY TRUST COMPANY OF NEW YORK Maximum Commitment By: /s/ Diana H. Imhof Amount: $ 125,000,000 ------------------------------------- Name: Diana H. Imhof Title: Vice President Name of Bank: NATIONAL WESTMINSTER BANK PLC Maximum Commitment By: /s/ Anne Marie Torre Amount: $ 75,000,000 ------------------------------------- Name: Anne Marie Torre Title: Vice President Name of Bank: NATIONSBANK, N.A. Maximum Commitment By: /s/ Eileen C. Higgins Amount: $ 100,000,000 ------------------------------------- Name: Eileen C. Higgins Title: Vice President 11 11 Name of Bank: PNC BANK, N.A. Maximum Commitment By: /s/ Sarah McClintock Amount: $ 0 ------------------------------------- Name: Sarah McClintock Title: Vice President Name of Bank: ROYAL BANK OF CANADA Maximum Commitment By: /s/ Tom L. Gleason Amount: $ 100,000,000 ------------------------------------- Name: Tom L. Gleason Title: Vice President Name of Bank: SOCIETE GENERALE Maximum Commitment By: /s/ Bruce Drossman Amount: $ 60,000,000 ------------------------------------- Name: Bruce Drossman Title: Vice President Name of Bank: SWISS BANK CORPORATION NEW YORK BRANCH Maximum Commitment By: /s/ Thomas R. Salzano Amount: $ 0 ------------------------------------- Name: Thomas R. Salzano Title: Associate Director, Banking Finance Support, N.A. By: /s/ James J. Diaz ------------------------------------- Name: James J. Diaz Title: Director Banking Finance Support, N.A. Name of Bank: THE BANK OF NEW YORK Maximum Commitment By: /s/ Eliza S. Adams Amount: $ 75,000,000 ------------------------------------- Name: Eliza S. Adams Title: Vice President 12 12 Name of Bank: THE BANK OF NOVA SCOTIA Maximum Commitment By: /s/ Terry K. Fryett Amount: $ 25,000,000 ------------------------------------- Name: Terry K. Fryett Title: Senior Relationship Manager Name of Bank: THE FIRST NATIONAL BANK OF BOSTON Maximum Commitment By: /s/ William F. Hamilton Amount: $ 35,000,000 ------------------------------------- Name: William F. Hamilton Title: Director Name of Bank: THE FIRST NATIONAL BANK OF CHICAGO Maximum Commitment By: /s/ Stephen E. McDonald Amount: $ 35,000,000 ------------------------------------- Name: Stephen E. McDonald Title: First Vice President Name of Bank: THE FUJI BANK, LIMITED Maximum Commitment By: /s/ Gina M. Kearns Amount: $ 75,000,000 ------------------------------------- Name: Gina M. Kearns Title: Vice President Name of Bank: THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY JAPAN Maximum Commitment By: /s/ J. Kenneth Biegen Amount: $ 75,000,000 ------------------------------------- Name: J. Kenneth Biegen Title: Senior Vice President 13 13 Name of Bank: THE ROYAL BANK OF SCOTLAND PLC Maximum Commitment By: /s/ D. Dougan Amount: $ 35,000,000 ------------------------------------- Name: D. Dougan Title: Vice President Name of Bank: THE SAKURA BANK, LIMITED Maximum Commitment By: /s/ Yasuhiro Terada Amount: $ 75,000,000 ------------------------------------- Name: Yasuhiro Terada Title: Senior Vice President Name of Bank: THE SANWA BANK, LIMITED Maximum Commitment By: /s/ Dominic J. Sorresso Amount: $ 75,000,000 ------------------------------------- Name: Dominic J. Sorresso Title: Vice President Name of Bank: THE SUMITOMO BANK, LIMITED Maximum Commitment By: /s/ Yoshinori Kawamura Amount: $ 75,000,000 ------------------------------------- Name: Yoshinori Kawamura Title: Joint General Manager Name of Bank: THE TORONTO-DOMINION BANK Maximum Commitment By: /s/ Jorge A. Garcia Amount: $ 75,000,000 ------------------------------------- Name: Jorge A. Garcia Title: Manager - Credit Administration 14 14 Name of Bank: WELLS FARGO BANK, N.A. Maximum Commitment By: /s/ Peter G. Olson Amount: $ 35,000,000 ------------------------------------- Name: Peter G. Olson Title: Senior Vice President ACKNOWLEDGED AND AGREED as of the date first set forth above : - ----------------------------------------- J.E. SEAGRAM CORP. By: /s/ Jeananne K. Hauswald ----------------------------------------------- Name: Jeananne K. Hauswald Title: Vice President and Treasurer EX-10.F 3 FIRST AMENDMENT TO THE 5-YEAR CREDIT AGREEMENT 1 Exhibit 10(f) FIRST AMENDMENT FIRST AMENDMENT, dated as of June 14, 1996 (this "Amendment"), to the 5-Year Credit Agreement, dated as of December 21, 1994 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among The Seagram Company Ltd. (the "Borrower"), the financial institutions from time to time parties thereto (the "Banks") and Bank of Montreal, as administrative agent (in such capacity, the "Administrative Agent") for the Banks. W I T N E S S E T H : WHEREAS, the Borrower, the Banks and the Administrative Agent are parties to the Credit Agreement; WHEREAS, the Borrower has requested that the Banks amend certain provisions of the Credit Agreement, as more fully described herein; WHEREAS, the Banks are willing to amend such provisions of the Credit Agreement only upon the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms which are defined in the Credit Agreement are used herein as therein defined. 2. Amendment of Section 1.01. Section 1.01 of the Credit Agreement hereby is amended by: (a) deleting therefrom in their entireties the definitions of the terms "Applicable Margin," "Applicable Utilization Fee Rate" and "Facility Fee"; (b) inserting therein, in proper alphabetical order, the following new defined terms: "Applicable Margin" means, for each day during the Interest Period for each Eurodollar Rate Advance, the rate of interest per annum (expressed in basis points, i.e., 1/100 of 1%) set forth in Column B below opposite the category in Column A below which describes the Applicable Public Debt Rating in effect on such day:
----------------------------------------------------------------- Column A Column B -------- -------- ----------------------------------------------------------------- Level 1 12.50 ----------------------------------------------------------------- Level 2 15.00 ----------------------------------------------------------------- Level 3 20.00 -----------------------------------------------------------------
2 2 ----------------------------------------------------------------- Level 4 25.00 ----------------------------------------------------------------- Level 5 42.50 -----------------------------------------------------------------
"Applicable Utilization Fee Rate" means, for each day, the rate of interest per annum (expressed in basis points, i.e., 1/100 of 1%) set forth in Column B below opposite the category in Column A below which describes the Applicable Public Debt Rating in effect on such day:
------------------------------------------------- Column A Column B ------------------------------------------------- Level 1 0.00 ------------------------------------------------- Level 2 0.00 ------------------------------------------------- Level 3 0.00 ------------------------------------------------- Level 4 7.50 ------------------------------------------------- Level 5 7.50 -------------------------------------------------
"Facility Fee" means, for each day, the rate per annum (expressed in basis points, i.e., 1/100 of 1%) set forth in Column B below opposite the category in Column A below which describes the Applicable Public Debt Rating in effect on such day:
------------------------------------------------- Column A Column B ------------------------------------------------- Level 1 7.00 ------------------------------------------------- Level 2 7.50 ------------------------------------------------- Level 3 10.00 ------------------------------------------------- Level 4 12.50 ------------------------------------------------- Level 5 20.00 -------------------------------------------------
3. Amendment of Signature Pages. (a) Each Bank hereby agrees that the aggregate amount of the Commitments shall be increased to $1,100,000,000 and hereby agrees to provide a Commitment (as defined in the Credit Agreement) under the Credit Agreement in an amount up to the amount set forth opposite the signature of such Bank hereto; provided that any Bank which agrees to provide a Commitment (i.e., inserts an amount greater than $0) shall provide a Commitment of not less than $20,000,000. 3 3 (b) Each Bank hereby agrees that, simultaneously with the effectiveness of this Amendment, the Administrative Agent and the Borrower shall (in their sole discretion) reallocate the Commitments of the Banks such that the aggregate amount of the Commitments under the Credit Agreement shall be increased to $1,100,000,000. Notwithstanding the provisions of Section 9.06 of the Credit Agreement (which provisions hereby are waived to the extent necessary to permit such re-allocation and assignment), such re-allocation shall be deemed to be an assignment of the relevant portions of the Commitments of the Banks affected thereby on the Effective Date of this Amendment. Following the Effective Date hereof, (i) the Administrative Agent shall distribute to each Bank a schedule reflecting the new allocation of Commitments and (ii) the Commitment set forth for each Bank on its signature page to the Credit Agreement shall be deemed to have been amended (without any notice to or consent of the Borrower, any Bank or any other Person) to reflect the allocation set forth for such Bank in new schedule (with any Bank which has no allocation after the Effective Date then ceasing to be a "Bank" under the Credit Agreement). (c) Notwithstanding anything to the contrary contained herein, the Commitment of each Bank (after giving effect to such re-allocation) shall not be greater than the amount set forth opposite its signature hereto and shall not be less than the lesser of (i) the amount set forth opposite its signature hereto and (ii) the aggregate amount of such Bank's Commitments under (and as defined in) the Credit Agreement and the 364-Day Credit Agreement immediately prior to the effectiveness of such re-allocation. 4. Extension of Termination Date. Notwithstanding anything to the contrary contained in the Credit Agreement, the Termination Date presently in effect shall be extended to the date which is the fifth anniversary of the Effective Date (as hereinafter defined), such that (unless terminated pursuant to Section 2.05 or 6.01 of the Credit Agreement) the "Termination Date" for each Bank shall occur the later of the fifth anniversary of the Effective Date or the date to which the Commitment of such Bank is extended pursuant to Section 9.16 of the Credit Agreement. 5. Termination of 364-Day Credit Agreement. By its execution and delivery hereof, the Borrower hereby terminates the Commitments under (and as defined in) the 364-Day Credit Agreement. Each Bank hereby agrees to waive the provisions of Section 2.05 of the 364-Day Credit Agreement to the extent and only to the extent necessary to permit such termination to become effective on the Effective Date of this Amendment. Notwithstanding anything to the contrary contained herein or in the 364-Day Credit Agreement, any interest, fees and other amounts (other than principal) owing on account of the 364-Day Credit Agreement on such date of termination shall be due and payable on June 30, 1996 (or such later date upon which the 364-Day Credit Agreement shall terminate). 6. Representations and Warranties. The Borrower hereby confirms, reaffirms and restates the representations and warranties made by it which are set forth in Article IV of the Credit Agreement, provided that each reference to the Credit Agreement therein shall be deemed to be a reference to the Credit Agreement after giving effect to this Amendment. The Borrower represents and warrants that no Default or Event of Default has occurred and is continuing. 4 4 7. Effectiveness. This Amendment shall become effective (the date of such effectiveness being the "Effective Date") upon receipt by the Administrative Agent of the following: (i) counterparts hereof, duly executed and delivered by the Borrower and by each Bank; (ii) certified copies of the resolutions of the Board of Directors of the Borrower approving the Credit Agreement, as amended by this Amendment, the Notes and all documents evidencing other necessary corporate action and governmental authorizations and approvals, if any, required in connection with the execution, delivery and performance of this Amendment and the Notes by the Borrower; (iii) a signed copy of a certificate of the Secretary or an Assistant Secretary or other appropriate officer of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Amendment, the Notes and the other documents or certificates to be delivered pursuant to this Amendment. The Administrative Agent and the Banks each may conclusively rely on such certificate until it shall receive a further certificate of the Secretary or an Assistant Secretary of the Borrower cancelling or amending the prior certificate of the Borrower and submitting the signatures of the officers named in such further certificate; (iv) A favorable opinion of Phillips & Vineberg, Quebec counsel for the Borrower, referencing the Credit Agreement, as amended by this Amendment, in form and substance reasonably satisfactory to the Administrative Agent, which opinion the Borrower hereby instructs such counsel to prepare and deliver; (v) A favorable opinion of Stikeman, Elliott, special counsel for the Administrative Agent and the Banks, referencing the Credit Agreement, as amended by this Amendment, in form and substance reasonably satisfactory to the Administrative Agent. Notwithstanding anything to the contrary contained in the Credit Agreement, each of the Applicable Margin, Applicable Utilization Fee and Facility Fee shall accrue for each day from and after the Effective Date at the rates set forth herein. 8. Continuing Effect of Credit Agreement. This Amendment shall not constitute a waiver or amendment of any other provision of the Credit Agreement not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of the Borrower that would require a waiver or consent of the Banks or the Administrative Agent. Except as expressly amended herein, the provisions of the Credit Agreement are and shall remain in full force and effect. 9. Counterparts. This Amendment may be executed by the parties hereto in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 5 5 10. GOVERNING LAW; LANGUAGE. (a) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF QUEBEC AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN. (b) The parties confirm their desire that this Amendment, together with all other documents, including notices, with respect thereto be written in the English language. Les parties aux presentes confirment leur volonte expresse que cette convention de meme que tous les documents, y compris tout avis, s'y rattachant, soient rediges in anglais. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. THE SEAGRAM COMPANY LTD. By: /s/ Daniel R. Paladino ------------------------------------- Name: Daniel R. Paladino Title: Vice President - Legal and Environmental Affairs By: /s/ Jeananne K. Hauswald ------------------------------------- Name: Jeananne K. Hauswald Title: Vice President and Treasurer BANK OF MONTREAL, as Administrative Agent By: /s/ Lester Fernandes ------------------------------------- Name: Lester Fernandes Title: Managing Director Name of Bank: BANK OF MONTREAL Maximum Commitment By: /s/ Lester Fernandes Amount: $ 150,000,000 ------------------------------------- Name: Lester Fernandes Title: Managing Director 6 6 Name of Bank: J.P. MORGAN CANADA Maximum Commitment By: /s/ A. Shelton Amount: $ 25,000,000 ------------------------------------- Name: A. Shelton Title: President Name of Bank: SOCIETE GENERALE (CANADA) Maximum Commitment By: /s/ Rene Douville Amount: $ 20,000,000 ------------------------------------- Name: Rene Douville Title: Senior Manager, Corporate Banking Name of Bank: IBJ (CANADA) Maximum Commitment By: /s/ T. Irie Amount: $ 20,000,000 ------------------------------------- Name: T. Irie Title: Senior Vice President Name of Bank: CREDIT LYONNAIS (CANADA) Maximum Commitment By: /s/ Cynthia Hansen Amount: $ 20,000,000 ------------------------------------- Name: Cynthia Hansen Title: Manager By: /s/ Daniel Arponi ------------------------------------- Name: Daniel Arponi Title: Vice President Name of Bank: BANQUE PARIBAS Maximum Commitment By: /s/ Ann C. Pifer Amount: $ 25,000,000 ------------------------------------- Name: Ann C. Pifer Title: Vice President By: /s/ John J. McCormick, III ------------------------------------- Name: John J. McCormick, III Title: Vice President 7 7 Name of Bank: ABN AMRO BANK N.V. (GRAND CAYMAN) Maximum Commitment By: /s/ Charles Marien Amount: $ 20,000,000 ------------------------------------- Name: Charles Marien Title: Vice President By: /s/ R. Dupuis ------------------------------------- Name: R. Dupuis Title: Vice President Name of Bank: THE SUMITOMO BANK OF CANADA Maximum Commitment By: /s/ Koichi Sasa Amount: $ 30,000,000 ------------------------------------- Name: Koichi Sasa Title: Senior Vice President By: /s/ Alfred Lee ------------------------------------- Name: Alfred Lee Title: Vice President Name of Bank: SANWA BANK CANADA Maximum Commitment By: /s/ Shigeki Iwashita Amount: $ 30,000,000 ------------------------------------- Name: Shigeki Iwashita Title: Vice President, Corporate Banking Name of Bank: SAKURA BANK (CANADA) Maximum Commitment By: Elwood Langley Amount: $ 30,000,000 ------------------------------------- Name: Elwood Langley Title: Vice President 8 8 Name of Bank: NATIONAL WESTMINSTER BANK OF CANADA Maximum Commitment By: /s/ N.L. Stride Amount: $ 50,000,000 ------------------------------------- Name: N.L. Stride Title: Vice President Name of Bank: MELLON BANK CANADA Maximum Commitment By: /s/ Wendy B.H. Bocti Amount: $ 50,000,000 ------------------------------------- Name: Wendy B.H. Bocti Title: Vice President Name of Bank: FUJI BANK CANADA Maximum Commitment By: /s/ Francois Bienvenue Amount: $ 30,000,000 ------------------------------------- Name: Francois Bienvenue Title: Assistant Vice President Name of Bank: DEUTSCHE BANK CANADA Maximum Commitment By: /s/ Quentin Broad Amount: $ 50,000,000 ------------------------------------- Name: Quentin Broad Title: Vice President By: /s/ R. Rod O'Hara ------------------------------------- Name: R. Rod O'Hara Title: Assistant Vice President 9 9 Name of Bank: BANK OF TOKYO-MITSUBISHI (CANADA) Maximum Commitment By: /s/ Keiichiro Hida Amount: $ 50,000,000 ------------------------------------- Name: Keiichiro Hida Title: Executive Vice President By: /s/ Amos W. Simpson ------------------------------------- Name: Amos W. Simpson Title: Vice President & General Manager Name of Bank: BANQUE NATIONALE DE PARIS (CANADA) Maximum Commitment By: /s/ Frank L. Shaw Amount: $ 50,000,000 ------------------------------------- Name: Frank L. Shaw Title: Vice President, Corporate Banking By: /s/ Chantal Debailleul ------------------------------------- Name: Chantal Debailleul Title: Vice President, Corporate Banking Name of Bank: CITIBANK CANADA Maximum Commitment By: /s/ David Wingfelder Amount: $ 75,000,000 ------------------------------------- Name: David Wingfelder Title: Vice President Name of Bank: CHEMICAL BANK OF CANADA Maximum Commitment By: /s/ Owen G. Roberts Amount: $ 75,000,000 ------------------------------------- Name: Owen G. Roberts Title: Vice President 10 10 Name of Bank: BANK OF AMERICA CANADA Maximum Commitment By: /s/ Gilles De Montigny Amount: $ 75,000,000 ------------------------------------- Name: Gilles De Montigny Title: Vice President Name of Bank: ROYAL BANK OF CANADA *Maximum Commitment By: /s/ Nick Avgoustakis Amount: $ 150,000,000 ------------------------------------- Name: Nick Avgoustakis Title: Senior Manager Name of Bank: THE TORONTO-DOMINION BANK Maximum Commitment By: /s/ Jorge A. Garcia Amount: $ 150,000,000 ------------------------------------- Name: Jorge A. Garcia Title: Manager-Credit Administration Name of Bank: CANADIAN IMPERIAL BANK OF COMMERCE Maximum Commitment By: /s/ B.R. Storelli Amount: $ 150,000,000 ------------------------------------- Name: B.R. Storelli Title: Director Name of Bank: BANK OF NOVA SCOTIA Maximum Commitment By: /s/ David M. Torrey Amount: $ 100,000,000 ------------------------------------- Name: David M. Torrey Title: Relationship Manager EX-10.M 4 1996 STOCK INCENTIVE PLAN 1 EXHIBIT 10(m) 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 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 A-1 2 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. 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 20,000,000, 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 A-2 3 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 5% of the then outstanding Common Shares on the date when the Plan is adopted by the Board. 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. 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 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; A-3 4 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 (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. A-4 5 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 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 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. A-5 6 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 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 held by the Participant shall be exercisable until the Termination Date set forth in the Award. Notwithstanding the foregoing, an Award 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. 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. A-6 7 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 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. A-7 EX-11 5 COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE 1 Exhibit 11 The Seagram Company Ltd. Exhibit With Respect to Computation of Fully Diluted Earnings Per Share EFFECT OF CONVERSION OF LIQUID YIELD OPTION NOTES (LYONs) AND EXERCISE OF STOCK OPTIONS ON FULLY DILUTED EARNINGS PER SHARE
Transition Fiscal Years Ended January 31, Period Ended ---------------------------------------------- Restatement of Shares: June 30, 1996 1996 1995 1994 ------------ ------------ ------------ ------------ (1) Shares used in computing earnings per share 373,857,915 373,116,794 372,499,060 373,050,863 (2) Additional shares deemed outstanding: (a) Upon exercise of stock option plans 2,982,932 4,733,707 2,879,795 2,725,384 (b) Upon conversion of LYONs 691,408 1,175,368 1,273,826 1,293,869 ------------ ------------ ------------ ------------ (3) Shares assumed to be outstanding for fully diluted computation 377,532,255 379,025,869 376,652,681 377,070,116 ============ ============ ============ ============ Restatement of Earnings: (4) Net earnings applicable to common stock $ 85,268 $ 3,405,877 $ 735,863 $ 378,714 (a) LYONs interest expense 924 3,300 2,182 525 (b) LYONs amortization of discount and fees 33 80 80 80 ------------ ------------ ------------ ------------ (5) Pro forma earnings applicable to Common Stock $ 86,225 $ 3,409,257 $ 738,125 $ 379,319 ============ ============ ============ ============ (6) Pro forma fully diluted earnings per share $ 0.23 $ 8.99 $ 1.96 $ 1.01 (7) Reported per share: $ 0.23 $ 9.13 $ 1.98 $ 1.02 (8) Dilution: 0.00% 1.53% 1.01% 0.98%
In view of the above percentages, the effect of assumed issuance pursuant to stock plans, options, and conversion of LYONs was considered not dilutive in accordance with Footnote 2 to paragraph 14 of APB Opinion #15. EX-12.A 6 RATIO OF EARNINGS TO FIXED CHARGES-SEAGRAM CO LTD 1 Exhibit 12(a) The Seagram Company Ltd. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges (millions)
Transition Period Ended Fiscal Years Ended January 31, June 30, --------------------------------------------- Description 1996 1996 1995 1994 1993 1992 - ----------------------------------------- ---------- ----- ----- ---- ----- ------- Earnings before income taxes (restated for discontinued operations) $ 65 $ 349 $ 363 $435 $ 450 $ 641 Add (deduct): Equity in net earnings of less than 50% owned affiliates (4) (20) -- -- -- -- Dividends from less than 50% owned affiliates 9 4 -- -- -- -- Fixed charges 183 426 436 378 369 373 Interest capitalized, net of amortization (4) (2) (1) 0 (5) (9) Minority interest -- -- -- -- 3 6 ----- ----- ----- ---- ----- ------- Earnings available for fixed charges $ 249 $ 757 $ 798 $813 $ 817 $ 1,011 ===== ===== ===== ==== ===== ======= Fixed charges: Interest expense $ 151 $ 378 $ 408 $351 $ 341 $ 345 Proportionate share of 50% owned companies fixed charges 8 6 -- -- -- -- Portion of rental expense deemed to represent interest factor 24 42 28 27 28 28 ----- ----- ----- ---- ----- ------- Fixed charges $ 183 $ 426 $ 436 $378 $ 369 $ 373 ===== ===== ===== ==== ===== ======= Ratio of earnings to fixed charges 1.36 1.78 1.83 2.15 2.21 2.71
EX-12.B 7 RATIO OF EARNINGS TO FIXED CHARGES-JOS. E. SEAGRAM 1 Exhibit 12(b) Joseph E. Seagram & Sons, Inc. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges (millions)
Transition Period Ended Fiscal Years Ended January 31, June 30, ------------------------------------------- Description 1996 1996 1995 1994 1993 1992 - ----------------------------------------- ---- ---- ----- ----- ----- ----- Earnings before income taxes (restated for discontinued operations) ($30) $ 83 $ 186 $ 198 $ 169 $ 290 Add (deduct): Fixed charges 72 169 186 166 157 145 Interest capitalized, net of amortization -- -- (1) -- (1) (1) Minority interest -- 1 4 (4) (1) -- ---- ---- ----- ----- ----- ----- Earnings available for fixed charges $ 42 $253 $ 375 $ 360 $ 324 $ 434 ==== ==== ===== ===== ===== ===== Fixed charges: Interest expense $ 65 $145 $ 163 $ 146 $ 137 $ 125 Portion of rental expense deemed to represent interest factor 7 24 23 20 20 20 ---- ---- ----- ----- ----- ----- Fixed charges $ 72 $169 $ 186 $ 166 $ 157 $ 145 ==== ==== ===== ===== ===== ===== Ratio of earnings to fixed charges --(a) 1.50 2.02 2.17 2.06 2.99
(a) Fixed charges exceeded earnings by $30 million for the Transition Period ended June 30, 1996. EX-13 8 REPORT TO SHAREHOLDERS 1 Exhibit 13 SEAGRAM - -------------------------------------------------------------------------------- REPORT FOR THE TRANSITION PERIOD ENDED JUNE 30, 1996 - -------------------------------------------------------------------------------- 2 The Seagram Company Ltd. operates in two global segments: Beverages and Entertainment. The beverage businesses are engaged principally in the production and marketing of distilled spirits, wines, fruit juices, coolers, beers and mixers throughout more than 150 countries and territories. The entertainment company, MCA INC., produces and distributes motion picture, television and home video products, and recorded music; operates theme parks and retail stores; and publishes books. [SEAGRAM LOGO] As reflected in this Report, the Company has changed its fiscal year-end to June 30, in order to better align its planning and budgeting cycles with the business needs of its core beverage and entertainment segments. This change allows the operating businesses to focus exclusively on their customers during periods of peak business activity. This Report discusses our financial results for a five-month transition period from February 1, 1996 to June 30, 1996. 3 Directors' Report to Shareholders [GRAPHIC] Seagram's results for the February through June 1996 transition period, which bridged the change in our fiscal year to a June 30 from a January 31 close, were in line with what we disclosed they would be last March. Attributed revenues increased eight percent and EBITDA declined eight percent, both on a pro forma basis. We expected that Company-wide initiatives to accelerate growth would most likely depress pro forma earnings comparisons during this five-month period. At the same time, we said that these initiatives hold great promise for future growth. We continue to believe that this is true. At the start of our new fiscal year, our businesses are moving in the right directions. Mindful that much work remains to be done, we are optimistic about the future of the Company. Our top initiatives during the transition period were all designed to make Seagram a more competitive and more profitable entity. Our business plan anticipated that The Seagram Spirits And Wine Group's EBITDA would decline as the full benefits of the division's reengineering efforts would not be realized until our new fiscal year. In fact, the Group's EBITDA was down five percent. The Seagram Beverage Group accurately predicted good growth during the period, and EBITDA grew 16 percent. MCA's EBITDA declined 18 percent on a pro forma basis, reflecting the significant investment in its operations that was budgeted for this five-month period. Underlying these results, however, is ample evidence that Seagram's strategy to create new opportunities for sustained growth in all our businesses is working. Our strategy demanded that we manage effectively the significant changes in our core assets, in the senior management at most of our operations, and in many operating procedures that we detailed in last year's annual report. As a result, the Company is operationally more flexible and more nimble than it has ever been. We know that change will continue to affect all of our operations, although it is unlikely to do so at the same furious pace as it did this past year. Our strategy also demands that we invest opportunistically in new businesses that will [GRAPHIC] [CAPTION] UNDERLYING THESE RESULTS IS AMPLE EVIDENCE THAT SEAGRAM'S STRATEGY TO CREATE NEW OPPORTUNITIES FOR SUSTAINED GROWTH IN ALL OUR BUSINESSES IS WORKING. 4 strengthen our current operations and offer attractive longer-term growth. Most of the Company's initiatives during the transition period were in entertainment, a business we identified last year as one that clearly meets our growth objectives. Among the highlights: - The MCA Television Group finalized long-term agreements valued at $2.5 billion in July with Germany's two leading entertainment companies, Kirch Group and RTL, to license motion pictures and television programming to the German pay and free television markets. Together, these long-term deals are possibly the largest ever reached by an American studio in the international marketplace. They include the launch of two pay channels on Kirch's new digital television service and television series co-financing with RTL. These agreements form an important cornerstone of MCA's international television expansion. - In May, the Television Group also acquired a majority equity interest in Brillstein-Grey Entertainment, a successful television and motion picture production company. Combined with MCA's own revitalized network television development efforts for the 1996-1997 season, this acquisition reestablishes MCA as one of the leading television programmers in the industry. - The Universal Recreation Group announced in February that it had reached an agreement with the city of Osaka to build Universal Studios Japan, its first theme park outside the U.S. The park is scheduled to open in the spring of 2001. This agreement provides a blueprint for further international expansion. - The Recreation Group also announced an agreement with Loews Corp. to develop two luxury hotels in Orlando, Florida. These properties are part of MCA's and The Rank Organisation's major expansion of their Universal City Florida entertainment complex. As previously announced, these hotels will be part of a major destination resort encompassing the existing Universal Studios Florida theme park, as well as a second gated attraction, Universal's Islands of Adventure and a lively nighttime entertainment complex, CityWalk, both set to open in 1999. - As a part of its expanded program of investing in Hollywood-themed entertainment venues, the Recreation Group also opened two new feature attractions during the transition period. In Orlando, the Terminator 2: 3-D ride opened in May, and in Hollywood, Jurassic Park - The Ride debuted in June. To date, both attractions have raised attendance and per capita spending well above last year's levels. - The MCA Music Entertainment Group purchased a 50 percent interest in Interscope Records in February and formalized two new record labels, Universal Records and Rising Tide/Nashville, increasing its presence in the recorded music business. The division also invested significantly in both its domestic and international operations, opening 21 new offices in four new territories and signing a number of new international artists. MCA Music's international offices now cover 95 percent of the foreign record-buying market. Funding these new investments and evaluating others are vitally important to us. The Company's strong balance sheet and cash flow provide us with the flexibility to do so. Approximately one year after the DuPont, MCA and Dole transactions, net debt of $4.1 billion is 27 percent of total capital (including minority interest), compared to 48 percent at January 31, 1995, prior to the transformation in our assets. We have also benefited recently from several corporate initiatives. [Graphic showing picture of Edgar M. Bronfman, Chairman, and Charles R. Bronfman, Co-Chairman] 5 Seagram sold 156 million equity warrants back to DuPont for $500 million in July, recognizing proceeds of $479 million after-tax. These warrants were issued as part of DuPont's redemption of most of our shareholding in that company. Seagram repurchased approximately 2.1 million of its common shares in open market transactions in the February through June period at an average price of $32.82 per share. The Board of Directors has approved an authorization to repurchase additional shares, which we plan to do opportunistically. OPERATING HIGHLIGHTS The Seagram Spirits And Wine Group attributed revenues increased six percent and EBITDA declined five percent during the February through June period. The Europe & Africa region recorded a 12 percent attributed revenue gain, its best performance in some time, while the Americas and Asia Pacific regions experienced essentially flat revenues. The division's top 15 brands, which represent over 65 percent of total annualized attributed revenues of $5.2 billion, performed better than the total Group. They are and will continue to be the primary focus for future growth. EBITDA performance was down, though in line with expectations; it does not reflect the full effect of operating efficiencies from reengineering efforts. Not all of these measures, however, are designed simply to cut costs. The Seagram Spirits And Wine Group has developed a much-improved customer fulfillment program and a stronger marketing focus on consumer brand awareness. Fiscal year 1997 results should continue to benefit from these efforts. The Seagram Spirits And Wine Group, as part of its planning process for the 1997 fiscal year, has completed a rigorous review of its 150 brands across all regions. The division has clearly delineated growth initiatives in each of the markets in which it competes. For the more mature markets like North America and Europe, the Group has streamlined its operations and realigned its sales force in response to changes in distribution. Most importantly, it has segmented the market to focus on premium brands which are expected to outperform the overall industry in these markets. In the emerging markets, Seagram's strong distribution and brand portfolio provide a competitive advantage. In June, one of the Group's leading brands, Crown Royal, tested a television advertisement on a local station in Corpus Christi, Texas, one of its primary markets. As part of an overall marketing plan to strengthen its brands, the advertisement appeared on programming which has a predominantly adult audience. The commercial was consistent with our long-standing principles of advertising responsibly. For over 60 years, The Seagram Spirits And Wine Group's public service advertising and educational efforts have stressed responsible drinking; the Group has contributed significantly to industry trade groups' support of these programs as well. The Group is strongly committed to continuing this support. We intend to be just as responsible in our broadcast product advertising as we have been in every other campaign in every other medium. The Seagram Beverage Group reported strong results, based on continued growth of its worldwide juice businesses and the acquisition of the Dole juice business, excluding canned pineapple juice, which it completed in May 1995. Attributed revenues were $839 million, 20 percent ahead of last year, while EBITDA increased 16 percent. Both North America and International contributed to the strong performance. In the U.S., Tropicana Dole Beverages, led by its flagship Pure Premium brand, maintained its 41 percent [CAPTION] THE SEAGRAM SPIRITS AND WINE GROUP DEVELOPED A MUCH-IMPROVED CUSTOMER FULFILLMENT PROGRAM AND A STRONGER MARKETING FOCUS ON CONSUMER BRAND AWARENESS. INTERNATIONALLY, TROPICANA DOLE BEVERAGES BOOSTED VOLUME 40 PERCENT, REFLECTING DOLE'S SIGNIFICANT OVERSEAS PRESENCE. [GRAPHIC] 6 share of the chilled orange juice market. The division introduced a break-through advertising campaign for Pure Premium and significantly increased spending behind it. The "Perfect" campaign, which will be introduced in other countries this year, helped drive the Company's share of the not-from- concentrate orange juice market to 69 percent, up almost two points. The division also continued its effort to have its brands widely available beyond the grocery store: Impressive gains were made with both chilled and shelf-stable products in convenience, club store and food service outlets. The reengineering efforts initiated in 1994 resulted in savings in both manufacturing and commercial operations. We expect additional benefits from these initiatives in the new fiscal year. Internationally, Tropicana Dole Beverages boosted volume 40 percent, reflecting Dole's significant overseas presence. In the important French market, for example, Fruvita, a Dole product, and Tropicana are the number-one and number-two chilled juice brands, respectively. Results in France and the U.K. were particularly strong, aided by shifting production from the U.S. to facilities in France and Belgium. Asian results reflect the company attaining the number-one position in Tokyo and continuing as the leading chilled juice market in Taiwan. At MCA, attributed revenues increased seven percent and EBITDA declined 18 percent in the transition period on a pro forma basis. Many of the initiatives described earlier in this report affected period-to-period comparisons. Filmed entertainment attributed revenues and EBITDA increased 12 percent and 98 percent, respectively, from the prior period. The Motion Picture Group reported significantly stronger international theatrical revenues and worldwide video revenues, due principally to the division's successful 1995 releases Babe, Apollo 13 and Casper. MCA Television Group revenues declined during the period due to less television production and fewer related network license fees from a year ago. As several of the cancelled programs were being produced at a deficit, EBITDA increased over 1995. The division's first-run syndication results improved over last year's, primarily the result of improved ratings for the action/adventure programs, HERCULES and XENA: WARRIOR PRINCESS. MCA Television's longer-term outlook, however, is vastly improved from what it was several months ago. The Group had its most successful network television development season in many years, placing two new comedies and two new dramas on the networks' fall schedule. Universal also has commitments for two additional hour-long dramas as midseason replacements in early 1997. Combined with its own returning series and with Brillstein-Grey's current 1.5 hours of network programming, Universal now ranks third of all the major studios, with 6.5 hours of network programming, compared to sixth last year. Additionally, the coproduction arrangements and pay channel start-ups from the previously described German television agreements demonstrate the broad global appeal of Universal's film and television libraries and their greatly enhanced international prospects. These initiatives are expected to favorably impact results more in subsequent years than they will in the fiscal year ending June 1997. MCA Music Entertainment Group attributed revenues declined nine percent, compared to the prior period, and EBITDA was a loss of $24 million, [GRAPHIC] [CAPTION] THE UNIVERSAL RECREATION GROUP REACHED AN AGREEMENT WITH THE CITY OF OSAKA TO BUILD UNIVERSAL STUDIOS JAPAN, ITS FIRST THEME PARK OUTSIDE THE U.S. 7 due primarily to extremely difficult comparisons with the highly successful 1994-1995 release schedule, a relatively small number of record releases in the 1996 period and the investments in new artists, international operations and startup record labels. The foreign share of the world market has been growing [GRAPHIC SHOWING rapidly. To capitalize on this, MCA Music now has offices in 25 foreign countries and has been actively PICTURE OF signing local talent. The domestic U.S. music market has recently suffered from consolidation and financial EDGAR BRONFMAN, JR. weakness at the retail level. We view these problems as cyclical rather than structural and expect the PRESIDENT AND market to stabilize. The Music Group's investments, artist signings and restructuring have set the stage CHIEF EXECUTIVE for revenue and EBITDA growth beginning later in the 1997 fiscal year. OFFICER] Universal Recreation Group attributed revenues increased 11 percent while EBITDA declined 33 percent. The Group incurred incremental startup and marketing expenses for the two new feature attractions in Orlando and Hollywood, both of which opened late in the transition period. The timing of these start dates meant that the higher attendance and per capita spending that these rides have generated will be more evident in our new fiscal year ending June 30, 1997. The Company named Frank J. Biondi, Jr. as Chairman and Chief [GRAPHIC] Executive Officer of MCA, INC. in April. Mr. Biondi, who was formerly President and Chief Executive Officer of Viacom Inc., was also elected to Seagram's Board of Directors. At this time, we would like to pay special tribute to two directors who will be retiring from the Board in October. John L. Weinberg joined the Board in 1975 and has served with distinction on the Audit, Finance and Human Resources committees. He has also been instrumental in many of the Company's major transactions. David M. Culver, a director since 1982, has been a member of the Finance Committee and a key member of the Human Resources Committee and served as its Chairman since 1995. We thank them for their wise counsel, support and friendship over the years. We sense a growing confidence throughout Seagram as we begin our new fiscal year. This confidence comes from a feeling that our new structure, new management and new businesses can provide sustained growth. Our beverage and entertainment franchises are strong, each with excellent growth prospects. Our overall financial condition is sound and will allow us to pursue additional opportunities. As we go forward into our next fiscal year, we would like to express our gratitude once again for the support given us from our consumers and customers, our shareholders and our employees. On behalf of the Board, /s/ Edgar M. Bronfman /s/ Charles R. Bronfman /s/ Edgar Bronfman, Jr. EDGAR M. BRONFMAN CHARLES R. BRONFMAN EDGAR BRONFMAN, JR. CHAIRMAN CO-CHAIRMAN PRESIDENT AND CHIEF EXECUTIVE OFFICER 8 MANAGEMENT'S DISCUSSION AND ANALYSIS Several major events since April 1995 have substantially changed Seagram and impacted the comparability of Seagram's financial statements. CHANGE IN FISCAL YEAR-END: Effective June 30, 1996, the Company changed its fiscal year-end from January 31 to June 30. The financial results for the period from February 1, 1996 to June 30, 1996 (the "Transition Period") are included in this Report. The Company began its first full fiscal year on the new basis on July 1, 1996. Results for the Transition Period are not necessarily indicative of operations for a full year. REDEMPTION OF 156 MILLION SHARES OF DUPONT: On April 6, 1995, E.I. du Pont de Nemours and Company ("DuPont") redeemed common stock held by the Company in a transaction valued at $8.8 billion. The Company received cash and 90-day notes from DuPont plus 156 million DuPont equity warrants valued at $440 million, as of the transaction date. The after-tax cash proceeds were $7.7 billion. The Company retains 8.2 million DuPont shares which had a market value of $651 million at June 30, 1996. ACQUISITION OF DOLE JUICE BEVERAGE BUSINESS: On May 19, 1995, Seagram completed the acquisition of the global juice and juice beverage business (excluding canned pineapple juice) of Dole Food Company, Inc. ("Dole") for $276 million. The Dole operations which Seagram acquired include fruit juices marketed under the Dole, Juice Bowl, Fruvita and Looza trademarks and manufacturing capability in the U.S., Europe and China. The Dole brand name is licensed from Dole. ACQUISITION OF 80 PERCENT OF MCA HOLDING I CORP.: On June 5, 1995, Seagram completed the purchase of an 80 percent interest in MCA Holding I Corp. ("MCA"), the parent of MCA INC., from Matsushita Electric Industrial Co., Ltd. ("Matsushita") for $5.7 billion. Matsushita retains a 20 percent interest in MCA. SALE OF 156 MILLION DUPONT EQUITY WARRANTS: On July 24, 1996, DuPont repurchased 156 million equity warrants owned by Seagram for $500 million in cash. The Company had an after-tax gain of $39 million and after-tax net proceeds of $479 million. Because this transaction was completed subsequent to the Transition Period, it will be recognized in the Company's financial results in the quarter ending September 30, 1996. The following presentation discusses the revenues and operating income for the Company's two business segments--Beverages and Entertainment. The more detailed discussion of the six lines of business within these two segments--Spirits and Wine, Fruit Juices and Other, Filmed Entertainment, Music Entertainment, Recreation, and Publishing and Other - will address attributed revenues and attributed earnings before interest, taxes, depreciation and amortization ("EBITDA"). These amounts include Seagram's proportionate share of the revenues and EBITDA, respectively, of its equity companies. The adjustment for equity companies eliminates the proportionate share of the revenues or EBITDA of equity companies, and reflects the equity income as reported under U.S. generally accepted accounting principles. The Company believes cash flow, as defined by EBITDA, is an appropriate measure of the Company's operating performance, given the goodwill associated with the Company's acquisitions. In addition, financial analysts generally consider EBITDA to be an important measure of comparative operating performance. However, EBITDA should be considered in addition to, not as a substitute for, operating income, net income, cash flows and other measures of financial performance in accordance with generally accepted accounting principles. The following detailed analysis of operations should be read in conjunction with the Consolidated Financial Statements of the Company found on pages 15 to 31. 6 9 RESULTS OF OPERATIONS TRANSITION PERIOD VS. COMPARABLE PERIOD ENDED JUNE 30, 1995 Revenues were significantly higher than the comparable period last year reflecting the timing of the closing of the Dole juice and MCA acquisitions in May and June of last year, respectively. Reported revenues and attributed revenues in the Transition Period were $5.0 billion and $5.6 billion, respectively, compared with $2.7 billion and $2.9 billion, respectively, in the prior period. EBITDA increased 32 percent to $518 million in the Transition Period. Beverages EBITDA declined slightly to $322 million as weaker Spirits and Wine performance more than offset a $10 million increase in Fruit Juices and Other. Entertainment EBITDA was $196 million compared with $66 million last year, which represented one month of MCA results. Operating income declined to $179 million in the Transition Period reflecting a substantial increase in the depreciation and amortization expense associated with the MCA and Dole juice acquisitions, and higher corporate expenses. The increase in corporate expenses to $47 million primarily results from expenses related to our ongoing reengineering initiatives. Interest, net and other in the Transition Period included $133 million of net interest expense, partially offset by $19 million of dividend income from Time Warner Inc. ("Time Warner") and DuPont. In the five months ended June 30, 1995, net interest expense was $91 million and dividend income was $18 million. Interest expense last year was net of $76 million of interest income largely earned from the temporary investment of the full proceeds from the DuPont redemption from April 1995 until the funding of the MCA acquisition in June 1995. The income tax provision in the Transition Period included a $67 million benefit related to a settlement with the U.S. government regarding the recognition of a capital loss on the Company's 1981 exchange of shares of Conoco Inc. for common stock of DuPont. Excluding this tax benefit, the effective income tax rate of 80 percent was significantly higher than the prior year rate of 34 percent because of the nondeductibility of the goodwill amortization associated with the MCA and Dole juice acquisitions and lower taxable earnings. Minority interest expense represents Matsushita's 20 percent interest in the after-tax income of MCA. In the Transition Period, the minority interest of $5 million was added back to income to reflect the after-tax loss of MCA primarily due to the depreciation and amortization expense. In the prior period, minority interest expense of $3 million was deducted from earnings. Net income was $85 million or $0.23 per share in the Transition Period. Excluding the benefit associated with the tax settlement of $67 million or $0.18 per share, net income was $18 million or $0.05 per share. In the five months ended June 30, 1995, earnings before the discontinued DuPont activities were $117 million or $0.32 per share. Due to the redemption of most of the Company's DuPont shares on April 6, 1995, the Company discontinued accounting for its investment in DuPont under the equity method effective February 1, 1995. Earnings related to the DuPont investment are presented as discontinued activities in the prior period and include a $3.2 billion after-tax gain on the redemption of the 156 million shares and $68 million of after-tax dividend income earned on such shares prior to the redemption transaction. In the five months ended June 30, 1995, net income was $3.3 billion or $8.99 per share. EARNINGS SUMMARY
Five Months U.S. dollars in millions, Ended June 30, Fiscal Years Ended January 31, except per share amounts 1996 1995 1996 1995 1994 Attributed Revenues $5,558 $2,909 $10,536 $6,653 $6,212 Reported Revenues 5,013 2,715 9,747 6,399 6,038 EBITDA 518 391 1,089 968 942 Operating Income Beverages 225 240 456 781 774 Entertainment 1 32 205 - - Corporate (47) (16) (77) (56) (20) ...... ...... ....... ...... ...... Operating Income 179 256 584 725 754 Interest, net and other 114 73 235 362 319 Provision for income taxes (15) 63 153 169 152 Minority interest (5) 3 22 - - ...... ...... ....... ...... ...... Income Before Discontinued DuPont Activities and Cumulative Effect of Accounting Change 85 117 174 194 283 Per share $ .23 $ .32 $ .46 $ .52 $ .76 Discontinued DuPont activities, after tax - 3,232 3,232 617 96 ...... ...... ....... ...... ...... Income before cumulative effect of accounting change $ 85 $3,349 $ 3,406 $ 811 $ 379 Cumulative effect of accounting change - - - (75) - ...... ...... ....... ...... ...... Net Income $ 85 $3,349 $ 3,406 $ 736 $ 379 ====== ====== ======= ====== ====== Net Income Per Share $ .23 $ 8.99 $ 9.13 $ 1.98 $ 1.02
7 10 BEVERAGES
Five Months Ended June 30, Fiscal Years Ended January 31, U.S. dollars in millions 1996 1995 1996 1995 1994 Attributed Revenues Spirits and Wine $1,947 $1,841 $5,093 $5,061 $4,702 Fruit Juices and Other 839 702 1,898 1,592 1,510 ...... ...... ...... ...... ...... Attributed revenues 2,786 2,543 6,991 6,653 6,212 Adjustment for equity companies (133) (129) (297) (254) (174) ...... ...... ...... ...... ...... Reported Revenues * $2,653 $2,414 $6,694 $6,399 $6,038 ====== ====== ====== ====== ====== EBITDA Spirits and Wine $ 250 $ 263 $ 763 $ 809 $ 770 Fruit Juices and Other 72 62 196 159 172 ...... ...... ...... ...... ...... EBITDA before reengineering charge 322 325 959 968 942 Reengineering charge - - (290) - - ...... ...... ...... ...... ...... EBITDA 322 325 669 968 942 Adjustment for equity companies (5) (3) (8) (7) (5) Depreciation and amortization (92) (82) (205) (180) (163) ...... ...... ...... ...... ...... Operating Income $ 225 $ 240 $ 456 $ 781 $ 774 ====== ====== ====== ====== ======
*Reported revenues include excise taxes of $296 million and $317 million in the five-month periods ended June 30, 1996 and 1995, respectively, and $812 million, $836 million and $811 million for the fiscal years ended January 31, 1996, 1995 and 1994, respectively. BEVERAGES In the Transition Period, the Beverages segment contributed $2.7 billion to reported revenues, which is 10 percent greater than the prior period. The operating income contribution of $225 million was $15 million below the operating income in the period ended June 30, 1995. SPIRITS AND WINE Attributed and reported revenues each grew six percent largely driven by improvement in Europe. Excluding the unfavorable impact of foreign exchange, revenues would have risen eight percent. In the Transition Period, EBITDA declined five percent to $250 million as lower results in North America more than offset a recovery in Europe. The effect of foreign exchange on EBITDA was negligible. EBITDA as a percent of attributed revenues declined from 14.3 percent to 12.8 percent as a result of increased marketing spending and continued investment in developing markets. Case volumes rose almost four percent in the Transition Period partly reflecting the improvement in Europe. Most of our key premium brands continued to grow, including Martell Cognac which increased unit volumes 10 percent, primarily in Europe, and Chivas Regal Scotch Whisky and Crown Royal Canadian Whisky, which both had volume growth of three percent. Mumm Sekt, which had suffered previously from the difficult German market, had five percent higher volumes during the Transition Period. Absolut Vodka, for which the Company gained distribution rights in the U.S. and major international markets beginning in 1994, continues to be an exceptional brand with a double digit increase in shipments reflecting growth in the U.S. and the expansion of Seagram's distribution of Absolut Vodka into new markets, such as Canada. The EBITDA shortfall primarily reflects a decline in North America, which more than offset a 14 percent improvement in Europe and Africa and a substantial recovery in several Latin American affiliates. In North America our performance was impacted by a reduction in distributor inventory levels and the timing of brand spending. Europe's EBITDA improved versus a very difficult prior period, particularly in Portugal. Latin America's performance reflected a business rebound in both Mexico and Argentina, and benefits from our reengineering initiatives in Brazil. Asia Pacific's results were essentially unchanged as weaknesses in Taiwan and our duty free operations, caused by the political unrest between mainland China and Taiwan early in the period, offset growth in Korea from our scotch portfolio. Despite the difficult operating results, we continued to invest in our future by increasing marketing spending five percent and investing in new and developing markets such as India and greater China. Advertising is focused behind core strategic brands and in key markets including Germany, Korea and greater China. Depreciation and amortization of assets was $44 million in the Transition Period and in the prior period. Amortization of goodwill was $10 million in both periods. Spirits and Wine capital expenditures were $106 million in the Transition Period and total assets were $5,119 million at June 30, 1996. Fruit Juices and Other This unit continued its strong performance driven by growth in Tropicana's base business and the contribution of the juice operations acquired from Dole. The five months ended June 30, 1995 included approximately one month of Dole juice beverage results. Attributed and reported revenues for Fruit Juices and Other each climbed 20 percent. Excluding the juice beverage operations acquired from Dole, Tropicana's attributed revenues grew nine percent. EBITDA rose 16 percent to $72 million while EBITDA as a percent of attributed revenues declined from 8.8 percent to 8.6 percent. The decrease in the EBITDA margin primarily results from the write-off of obsolete inventory in our low alcohol division. Excluding this inventory adjustment, EBITDA for the fruit juice group grew 28 percent. 8 11 Tropicana Dole Beverages' unit volume increased 21 percent driven largely by an eight percent increase in Pure Premium unit volume in North America and a 40 percent increase in international unit volume. Tropicana Dole Beverages, led by its flagship Pure Premium brand, maintained a 41 percent share of the U.S. chilled orange juice market in the Transition Period. Depreciation and amortization of assets was $26 million in the Transition Period and $18 million in the prior period. Amortization of goodwill was $12 million and $10 million in the periods ended June 30, 1996 and 1995, respectively. Capital expenditures for Fruit Juices and Other were $62 million in the Transition Period and total assets were $2,546 million at June 30, 1996. ENTERTAINMENT In the Transition Period, which includes MCA results from January 1, 1996 to June 30, 1996, MCA contributed $2.4 billion to reported revenues and $1 million to operating income, after significant amortization and depreciation expense. In the period ended June 30, 1995, the Company's results included one month of MCA from the acquisition date of June 5, 1995 until June 30, 1995. During that time MCA had reported revenues of $301 million and operating income of $32 million. In order to provide a basis of comparison, the discussion that follows is based upon MCA results for the six months ended June 30, 1996 compared with the results for the six months ended June 30, 1995. FILMED ENTERTAINMENT In the six-month period ended June 30, 1996, attributed revenues and reported revenues each rose 12 percent and EBITDA almost doubled to $176 million versus the prior period. EBITDA as a percent of attributed revenues increased to 10.1 percent from 5.7 percent in the prior period. The motion picture group was driven by higher worldwide profits from prior year releases, particularly Babe and Casper. The television group had improved results mainly because of the cancellation of several series which were in a deficit position. The EBITDA of our 50 percent-owned joint venture, USA Networks, was essentially even with the prior period. MUSIC ENTERTAINMENT Attributed and reported revenues each declined nine percent, while EBITDA was a loss of $24 million compared to income of $75 million last year. Lower revenues and EBITDA reflect difficult comparisons with the prior period. The six months ended June 30, 1995 included significant carry-over business from the very strong fourth quarter of 1994. Major new releases in 1996 were limited to albums by Wynonna, Vince Gill and George Strait. EBITDA was affected by a substantial investment program in 1996, which included increased spending for international expansion and investment in new artists and label ventures including Universal Records and Rising Tide/Nashville, and the newly acquired interest in Interscope Records. The Group recorded higher reserves in the six months ended June 30, 1996 to reflect the current business environment. ENTERTAINMENT
Five Months Fiscal Year Six Months Ended Ended Ended 12 Months June 30, January 31, June 30, Ended December 31, U.S. dollars in millions 1996 1995 1996 1995 1995 1994 Attributed Revenues Filmed Entertainment $1,740 $ 193 $2,124 $1,556 $3,487 $3,313 Music Entertainment 537 85 753 589 1,257 1,293 Recreation 231 48 287 208 447 440 Publishing and Other 264 40 381 240 581 525 ...... ..... ...... ...... ...... ...... Attributed revenues 2,772 366 3,545 2,593 5,772 5,571 Adjustment for equity companies (412) (65) (492) (372) (798) (753) ...... ..... ...... ...... ...... ...... Reported Revenues $2,360 $ 301 $3,053 $2,221 $4,974 $4,818 ====== ===== ====== ====== ====== ====== EBITDA Filmed Entertainment $ 176 $ 37 $ 240 $ 89 $ 292 $ 176 Music Entertainment (24) 11 59 75 123 192 Recreation 37 16 85 55 124 128 Publishing and Other 7 2 36 20 54 37 ...... ..... ...... ...... ...... ...... EBITDA $ 196 $ 66 420 $ 239 $ 593 $ 533 Adjustment for equity companies (47) (11) (56) Depreciation and amortization (148) (23) (159) ...... ..... ...... Operating Income $ 1 $ 32 $ 205 ====== ===== ======
Note: The Company's reported financial results for the five-month periods ended June 30 include six months of MCA in the Transition Period (from January 1, 1996 to June 30, 1996) and one month of MCA in the prior period (from the acquisition date of June 5, 1995 to June 30, 1995). The Company's results for the fiscal year ended January 31, 1996 include seven months of MCA (from June 5, 1995 to December 31, 1995). MCA's results for the six months ended June 30, 1995 and the 12 months ended December 31, 1995 and December 31, 1994 are provided for the comparative operating discussion. 9 12 ENTERTAINMENT
FIVE MONTHS Fiscal Year ENDED Ended 12 Months JUNE 30, January 31, Ended December 31, U.S. dollars in millions 1996 1996 1995 1994 Capital Expenditures Filmed Entertainment $ 33 $ 40 $ 59 $ 66 Music Entertainment 24 26 33 30 Recreation 66 90 114 98 Publishing and Other 13 19 23 25 .... .... .... .... $136 $175 $229 $219 ==== ==== ==== ====
Note: The Company's reported financial results for the five-month period ended June 30 include six months of MCA in the Transition Period (from January 1, 1996 to June 30, 1996). The Company's results for the fiscal year ended January 31, 1996 include seven months of MCA (from June 5, 1995 to December 31, 1995). MCA's results for the 12 months ended December 31, 1995 and December 31, 1994 are provided for comparative purposes. RECREATION Attributed and reported revenues each increased 11 percent during the six-month period ended June 30, 1996 but EBITDA declined from $55 million to $37 million. EBITDA as a percent of attributed revenues decreased from 26.4 percent to 16.0 percent. Attendance and per capita spending at both theme parks were higher in the period ended June 30, 1996 than the prior period. This is due in part to the successful openings of Terminator 2: 3-D at Universal Studios Florida, our 50 percent-owned joint venture, in May and Jurassic Park - The Ride in Universal Studios Hollywood in June. EBITDA was down substantially due to higher marketing spending and the timing of that spending in advance of the new attractions (which opened comparatively late in the period) and increased business development spending related to potential international expansion and the development of additional CityWalk entertainment complexes. PUBLISHING AND OTHER Attributed revenues were up 10 percent to $264 million and reported revenues increased seven percent to $246 million, while EBITDA fell to $7 million. The EBITDA decline is attributable to higher return reserves at Interplay Productions (an entertainment software developer), the write-off of certain development costs at Universal Interactive Studios (an entertainment software developer) and several nonrecurring favorable items which occurred in 1995 including a gain on the sale of land to the Los Angeles MTA. Book publishing attributed revenues and EBITDA increased as a result of higher shipments of two Patricia Cornwell novels: Cause of Death and From Potter's Field. Spencer Gifts' results remained strong as the division benefited from a six percent increase in comparable store sales and the impact of new stores. YEAR ENDED JANUARY 31, 1996 VS. YEAR ENDED JANUARY 31, 1995 Reported revenues and attributed revenues were $9.7 billion and $10.5 billion, respectively, up substantially from $6.4 billion and $6.7 billion, respectively, in the prior year, largely due to the inclusion of partial year results of MCA and the Dole juice business. EBITDA, after a reengineering charge of $290 million, was $1.1 billion compared with $968 million in the prior year. Entertainment contributed $420 million, and Fruit Juices and Other increased 23 percent, while Spirits and Wine declined six percent. Corporate expenses climbed to $77 million from $56 million largely because the increase in the market value of the Company's shares in the year ended January 31, 1996 resulted in the recognition of additional expenses associated with stock-based compensation. Corporate expenses in both years included expenses related to consulting fees and internal costs attributable to the Company's ongoing reengineering efforts. Operating income, after the $290 million charge, declined to $584 million. Excluding this charge, operating income rose 21 percent to $874 million reflecting the contribution from Entertainment and higher Fruit Juices and Other, partially offset by weaker Spirits and Wine results. Interest, net and other in the year ended January 31, 1996 included $273 million of net interest expense, partially offset by $38 million of dividend income from Time Warner and DuPont. In the fiscal year ended January 31, 1995 net interest expense of $396 million was partially offset by $34 million of dividend income. The net interest expense decrease largely reflected the repayment of debt with a portion of the proceeds from the DuPont redemption and interest income earned from the temporary investment of the DuPont proceeds from April 1995 until the funding of the MCA acquisition in June 1995. The effective income tax rate on continuing operations for the fiscal year ended January 31, 1996 was 44 percent compared with 29 percent (exclusive of the 1981 transaction) in the prior period. The higher effective tax rate resulted from the nondeductibility of goodwill amortization and the charge for reengineering activities, for which a tax benefit was not recognized in some countries where the charge was incurred. The income tax provision in the year ended January 31, 1995 included a charge of $65 million attributable to the disallowance by the U.S. Tax Court of a loss on the Company's exchange of shares of Conoco Inc. for common stock of DuPont in 1981. The minority interest expense of $22 million represented the 20 percent minority interest in the after-tax income of MCA. In the year ended January 31, 1996, income from discontinued DuPont activities included a $3.2 billion after-tax gain on the redemption of the 156 million shares and $68 million of after-tax dividend income. In the year ended January 31, 1995, income from the discontinued DuPont activities included $264 million of after-tax dividend income and $353 million of unremitted earnings (Seagram's share of DuPont's earnings not received as cash dividends). 10 13 Earnings before the discontinued DuPont activities were $174 million or $0.46 per share in the year ended January 31, 1996 compared with $194 million or $0.52 per share in the prior year. Net income was $3.4 billion or $9.13 per share, including the discontinued DuPont activities, compared with $736 million or $1.98 per share in the prior year, which included a $75 million after-tax charge for the cumulative effect of the adoption of FAS 112, relating to postemployment benefits. BEVERAGES In the year ended January 31, 1996, the Beverages segment contributed $6.7 billion to reported revenues and $456 million to operating income, after a $290 million charge related to reengineering activities. SPIRITS AND WINE The Spirits and Wine results were adversely affected by difficult market conditions in Europe. Spirits and Wine attributed revenues increased slightly while EBITDA, before the reengineering charge, decreased six percent. EBITDA as a percent of attributed revenues declined from 16.0 percent to 15.0 percent. Case volumes declined three percent in the year ended January 31, 1996 principally from the reduction of trade inventories in Europe. Mumm Sekt, reflecting weakness in the German market, had an 18 percent decline in shipments. However, a number of the Company's premium brands showed strong unit gains, including Chivas Regal Scotch Whisky for which shipments grew three percent, Martell Cognac which increased volumes four percent on the strength of operations in Asia Pacific, and Crown Royal Canadian Whisky for which shipments increased five percent. Absolut Vodka showed 11 percent growth in shipments in the U.S. and 15 percent growth globally as we continued to expand our distribution of the brand. Attributed revenues generated outside of North America accounted for approximately 69 percent of total attributed revenues. Europe and Africa, which accounted for 36 percent of total attributed revenues, remained the Company's largest geographic region. North American attributed revenues were 31 percent of total attributed Spirits and Wine revenues. Asia Pacific, our fastest growing region, increased to 23 percent of the total, while Latin America accounted for 10 percent of Spirits and Wine attributed revenues. (This geographic breakdown, which is used by management to measure the performance of marketing affiliates, excludes excise taxes, assigns sales to the region in which the purchaser is located and includes our proportionate share of the revenues of equity company affiliates. The geographic data contained in Note 12 of the Notes to the Consolidated Financial Statements include excise taxes as well as the Company's other operations, and are based upon the location of the legal entity which invoices the sale.) The EBITDA decline was attributable to a 20 percent shortfall in Europe and Africa, partially mitigated by strong performances in Asia Pacific and the Americas. The weakness in Europe and Africa resulted primarily from the difficult trading conditions in Germany, Spain and Portugal. Asia Pacific continued its broad-based profit growth, particularly in greater China and South Korea. North America's results were driven largely by growth in Crown Royal Canadian Whisky, Captain Morgan Original Spiced Rum and Absolut Vodka. The improved contribution from Latin America was mainly the result of significantly higher profits in Venezuela. Depreciation and amortization of assets was $99 million in the year ended January 31, 1996 and $90 million in the prior year. Amortization of goodwill was $24 million and $22 million in the years ended January 31, 1996 and 1995, respectively. Spirits and Wine capital expenditures rose to $165 million from $109 million in the prior year. Total assets were $5,541 million at January 31, 1996 compared with $5,390 million at January 31, 1995. FRUIT JUICES AND OTHER Attributed revenues for the total unit increased 19 percent to $1.9 billion as Tropicana Dole Beverages had 22 percent higher revenues, including the partial year results of the juice beverage business acquired from Dole. Tropicana's attributed revenues rose eight percent, excluding revenues from the acquired Dole operations. EBITDA, before the reengineering charge, rose 23 percent to $196 million reflecting strong performances in the Tropicana base businesses and the acquisition of the Dole juice beverage business. EBITDA as a percent of attributed revenues rose to 10.3 percent from 10.0 percent in the prior year. Excluding the operations acquired from Dole, Tropicana's unit volume increased eight percent driven largely by an 11 percent increase in Pure Premium in North America and a 71 percent increase in international revenues. The Tropicana share of the U.S. chilled orange juice market was a record high 42 percent in fiscal 1996. Depreciation and amortization of assets was $55 million in the year ended January 31, 1996 and $44 million in the prior year. Amortization of goodwill was $27 million and $24 million in the years ended January 31, 1996 and 1995, respectively. Capital expenditures for Fruit Juices and Other were $92 million 11 14 in the year ended January 31, 1996 and $47 million in the prior year. Total assets were $2,062 million at January 31, 1996 compared with $1,638 million at January 31, 1995. REENGINEERING ACTIVITIES In connection with a program to better position its beverage operations for strategic growth, the Company recorded a pretax charge of $290 million in the quarter ended October 31, 1995. The charge related principally to the Company's global spirits and wine manufacturing, financial, marketing and distribution systems and included rationalization of facilities in the U.S. and Europe and other costs related to the redesign of processes associated with the fulfillment of customer orders and the organizational structure under which the Spirits and Wine business operates. The components of the $290 million charge reflected a provision of $100 million for severance costs, $120 million for asset write-downs/impairments and $70 million for facility rationalizations, including lease terminations, and other reengineering programs. After giving effect to the charge, the Beverages segment reported EBITDA of $669 million and operating income of $456 million compared with EBITDA of $968 million and operating income of $781 million in the prior year. While the full magnitude of the cost savings associated with the charge will take several years to achieve, the benefits will build over time and management expects savings beginning in the fiscal year which began July 1, 1996. In addition, a significant portion of the cash outlays associated with the plan should be completed by June 30, 1997. ENTERTAINMENT In the year ended January 31, 1996, MCA contributed $3.1 billion to reported revenues and $205 million to operating income, which represented MCA's results since the Company acquired its 80 percent interest in MCA in June 1995. Although the Company's reported financial results reflected only the partial year of MCA operations, in order to provide a basis of comparison, the discussion that follows is based upon MCA results for the 12 months ended December 31, 1995 compared with the prior year. FILMED ENTERTAINMENT Attributed revenues grew five percent to $3.5 billion, and EBITDA increased to $292 million from $176 million. EBITDA as a percent of attributed revenues was 8.4 percent as compared with 5.3 percent in the prior year. The motion picture group was driven by the successful worldwide performance of our summer pictures including Casper, Apollo 13 and Babe. Our share of the domestic box office increased from 11 percent to almost 13 percent in 1995. Television operations benefited from higher sales of library product at improved margins, in addition to reduced losses on fewer new network and first-run syndication series. EBITDA of our 50 percent-owned joint venture, USA Networks, increased substantially due to higher advertising revenues, increased subscriber revenues and lower programming costs. MUSIC ENTERTAINMENT The Music Entertainment Group faced difficult comparisons due to an exceptionally strong performance in 1994. Attributed revenues declined three percent to $1,257 million, while EBITDA fell 36 percent to $123 million. EBITDA as a percent of attributed revenues decreased from 14.8 percent in 1994 to 9.8 percent in 1995 as a result of increased investment in new label joint ventures and international expansion, and higher reserves to reflect weaker retail market conditions. New releases in 1995 included albums by Live and White Zombie, and the Dangerous Minds soundtrack, following successful new albums in 1994 by The Eagles, Counting Crows, Aerosmith and Nirvana. RECREATION Attributed revenues increased two percent to $447 million in 1995, while EBITDA decreased slightly to $124 million from $128 million. EBITDA as a percent of attributed revenues declined from 29.1 percent to 27.7 percent reflecting higher development spending and a nonrecurring gain realized in 1994. Our theme parks were solid, despite competitive pressure from new attractions and aggressive marketing efforts at other theme parks. Universal Studios Hollywood had a four percent increase in per capita spending and one percent growth in attendance. Per capita spending at Universal Studios Florida was up slightly and attendance was essentially unchanged. PUBLISHING AND OTHER Attributed revenues were up 11 percent to $581 million, while EBITDA grew to $54 million. Book publishing was higher due to successful new releases by a number of authors including Tom Clancy, Patricia Cornwell, Amy Tan and Charles Kuralt. Spencer Gifts had a very strong year, with comparable store sales up over nine percent. EBITDA also benefited from several favorable nonoperating income items. RESULTS OF OPERATIONS YEAR ENDED JANUARY 31, 1995 VS. YEAR ENDED JANUARY 31, 1994 In the year ended January 31, 1995, total reported revenues rose six percent as a result of increases by both Spirits and Wine, and Fruit Juices and Other. EBITDA increased three 12 15 percent due to improved Spirits and Wine operations, while operating results from Fruit Juices and Other declined. Corporate expenses for the fiscal year ended January 31, 1995 included $35 million of expenses related to the Company's reengineering efforts. Operating income increased one percent to $760 million before this charge, but declined to $725 million after the charge. Interest, net and other in the year ended January 31, 1995 included $396 million of net interest expense, partially offset by $34 million of dividend income from Time Warner and DuPont. In the year ended January 31, 1994, net interest expense was $339 million and dividend income was $20 million. The higher net interest expense reflected a higher average net debt resulting from financing the Time Warner investment, and an increase in average interest rates. The effective income tax rate related to continuing business, and excluding the $65 million charge related to the 1981 DuPont transaction, decreased from 35 percent to 29 percent because a greater proportion of the income was derived from countries with relatively lower tax rates. In the year ended January 31, 1995, income from discontinued DuPont activities included $264 million in after-tax dividend income and $353 million of unremitted earnings. In the year ended January 31, 1994, after-tax dividend income was $256 million and unremitted DuPont earnings reflected a loss of $160 million, due to significant nonrecurring charges taken by DuPont. Net income for the year ended January 31, 1995, was $736 million, or $1.98 per share, up 94 percent from the prior year reflecting improved DuPont results. Net income included a $75 million after-tax charge for the cumulative effect of an accounting change relating to postemployment benefits. BEVERAGES In the year ended January 31, 1995, reported revenues for the Beverages segment were $6.4 billion and operating income was $781 million. SPIRITS AND WINE Attributed revenues increased eight percent including the sales of Absolut Vodka. EBITDA grew five percent to $809 million. EBITDA represented 16.0 percent of attributed revenues as compared with 16.4 percent in the year ended January 31, 1994. This decline was partially the result of higher sales from agency brands in the year ended January 31, 1995, primarily Absolut Vodka, as well as increased investment in our key brands and strategic markets. Case volume grew six percent in the year ended January 31, 1995 as a number of the Company's premium brands showed strong unit gains including Chivas Regal Scotch Whisky, Martell Cognac and Passport Scotch Whisky. The Company experienced strong revenue growth in North America and many key Far Eastern markets. Most Latin American affiliates suffered from difficult economic conditions. The year-on-year results in Europe were adversely affected by the loss of profits from agency brands that were terminated in France and Germany in 1993. FRUIT JUICES AND OTHER Attributed revenues rose five percent but EBITDA declined eight percent in the year ended January 31, 1995 as a result of weakness in the shelf-stable business in the U.S. and continued investment in international expansion. EBITDA as a percent of attributed revenues fell to 10.0 percent from 11.4 percent. Tropicana's revenue growth resulted from the continued success of Pure Premium Grovestand Orange Juice and Pure Premium Grapefruit Juice, which were introduced in 1993, as well as the introduction of Pure Premium Ruby Red Orange Juice and the repositioning of the Season's Best line of from-concentrate juices. The combined Pure Premium and Season's Best share of the U.S. chilled orange juice market rose three percent to 41 percent in 1994. Unit volume increased 11 percent, including a 57 percent jump in international unit volumes. LIQUIDITY AND CAPITAL RESOURCES The Company's financial position remained strong during the Transition Period. The cash flow for the five months ended June 30, 1996 was impacted by seasonal factors which affect our businesses between January and June. In the five months from February 1 to June 30, 1996, net cash provided by continuing operations was $903 million, following net cash provided of $1,025 million in the twelve months ended January 31, 1996. The results for the Transition Period included significant noncash charges such as amortization of film costs, depreciation and amortization of assets and amortization of excess of cost over fair value of assets. 13 16 In addition, cash was generated by a substantial reduction in accounts receivable due to the collection of seasonally high receivables which were outstanding at January 31, 1996. The increases in net cash were partially offset by higher inventory requirements, largely reflecting a seasonal peak at Tropicana, and a reduction in accounts payable and accrued liabilities also related to the seasonality of our businesses. Net cash used for investing activities was $1.3 billion in the Transition Period. The major items which required cash included the investment in Interscope Records of $200 million, the investment in Brillstein-Grey Entertainment of $81 million and investments in unconsolidated companies including Cineplex Odeon Corporation and SEGA GameWorks. In addition, film production costs were $626 million and total capital expenditures were $305 million: Beverages--$168 million, MCA--$136 million and Corporate--$1 million. In the twelve months ended January 31, 1996, investing activities provided $875 million mainly attributable to the net after-tax cash proceeds of the DuPont redemption transaction which remained after the financing of the purchase of 80 percent of MCA and the $273 million acquisition of the juice beverage operations of Dole. In the Transition Period, the net result of cash provided by ongoing operations and used for investing activities, the payment of $112 million of dividends, and the repurchase of $68 million of the Company's common shares was an increase in net debt of $562 million. This reflects an increase in short-term borrowings of $916 million, partially offset by the early redemption of $249 million of 9 3/4% Guaranteed Notes which were due in June 2000. In the twelve months ended January 31, 1996, net debt declined $1.6 billion largely due to the repayment of debt with the proceeds from the DuPont redemption in excess of the funds used to finance acquisitions. The Company's total long- and short-term debt, net of cash and short-term investments, increased to $4.1 billion at June 30, 1996 from $3.6 billion at January 31, 1996. The Company's ratio of net debt to total capitalization (including minority interest) increased from 24 percent to 27 percent, mainly because of the higher debt outstanding. Subsequent to June 30, 1996, the Company sold 156 million DuPont equity warrants back to DuPont for $500 million in cash. The $479 million of after-tax net proceeds have been used largely to repay debt. In addition, the Company's liquidity is enhanced by the investment in 14.5 percent of Time Warner stock which had a market value of $2.2 billion on June 30, 1996. As previously indicated, we are evaluating our options, including a possible sale of this investment. The Company's working capital position is reinforced by available credit facilities of $3.8 billion. These facilities are used to support the Company's commercial paper borrowings and are available for general corporate purposes. The Company continues to utilize U.S. dollar-denominated commercial paper to fund seasonal working capital requirements in the U.S. and Canada. The Company also borrows in different currencies from other sources to meet the borrowing needs of its affiliates. The nature and amount of the Company's long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. The Company operates internationally, with manufacturing and sales facilities in various locations around the world. The Company continually evaluates its foreign currency exposure (primarily the British pound, French franc, and German mark), based on current market conditions and the business environment. In order to mitigate the effect of foreign currency risk, the Company engages in hedging activities. The magnitude and nature of such hedging activities are explained further in Note 8 to the financial statements. The Company believes its internally generated liquidity together with access to external capital resources will be sufficient to satisfy existing commitments and plans, and to provide adequate financial flexibility to take advantage of potential strategic business opportunities should they arise. QUARTERLY HIGH AND LOW SHARE PRICES
FIVE MONTHS Fiscal Years Ended ENDED JUNE 30, January 31, 1996 1996 1995 HIGH LOW HIGH LOW High Low New York Stock Exchange First Quarter US$38 3/8 US$31 3/4 US$32 3/8 US$25 5/8 US$31 US$27 Second Quarter 36 3/8 32 1/2 36 3/4 26 3/4 32 28 1/8 Third Quarter 38 1/8 34 1/4 32 5/8 29 1/8 Fourth Quarter 39 1/2 34 1/4 30 3/4 27 1/8 Canadian Stock Exchanges (Canadian Dollars) First Quarter C$52 1/2 C$43 1/8 C$45 1/4 C$35 1/2 C$42 1/2 C$37 1/4 Second Quarter 49 3/4 44 2/5 50 36 1/4 43 7/8 38 3/4 Third Quarter 52 46 1/4 44 5/8 39 1/4 Fourth Quarter 53 1/4 46 7/8 43 1/8 37 3/8
RETURN TO SHAREHOLDERS The Company had 8,092 registered shareholders at August 15, 1996. The Company's common shares are traded on the New York, Toronto, Montreal, Vancouver and London Stock Exchanges. Closing prices at June 30, 1996, on the New York and Toronto Stock Exchanges were $33.63 and C$45.75, respectively. In the Transition Period dividends paid were $0.15 per share per quarter. In the year ended January 31, 1996, the Company also paid dividends of $0.15 per share in each of the four quarters. In the year ended January 31, 1995, the Company paid dividends of $0.14 per share in the first two quarters and $0.15 per share in the final two quarters. Dividends paid to shareholders totaled $112 million in the Transition Period and $224 million and $216 million in the years ended January 31, 1996 and 1995, respectively. 14 17 CONSOLIDATED STATEMENT OF INCOME
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, U.S. dollars in millions, except per share amounts 1996 1996 1995 1994 Revenues $5,013 $9,747 $6,399 $6,038 Cost of revenues 3,186 6,122 3,654 3,451 Selling, general and administrative expenses 1,648 3,041 2,020 1,833 ...... ...... ...... ...... Operating Income 179 584 725 754 Interest, net and other 114 235 362 319 ...... ...... ...... ...... 65 349 363 435 Provision (benefit) for income taxes-- current year 52 153 104 152 - --1981 transaction (67) - 65 - Minority interest (5) 22 - - ...... ...... ...... ...... Income Before Discontinued DuPont Activities and Cumulative Effect of Accounting Change 85 174 194 283 ...... ...... ...... ...... Discontinued DuPont Activities: Dividends, after tax - 68 264 256 Unremitted earnings (loss) - - 353 (160) Gain on redemption of 156 million shares, after tax - 3,164 - - ...... ...... ...... ...... - 3,232 617 96 ...... ...... ...... ...... Income Before Cumulative Effect of Accounting Change 85 3,406 811 379 Cumulative effect of accounting change, after tax - - (75) - ...... ...... ...... ...... Net Income $ 85 $3,406 $ 736 $ 379 ====== ====== ====== ====== Earnings Per Share Income before discontinued DuPont activities and cumulative effect of accounting change $ .23 $ .46 $ .52 $ .76 Discontinued DuPont activities, after tax - 8.67 1.66 .26 ...... ...... ...... ...... Income Before Cumulative Effect of Accounting Change .23 9.13 2.18 1.02 Cumulative effect of accounting change, after tax - - (.20) - ...... ...... ...... ...... Net Income $ .23 $ 9.13 $ 1.98 $ 1.02 ====== ====== ====== ======
The accompanying notes are an integral part of these financial statements. 15 18 CONSOLIDATED BALANCE SHEET
JUNE 30, January 31, U.S. dollars in millions 1996 1996 1995 ASSETS Current Assets Cash and short-term investments at cost $ 279 $ 254 $ 157 Receivables, net 1,770 2,276 1,328 Inventories 3,142 2,914 2,519 Film costs, net of amortization 471 510 - DuPont warrants 440 - - Deferred income taxes 402 361 89 Prepaid expenses and other current assets 382 325 172 ....... ....... ....... TOTAL CURRENT ASSETS 6,886 6,640 4,265 ....... ....... ....... Common stock of DuPont 651 631 3,670 DuPont warrants - 440 - Common stock of Time Warner 2,228 2,356 2,043 Film costs, net of amortization 783 790 - Artists' contracts, advances and other entertainment assets 646 712 - Deferred charges and other assets 770 746 143 Property, plant and equipment, net 2,951 2,806 1,267 Investments in unconsolidated companies 2,162 1,936 57 Excess of cost over fair value of assets acquired 4,551 4,298 1,547 ....... ....... ....... $21,628 $21,355 $12,992 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings and indebtedness payable within one year $ 1,850 $ 936 $ 2,475 Accrued royalties and participations 602 642 - Payables and accrued liabilities 2,086 2,164 1,423 Income and other taxes 149 112 193 ....... ....... ....... TOTAL CURRENT LIABILITIES 4,687 3,854 4,091 ....... ....... ....... Long-term indebtedness 2,562 2,889 2,841 Accrued royalties and participations 388 404 - Deferred income taxes 623 696 52 Deferred income taxes--DuPont share redemption 1,540 1,489 - Other credits 784 851 488 Minority interest 1,839 1,844 11 Shareholders' Equity Shares without par value 725 709 638 Cumulative currency translation adjustments (246) (268) (359) Cumulative gain (loss) on equity securities, net of tax 337 407 (85) Retained earnings 8,389 8,480 5,315 ....... ....... ....... TOTAL SHAREHOLDERS' EQUITY 9,205 9,328 5,509 ....... ....... ....... $21,628 $21,355 $12,992 ======= ======= =======
The accompanying notes are an integral part of these financial statements. Approved by the Board /s/ Edgar M. Bronfman /s/ C.E. Medland Edgar M. Bronfman C.E. Medland Director Director 16 19 CONSOLIDATED STATEMENT OF CASH FLOWS
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, U.S. DOLLARS IN MILLIONS 1996 1996 1995 1994 OPERATING ACTIVITIES Income Before Discontinued DuPont Activities and Cumulative Effect of Accounting Change $ 85 $ 174 $ 194 $ 283 ....... ....... ...... ....... Adjustments to Reconcile Income Before Discontinued DuPont Activities and Cumulative Effect of Accounting Change to Net Cash Provided: Amortization of film costs 524 642 - - Depreciation and amortization of assets 158 255 138 125 Amortization of excess of cost over fair value of assets acquired 84 113 46 41 Minority interest (credited) charged to income (5) 22 - - Sundry 4 20 23 (5) Changes in assets and liabilities: Receivables, net 532 (172) (157) (73) Inventories (212) (137) (23) 24 Prepaid expenses and other current assets (59) (19) (36) (7) Artists' contracts, advances and other entertainment assets 35 74 - - Payables and accrued liabilities (243) 140 363 35 Income and other taxes payable 55 (105) 38 14 Deferred income taxes 15 14 (114) 17 Other credits (70) 4 47 16 ....... ....... ...... ....... 818 851 325 187 ....... ....... ...... ....... Net Cash Provided by Continuing Operations 903 1,025 519 470 ....... ....... ...... ....... INVESTING ACTIVITIES Discontinued DuPont activities: Dividends, net of taxes paid - 68 264 256 Proceeds from redemption of shares, net of taxes paid - 7,729 - - Purchase of 80 percent interest in MCA - (5,523) - - Film production (626) (684) - - Capital expenditures (305) (433) (172) (163) Investment in Interscope Records (200) - - - Investment in Brillstein-Grey Entertainment (81) - - - Investment in unconsolidated companies (127) - - - Purchase of Dole juice beverage business - (273) - - Purchase of Time Warner common stock - - (474) (1,695) Increase in DuPont investment related to 1981 transaction - - (162) - Sundry 10 (9) (93) (128) ....... ....... ...... ....... Net Cash (Used for) Provided by Investing Activities (1,329) 875 (637) (1,730) ....... ....... ...... ....... FINANCING ACTIVITIES Dividends paid (112) (224) (216) (209) Issuance of shares upon exercise of stock options and conversion of LYONs 20 72 22 26 Shares purchased and retired (68) (18) (23) (61) Increase in long-term indebtedness 36 214 3 605 Decrease in long-term indebtedness (341) (251) (252) (104) Increase (decrease) in short-term borrowings and indebtedness payable within one year 916 (1,596) 610 1,018 ....... ....... ...... ....... Net Cash Provided by (Used for) Financing Activities 451 (1,803) 144 1,275 ....... ....... ...... ....... NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ 25 $ 97 $ 26 $ 15 ======= ======= ====== =======
The accompanying notes are an integral part of these financial statements. 17 20 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Cumulative Cumulative Shares Without Par Value Currency Gain (Loss) Number Translation on Equity Retained U.S. dollars in millions, except per share amounts (thousands) Amount Adjustments Securities Earnings January 31, 1993 373,690 $ 595 $ (369) $ 4,704 Fiscal year ended January 31, 1994 Net income 379 Dividends paid ($.56 per share) (209) Change in currency translation adjustments (110) Change in market value of equity securities, net of $26 tax liability $ 46 Shares issued -- exercise of stock options 1,115 26 -- conversion of LYONs 14 - Shares purchased and retired (2,330) (4) (57) ....... ..... ...... ..... ....... January 31, 1994 372,489 617 (479) 46 4,817 Fiscal year ended January 31, 1995 Net income before cumulative effect of accounting change 811 Cumulative effect of accounting change (75) Dividends paid ($.58 per share) (216) Change in currency translation adjustments 120 Change in market value of equity securities, net of $70 tax benefit (131) Shares issued -- exercise of stock options 827 21 -- conversion of LYONs 31 1 Shares purchased and retired (810) (1) (22) ....... ..... ...... ..... ....... January 31, 1995 372,537 638 (359) (85) 5,315 Fiscal year ended January 31, 1996 Net income 3,406 Dividends paid ($.60 per share) (224) Change in currency translation adjustments 91 Change in market value of equity securities, net of $265 tax liability 492 Shares issued -- exercise of stock options 2,056 57 -- conversion of LYONs 550 15 Shares purchased and retired (681) (1) (17) ....... ..... ...... ..... ....... January 31, 1996 374,462 709 (268) 407 8,480 Transition period ended June 30, 1996 Net income 85 Dividends paid ($.30 per share) (112) Change in currency translation adjustments 22 Change in market value of equity securities, net of $38 tax benefit (70) Shares issued -- exercise of stock options 612 18 -- conversion of LYONs 57 2 Shares purchased and retired (2,072) (4) (64) ....... ..... ...... ..... ....... June 30, 1996 373,059 $ 725 $ (246) $ 337 $ 8,389 ======= ===== ====== ===== =======
The accompanying notes are an integral part of these financial statements. 18 21 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE SEAGRAM COMPANY LTD. operates in two global business segments: beverages and entertainment. The beverage businesses are engaged principally in the production and marketing of distilled spirits, wines, fruit juices, coolers, beers and mixers. The entertainment company, MCA INC., produces and distributes motion picture, television and home video products, and recorded music; operates theme parks and retail stores; and publishes books. More than 50 percent of the Company's shares are held by U.S. residents and, therefore, the Company has prepared its consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) which, in their application to the Company, conform in all material respects to GAAP in Canada. Differences between U.S. and Canadian GAAP and the magnitude thereof are discussed in Note 16. Should a material difference arise in the future, financial statements will be provided under both U.S. and Canadian GAAP. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of The Seagram Company Ltd. and its subsidiaries. The equity method is used to account for unconsolidated affiliates owned 20 percent or more. In conformity with GAAP, management has made estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION Except for operations in highly inflationary economies, affiliates outside the U.S. operating in the beverages segment use the local currency as the functional currency. For affiliates in countries considered to have a highly inflationary economy, inventories and property, plant and equipment are translated at historical exchange rates and translation effects are included in net income. Affiliates outside the U.S. operating in the entertainment segment principally use the U.S. dollar as the functional currency. INVENTORIES Inventories are stated at cost, which is not in excess of market, and consist principally of spirits, wines and fruit juices. The cost of spirits, wines and fruit juices inventories is determined by either the last-in, first-out (LIFO) method or the identified cost method. The Company's general practice is to expense, as incurred, costs associated with the ageing of spirits and wines. In accordance with industry practice, current assets include spirits and wines which, in the Company's normal business cycle, are aged for varying periods of years. The cost of music, publishing, retail and home video inventories is determined by the first-in, first-out (FIFO) method. REVENUES AND COSTS FILM Generally, theatrical films are first distributed in the worldwide theatrical and home video markets. Subsequently, theatrical films are made available for worldwide pay television, network exhibition, television syndication and basic cable television. Generally, television films are first licensed for network exhibition and foreign syndication or home video, and subsequently for domestic syndication or cable television. Certain television films are produced and/or distributed directly for initial exhibition by local television stations, advertiser-supported cable television, pay television and/or home video. Revenues from the theatrical distribution of films are recognized as the films are exhibited. Revenues from television and pay television licensing agreements are recognized when the films are available for telecast. Revenues from the sale of home video product, net of provision for estimated returns and allowances, are recognized upon availability of product for retail sale. Generally, the estimated ultimate costs of completed theatrical and television film productions (including applicable capitalized overhead) are amortized and participation expenses are accrued for each production in the proportion of revenue recognized by the Company during the year to the total estimated future revenue to be received from all sources, under the individual film forecast method. Estimated ultimate revenues and costs are reviewed quarterly and revisions to amortization rates or write-downs to net realizable value may occur. Film costs, net of amortization, classified as current assets include the portion of unamortized costs of completed theatrical films allocated to theatrical, home video and pay television distribution markets; television films in production which are under contract of sale; and a portion of costs of completed television films. The allocated portion of released film costs expected to be realized from secondary markets or other exploitation is reported as a noncurrent asset. Other costs relating to film production, including the purchase price of literary properties and related film development costs, and the film library are classified as noncurrent assets. Abandoned story and development costs are charged to film 19 22 production overhead. Film costs are stated at the lower of unamortized cost or estimated net realizable value as periodically determined on a film-by-film basis. Approximately $300 million of the cost of the MCA acquisition was allocated to the film library and is being amortized on a straight-line basis principally over a 20 year life. RECORDED MUSIC AND BOOK PUBLISHING Revenues from the sale of recorded music and books, net of provision for estimated returns and allowances, are recognized upon shipment. Advances to established recording artists and writers and direct costs associated with the creation of record masters and books are capitalized and are charged to expense as the related royalties are earned or when the amounts are determined to be unrecoverable. The advances are expensed when past performance or current popularity does not provide a sound basis for estimating that the advance will be recouped from royalties to be earned. Approximately $400 million of the cost of the MCA acquisition was allocated to artists' contracts, music catalogs and copyrights and is being amortized, on an accelerated basis, over a 14 to 20 year life. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost. Depreciation is determined for financial reporting purposes using the straight-line method over estimated useful asset lives, generally at annual rates of 2-10 percent for buildings, 4-33 percent for machinery and equipment and 2-20 percent for other assets. EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS The unallocated excess of cost of purchased businesses over the fair value of assets acquired, the excess of investments in unconsolidated companies over the underlying equity in tangible net assets acquired and other intangible assets are being amortized on a straight-line basis principally over 40 years from the date of acquisition. The Company reviews the carrying value of goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Measurement of any impairment would include a comparison of discounted estimated future operating cash flows anticipated to be generated during the remaining amortization period of the goodwill to the net carrying value of goodwill. INCOME TAXES Deferred tax assets and liabilities are recognized based on differences between the financial statement and tax bases of assets and liabilities using presently enacted tax rates. Deferred taxes are not provided for that portion of undistributed earnings of foreign subsidiaries which is considered to be permanently reinvested. BENEFIT PLANS Retirement pensions are provided for substantially all of the Company's employees through either defined benefit or defined contribution plans sponsored by the Company or unions representing employees. For Company-sponsored defined benefit plans, pension expense and plan contributions are determined by independent consulting actuaries; pension benefits under defined benefit plans generally are based on years of service and compensation levels near the end of employee service. The funding policy for tax-qualified pension plans is consistent with statutory funding requirements and regulations. Contributions to defined contribution plans are funded and expensed currently. Postretirement health care and life insurance are provided to a majority of nonunion employees in the U.S.. Postemployment programs, principally severance, are provided for the majority of nonunion employees. The cost of these programs is accrued based on actuarial studies. There is no advance funding for postretirement or postemployment benefits. STOCK-BASED COMPENSATION Compensation cost attributable to stock option and similar plans is recognized based on the difference, if any, between the quoted market price of the stock on the date of grant over the exercise price of the option. The Company does not issue options at prices below market value at date of grant. FINANCIAL INSTRUMENTS The Company occasionally uses foreign exchange contracts to hedge a portion of its foreign indebtedness. To reduce foreign currency risk on intercompany payments, the Company hedges through currency forwards and options. Gains and losses on forward contracts are deferred and offset against foreign exchange gains and losses on the underlying hedged transaction. RECLASSIFICATIONS Certain prior year amounts in the financial statements and notes have been reclassified to conform with the current period presentation. 20 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 FISCAL YEAR CHANGE Effective June 30, 1996, the Company changed its fiscal year-end from January 31 to June 30. Accordingly, the consolidated financial statements include the results of operations for the transition period, which are not necessarily indicative of operations for a full year. Results for the comparable prior year period are summarized below.
Five Months Ended June 30, millions, except per share amounts (unaudited) 1995 Revenues $2,715 Operating income 256 Provision for income taxes 63 Income before discontinued DuPont activities 117 Discontinued DuPont activities, after tax 3,232 Net income 3,349 Earnings per share Income before discontinued DuPont activities $ .32 Discontinued DuPont activities, after tax 8.67 Net income 8.99
Note 2 DUPONT SHARE REDEMPTION AND REMAINING DUPONT INVESTMENT On April 6, 1995, E.I. du Pont de Nemours and Company ("DuPont") redeemed 156 million shares of its common stock owned by the Company for $8.336 billion plus share purchase warrants which the Company valued as of the date of the transaction at $440 million. The Company received after-tax proceeds of approximately $7.7 billion from the transaction. The $3.2 billion gain on the transaction was net of a $2 billion tax provision of which $1.5 billion was deferred. The Company has retained 8.2 million shares of DuPont common stock, which were carried at their market value of $651 million at June 30, 1996. The warrants were sold to DuPont for $500 million in July 1996, and therefore, are classified as a current asset at June 30, 1996. The gain on the sale of the warrants was $60 million ($39 million after tax) and will be reflected in the Company's results in the fiscal quarter ending September 30, 1996. The underlying historical value of the remaining DuPont shares is $187 million which represents the historical cost of the retained shares plus unremitted earnings related to those shares. At January 31, 1995, the Company owned 164.2 million shares (approximately 24 percent) of the outstanding common stock of DuPont and accounted for its interest in DuPont using the equity method, whereby its proportionate share of DuPont's earnings was included in income. Financial information for DuPont for the two fiscal years ended December 31, 1994 follows. DuPont Financial Information
Years Ended December 31, millions 1994 1993 Sales and other income $40,259 $37,841 Cost of goods sold and all other expenses 35,877 36,883 Provision for income taxes 1,655 392 ....... ...... Income before extraordinary item 2,727 566 Extraordinary charge from early extinguishment of debt - (11) ....... ...... Net income $ 2,727 $ 555 ======= ======
December 31, 1994 Current assets $11,108 Noncurrent assets 25,784 ....... $36,892 ======= Current liabilities $ 7,565 Noncurrent liabilities 16,505 Stockholders' equity 12,822 ....... $36,892 =======
Note 3 ACQUISITION OF 80 PERCENT INTEREST IN MCA HOLDING I CORP. On June 5, 1995, the Company completed its purchase of an 80 percent interest in MCA Holding I Corp. ("MCA"), the indirect parent of MCA INC., from Matsushita Electric Industrial Co., Ltd. ("Matsushita") for $5.7 billion. Matsushita retains a 20 percent interest in MCA. 21 24 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 $2.6 billion of unallocated excess of cost over fair value of assets acquired which is being amortized over 40 years. The unaudited condensed pro forma results of operations data presented below assume the MCA acquisition and the redemption of 156 million shares of DuPont common stock occurred at the beginning of each period presented. The unaudited condensed pro forma results of operations data were prepared based upon the historical consolidated statements of operations of the Company for the fiscal years ended January 31, 1996 and 1995, and of MCA for the five months ended May 31, 1995 and the twelve months ended December 31, 1994, adjusted to reflect purchase accounting. Financial results for MCA for the seven-month period June 1995 through December 1995 were included in the Company's results for the fiscal year ended January 31, 1996. The unaudited pro forma information is not necessarily indicative of the combined results of operations of the Company and MCA 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
Fiscal Years Ended January 31, millions, except per share amounts (unaudited) 1996 1995 Revenues $11,667 $11,217 ======= ======= Income before cumulative effect of accounting change $ 154 $ 346 Cumulative effect of accounting change - (75) ....... ....... Net income $ 154 $ 271 ======= ======= Per share data: Income before cumulative effect of accounting change $ .41 $ .93 Cumulative effect of accounting change - (.20) ....... ....... Net income $ .41 $ .73 ======= =======
The above pro forma presentation excludes the $3.2 billion after-tax gain on the redemption of the DuPont shares. Note 4 ACQUISITION OF THE JUICE BEVERAGE BUSINESS OF THE DOLE FOOD COMPANY, INC. ("DOLE") On May 19, 1995, the Company acquired the worldwide juice and juice beverage business of Dole for $276 million. The transaction excluded Dole's canned pineapple juice business. The reported operating results for the fiscal year ended January 31, 1996 reflect the results of operations of the acquired business from the acquisition date. 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 $134 million of unallocated excess cost over fair value of assets acquired which is being amortized over 40 years. The impact of this acquisition was not material to the consolidated results of the Company. Note 5 INVESTMENT IN TIME WARNER INC. ("TIME WARNER") At June 30, 1996, the Company owned 56.8 million shares or 14.5 percent of the outstanding common stock of Time Warner. The Company accounts for the investment at market value. The total cost of this investment was $2.17 billion. Note 6 INVESTMENTS IN UNCONSOLIDATED COMPANIES The Company has a number of investments in unconsolidated companies which are 50 percent or less owned or controlled and are carried in the consolidated balance sheet on the equity method. ENTERTAINMENT SEGMENT Significant investments at June 30, 1996 include USA Networks, owner of three advertiser-supported cable television services, USA Network, the Sci-Fi Channel, and Sci-Fi Europe (50 percent owned); Cineplex Odeon Corporation, primarily engaged in theatrical exhibition of motion pictures in the U.S. and Canada (42 percent equity interest); United International Pictures, a distributor of theatrical and pay television product outside the U.S. and Canada (33 percent owned); Cinema International BV, primarily engaged in marketing of home video product outside the U.S. and Canada (49 percent owned); Cinema 22 25 International Corporation and United Cinemas International, both engaged in theatrical exhibition of motion pictures in territories outside the U.S. and Canada (49 percent owned); Universal City Florida Partners, which owns Universal Studios Florida, a motion picture and television themed tourist attraction and production facility in Orlando, Florida (50 percent owned); Universal City Development Partners, which has begun development on land adjacent to Universal Studios Florida of an additional themed tourist attraction and commercial real estate (50 percent owned). BEVERAGES SEGMENT Significant investments at June 30, 1996 include Doosan Seagram Co., Ltd., which is engaged in the production and marketing of whisky products in South Korea (50 percent owned); Seagram (Thailand) Limited, an importer and distributor of spirits and wines (49 percent owned); Kirin-Seagram Limited, engaged in the manufacture, sale and distribution of distilled beverage alcohol and wines in Japan (50 percent owned); and Kirin-Tropicana Inc., engaged in the manufacture, sale and distribution, import and export of fruit juice beverages (50 percent owned). Summarized financial information, derived from unaudited historical financial information, is presented below for the Company's investments in unconsolidated companies. SUMMARIZED BALANCE SHEET INFORMATION
JUNE 30, January 31, millions 1996 1996 Current assets $1,290 $1,102 Noncurrent assets 2,317 2,219 ...... ...... Total assets $3,607 $3,321 ====== ====== Current liabilities $1,049 $ 920 Noncurrent liabilities 1,219 1,254 Equity 1,339 1,147 ...... ...... Total liabilities and equity $3,607 $3,321 ====== ====== Proportionate share of net assets of unconsolidated companies $ 612 $ 549 ====== ======
SUMMARIZED STATEMENT OF OPERATIONS
TRANSITION PERIOD Fiscal Year Ended ENDED JUNE 30, January 31, millions 1996 1996 Revenues $2,168 $2,851 Earnings before interest and taxes 188 214 Net income 129 137
The Company's operating income includes $57 million and $72 million in equity in the earnings of unconsolidated companies for the transition period ended June 30, 1996, and the fiscal year ended January 31, 1996, respectively, principally in the entertainment segment. Note 7 CREDIT ARRANGEMENTS AND LONG-TERM INDEBTEDNESS At June 30, 1996, short-term borrowings comprised $315 million of bank borrowings and $1.4 billion of commercial paper, bearing interest at market rates. The Company's unused lines of credit totaled $3.8 billion and have varying terms of up to five years. A portion of these lines of credit support outstanding commercial paper. Long-term Indebtedness
June 30, January 31, millions 1996 1996 1995 9% Debentures due December 15, 1998 (C$200 million)* $ 156 $ 156 $ 156 Unsecured term bank loans, due 1996 to 1999, with a weighted average interest rate of 4.78% 251 267 - 6.5% Debentures due April 1, 2003 200 200 200 8.35% Debentures due November 15, 2006 200 200 200 8 3/8% Guaranteed Debentures due February 15, 2007 200 200 200 7% Guaranteed Debentures due April 15, 2008 200 200 200 8 7/8% Guaranteed Debentures due September 15, 2011 223 223 223 9.65% Guaranteed Debentures due August 15, 2018 249 249 249 9% Guaranteed Debentures due August 15, 2021 198 198 198 8.35% Debentures due January 15, 2022 199 199 199 6.875% Debentures due September 1, 2023 200 200 200 6% Swiss Franc Bonds due September 30, 2085 (SF 250 million) 200 206 195 7.83% to 93/4% Guaranteed Notes - 249 748 Sundry 217 195 127 ...... ...... ...... 2,693 2,942 3,095 Indebtedness payable within one year (131) (53) (254) ...... ...... ...... $2,562 $2,889 $2,841 ====== ====== ======
*All principal and interest payments for these 9% Debentures were converted at issuance through a series of currency exchange contracts from Canadian dollars to U.S. dollars with an effective interest rate of 7.7%. 23 26 Joseph E. Seagram & Sons, Inc. ("JES"), the Company's U.S. spirits and wine subsidiary, has outstanding $17 million of 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 holder's option, into 18.44 of the Company's common shares (648,609 shares at June 30, 1996). The Company has guaranteed the LYONs on a subordinated basis. In addition, the Company has unconditionally guaranteed JES's 83/8 percent Debentures due February 15, 2007, 7 percent Debentures due April 15, 2008, 8 7/8 percent Debentures due September 15, 2011, 9.65 percent Debentures due August 15, 2018 and 9 percent Debentures due August 15, 2021. Interest expense on long-term indebtedness was $96 million in the transition period ended June 30, 1996, and $236 million and $246 million in the fiscal years ended January 31, 1996 and 1995, respectively. Annual repayments and redemptions of long-term indebtedness for the five fiscal years subsequent to June 30, 1996 are: 1997--$131 million; 1998--$15 million; 1999--$308 million; 2000--$35 million; and 2001--$1 million. Summarized below is the JES financial information:
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, millions 1996 1996 1995 1994 Revenues $ 1,362 $ 4,031 $ 4,566 $3,787 Cost of revenues 1,062 2,976 3,125 2,405 Income before discon- tinued DuPont activities and cumulative effect of accounting change 57 43 60 100 Discontinued DuPont activities, after tax - 3,232 617 96 Cumulative effect of accounting change - - (56) - ...... ....... ...... ...... Net income $ 57 $ 3,275 $ 621 $ 196 ====== ======= ====== ======
JUNE 30, January 31, 1996 1996 1995 Current assets $ 1,348 $ 1,412 $ 2,313 Noncurrent assets 11,702 11,442 8,688 ...... ....... ...... $13,050 $12,854 $11,001 ======= ======= ======= Current liabilities $ 1,028 $720 $ 2,549 Noncurrent liabilities 3,175 3,357 2,478 Shareholder's equity 8,847 8,777 5,974 ...... ....... ...... $13,050 $12,854 $11,001 ======= ======= =======
Note 8 FINANCIAL INSTRUMENTS AND EQUITY SECURITIES The Company selectively uses foreign currency forward and option contracts to offset the effects of exchange rate changes on cash flow exposures denominated in foreign currencies. These exposures include intercompany trade accounts, service fees, intercompany loans and third-party debt. The Company does not use derivative financial instruments for trading or speculative purposes. The notional amount of forward exchange contracts and options is the amount of foreign currency bought or sold at maturity and is not a measure of the Company's exposure through its use of derivatives. At June 30, 1996, the Company held foreign currency forward contracts to purchase and sell foreign currencies, including cross-currency contracts to sell one foreign currency for another currency, with notional amounts totalling $304 million. The notional amounts of these contracts, which mature at various dates through December 1998, are summarized below:
millions Buy Sell Canadian dollar $177 $ - German mark - 8 British pound - 14 U.S. dollar 42 3 New Zealand dollar 20 - French franc - 6 Australian dollar - 7 Italian lira - 20 Other currencies - 7 .... .... $239 $ 65 ==== ====
The Company minimizes its credit exposure to counterparties by entering into contracts only with highly rated commercial banks or financial institutions and by distributing the transactions among the selected institutions. Although the Company's credit risk is the replacement cost at the then-estimated fair value of the instrument, management believes that the risk of incurring losses is remote and that such losses, if any, would not be material. The market risk related to the foreign exchange agreements should be offset by changes in the valuation of the underlying items being hedged. 24 27 FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. CASH AND SHORT-TERM INVESTMENTS The carrying amount reported in the balance sheet for cash and short-term investments approximates their fair value. FOREIGN CURRENCY EXCHANGE CONTRACTS The fair value of forward exchange contracts is based on quoted market prices from banks. SHORT- AND LONG-TERM DEBT The carrying amounts of commercial paper and short-term bank loans approximate their fair value. The fair value of the Company's long-term debt is estimated based on the quoted market prices for similar issues.
JUNE 30, 1996 millions CARRYING FAIR AMOUNT VALUE Cash and short-term investments $ 279 $ 279 Foreign currency exchange contracts (15) (15) Short-term debt 1,850 1,850 Long-term debt 2,562 2,741
EQUITY SECURITIES The following is a summary of available-for-sale securities:
JUNE 30, January 31, millions 1996 1996 1995 Cost $2,357 $2,357 $2,170 Gross Unrealized Gain 522 630 - Gross Unrealized Loss - - (127) Fair Value 2,879 2,987 2,043
Note 9 COMMON SHARES, EARNINGS PER SHARE AND STOCK OPTIONS The Company is authorized to issue an unlimited number of common and preferred shares without nominal or par value. At June 30, 1996, 29,734,847 common shares were potentially issuable upon the conversion of the LYONs and the exercise of employee stock options. The dilutive effect on earnings per share from the assumed issuance of these shares would be less than three percent. Net income per share was based on the following weighted average number of shares outstanding during the fiscal period ended June 30, 1996--373,857,915; January 31, 1996--373,116,794; 1995--372,499,060; and 1994--373,050,863. In the fiscal year ended January 31, 1996, the Company granted 66,500 restricted shares with a weighted average grant-date fair value of $35.69 per share. These shares have voting and dividend rights; however, sale of the shares is restricted prior to vesting. Restrictions on 33,250 of the restricted shares will lapse on each of October 1, 1996 and October 1, 1997. STOCK OPTION PLANS Under the Company's employee stock option plans, options may be granted to purchase the Company's common shares at not less than the fair market value of the shares on the date of the grant. Currently outstanding options become exercisable one to five years from the grant date and expire 10 years after the grant date. The Company has adopted Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123). In accordance with the provisions of FAS 123, the Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans other than for restricted stock. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed by FAS 123, the Company's net income and earnings per share would be reduced to the pro forma amounts indicated below:
Fiscal Year TRANSITION PERIOD Ended ENDED JUNE 30, January 31, millions, except per share amounts 1996 1996 Net Income: As reported $ 85 $ 3,406 Pro forma 73 3,383 Earnings per common share: As reported $ .23 $ 9.13 Pro forma .19 9.07
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the transition period ended June 30, 1996 and the fiscal year ended January 31, 1996, respectively: dividend yields of 1.8 and 1.9 percent; expected volatility of 22 and 20 percent; risk-free interest rates of 6.0 and 6.6 percent; and expected life of six years for both periods. The weighted average fair value of options granted during the transition period ended June 30, 1996 and the fiscal year ended 25 28 January 31, 1996 for which the exercise price equals the market price on the grant date was $9.13 and $8.86, respectively. The weighted average fair value of options granted during the transition period ended June 30, 1996 for which the exercise price exceeded the market price on the grant date was $6.41. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Transactions involving stock options are summarized as follows:
Weighted Average Exercise Price Stock Options of Options Description Outstanding Outstanding Balance, January 31, 1993 12,226,342 $22.70 Granted 5,403,425 27.42 Exercised (1,115,300) 19.69 Cancelled (240,440) 27.51 .......... Balance, January 31, 1994 16,274,027 24.40 Granted 3,677,695 30.56 Exercised (827,040) 23.42 Cancelled (219,880) 28.85 .......... Balance, January 31, 1995 18,904,802 25.59 Granted 6,293,023 31.94 Exercised (2,055,830) 24.37 Cancelled (140,840) 29.96 .......... Balance, January 31, 1996 23,001,155 27.45 GRANTED 6,757,978 35.41 EXERCISED (611,855) 25.97 CANCELLED (61,040) 31.56 .......... BALANCE, JUNE 30, 1996 29,086,238 29.33 ==========
The following table summarizes information concerning currently outstanding and exercisable stock options:
Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price $10-$20 3,169,492 3.1 yrs. $17.89 3,169,492 $17.89 $20-$30 10,500,060 6.2 26.94 8,980,060 26.85 $30-$40 14,666,686 8.9 32.57 6,664,988 30.42 $40-$50 750,000 9.8 47.70 - .......... .......... 29,086,238 18,814,540 ========== ==========
Note 10 INCOME TAXES The following tables summarize the sources of pretax income and the resulting income tax expense. GEOGRAPHIC COMPONENTS OF PRETAX INCOME
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, millions 1996 1996 1995 1994 U.S. $ (133) $ 82 $ (24) $ (22) Canada (24) 17 15 37 Other jurisdictions 222 250 372 420 ....... ....... ....... ....... Income before minority interest and discontinued DuPont activities 65 349 363 435 Discontinued DuPont activities - 5,283 637 114 ....... ....... ....... ....... Income before minority interest $ 65 $ 5,632 $ 1,000 $ 549 ======= ======= ======= =======
COMPONENTS OF INCOME TAX EXPENSE
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, millions 1996 1996 1995 1994 Income tax expense (benefit) applicable to: Continuing operations $ 52 $ 153 $ 104 $ 152 1981 transaction* (67) - 65 - Discontinued DuPont activities - 2,051 20 19 ...... ...... ...... ...... Total income tax expense (benefit) $ (15) $2,204 $ 189 $ 171 ====== ====== ====== ======
*The 1981 transaction relates to a loss disallowed by the U.S. Tax Court on the exchange of common stock of Conoco Inc. for DuPont. In June, 1996, the Company and the IRS reached a settlement whereby a portion of the original loss was allowed. Current Continuing operations Federal $ (14) $ 26 $ (12) $ (34) State and local taxes 6 19 - - 1981 transaction (105) - 188 - Other jurisdictions 83 94 107 169 ....... ....... ....... ....... (30) 139 283 135 Discontinued DuPont activities - 612 20 19 ....... ....... ....... ....... (30) 751 303 154 ------- ------- ------- ------- Deferred Continuing operations Federal (8) 39 4 34 State and local (2) (2) - - 1981 transaction 38 - (123) - Other jurisdictions (13) (23) 5 (17) ....... ....... ....... ....... 15 14 (114) 17 ....... ....... ....... ....... Discontinued DuPont activities - 1,439 - - ....... ....... ....... ....... 15 1,453 (114) 17 ....... ....... ....... ....... Total income tax expense (benefit) $ (15) $ 2,204 $ 189 $ 171 ======= ======= ======= =======
26 29 COMPONENTS OF NET DEFERRED TAX LIABILITY (ASSET)
JUNE 30, January 31, millions 1996 1996 1995 Basis and amortization differences $ 471 $ 428 $ 106 DuPont share redemption 1,540 1,489 - Time Warner and DuPont investments 183 220 6 Unremitted foreign earnings 27 17 - Other, net 86 80 11 ....... ....... ....... Deferred tax liabilities 2,307 2,234 123 ....... ....... ....... Employee benefits (102) (101) (92) Tax credit carryovers (172) (150) - Valuation, doubtful accounts and return reserves (323) (269) (8) Other, net (99) (24) (60) ....... ....... ....... Deferred tax assets (696) (544) (160) Valuation allowance 150 134 - ....... ....... ....... (546) (410) (160) ....... ....... ....... Net deferred tax liability (asset) $ 1,761 $ 1,824 $ (37) ======= ======= =======
The Company has U.S. tax credit carryovers of $172 million; $30 million of which have no expiration date and $142 million of which have expiration dates through 2005. The $150 million valuation allowance arises from uncertainty as to the realization of certain U.S. tax credit carryforwards. If realized, these benefits would be applied to reduce the MCA unallocated excess purchase price. EFFECTIVE INCOME TAX RATE - CONTINUING OPERATIONS
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, 1996 1996 1995 1994 U.S. statutory rate 35% 35% 35% 35% 1981 transaction (103) - 18 - State and local taxes 4 3 - - Dividends received deduction (7) (3) (3) (1) Goodwill amortization 45 11 4 3 Other 3 (2) (7) (2) .... .. .. .. Effective income tax rate -- continuing operations (23)% 44% 47% 35% ==== == == ==
Various taxation authorities have proposed or levied assessments for additional income taxes of prior years. Management believes that settlements will not have a material effect on the results of operations, financial position or liquidity of the Company. Note 11 BENEFIT PLANS PENSION Pension costs were $27 million for the transition period ended June 30, 1996 and $45 million, $24 million and $26 million for the fiscal years ended January 31, 1996, 1995 and 1994, respectively. The Company has defined benefit pension plans which cover certain U.S. employees. The net cost of the Company's U.S. pension plans was based on an expected long-term return on plan assets of 10 percent for the transition period ended June 30, 1996 and 10.75 percent for each of the fiscal years ended January 31, 1996, 1995 and 1994. Discount rates of 7.75 percent, 7.0 percent and 8.75 percent were used in determining the actuarial present value of the projected benefit obligation at June 30, 1996, January 31, 1996 and January 31, 1995, respectively. The assumed rates of increase in future compensation levels were five percent to six percent for the transition period ended June 30, 1996, 4.5 percent to 5.5 percent for the fiscal year ended January 31, 1996, and six percent to seven percent for the fiscal year ended January 31, 1995. Plans outside the U.S. used assumptions in determining the actuarial present value of projected benefit obligations that reflect the economic environments within the various countries, and therefore are consistent with (but not identical to) those of the U.S. plans. The majority of the pension arrangements for the Company's employees of affiliates outside the U.S., the United Kingdom and Canada are either insured or government sponsored. In those affiliates outside of the U.S. where defined benefit plans exist (United Kingdom, Canada and France), the net periodic pension cost was $3 million for the transition period ended June 30, 1996 and $6 million for each of the fiscal years ended January 31, 1996, 1995 and 1994. At June 30, 1996, the present value of these plans' projected benefit obligation was $261 million, $246 million of which was for vested benefits; the fair value of plan assets was $289 million. NET COST OF U.S. DEFINED BENEFIT PENSION PLANS
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, millions 1996 1996 1995 1994 Service cost-- benefits earned during the period $ 8 $ 17 $ 18 $ 16 Interest cost on Projected Benefit Obligation 22 52 47 46 Return on plan assets Actual (gain) loss (55) (204) 11 (90) Deferred actuarial gain (loss) 26 147 (75) 32 Net amortization 2 4 4 4 ..... ..... ..... ..... Net pension cost $ 3 $ 16 $ 5 $ 8 ===== ===== ===== =====
27 30 STATUS OF U.S. DEFINED BENEFIT PENSION PLANS
JUNE 30, 1996 ASSETS EXCEED ACCUMULATED Assets Exceed ACCUMULATED BENEFITS Accumulated millions BENEFITS EXCEED ASSETS Benefits Actuarial present value of Vested Benefit Obligation $(501) $ (78) $(532) ----- ----- ----- Accumulated Benefit Obligation $(525) $ (81) $(559) ----- ----- ----- Projected Benefit Obligation $(609) $(105) $(648) Plan assets at fair value, principally equity securities 757 - 715 ..... ..... ..... Plan assets in excess of (less than) Projected Benefit Obligation 148 (105) 67 Deferred net actuarial (gain) loss (95) 38 (20) Unamortized prior service cost 7 6 6 Unamortized transition obligation (asset) - 3 - Recognition of minimum liability - (23) - ..... ..... ..... Prepaid (accrued) pension cost $ 60 $ (81) $ 53 ===== ===== =====
January 31, 1996 January 31, 1995 Accumulated Assets Exceed Accumulated Benefits accumulated Benefits millions Exceed Assets Benefits Exceed Assets Actuarial present value of Vested Benefit Obligation $ (82) $(424) $ (60) ----- ----- ----- Accumulated Benefit Obligation $ (84) $(444) $ (63) ----- ----- ----- Projected Benefit Obligation $(110) $(522) $ (89) Plan assets at fair value, principally equity securities - 547 - ..... ..... ..... Plan assets in excess of (less than) Projected Benefit Obligation (110) 25 (89) Deferred net actuarial (gain) loss 46 28 34 Unamortized prior service cost 6 2 7 Unamortized transition obligation (asset) 3 (1) 4 Recognition of minimum liability (30) - (19) ..... ..... ..... Prepaid (accrued) pension cost $ (85) $ 54 $ (63) ===== ===== =====
The Company has defined contribution plans covering certain U.S. employees. Contributions made to these plans are included in consolidated pension costs of $27 million for the transition period ended June 30, 1996. POSTRETIREMENT The Company provides retiree health care and life insurance benefits covering certain retirees. Certain U.S. salaried and certain hourly employees are eligible for benefits upon retirement and completion of a specified number of years of service. The components of net periodic postretirement benefit cost are as follows:
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, millions 1996 1996 1995 1994 Service cost -- benefits earned during the period $ 2 $ 3 $ 3 $ 5 Interest cost on accumulated postretirement benefit obligation 6 14 11 13 Amortization of prior service cost (2) (4) (4) (1) .... .... .... .... Net postretirement benefit cost $ 6 $ 13 $ 10 $ 17 ==== ==== ==== ====
The accumulated postretirement benefit obligation, included in Other Credits in the accompanying balance sheet, comprises the following:
JUNE 30, January 31, millions 1996 1996 1995 Retirees $ 125 $ 132 $ 85 Fully eligible active plan participants 25 27 25 Other active plan participants 46 50 36 Unrecognized: Actuarial gain (loss) 3 (11) 16 Prior service cost 37 39 43 ..... ..... ..... Accrued postretirement benefit obligation $ 236 $ 237 $ 205 ===== ===== =====
Future benefit costs were estimated assuming medical costs would increase at an 8.3 percent annual rate, decreasing to a 5.5 percent annual growth rate-ratably over the next six years, and then remaining at a 5.5 percent growth rate thereafter. A one-percentage-point increase in this annual trend rate would have increased the postretirement benefit obligation at June 30, 1996 by $12 million ($8 million after tax), with an increase in pretax expense of $1 million for the transition period ended June 30, 1996. The weighted average discount rate used to estimate the accumulated postretirement benefit obligation was 7.75 percent, 7.0 percent and 8.75 percent at June 30, 1996, January 31, 1996 and January 31, 1995, respectively. 28 31 POSTEMPLOYMENT The Company adopted Financial Accounting Standard No. 112, "Employers' Accounting for Postemployment Benefits" (FAS 112), in the first quarter of the fiscal year ended January 31, 1995, resulting in a $75 million charge, net of $40 million of deferred tax benefit. FAS 112 requires that the expected cost of postemployment benefits be recognized when they are earned rather than when they are paid. The postemployment obligation has been increased to reflect the reengineering activities described in Note 13. Note 12 BUSINESS SEGMENT AND GEOGRAPHIC DATA BUSINESS SEGMENT DATA
ENTER- millions BEVERAGES TAINMENT CORPORATE(1) TOTAL JUNE 30, 1996 Revenues $2,653 $ 2,360 $ - $ 5,013 Depreciation and amortization of assets 70 86 2 158 Amortization of goodwill 22 62 - 84 Operating income (expense) 225 1 (47) 179 Identifiable assets 7,665 10,269 3,694 21,628 Capital expenditures 168 136 1 305 January 31, 1996 Revenues $6,694 $ 3,053 $ - $ 9,747 Depreciation and amortization of assets 154 97 4 255 Amortization of goodwill 51 62 - 113 Operating income (expense) 456(2) 205 (77) 584 Identifiable assets 7,603 9,997 3,755 21,355 Capital expenditures 257 175 1 433 January 31, 1995 Revenues $6,399 $ - $ 6,399 Depreciation and amortization of assets 134 4 138 Amortization of goodwill 46 - 46 Operating income (expense) 781 (56) 725 Identifiable assets 7,028 5,964 12,992 Capital expenditures 156 16 172 January 31, 1994 Revenues $6,038 $ - $ 6,038 Depreciation and amortization of assets 122 3 125 Amortization of goodwill 41 - 41 Operating income (expense) 774 (20) 754 Identifiable assets 6,584 5,134 11,718 Capital expenditures 162 1 163
(1) Includes (i) corporate expenses and assets not identifiable with either business segment, and (ii) DuPont and Time Warner holdings, which represented 90%, 91%, 96% and 96% of corporate assets at June 30, 1996 and January 31, 1996, 1995 and 1994, respectively. (2) Includes a $290 million charge related to reengineering activities. GEOGRAPHIC DATA
Sales and Other Income(1) Unrelated Inter- Operating Total millions Parties company Income Assets(2) JUNE 30, 1996 U.S. $2,735 $ 73 $ (105) $12,773 Europe 1,588 176 239 4,402 Asia Pacific 395 - (8) 429 Latin America 147 13 22 288 Canada 148 61 31 417 ...... ...... ...... ....... $5,013 $ 323 $ 179 $18,309 ====== ====== ====== ======= January 31, 1996 U.S. $5,185 $ 167 $ 131 $12,171 Europe 3,026 464 276 4,585 Asia Pacific 860 - 30 463 Latin America 415 29 14 324 Canada 261 212 133 385 ...... ...... ...... ....... $9,747 $ 872 $ 584 $17,928 ====== ====== ====== ======= January 31, 1995 U.S. $2,818 $ 112 $ 160 $ 2,510 Europe 2,254 400 365 3,749 Asia Pacific 750 - 15 395 Latin America 440 30 43 388 Canada 137 207 142 237 ...... ...... ...... ....... $6,399 $ 749 $ 725 $ 7,279 ====== ====== ====== ======= January 31, 1994 U.S. $2,575 $ 91 $ 108 $ 2,452 Europe 2,188 334 411 3,372 Asia Pacific 618 - 4 322 Latin America 511 25 79 392 Canada 146 220 152 257 ...... ...... ...... ....... $6,038 $ 670 $ 754 $ 6,795 ====== ====== ====== =======
(1) Sales are classified based upon the location of the legal entity which invoices the customer rather than the location of the customer. Sales among geographic areas include intercompany transactions on a current market price basis. (2) Excludes DuPont and Time Warner holdings. Note 13 REENGINEERING ACTIVITIES In connection with a program to better position its beverage operations to achieve its strategic growth objectives, the Company recorded a pretax charge of $290 million in the fiscal year ended January 31, 1996. The charge related principally to the Company's global spirits and wine manufacturing, financial, marketing and distribution systems and included rationalization of facilities in the U.S. and Europe and other costs related to the redesign of processes associated with the fulfillment of customer orders and the organizational structure under which the spirits and wine business operates. The components of the $290 million charge reflected approximately a $100 million provision for severance costs, $120 million for asset write-downs/impairments and $70 million for facility rationalization, including lease terminations, and other reengineering programs. 29 32 Note 14 ADDITIONAL FINANCIAL INFORMATION Income Statement and Cash Flow Data
TRANSITION PERIOD ENDED JUNE 30, Fiscal Years Ended January 31, millions 1996 1996 1995 1994 INTEREST, NET AND OTHER Interest expense $ 151 $ 378 $408 $351 Interest income (13) (102) (10) (11) Dividend income (19) (38) (34) (20) Capitalized interest (5) (3) (2) (1) ..... ...... .... .... $ 114 $ 235 $362 $319 ===== ====== ==== ==== EXCISE TAXES (included in sales and cost of sales) $ 296 $ 812 $836 $811 CASH FLOW DATA Interest paid, net $ 113 $ 262 $361 $346 Income taxes paid (refunded) $ (37) $1,083 $101 $122
BALANCE SHEET DATA
JUNE 30, January 31, millions 1996 1996 1995 RECEIVABLES Trade $ 1,860 $ 2,370 $ 1,292 Other 267 189 89 ....... ....... ....... 2,127 2,559 1,381 Allowance for doubtful accounts and other valuation accounts (357) (283) (53) ....... ....... ....... $ 1,770 $ 2,276 $ 1,328 ======= ======= ======= INVENTORIES Beverages $ 2,789 $ 2,600 $ 2,398 Materials, supplies and other 353 314 121 ....... ....... ....... $ 3,142 $ 2,914 $ 2,519 ======= ======= ======= LIFO INVENTORIES Estimated replacement cost $ 680 $ 473 $ 492 Excess of replacement cost over LIFO carrying value (175) (180) (189) ....... ....... ....... $ 505 $ 293 $ 303 ======= ======= ======= FILM COSTS, NET OF AMORTIZATION THEATRICAL FILM COSTS Released $ 490 $ 588 In process and unreleased 386 295 ....... ....... 876 883 ....... ....... Television Film Costs Released 368 391 In process and unreleased 10 26 ....... ....... 378 417 ....... ....... Total Film Costs $ 1,254 $ 1,300 ======= =======
Unamortized costs related to released theatrical and television films aggregated $858 million at June 30, 1996. Excluding the portion of the purchase price allocated to the film library which is being amortized over a 20 year life, the Company currently anticipates that approximately 81 percent of the unamortized released film costs will be amortized under the individual film forecast method during the three years ending June 30, 1999.
JUNE 30, January 31, millions 1996 1996 1995 PROPERTY, PLANT AND EQUIPMENT Land $ 544 $ 528 $ 137 Buildings and improvements 1,367 1,297 583 Machinery and equipment 1,531 1,456 1,170 Furniture and fixtures 348 355 137 Construction in progress 294 226 98 ....... ....... ....... 4,084 3,862 2,125 Accumulated depreciation (1,133) (1,056) (858) ....... ....... ....... $ 2,951 $ 2,806 $ 1,267 ======= ======= ======= PAYABLES AND ACCRUED LIABILITIES Trade $ 576 $ 596 $ 429 Other 1,510 1,568 994 ....... ....... ....... $ 2,086 $ 2,164 $ 1,423 ======= ======= =======
30 33 Note 15 COMMITMENTS AND CONTINGENCIES The Company has various commitments for the purchase or construction of property, plant and equipment, materials, supplies and items of investment related to the ordinary conduct of business. The Company is involved in various lawsuits, claims and inquiries. Management believes that the resolution of these matters will not have a material adverse effect on the results of operations, financial position or liquidity of the Company. Note 16 DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Differences between U.S. and Canadian GAAP for these financial statements are: (i) The common stock in DuPont and Time Warner would be carried at cost under Canadian GAAP, thereby reducing shareholders' equity by $337 million or four percent at June 30, 1996. There is no effect on net income. (ii) The deferred tax liability at June 30, 1996 under Canadian GAAP would be approximately $50 million lower and shareholders' equity $50 million higher. (A draft accounting standard has been issued in Canada which, if adopted, will eliminate this difference.) (iii) Proportionate consolidation of joint ventures under Canadian GAAP would increase assets and liabilities by approximately $870 million and increase working capital by approximately $110 million at June 30, 1996. There is no effect on net income. (iv) The cumulative effect of the accounting change in the fiscal year ended January 31, 1995 would be excluded from net income and taken directly to retained earnings under Canadian GAAP. (v) Other differences between U.S. and Canadian GAAP are de minimis. 31 34 MANAGEMENT'S REPORT The Company's management is responsible for the preparation of the accompanying financial statements in accordance with generally accepted accounting principles, including the estimates and judgments required for such preparation. The Company has a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and financial records underlying the financial statements properly reflect all transactions. The system contains self-monitoring mechanisms, including a program of internal audits, which allow management to be reasonably confident that such controls, as well as the Company's administrative procedures and internal reporting requirements, operate effectively. Management believes that its long-standing emphasis on the highest standards of conduct and business ethics, as set forth in written policy statements, serves to reinforce the system of internal accounting controls. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error or the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. The Company's independent auditors, Price Waterhouse, review the system of internal accounting controls to the extent they consider necessary to evaluate the system as required by generally accepted auditing standards. Their report covering their examinations of the financial statements is presented below. The Audit Committee of the Board of Directors, solely comprising Directors who are not officers or employees of the Company, meets with the independent auditors, the internal auditors and management to ensure that each is discharging its respective responsibilities relating to the financial statements. The independent auditors and the internal auditors have direct access to the Audit Committee to discuss, without management present, the results of their audit work and any matters they believe should be brought to the Committee's attention. /s/ Edgar Bronfman, Jr. /s/ Robert W. Matschullat /s/ Edward Falkenberg EDGAR BRONFMAN, JR. ROBERT W. MATSCHULLAT EDWARD FALKENBERG President and Vice Chairman and Vice President and Controller Chief Executive Officer Chief Financial Officer
September 5, 1996 AUDITORS' REPORT To the Shareholders of The Seagram Company Ltd. We have audited the consolidated balance sheet of The Seagram Company Ltd. as at June 30, 1996 and January 31, 1996 and 1995 and the consolidated statements of income, shareholders' equity and cash flows for the transition period ended June 30, 1996 and for each of the three fiscal years in the period ended January 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the U.S. of America and Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 1996 and January 31, 1996 and 1995 and the results of its operations and its cash flows for the transition period ended June 30, 1996 and for each of the three fiscal years in the period ended January 31, 1996, in accordance with generally accepted accounting principles in the U.S. of America which, in their application to the Company, conform in all material respects with generally accepted accounting principles in Canada. The Company changed its accounting for postemployment benefits other than pensions, under generally accepted accounting principles in the U.S. of America, during the fiscal year ended January 31, 1995, as described in Note 11. /s/ Price Waterhouse PRICE WATERHOUSE Montreal, Canada September 5, 1996 32 35 QUARTERLY DATA
U.S. dollars in millions, FIRST TWO MONTHS TRANSITION PERIOD except per share amounts (unaudited) QUARTER ENDED JUNE 30, 1996 ENDED JUNE 30, 1996 Revenues $2,520 $2,493 $5,013 Operating income 140 39 179 Net income $ 23 $ 62 $ 85 Net income per share $ .06 $ .17 $ .23
First Second Third Fourth Fiscal Year Ended Quarter Quarter Quarter* Quarter January 31, 1996 Revenues $1,282 $1,883 $2,917 $3,665 $9,747 Operating income 150 179 21 234 584 Income (Loss) before discontinued DuPont activities 59 89 (55) 81 174 Discontinued DuPont activities 3,232 - - - 3,232 ...... ...... ...... ...... ...... Net Income (Loss) $3,291 $ 89 $ (55) $ 81 $3,406 ====== ====== ====== ====== ====== Income Per Share Income before discontinued DuPont activities $ .16 $ .24 $ (.15) $ .21 $ .46 Discontinued DuPont activities 8.67 - - - 8.67 ...... ...... ...... ...... ...... Net Income (Loss) $ 8.83 $ .24 $ (.15) $ .21 $ 9.13 ====== ====== ====== ====== ======
First Second Third Fourth Fiscal Year Ended Quarter Quarter Quarter Quarter January 31, 1995 Revenues $1,211 $1,448 $1,513 $2,227 $6,399 Operating income 162 144 166 253 725 Income before discontinued DuPont activities 52 44 52 46 194 Discontinued DuPont activities 145 180 147 145 617 ...... ...... ...... ...... ...... Income before cumulative effect of accounting change 197 224 199 191 811 Cumulative effect of accounting change (75) - - - (75) ...... ...... ...... ...... ...... Net Income $ 122 $ 224 $ 199 $ 191 $ 736 ====== ====== ====== ====== ====== Income Per Share Income before discontinued DuPont activities $ .14 $ .12 $ .14 $ .12 $.52 Discontinued DuPont activities .39 .48 .39 .40 1.66 ...... ...... ...... ...... ...... Income before cumulative effect of accounting change .53 .60 .53 .52 2.18 Cumulative effect of accounting change (.20) - - - (.20) ...... ...... ...... ...... ...... Net Income $ .33 $ .60 $ .53 $ .52 $ 1.98 ====== ====== ====== ====== ======
*Includes a $290 million pretax charge for reengineering activities. 33 36 FINANCIAL SUMMARY
TRANSITION PERIOD ENDED JUNE 30, U.S. dollars in millions, except per share amounts 1996 1996 1995 1994 INCOME STATEMENT Revenues $ 5,013 $ 9,747 $ 6,399 $ 6,038 Gain (loss) on divestitures, net - - - - Operating income 179 584 725 754 Interest, net and other 114 235 362 319 Income before discontinued DuPont activities and cumulative effect of accounting change 85 174 194 283 Discontinued DuPont activities, after tax - 3,232 617 96 ........ ........ ........ ........ Income Before Cumulative Effect of Accounting Change 85 3,406 811 379 Cumulative effect of accounting change, after tax - - (75) - ........ ........ ........ ........ Net Income (Loss) $ 85 $ 3,406 $ 736 $ 379 ........ ........ ........ ........ FINANCIAL POSITION Current assets $ 6,886 $ 6,640 $ 4,265 $ 3,794 Common stock of DuPont 651 631 3,670 3,154 Common stock of Time Warner 2,228 2,356 2,043 1,769 Other noncurrent assets 11,863 11,728 3,014 3,001 Total assets 21,628 21,355 12,992 11,718 Current liabilities 4,687 3,854 4,091 2,996 Long-term indebtedness 2,562 2,889 2,841 3,053 Total liabilities 10,584 10,183 7,472 6,717 Minority interest 1,839 1,844 11 - Shareholders' equity 9,205 9,328 5,509 5,001 Total liabilities and shareholders' equity 21,628 21,355 12,992 11,718 CASH FLOW DATA Cash flow from continuing operations 903 1,025 519 470 Capital expenditures (305) (433) (172) (163) Other investing activities, net (1,024) 1,308 (465) (1,567) Dividends paid (112) (224) (216) (209) PER SHARE DATA Continuing operations $ .23 $ .46 $ .52 $ .76 Discontinued DuPont activities - 8.67 1.66 .26 ........ ........ ........ ........ Income Before Cumulative Effect of Accounting Change .23 9.13 2.18 1.02 Cumulative effect of accounting change, after tax - - (.20) - ........ ........ ........ ........ Net Income (Loss) $ .23 $ 9.13 $ 1.98 $ 1.02 ........ ........ ........ ........ Dividends paid $ .30 $ .60 $ .58 $ .56 Shareholders' equity 24.67 24.91 14.79 13.43 End-of-year share price New York Stock Exchange 33.63 36.38 28.75 30.75 Canadian Stock Exchanges C$ 45.75 C$ 49.75 C$ 40.50 C$ 40.63 Average shares outstanding (thousands) 373,858 373,117 372,499 373,051 Shares outstanding at year-end (thousands) 373,059 374,462 372,537 372,489
34 37
Fiscal Years Ended January 31, -------------------------------------------------------------- U.S. dollars in millions, except per share amounts 1993 1992 1991 1990 1989 INCOME STATEMENT Revenues $ 6,101 $ 6,345 $ 6,127 $ 5,582 $ 5,056 Gain (loss) on divestitures, net - 201 - - - Operating income 762 961 708 574 425 Interest, net and other Income before discontinued DuPont activities and 312 320 325 289 229 cumulative effect of accounting change 293 430 241 171 125 Discontinued DuPont activities, after tax 181 297 515 540 464 ........ ........ ........ ........ ........ Income Before Cumulative Effect of Accounting Change 474 727 756 711 589 Cumulative effect of accounting change, after tax (1,374) - - - - ........ ........ ........ ........ ........ Net Income (Loss) $ (900) $ 727 $ 756 $ 711 $ 589 ........ ........ ........ ........ ........ FINANCIAL POSITION Current assets $ 3,836 $ 4,327 $ 3,970 $ 3,289 $ 3,182 Common stock of DuPont 3,315 4,566 4,504 4,216 3,879 Common stock of Time Warner - - - - - Other noncurrent assets 2,953 2,983 3,003 2,708 2,636 Total assets 10,104 11,876 11,477 10,213 9,697 Current liabilities 2,003 1,896 3,130 2,491 1,994 Long-term indebtedness 2,559 3,013 2,038 2,011 2,330 Total liabilities 5,174 5,393 5,525 4,856 4,723 Minority interest - - - - - Shareholders' equity 4,930 6,483 5,952 5,357 4,974 Total liabilities and shareholders' equity 10,104 11,876 11,477 10,213 9,697 CASH FLOW DATA Cash flow from continuing operations 310 543 (28) 71 101 Capital expenditures (168) (215) (309) (206) (142) Other investing activities, net 184 190 168 238 (1,768) Dividends paid (205) (189) (174) (135) (113) PER SHARE DATA Continuing operations $ .78 $ 1.14 $ .64 $ .44 $ .33 Discontinued DuPont activities .48 .78 1.37 1.40 1.20 ........ ........ ........ ........ ........ Income Before Cumulative Effect of Accounting Change 1.26 1.92 2.01 1.84 1.53 Cumulative effect of accounting change, after tax (3.64) - - - - ........ ........ ........ ........ ........ Net Income (Loss) $ (2.38) $ 1.92 $ 2.01 $ 1.84 $ 1.53 ........ ........ ........ ........ ........ Dividends paid $ .545 $ .50 $ .463 $ .35 $ .294 Shareholders' equity 13.19 17.08 15.87 14.03 12.66 End-of-year share price New York Stock Exchange 25.13 29.94 22.25 18.72 17.78 Canadian Stock Exchanges C$ 32.00 C$ 35.06 C$ 25.81 C$ 22.22 C$ 21.13 Average shares outstanding (thousands) 375,871 378,839 376,664 385,524 385,460 Shares outstanding at year-end (thousands) 373,690 379,480 374,972 381,820 392,856
Fiscal Years Ended January 31, ------------------------------ U.S. dollars in millions, except per share amounts 1988 1987 INCOME STATEMENT Revenues $ 3,815 $ 3,345 Gain (loss) on divestitures, net - (35) Operating income 286 193 Interest, net and other Income before discontinued DuPont activities and 71 81 cumulative effect of accounting change 151 108 Discontinued DuPont activities, after tax 370 315 ........ ........ Income Before Cumulative Effect of Accounting Change 521 423 Cumulative effect of accounting change, after tax - - ........ ........ Net Income (Loss) $ 521 $ 423 ........ ........ FINANCIAL POSITION Current assets $ 2,950 $ 2,702 Common stock of DuPont 3,587 3,330 Common stock of Time Warner - - Other noncurrent assets 1,006 854 Total assets 7,543 6,886 Current liabilities 1,394 1,102 Long-term indebtedness 1,058 912 Total liabilities 3,086 2,931 Minority interest - - Shareholders' equity 4,457 3,955 Total liabilities and shareholders' equity 7,543 6,886 CASH FLOW DATA Cash flow from continuing operations (59) 25 Capital expenditures (89) (106) Other investing activities, net 196 126 Dividends paid (100) (90) PER SHARE DATA Continuing operations $ .39 $ .28 Discontinued DuPont activities .97 .83 ........ ........ Income Before Cumulative Effect of Accounting Change 1.36 1.11 Cumulative effect of accounting change, after tax - - ........ ........ Net Income (Loss) $ 1.36 $ 1.11 ........ ........ Dividends paid $ .263 $ .238 Shareholders' equity 11.76 10.36 End-of-year share price New York Stock Exchange 13.78 16.78 Canadian Stock Exchanges C$ 17.50 C$ 22.41 Average shares outstanding (thousands) 381,912 380,448 Shares outstanding at year-end (thousands) 379,144 381,980
35 38 PORTFOLIO OF BRANDS [GRAPHIC] The following is a partial, noninclusive listing. THE SEAGRAM SPIRITS AND WINE GROUP AMERICAN WHISKEY Cougar Bourbon Four Roses Bourbon Four Roses Black Label Bourbon Four Roses Single Barrel Reserve Bourbon Four Roses Platinum Bourbon Seagram's 7 Crown CANADIAN WHISKY Canadian Hunter Crown Royal Crown Royal Special Reserve Crown Royal Limited Edition Mount Royal Light Seagram's V.O. SCOTCH WHISKY Black Douglas Century Chivas Regal 12-year-old Glen Grant Glen Grant 10-year-old The Glenlivet 12-year-old The Glenlivet 18-year-old 100 Pipers Passport Queen Anne Royal Salute 21-year-old St. Leger Something Special Windsor Premier 12-year-old Benriach 10-year-old Glen Keith Bottled in 1983 Strathisla 12-year-old Longmorn 15-year-old LOCAL WHISKY Black Jack Blenders Pride Boston Club Crescent Dunbar Emblem Master Blend Natu Nobilis New Robert Brown Regency Secret Valley 9 Gold Wilson's COGNAC Martell V.S. Fine Martell Medaillon V.S.O.P. Martell Noblige Martell Cordon Bleu Martell Napoleon Special Reserve Martell X.O. Supreme Martell Extra Martell Gobelet Royal Classique de J&F Martell L'Or de J&F Martell Creation de J&F Martell BRANDY Blandice Capa Negra Chatelain Chemineaud De Valcourt Imperial Macieira Rene Briand GIN Boodles Burnett's Seagram's Extra Dry Somers VODKA Deluxe Nikolai Orloff Seagram's Premium RUM Cacique Captain Morgan Centenario 5 Estrellas Diplomatico Montilla Myers's OVD Ronrico TEQUILA Mariachi Olmeca LIQUEUR Capucello Godiva SCHNAPPS Dr. McGillicuddy's PRE-MIXED Four Roses & Cola Olmeca Tequila Margarita Passport & Cola Seagram's Extra Dry Gin & Tonic Seagram's Gin & Juice Seagram's 7 Crown & Lemonade CHAMPAGNE Mumm Cordon Rouge N.V. Mumm Cordon Rouge Vintage Mumm Cordon Rose N.V. Mumm Cordon Vert Mumm Grand Cordon Mumm Rene Lalou Mumm de Cramant Perrier-Jouet Grand Brut Perrier-Jouet Brut Millesime Perrier-Jouet Blason de France Perrier-Jouet Blason de France Rose Perrier-Jouet Belle Epoque Perrier-Jouet Belle Epoque Rose Heidsieck Monopole Red Top Monopole Sec Heidsieck Monopole Dry Monopole Brut Heidsieck Monopole Diamant Bleu Heidsieck Monopole Diamant Rose SPARKLING WINE Cuvee Mumm Domaine Mumm Maschio Matheus Muller Sekt Monitor Mumm Cuvee Napa Mumm Sekt Raposeira SHERRY Sandeman Dry Seco Sandeman Medium Dry Sandeman Rich Cream Sandeman Don Fino Sandeman Character Sandeman Armada Sandeman Royal Corregidor Sandeman Soleo PORT Sandeman Original Rich Ruby Sandeman Original Fine Tawny Sandeman Original Fine White Sandeman Founders Reserve Sandeman Imperial Aged Reserve Tawny Sandeman 20-year-old Tawny Sandeman Late Bottled Vintage Sandeman Vintage Sandeman Quinta do Vau - Single Quinta Vintage WINE Almaden Barton & Guestier Forestier Sterling Vineyards The Monterey Vineyard COOLERS Seagram's Spirits SELECTED AGENCY BRANDS Absolut Vodka Bianchi (Argentina) Citronge (U.S.) Cointreau (Venezuela) Jameson (Canada) Jim Beam (Germany) Old Bushmills (Canada) Patron (U.S.) Patron XO Cafe (U.S.) San Telmo (Argentina) Stolichnaya (Greece) THE SEAGRAM CLASSICS WINE COMPANY CHAMPAGNE Mumm SPARKLING WINE Mumm Cuvee Napa 36 39 WINE Sterling Vineyards Barton & Guestier The Monterey Vineyard Julius Kayser Tessera SELECTED AGENCY BRANDS Castello d'Albola SEAGRAM CHATEAU & ESTATE WINES COMPANY CHAMPAGNE Perrier-Jouet SHERRY Sandeman PORT Sandeman SELECTED AGENCY BRANDS Domaines Barons de Rothschild Domaine Clarence Dillon Domaines Cordier Domaines Jean-Pierre Moueix Domaines Jean-Eugene Borie F.E. Trimbach Dominus Estate Domaine G. Roumier Domaine Ramonet Domaine Bonneau du Martray [GRAPHIC] TROPICANA DOLE BEVERAGES NORTH AMERICA TROPICANA PURE PREMIUM JUICES Original Orange Grovestand Orange Home Style Orange Ruby Red Orange Home Style Golden Grapefruit Ruby Red Grapefruit Grovestand Ruby Red Grapefruit Tangerine Orange Plus Calcium and Extra Vitamin C Plus Vitamins A, C and E TROPICANA SEASON'S BEST JUICES Home Style Orange Original Orange Orange Juice Plus Calcium Orange Juice Plus Vitamins Apple Grape Cranberry Medley Grapefruit Orange Pineapple Ruby Red Grapefruit Strawberry Orange Fruit Medley Citrus Medley TROPICANA PURE TROPICS JUICES Orange Kiwi Passion Orange PeachMango Orange Pineapple Orange Strawberry Banana TROPICANA JUICE BEVERAGES Citrus Punch Fruit Punch Lemonade Berry Punch Cranberry Punch Pineapple Punch TROPICANA TWISTER JUICE BEVERAGES Apple Raspberry Blackberry Apple Berry Pear Strawberry Orange Peach Orange Strawberry Banana Orange Cranberry Orange Peach Orange Raspberry Cranberry Raspberry Strawberry Pink Grapefruit Cocktail Orange Strawberry Guava Ruby Red Cranberry Light Cranberry Raspberry Strawberry Light Orange Cranberry Light Orange Raspberry Light Orange Strawberry Banana Light Pink Grapefruit Cocktail DOLE JUICES Mountain Cherry Country Raspberry Orchard Peach Pineapple Pineapple Orange Pine-Orange Banana Pine-Orange Guava Pine-Orange Strawberry Pine-Passion Banana Mandarin Tangerine Tropical Fruit TROPICANA DOLE BEVERAGES INTERNATIONAL TROPICANA PURE PREMIUM JUICES Orange Grapefruit Ruby Breakfast Pink Grapefruit Orange Peach Orange Pear Apple Sanguinello TROPICANA PURE JUICES Orange Grapefruit Apple Pineapple Red Grape Ruby Breakfast Orange Grapefruit Orange Peach Orange Banana FRUVITA JUICES Orange with Pulp Orange Grapefruit Apple Red Grape Lemon Orange Peach Orange Pear Orange Banana Star Ruby Sanguinello DOLE JUICES Orange with Pulp Orange Grapefruit Apple Orange Peach Orange Pear Orange Banana KIRIN-TROPICANA JUICES Orange Orange Homemade Style Apple Grapefruit Grape Fruit Blend Pear Pure Premium Orange LOOZA JUICES AND NECTARS Pineapple Orange Grapefruit Apple Apricot Apple Cherry Apricot Caribbean Blend Banana Cranberry Cherry Red Grape Tomato Tropical Peach Mango Pear Apple Apple - unfiltered Passion Fruit Blackcurrant Multivitamin JUICE BOWL JUICES AND NECTARS Orange with Pulp Orange Apple Grapefruit with Pulp Grapefruit Pineapple Apricot Peach Pear Tropical Tomato Banana Multivitamin Red Grape 37 40 THE SEAGRAM BEVERAGE COMPANY FROZEN PARADISE Strawberry Daiquiri Pina Colada Peach Daiquiri COOLERS Wild Black Cherry Wild Tropical Fruit Wild Berries Wild Kiwi Strawberry Wild Mango Wild Watermelon Peach Daiquiri Fuzzy Navel Pineapple Pina Colada Margarita Strawberry Daiquiri Seagram's Golden MIXER FLAVORS & STYLES Seagram's Ginger Ale Seagram's Diet Ginger Ale Seagram's Raspberry Ginger Ale Seagram's Diet Raspberry Ginger Ale Seagram's Tonic Water Seagram's Diet Tonic Water Seagram's Club Soda Seagram's Original Seltzer Seagram's Black Cherry Seltzer Seagram's Lemon Lime Seltzer Seagram's Orange Seltzer Seagram's Raspberry Seltzer BEERS Grolsch (agency brand) Premium Lager Amber Lager Coyote Amber Lager Dark Lager Devil Mountain Five Malt Ale Black Honey Ale Railroad Gold Ale [GRAPHIC] FILMED ENTERTAINMENT UNIVERSAL PICTURES 12 Monkeys Happy Gilmore Sgt. Bilko Twister Flipper Dragonheart The Nutty Professor MCA/UNIVERSAL TELEVISION Series: Hercules: The Legendary Journeys Xena: Warrior Princess Murder, She Wrote Law & Order Coach New York Undercover Sliders Weird Science Earthworm Jim Casper Wing Commander Academy News Radio The Larry Sanders Show The Jeff Foxworthy Show The Steve Harvey Show Made-for-television movies and mini-series: The Beast The Rockford Files MCA/UNIVERSAL HOME VIDEO Jurassic Park Babe Casper The Land Before Time I, II & III The Adventures of Timmy the Tooth Waterworld 12 Monkeys Earthworm Jim Tremors 2: Aftershocks Casino Sudden Death [GRAPHIC] MUSIC MCA RECORDS Lyle Lovett (Curb/MCA) Nonchalant The Ramones (Radioactive) Todd Snider (Margaritaville) Semisonic MCA RECORDS/NASHVILLE Jimmy Buffett (Margaritaville) Vince Gill Reba McEntire George Strait Wynonna (Curb Records) Trisha Yearwood Rhett Akins (Decca) Gary Allan (Decca) Mark Chesnutt (Decca) GEFFEN AND DGC RECORDS Beck Cowboy Junkies Garbage (Almo Sounds) Genius/GZA Lisa Loeb & Nine Stories George Michael (DreamWorks Records) White Zombie GRP RECORDING COMPANY Diana Krall The Rippingtons Groove Collective UNIVERSAL RECORDS Monifah (Uptown Records) Lina Santiago (Groove Nation Records) Lost Boyz Goldfinger (Mojo Records) Crucial Conflict (Pallas Records) INTERSCOPE RECORDS Bush (Trauma Records) No Doubt (Trauma Records) The Wallflowers [GRAPHIC] RECREATION UNIVERSAL STUDIOS HOLLYWOOD Jurassic Park: The Ride UNIVERSAL STUDIOS FLORIDA Terminator 2: 3-D [GRAPHIC] PUBLISHING THE PUTNAM BERKLEY GROUP Tom Clancy: Executive Orders Patricia Cornwell: Cause of Death Dick Francis: To The Hilt W.E.B. Griffin: Blood and Honor Robin Cook: Chromosome 6 LaVyrle Spencer: That Camden Summer Lawrence Sanders: McNally's Puzzle Tomie dePaola: Strega Nona: Her Story 38 41 Directory Board of Directors EDGAR M. BRONFMAN (3) Chairman of the Board, The Seagram Company Ltd. THE HON. CHARLES R. BRONFMAN, P.C., C.C. (3) Co-Chairman of the Board and Chairman of the Executive Committee, The Seagram Company Ltd. EDGAR BRONFMAN, JR. (3) President and Chief Executive Officer, The Seagram Company Ltd. SAMUEL BRONFMAN II President, The Seagram Classics Wine Company (a division of Joseph E. Seagram & Sons, Inc., a subsidiary of the Corporation) MATTHEW W. BARRETT, O.C. (4) Chairman and Chief Executive Officer, Bank of Montreal (a financial institution) FRANK J. BIONDI, JR. Chairman and Chief Executive Officer, MCA INC. (a subsidiary of the Corporation) DAVID M. CULVER, C.C. (4) Chairman, CAI Capital Corporation (an equity investment fund) THE HON. WILLIAM G. DAVIS, P.C., C.C., Q.C.(1), (2) Counsel, Tory Tory DesLauriers & Binnington (attorneys) THE HON. PAUL DESMARAIS, P.C., C.C.(1), (3) Chairman of the Executive Committee, Power Corporation of Canada (a holding and management company) DAVID L. JOHNSTON, O.C.(2), (4) Professor of Law, McGill University (an educational institution) THE HON. E. LEO KOLBER, SENATOR (3), (4) Member of The Senate of Canada MARIE-JOSEE KRAVIS, O.C. (2), (4) Senior Fellow, The Hudson Institute Inc. (a nonprofit economics research institute) ROBERT W. MATSCHULLAT (3) Vice Chairman and Chief Financial Officer, The Seagram Company Ltd. C. EDWARD MEDLAND (1), (3) President, Beauwood Investments Inc. (a private investment company) LEW R. WASSERMAN Chairman Emeritus, MCA INC. (a subsidiary of the Corporation) JOHN L. WEINBERG (4) Senior Chairman, Goldman, Sachs & Co. (investment bankers) JOHN S. WEINBERG (1), (2) General Partner, Goldman, Sachs & Co. (investment bankers) Honorary Directors A. JEAN DE GRANDPRE, C.C., Q.C. ALAIN DE GUNZBURG JOHN L. LOEB NEIL F. PHILLIPS, Q.C. THE HON. IAN D. SINCLAIR, O.C. SIR IAIN TENNANT, K.T. Honorary Secretary ALAN A. SHARP (1) Member of the Audit Committee (2) Member of Corporate Governance Committee (3) Member of the Executive Committee (4) Member of the Human Resources Committee Officers EDGAR M. BRONFMAN Chairman of the Board THE HON. CHARLES R. BRONFMAN, P.C., C.C. Co-Chairman of the Board and Chairman of the Executive Committee EDGAR BRONFMAN, JR. President and Chief Executive Officer ROBERT W. MATSCHULLAT Vice Chairman and Chief Financial Officer JOHN D. BORGIA Executive Vice President, Human Resources STEPHEN E. HERBITS Executive Vice President, Corporate Policy and External Affairs STEVEN J. KALAGHER Executive Vice President President, The Seagram Spirits And Wine Group ELLEN R. MARRAM Executive Vice President President, The Seagram Beverage Group EDWARD FALKENBERG Vice President and Controller JEANANNE K. HAUSWALD Vice President and Treasurer GABOR JELLINEK Vice President, Production ARNOLD M. LUDWICK Vice President DANIEL R. PALADINO Vice President, Legal and Environmental Affairs MICHAEL C. L. HALLOWS Secretary 39 42 SHAREHOLDER INFORMATION Annual Meeting of Shareholders The Annual Meeting of Shareholders will be held on October 30, 1996, at 11:30 a.m. (E.S.T.) at the Marriott Chateau Champlain, 1 Place du Canada, Montreal, Quebec. AUDITORS Price Waterhouse STOCK SYMBOL VO STOCK EXCHANGE LISTINGS Montreal, Toronto, Vancouver, New York and London TRANSFER AGENTS AND REGISTRARS The R-M Trust Company, 2001 University Street, 16th Floor, Montreal, Quebec H3A 2A6 The R-M Trust Company, Lower Level, 393 University Avenue, Toronto, Ontario M5G 2M7 The R-M Trust Company, 600 The Dome Tower, 6th Floor, 333-7th Avenue, S.W., Calgary, Alberta T2P 2Z1 The R-M Trust Company, Mall Level, 1177 West Hastings Street, Vancouver, B.C. V6E 2K3 ChaseMellon Shareholder Services L.L.C., P.O. Box 590, Ridgefield Park, N.J.07660 SEAGRAM INVESTOR RELATIONS The Seagram Company Ltd., 1430 Peel Street, Montreal,Quebec H3A 1S9 or Joseph E. Seagram & Sons, Inc., 375 Park Avenue, New York, N.Y. 10152 Joseph M.Fitzgerald-Vice President, Investor Relations (212) 572-7282 Maureen S. Hannan-Senior Director,Investor Relations (212) 572-1397 Requests for a copy of the Annual Report on Form 10-K, as filed with the Securities and Exchange Commission in Washington, D.C., and other corporate information, should be directed to Seagram Investor Relations as listed above. SHAREHOLDER INQUIRIES Shareholder inquiries should be addressed to: Shareholder Services, The Seagram Company Ltd., 1430 Peel Street, Montreal, Quebec H3A 1S9 or telephoned to (514) 987-5209. EDITION FRANCAISE DU RAPPORT ANNUEL On peut se procurer l'edition francaise de ce rapport en ecrivant au: Services aux actionnaires, La Compagnie Seagram Ltee, 1430, rue Peel, Montreal (Quebec) H3A 1S9. DESIGN: Addison Corporate Annual Reports, NYC Photographer: Scott Morgan Arthurs-Jones Lithographing Ltd. Mississauga, Ontario (C) The Seagram Company Ltd. 1996 Printed on recycled paper [Recycled Logo] 40 43 THE SEAGRAM COMPANY LTD. 1430 Peel Street Montreal, Quebec Canada H3A 1S9 EX-21 9 SUBSIDIARIES 1 EXHIBIT NUMBER 21 PER ITEM 601 OF REGULATION S-K THE SEAGRAM COMPANY LTD. TRANSITION REPORT ON FORM 10-K SUBSIDIARIES LIST AS OF AUGUST 31, 1996 The following is a list of subsidiaries of the Corporation as of August 31, 1996, prepared in accordance with Item 601 of Regulation S-K.
APPROXIMATE PERCENTAGE ORGANIZED DIRECTLY OR UNDER LAWS OF INDIRECTLY OWNED ------------------------------------- THE SEAGRAM COMPANY LTD. Canada -- J. E. Seagram Corp. Delaware 100% Seagram Enterprises, Inc. Delaware 100% Seagram Inc. Delaware 100% Tropicana Products, Inc. Delaware 100% Tropicana Progress Services, Inc. Florida 100% B&H Project, Inc. Florida 100% TPI Urban Renewal Corp. New Jersey 100% Joseph E. Seagram & Sons, Inc. Indiana 100% Distillers Products Sales Corporation Massachusetts 100% Seagram Capital Investments, Inc. Delaware 100% JES Developments, Inc. Delaware 100% JES Developments Finance, Inc. Delaware 100% Barton & Guestier S.A. France 100% Kirin-Seagram Limited Japan 49.44% Doosan-Seagram Co., Ltd. South Korea 50% Seagram Developments, Inc. Delaware 100% MCA Holding I Corp. Delaware 80% MCA Holding II Corp. Delaware 100% MCA Holding III Corp. Delaware 100% MCA INC. Delaware 100% Champion Music Corporation New York 100% Cinema International Corporation N.V. Netherlands 49% Cineplex Odeon Corporation Canada 41.6% Duchess Music Corporation California 100% Geffen Records, Inc. California 100% Geffen/Outpost Record Ventures, Inc. California 100% GRP Records, Inc. New York 100% Interplay Productions California 49% MCA Artists (England) Limited United Kingdom 100% MCA Music Entertainment International Limited United Kingdom 100% MCA Music Limited United Kingdom 100% MCA Canada Ltd. Canada 100% MCA Caravelle Music France SARL France 100%
2 THE SEAGRAM COMPANY LTD. SUBSIDIARIES LIST (CONTINUED)
APPROXIMATE PERCENTAGE ORGANIZED DIRECTLY OR UNDER LAWS OF INDIRECTLY OWNED ------------------------------------- MCA Concerts, Inc. California 100% MCA/Pace Amphitheatres Group, L.P. (partnership) Delaware 67.5% MCA Development Venture One California 100% 10 UCP Associates (joint venture) California 50% MCA Filmed Entertainment Canada Inc. Canada 100% MCA Foreign Sales Corporation B.V. Netherlands 100% MCA Home Video, Inc. California 100% MCA/Universal Home Video, Inc. California 100% MCA International B.V. Netherlands 100% Cinema International B.V. Netherlands 49% MCA Finance B.V. Netherlands 100% United Cinemas International Multiplex B.V. Netherlands 49.02% United International Pictures B.V. Netherlands 33.3% MCA Japan, Ltd. Japan 100% MCA Music Australia Pty. Limited Australia 100% MCA Music Entertainment, Inc. California 100% MCA Music G.m.b.H. Germany 100% MCA Music Entertainment G.m.b.H. Germany 100% MCA Music Italy S.r.l. Italy 100% MCA Music KK Japan 100% MCA Records, Inc. California 100% MCA Music Entertainment International Limited Hong Kong 100% MCA Music Entertainment Limited Hong Kong 100% MCA Music Entertainment Limited Australia 100% MCA Music Entertainment S.A. Argentina 100% MCA Music Entertainment, S.A. de C.V. Mexico 100% MCA Record Ventures, Inc. Delaware 100% 510 Records (joint venture) California 50% MCA/Interscope Partner, Inc. California 100% MCA Television Entertainment, Inc. California 100% MCA Television Limited Delaware 100% MCA/G-A Record Ventures, Inc. California 100% Gasoline Alley (joint venture) California 55% MCA/R Record Ventures, Inc. California 100% Radioactive Records (joint venture) California 50% MCA/Universal Child Care Center, Inc. California 100% MCA/Universal Hotel, Inc. Delaware 100% MCA/Universal Merchandising, Inc. California 100% Music Corporation of America, Inc. California 100%
3 THE SEAGRAM COMPANY LTD. SUBSIDIARIES LIST (CONTINUED)
APPROXIMATE PERCENTAGE ORGANIZED DIRECTLY OR UNDER LAWS OF INDIRECTLY OWNED ------------------------------------- Sci-Fi Channel Europe, LLC (limited liability company) Delaware 50% Spencer Gifts, Inc. Delaware 100% Terra Properties, Inc. California 100% The Putnam Berkley Group, Inc. New York 100% Berkley Publishing Corporation Delaware 100% Jove Publications, Inc. Delaware 100% Coward-McCann, Inc. New York 100% Grosset & Dunlap, Inc. New York 100% Jeremy P. Tarcher, Inc. California 100% Price Stern Sloan, Inc. Delaware 100% UNI Distribution Corp. New York 100% Universal Cartoon Studios, Inc. California 100% Universal City Property Management Company Delaware 100% Universal City Florida Partners (partnership) Florida 50% Universal City Property Management Company II Delaware 100% Universal City Development Partners (partnership) Florida 50% Universal City Studios, Inc. Delaware 100% Forbrooke Enterprises, Inc. California 100% Imagine Films Entertainment, Inc. Delaware 100% Universal Film Distribution, Inc. California 100% Universal Film Exchanges, Inc. Delaware 100% Universal Pay Television, Inc. California 100% Universal Pay Television Australia, Inc. California 100% Universal TV1 Australia, Inc. California 100% Universal Television, Incorporated California 100% USA Networks (partnership) New York 50% Universal Family Entertainment, Inc. California 100% Universal Interactive Studios, Inc. California 100% Universal Pay-Per-View Entertainment, Inc. California 100% Universal Records, Inc. California 100% 3BG Holdings, Inc. Delaware 100% Brillstein-Grey Entertainment (partnership) California 99% Brillstein-Grey Communications (partnership) California 50% Seagram Holdings Limited United Kingdom 100% Seagram Distillers PLC United Kingdom 100% Chivas Brothers Limited United Kingdom 100% The Glenlivet Distillers Limited United Kingdom 100%
4 THE SEAGRAM COMPANY LTD. SUBSIDIARIES LIST (CONTINUED)
APPROXIMATE PERCENTAGE ORGANIZED DIRECTLY OR UNDER LAWS OF INDIRECTLY OWNED ------------------------------------- Seagram United Kingdom Limited United Kingdom 100% The House of Seagram Ltd. United Kingdom 100% Sandeman & Ca. S.A. Portugal 100% Cente, S.A. Spain 100% Gulfstream Insurance (Ireland) Limited Ireland 100% Gulfstream Reinsurance (Ireland) Limited Ireland 100% Gulfstream Insurance (Barbados) Limited Barbados 100% Centenary Investments Inc. Canada 100% Centenary Holdings Ltd. Bermuda 100% Seagram C.I. (Taiwan) Co., Ltd. Hong Kong 90% Centenary S.a.r.L. Luxemborg 100% Seagram International B.V. Netherlands 100% Bodegas y Vinedos Crillon S.A.I.C. Argentina 100% Seagram de Argentina, S.A.I.C. Argentina 100% G.H. Mumm & Cie France 99% Champagne Perrier-Jouet S.A. France 98% Martell S.A. France 99% Martell & Co. France 99% Seagram Holding-und Handlesgesellschaft mbh Germany 100% Seagram Deutschland GmbH Germany 100% Burgeff & Co. Sektkellereien GmbH Germany 100% Matheus Muller Sektkellereien GmbH Germany 100% Lupak S.A. Greece 100% Seagram India Private Limited India 100% Seagram Manufacturing Private Limited India 100% Seagram Italia S.p.A. Italy 100% Premium Brands Nordic AB Sweden 100% Seagram Netherlands Antilles N.V. Netherlands Antilles 100% Tropicana Beverages Greater China Ltd. Hong Kong 100% Tropicana Beverages Hong Kong Ltd. Hong Kong 100% Myers Rum Company Limited Bahamas 100% Seagram Philippines Inc. Philippines 100% Seagram Australia Holdings Pty. Limited Australia 100% Seagram Australia Pty. Limited Australia 100% Seagram Wine Estates Pty. Limited Australia 100% Australian Bottling Company Pty. Limited Australia 50% Vintners Pty. Limited Australia 50% C.A. Seagram de Venezuela Venezuela 100% Licorerias Unidas, S.A. Venezuela 100% Grey's Licores, C.A. Venezuela 100% Captain Morgan Rum Distillers Limited Canada 100% Captain Morgan (Bermuda) Ltd. Bermuda 100% Industria de Licores Internacionales, S.A. Dominican Republic 89% Seagram (China) Ltd. Canada 100% Tropicana Beverages (Canada) Ltd. Canada 100% Joseph E. Seagram & Sons, Limited Canada 100%
EX-23.A 10 CONSENT OF PRICE WATERHOUSE 1 Exhibit 23(a) CONSENT OF CHARTERED ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of The Seagram Company Ltd. Registration Statements on Form S-3 (Numbers 2-99681, 33-42959, 33- 42877, 33-67772, 333-4134 and 333-4136) and the Registration Statements on Form S-8 (Numbers 33-27194, 33-2043, 33-49096, 33-60606 and 33-99122) of our report dated September 5, 1996 appearing on Page 32 of the Transition Report to the Shareholders of The Seagram Company Ltd. for the transition period ended June 30, 1996, which is incorporated by reference in this Transition Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on Page 24 of this Form 10-K. /s/ Price Waterhouse PRICE WATERHOUSE Chartered Accountants Montreal, Canada September 27, 1996 EX-23.B 11 CONSENT OF PRICE WATERHOUSE LLP 1 Exhibit 23(b) CONSENT OF INDEPENDENT ACCOUNTANTS E.I. DU PONT DE NEMOURS AND COMPANY We hereby consent to the incorporation by reference in the Prospectuses constituting part of The Seagram Company Ltd. Registration Statements on Form S-3 (Numbers 2-99681, 33-42959, 33- 42877, 33-67772, 333-4134 and 333-4136) and the Registration Statements of Form S-8 (Numbers 33-27194, 33-2043, 33-49096, 33-60606 and 33-99122) of our report dated February 16, 1995, which appears on Page 38 of the 1994 Annual Report to Stockholders of E.I. du Pont de Nemours and Company, which is incorporated by reference in the E.I. du Pont de Nemours and Company Annual Report on Form 10-K for the year ended December 31, 1994. The Consolidated Financial Statements of E.I. du Pont de Nemours and Company, as listed under Item 14(a)1 of its Annual Report on Form 10-K for the year ended December 31, 1994, are incorporated by reference in The Seagram Company Ltd. Annual Report on Form 10-K for the transition period ended June 30, 1996. /s/ Price Waterhouse PRICE WATERHOUSE LLP Philadelphia, Pennsylvania September 27, 1996 EX-24 12 POWER OF ATTORNEY 1 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, THE SEAGRAM COMPANY LTD., a Canadian corporation (the "Corporation"), and each of the undersigned directors and officers of the Corporation, hereby constitute and appoint EDGAR M. BRONFMAN, CHARLES R. BRONFMAN, EDGAR BRONFMAN, JR., ROBERT W. MATSCHULLAT, MICHAEL C.L. HALLOWS AND DANIEL R. PALADINO and each of them severally, his true and lawful attorneys and agents, with power to act with or without the others and with full power of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents and each of them may deem necessary or desirable to enable the Corporation to comply with the U.S. Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the U.S. Securities and Exchange Commission thereunder in connection with the Corporation's Transition Report on Form 10-K for the transition period ended June 30, 1996 (the "Transition Report"), including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of the Corporation and the name of the undersigned, individually and in his capacity as a director or officer of the Corporation, to the Transition Report as filed with the U.S. Securities and Exchange Commission, to any and all amendments thereto, and to any and all instruments or documents filed as part thereof or in connection therewith; and each of the undersigned hereby ratifies and confirms all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF each of the undersigned has subscribed these presents on the date set opposite his name. Signature Date September 5, 1996 /s/ Edgar M. Bronfman - ------------------------ THE SEAGRAM COMPANY LTD. by Mr. Edgar M. Bronfman Chairman of the Board 2 Signature Date - --------- ---- September 5, 1996 /s/ Edgar M. Bronfman - ------------------------- Edgar M. Bronfman September 5, 1996 /s/ Charles R. Bronfman - ------------------------- Charles R. Bronfman September 5, 1996 /s/ Edgar Bronfman, Jr. - ------------------------- Edgar Bronfman, Jr. September 5, 1996 /s/ Samuel Bronfman II - ------------------------- Samuel Bronfman II September 5, 1996 /s/ Matthew W. Barrett - ------------------------- Matthew W. Barrett September 5, 1996 /s/ Frank J. Biondi, Jr. - ------------------------- Frank J. Biondi, Jr. September 5, 1996 /s/ David M. Culver - ------------------------- David M. Culver September 5, 1996 /s/ William G. Davis - ------------------------- William G. Davis 3 Signature Date - --------- ---- September 5, 1996 /s/ Paul Desmarais - ------------------------- Paul Desmarais September 5, 1996 /s/ David L. Johnston - ------------------------- David L. Johnston September 5, 1996 /s/ E. Leo Kolber - ------------------------- E. Leo Kolber September 5, 1996 /s/ Marie-Josee Kravis - ------------------------- Marie-Josee Kravis September 5, 1996 /s/ Robert W. Matschullat - ------------------------- Robert W. Matschullat September 5, 1996 /s/ C. Edward Medland - ------------------------- C. Edward Medland September 5, 1996 /s/ Lew R. Wasserman - ------------------------- Lew R. Wasserman September 5, 1996 /s/ John L. Weinberg - ------------------------- John L. Weinberg September 5, 1996 /s/ John S. Weinberg - ------------------------- John S. Weinberg EX-27 13 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE SEAGRAM COMPANY LTD. FOR THE FIVE MONTH TRANSITION PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 U.S. DOLLARS 5-MOS JAN-31-1997 FEB-01-1996 JUN-30-1996 1 279 0 1,769 0 3,142 6,886 4,085 1,133 21,628 4,686 2,562 0 0 725 8,480 21,628 0 5,013 3,186 0 0 0 133 65 (15) 85 0 0 0 85 0.23 0.23
EX-99 14 SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION 1 EXHIBIT 99 Set forth below is certain financial information which has been restated on the new fiscal year basis. The fiscal quarters ended July 31, 1996, April 30, 1996, January 31, 1996 and October 31, 1995 of the Company have been restated to reflect the fiscal quarters ended June 30, 1996, March 31, 1996, December 31, 1995, and September 30, 1995, respectively.
Three Months Ended ------------------------------------------------- June 30, March 31, December 31, September 30, 1996 1996 1995 1995 -------- --------- ------------ ------------- REVENUES Beverages Spirits and Wines $ 1,179 $ 1,061 $ 1,724 $ 1,235 Fruit Juices and Other 548 496 486 505 ------- ------- ------- ------- Total Attributed Beverages 1,727 1,557 2,210 1,740 ------- ------- ------- ------- Entertainment Filmed Entertainment 846 894 1,009 922 Music Entertainment 309 228 329 339 Recreation 131 100 97 142 Publishing and Other 144 120 202 139 ------- ------- ------- ------- Total Attributed Entertainment 1,430 1,342 1,637 1,542 ------- ------- ------- ------- Total Attributed Revenues 3,157 2,899 3,847 3,282 ------- ------- ------- ------- Adjustment for Equity Companies: Beverages (66) (64) (82) (89) Entertainment (212) (200) (205) (222) ------- ------- ------- ------- Total Reported Revenues $ 2,879 $ 2,635 $ 3,560 $ 2,971 ======= ======= ======= ======= EBITDA Beverages Spirits and Wine 160 131 290 169 Fruit Juices and Other 51 43 57 55 Reengineering charge -- -- (290) -- ------- ------- ------- ------- Total Beverages 211 174 57 224 ------- ------- ------- ------- Entertainment Filmed Entertainment 67 109 64 139 Music Entertainment (11) (13) 27 21 Recreation 24 13 19 50 Publishing and Other 8 (1) 23 11 ------- ------- ------- ------- Total Entertainment 88 108 133 221 ------- ------- ------- ------- Total EBITDA $ 299 $ 282 $ 190 $ 445 ------- ------- ------- ------- Adjustment for Equity Companies - Beverages (3) (1) (4) (2) Adjustment for Equity Companies - Entertainment (26) (22) (23) (21) Depreciation and Amortization (138) (120) (127) (120) Corporate expenses (27) (31) (32) (12) ------- ------- ------- ------- Operating income 105 108 4 290 ------- ------- ------- ------- Interest, Net and Other 50 66 70 90 Provision for Income Taxes (42) 28 (44) 133 Minority Interest (5) 1 4 14 ------- ------- ------- ------- Net Income $ 102 $ 13 $ (26) $ 53 ======= ======= ======= ======= Net Income Per Share $ 0.26 $ 0.04 $ (0.07) $ 0.14 ======= ======= ======= =======
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