-----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, GQNY0jjE/AfDl7y4zKu4kO/s6jEe/5wmU5oS0ecC2+BMsQssREGip8fOu8pk7uhP 9wfWJ7fu6+RxYS6e9XOhvA== 0000950123-99-001267.txt : 19990217 0000950123-99-001267.hdr.sgml : 19990217 ACCESSION NUMBER: 0000950123-99-001267 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGRAM CO LTD CENTRAL INDEX KEY: 0000088188 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 000000000 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02275 FILM NUMBER: 99543238 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-Q 1 FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-2275 THE SEAGRAM COMPANY LTD. (Exact name of registrant as specified in its charter) Canada None (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1430 Peel Street, Montreal, Quebec, Canada H3A 1S9 (Address of principal executive offices) (Zip Code) 514-849-5271 (Registrant's telephone number, including area code) No Change (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ As of January 31, 1999, there were 399,017,268 common shares without nominal or par value issued and outstanding. 2 THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income and Retained Earnings - Quarter and Six Months Ended December 31, 1998 and 1997 1 Consolidated Balance Sheet - December 31, 1998 and June 30, 1998 2 Consolidated Statement of Cash Flows - Six Months Ended December 31, 1998 and 1997 3 Notes to Consolidated Financial Statements 4-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-21 PART II. OTHER INFORMATION Item 1. Legal Proceedings 22 Item 6. Exhibits and Reports on Form 8-K 23 Signatures 24 Exhibit Index 25 3 THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (United States dollars in millions, except per share amounts)
QUARTER SIX MONTHS ENDED DECEMBER 31, ENDED DECEMBER 31, 1998 1997 1998 1997 --------- --------- --------- --------- Revenues $ 3,327 $ 3,009 $ 5,574 $ 5,381 Cost of revenues 1,992 1,787 3,274 3,148 Selling, general and administrative expenses 1,149 991 1,935 1,742 Restructuring charge 405 -- 405 -- --------- --------- --------- --------- OPERATING INCOME (LOSS) (219) 231 (40) 491 Interest, net and other 76 76 117 120 --------- --------- --------- --------- (295) 155 (157) 371 Provision (benefit) for income taxes (12) 114 75 207 Minority interest charge (credit) (23) 6 (17) 15 Equity earnings (losses) from unconsolidated companies 34 (27) 84 (25) --------- --------- --------- --------- Income (loss) from continuing operations (226) 8 (131) 124 --------- --------- --------- --------- Discontinued Tropicana Operations: Income (loss) from discontinued operations (net of taxes of $0 in 1998 and $21 and $38 for the quarter and six months ended December 31, 1997, respectively) -- 20 (3) 37 Gain on sale of discontinued operations (net of taxes of $373) -- -- 1,072 -- --------- --------- --------- --------- -- 20 1,069 37 --------- --------- --------- --------- NET INCOME (LOSS) (226) 28 938 161 Retained earnings at beginning of period 9,375 7,969 8,268 8,259 Dividends paid (58) (57) (115) (116) Shares purchased and retired -- (343) -- (707) --------- --------- --------- --------- Retained earnings at end of period $ 9,091 $ 7,597 $ 9,091 $ 7,597 ========= ========= ========= ========= Basic earnings (loss) per share $ (0.63) $ 0.08 $ 2.65 $ 0.45 ========= ========= ========= ========= Diluted earnings (loss) per share $ (0.62) $ 0.08 $ 2.64 $ 0.45 ========= ========= ========= ========= Dividends paid per share $ 0.165 $ 0.165 $ 0.33 $ 0.33 ========= ========= ========= ========= Weighted average shares outstanding (thousands) 359,693 348,631 353,526 353,765 Dilutive potential common shares (thousands) 2,106 2,423 2,350 3,097 --------- --------- --------- --------- Adjusted weighted average shares outstanding (thousands) 361,799 351,054 355,876 356,862 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. 1 4 THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEET (United States dollars in millions)
DECEMBER 31, JUNE 30, 1998 1998 -------- -------- ASSETS Current Assets Cash and short-term investments at cost $ 1,204 $ 1,174 Receivables, net 3,969 2,155 Inventories 2,767 2,555 Film costs, net of amortization 309 175 Deferred income taxes 782 282 Prepaid expenses and other current assets 987 630 -------- -------- TOTAL CURRENT ASSETS 10,018 6,971 -------- -------- Common stock of DuPont 873 1,228 Common stock of USAi 417 306 Film costs, net of amortization 1,374 1,272 Artists' contracts, advances and other entertainment assets 3,576 761 Property, plant and equipment, net 3,091 2,733 Investments in unconsolidated companies 3,975 3,437 Excess of cost over fair value of assets acquired 12,812 3,076 Deferred charges and other assets 887 661 Net assets held for sale 375 -- Net assets of Tropicana discontinued operations -- 1,734 -------- -------- $ 37,398 $ 22,179 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings and indebtedness payable within one year $ 3,784 $ 1,653 Accrued royalties and participations 2,123 702 Payables and accrued liabilities 4,443 2,068 Income and other taxes 466 286 -------- -------- TOTAL CURRENT LIABILITIES 10,816 4,709 -------- -------- Long-term indebtedness 6,387 2,225 Accrued royalties and participations 678 421 Deferred income taxes 3,404 2,598 Other credits 2,100 995 Minority interest 1,890 1,915 Shareholders' Equity Shares without par value (396,925,205 and 347,132,224 shares, respectively) 2,909 848 Cumulative currency translation adjustments (381) (499) Cumulative gain on equity securities, net of tax 504 699 Retained earnings 9,091 8,268 -------- -------- TOTAL SHAREHOLDERS' EQUITY 12,123 9,316 -------- -------- $ 37,398 $ 22,179 ======== ========
The accompanying notes are an integral part of these financial statements. 2 5 THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CASH FLOWS (United States dollars in millions)
SIX MONTHS ENDED DECEMBER 31, 1998 1997 ------- ------- OPERATING ACTIVITIES Income (loss) from continuing operations $ (131) $ 124 ------- ------- Adjustments to reconcile income from continuing operations to net cash used Depreciation and amortization of assets 171 143 Amortization of excess of cost over fair value of assets acquired 67 75 Minority interest charged (credited) to income (15) 15 Equity earnings from unconsolidated companies (greater) less than dividends received (47) 45 Sundry 64 (71) Changes in assets and liabilities Receivables 93 (611) Inventories (52) 33 Film costs, net of amortization (42) (21) Prepaid expenses and other current assets (11) (57) Artists' contracts, advances and other entertainment assets (39) (8) Payables and accrued liabilities 528 262 Income and other taxes (244) 84 Deferred income taxes 44 (20) Other credits (175) (47) ------- ------- 342 (178) ------- ------- Net cash provided by (used for) operating activities 211 (54) ------- ------- INVESTING ACTIVITIES Proceeds from sale of Tropicana 3,288 -- Acquisition of PolyGram (8,607) -- Capital expenditures (216) (144) Investment in USANi LLC (231) -- Acquisition of 50% interest in USA Networks -- (1,700) Sundry investments (108) (60) ------- ------- Net cash used for investing activities (5,874) (1,904) ------- ------- FINANCING ACTIVITIES Dividends paid (115) (116) Issuance of shares upon exercise of stock options and conversion of LYONs 61 13 Shares purchased and retired -- (753) Increase in long-term indebtedness 4,168 12 Decrease in long-term indebtedness (226) -- Increase in short-term borrowings and indebtedness payable within one year 1,808 2,572 ------- ------- Net cash provided by financing activities 5,696 1,728 ------- ------- NET CASH PROVIDED BY (USED FOR) CONTINUING OPERATIONS 33 (230) NET CASH (USED FOR) PROVIDED BY DISCONTINUED OPERATIONS (3) 105 ------- ------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS $ 30 $ (125) ======= =======
The accompanying notes are an integral part of these financial statements. 3 6 THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying unaudited interim financial statements have been prepared in accordance with the requirements of Form 10-Q and, therefore, do not include all information and notes necessary for a presentation of results of operations, financial position and cash flows in conformity with generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements and related notes in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, as amended (the "Form 10-K"). In the opinion of the Company, the unaudited interim financial statements include all adjustments, comprising only normal recurring adjustments, necessary for a fair presentation of operating results. Results of operations for the six months are not necessarily indicative of those expected for the fiscal year. Certain prior year amounts have been reclassified to conform with the current year's presentation. 2. Sale of Discontinued Tropicana Operations Discontinued Tropicana Operations is composed of the business of Tropicana Products, Inc. and the Company's global fruit juice business ("Tropicana"). On August 25, 1998, the Company completed the sale of Tropicana for $3,288 million in cash, resulting in a pretax gain of $1,445 million ($1,072 million after tax) reflected in Discontinued Tropicana Operations on the consolidated statement of income and retained earnings. The operating results of Tropicana through August 25, 1998 are also included in Discontinued Tropicana Operations. Proceeds from the sale were used to partially fund the acquisition of PolyGram N.V. ("PolyGram") described in Note 3. 3. Acquisition of PolyGram On December 6, 1998, the Company announced that it had accepted the shares of PolyGram tendered pursuant to the Company's tender offer, which shares represented approximately 99.5% of the outstanding PolyGram shares. The Company paid approximately $8.6 billion in cash and issued approximately 47.9 million common shares (approximately 12% of the Company's outstanding common shares after the transaction). Substantially all of the common shares were issued to Koninklijke Philips Electronics N.V., which had owned 75% of the PolyGram shares. The acquisition has been accounted for under the purchase method of accounting. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. This valuation resulted in $9.7 billion of unallocated excess of cost over fair value of assets acquired and will be amortized over 40 years. The tendered shares of PolyGram are currently held by Centenary Holding N.V., an entity in which the Company has an indirect approximate 91.9% ownership interest with the remaining approximate 8.1% interest owned indirectly by Matsushita Electric Industrial Co., Ltd. ("Matsushita"). As part of the reorganization of PolyGram, certain subsidiaries of PolyGram were transferred to affiliates of the Company for fair market value. Matsushita, the indirect minority shareholder in Universal Studios Holding I Corp. ("Universal Holding"), an entity which indirectly owns Universal Studios, Inc. ("Universal"), declined to contribute additional capital in connection with the acquisition of PolyGram and the reorganization. As a result, the Company's ownership of Universal Holding has increased from approximately 84% to approximately 91.9%. 4 7 The unaudited condensed pro forma results of operations data presented below assume the PolyGram acquisition, the sale of Tropicana and the USA Transactions (described below), occurred at the beginning of each period presented. The USA Transactions are (1) the acquisition on October 21, 1997 of an incremental 50% interest in the USA Networks partnership for $1.7 billion and (2) the sale on February 12, 1998 of a 50% interest in USA Networks to USA Networks, Inc. ("USAi") and the contribution of the remaining 50% interest in USA Networks, the majority of the television assets of Universal and 50% of the international operations of USA Networks to USANi LLC in a transaction in which Universal received a 10.7% interest in USAi and a 45.8 % exchangeable interest in USANi LLC, each as of the transaction date. These pro forma results of operations were prepared based upon the historical consolidated statement of operations of the Company and of PolyGram for the six months ended December 31, 1998 and 1997, adjusted to reflect purchase accounting. The unaudited pro forma information is not necessarily indicative of the combined results of operations of the Company and PolyGram that would have resulted if the transactions had occurred on the dates previously indicated, nor is it necessarily indicative of future operating results of the Company. Pro Forma Income Statement Data (millions, except per share amounts)
SIX MONTHS ENDED DECEMBER 31, 1998 1997 --------- --------- Revenues $ 8,606 $ 8,353 Net Income $ 44 $ 26 EARNINGS PER SHARE: Basic $ 0.11 $ 0.06 Diluted $ 0.11 $ 0.06
4. Restructuring Charge In connection with management's plan to rationalize its entertainment operations after the acquisition of PolyGram, the Company recorded a restructuring charge in the second quarter of $405 million ($265 million after-tax or $0.74 per share, basic and $0.73 per share, diluted). The charge related entirely to the Company's existing global music and film production, financial, marketing and distribution operations and includes severance, rationalization of facilities and labels, termination of artists and distribution contracts and costs related to exiting film production arrangements and properties in development. Music operations account for the majority of the charge. The components of the $405 million charge are $126 million for severance and other employee related costs, $128 million for facility rationalization and $151 million of contract termination and other costs. The cash and noncash elements of the restructuring charge approximate $318 million and $87 million, respectively. As of December 31, 1998, no significant payments have been made against the charge. The Company anticipates that substantially all of the restructuring costs will be paid by December 31, 1999. The severance and other employee related costs provide for a reduction of approximately 1,200 employees worldwide related to facility closures, duplicate position eliminations and streamlining of operations related to cost reduction initiatives. The facility rationalization costs provide for domestic and international lease terminations and the write-off of the net book value of furniture, fixtures and equipment and leasehold improvements for vacated properties. The costs of contract terminations are comprised primarily of artist contracts, distribution contracts, story property commitments and term deals. 5 8 5. Investment in DuPont At December 31, 1998, the Company owned 16.4 million shares of the outstanding common stock of E. I. du Pont de Nemours and Company ("DuPont"). The Company accounts for the investment at market value. The underlying historical book value of the DuPont shares is $187 million. 6. Investment in USAi At December 31, 1998 the Company owned 8.5 million shares of the outstanding common stock of USAi . The investment, which the Company accounts for at market value ($281 million at December 31, 1998), has an underlying cost of $187 million. At December 31, 1998, the Company also owned 6.7 million shares of USAi Class B common stock which is carried at its historical cost of $136 million. 7. Comprehensive Income Comprehensive income for the six months ended December 31, 1998 was $861 million comprised of net income of $938 million, foreign currency translation adjustments of $118 million and unrealized holding losses on equity securities of ($195 million) (net of a tax benefit of $102 million). Comprehensive income for the six months ended December 31, 1997 was $318 million comprised of net income of $161 million, foreign currency translation adjustments of ($52 million) and unrealized holding gains on equity securities of $209 million (net of taxes of $113 million). 8. Supplementary Financial Statement Information
DECEMBER 31, JUNE 30, 1998 1998 ------- ------- (millions) INVENTORIES Beverages $ 2,300 $ 2,239 Materials, supplies and other 467 316 ------- ------- $ 2,767 $ 2,555 ======= ======= PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, at cost $ 4,362 $ 3,911 Accumulated depreciation (1,271) (1,178) ------- ------- $ 3,091 $ 2,733 ======= =======
QUARTER SIX MONTHS ENDED DECEMBER 31, ENDED DECEMBER 31 1998 1997 1998 1997 ---- ---- ---- ---- (millions) EXCISE TAXES (included in revenues and cost of revenues) $282 $250 $465 $400 ---- ---- ---- ----
6 9 9. Long-Term Debt and Debt Guarantees Joseph E. Seagram & Sons, Inc. ("JES"), the Company's principal U.S. spirits and wine subsidiary, has outstanding debt securities guaranteed by the Company. JES issued Liquid Yield Option Notes ("LYONs"), which are zero coupon notes with no interest payments due until maturity on March 5, 2006. Each $1,000 face amount LYON may be converted, at the option of the holder, into 18.44 of the Company's common shares (299,006 shares at December 31, 1998). The Company has guaranteed the LYONs on a subordinated basis. In addition, the Company has unconditionally guaranteed JES's 6.250% Senior Notes due 2001, 6.400% Senior Notes due 2003, 6.625% Senior Notes due 2005, 8 3/8% Debentures due February 15, 2007, 7% Debentures due April 15, 2008, 6.800% Senior Notes due 2008, 8 7/8% Debentures due September 15, 2011, 9.65% Debentures due August 15, 2018, 7.500% Senior Debentures due 2018, 9% Debentures due August 15, 2021, 7.600% Senior Debentures due 2028 and 8.000% Quarterly Income Debt Securities due 2038 ("QUIDS"). With the exception of the summarized financial information for JES and its subsidiaries presented below, the Company has not presented separate financial statements and other disclosures concerning JES because management has determined that such information is not material to holders of JES debt securities. Summarized financial information for JES and its subsidiaries follows:
QUARTER SIX MONTHS ENDED DECEMBER 31, ENDED DECEMBER 31 1998 1997 1998 1997 ------- ------- ------- ------- (millions) Revenues $ 677 $ 640 $ 1,183 $ 1,131 Cost of revenues $ 423 $ 358 $ 743 $ 709 Income from continuing operations $ 18 $ 13 $ 58 $ 52 Discontinued Tropicana operations -- $ (10) -- $ (16) Net income $ 18 $ 3 $ 58 $ 36
Consolidated Balance Sheet information for JES follows:
DECEMBER 31, JUNE 30, 1998 1998 ------- ------- (millions) Current assets $ 1,568 $ 1,821 Noncurrent assets 17,775 12,201 ------- ------- $19,343 $14,022 ======= ======= Current liabilities $ 2,670 $ 843 Noncurrent liabilities 7,590 3,922 Shareholder's equity 9,083 9,257 ------- ------- $19,343 $14,022 ======= =======
7 10 10. Earnings Per Share and Common Shares At December 31, 1998, there were 37,588,238 common shares potentially issuable upon the conversion of the LYONs described in Note 9 and the exercise of outstanding employee stock options. The dilutive effect on the Company's earnings per share from the assumed issuance of these shares is reflected in Diluted earnings (loss) per share on the income statement. In the six months ended December 31, 1998, the Company issued 1,888,836 common shares upon the exercise of employee stock options and the conversion of LYONs and issued 47,904,145 common shares in partial payment of the acquisition of PolyGram described in Note 3. 8 11 THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The Company operates in two global business segments: entertainment and spirits and wine. The entertainment business segment produces and distributes recorded music and motion picture, television and home video products; and operates theme parks and retail stores. The spirits and wine business segment is engaged principally in the production and marketing of distilled spirits, wines, coolers, beers and mixers. The analysis of total Company and business segment results is prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and includes revenues and operating income. The discussion also includes revenues and operating income for the three lines of business within the entertainment segment: music, filmed entertainment and recreation and other. The discussion will also include supplemental information concerning the Company's proportionate share of the results of unconsolidated companies reported in "Equity earnings from unconsolidated companies". When this information is combined with the results from consolidated companies, the total results are equivalent to the discussion of supplemental data regarding attributed revenues and attributed earnings before interest, taxes, depreciation and amortization presented in the Form 10-K. The Company believes this non-GAAP financial information regarding its unconsolidated companies provides additional information for understanding the underlying business results. The supplemental information also includes earnings before interest, taxes, depreciation and amortization ("EBITDA") from consolidated companies, which the Company believes is an appropriate measure of the Company's operating performance, given the significant goodwill associated with the Company's acquisitions. However, EBITDA should be considered in addition to, not as a substitute for, operating income, net income, cash flows and other measures of financial performance in accordance with GAAP. The discussion also includes pro forma financial information which illustrates the effect of the acquisition of PolyGram and the USA Transactions as described in Note 3, as if such transactions had been consummated on July 1, 1997. 9 12 THE SEAGRAM COMPANY LTD. (US$ IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ------- ------- ------- ------- Revenues Entertainment Music $ 727 $ 434 $ 1,147 $ 769 Filmed Entertainment 737 839 1,355 1,668 Recreation & Other 242 223 430 404 ------- ------- ------- ------- Entertainment 1,706 1,496 2,932 2,841 Spirits & Wine 1,621 1,513 2,642 2,540 ------- ------- ------- ------- Total Revenues $ 3,327 $ 3,009 $ 5,574 $ 5,381 ======= ======= ======= ======= Operating Income Entertainment Music $ 17 $ 13 $ 7 $ (4) Filmed Entertainment (79) 64 (4) 175 Recreation & Other 15 15 29 37 ------- ------- ------- ------- Entertainment (47) 92 32 208 Spirits & Wine 255 157 369 322 Restructuring Charge - Entertainment (405) -- (405) -- Corporate (22) (18) (36) (39) ------- ------- ------- ------- Total Operating Income (219) 231 (40) 491 Interest, Net & Other 76 76 117 120 Provision (benefit) for Income Taxes (12) 114 75 207 Minority Interest Charge (Credit) (23) 6 (17) 15 Equity Earnings (Losses) from Unconsolidated Companies 34 (27) 84 (25) ------- ------- ------- ------- NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (226) 8 (131) 124 Income (loss) from Discontinued Operations -- 20 (3) 37 Gain on Sale of Discontinued Operations -- -- 1,072 -- ------- ------- ------- ------- NET INCOME (LOSS) $ (226) $ 28 $ 938 $ 161 ======= ======= ======= ======= EARNINGS PER SHARE - Basic Income (loss) from Continuing Operations $ (0.63) $ 0.02 $ (0.37) $ 0.35 Income (loss) from Discontinued Operations -- 0.06 (0.01) 0.10 Gain on sale of Discontinued Operations -- -- 3.03 -- ------- ------- ------- ------- $ (0.63) $ 0.08 $ 2.65 $ 0.45 ======= ======= ======= ======= EARNINGS PER SHARE - Diluted Income (loss) from Continuing Operations $ (0.62) $ 0.02 $ (0.37) $ 0.35 Income (loss) from Discontinued Operations -- 0.06 (0.01) 0.10 Gain on sale of Discontinued Operations -- -- 3.02 -- ------- ------- ------- ------- $ (0.62) $ 0.08 $ 2.64 $ 0.45 ======= ======= ======= ======= Net cash provided by (used for) operating activities $ 660 $ 42 $ 211 $ (54) Net cash used for investing activities $(8,776) $(1,794) $(5,874) $(1,904) Net cash provided by financing activities $ 5,567 $ 1,725 $ 5,696 $ 1,728
10 13 THE SEAGRAM COMPANY LTD. PRO FORMA (US$ IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ------- ------- ------- ------- Revenues Entertainment Music $ 2,220 $ 1,994 $ 3,732 $ 3,447 Filmed Entertainment 945 971 1,802 1,962 Recreation & Other 242 223 430 404 ------- ------- ------- ------- Entertainment 3,407 3,188 5,964 5,813 Spirits & Wine 1,621 1,513 2,642 2,540 ------- ------- ------- ------- Total Revenues $ 5,028 $ 4,701 $ 8,606 $ 8,353 ======= ======= ======= ======= Operating Income Entertainment Music $ 246 $ 167 $ 208 $ 86 Filmed Entertainment (114) 1 (79) 86 Recreation & Other 15 15 29 37 ------- ------- ------- ------- Entertainment 147 183 158 209 Spirits & Wine 255 157 369 322 Corporate (22) (18) (36) (39) ------- ------- ------- ------- Total Operating Income 380 322 491 492 Interest, Net & Other 186 167 342 302 Provision for Income Taxes 156 136 169 185 Minority Interest Charge (Credit) 19 (1) 13 (2) Equity Earnings from Unconsolidated Companies 29 0 77 19 ------- ------- ------- ------- NET INCOME $ 48 $ 20 $ 44 $ 26 ======= ======= ======= ======= EARNINGS PER SHARE - Basic $ 0.12 $ 0.05 $ 0.11 $ 0.06 EARNINGS PER SHARE - Diluted $ 0.12 $ 0.05 $ 0.11 $ 0.06
11 14 SUPPLEMENTAL FINANCIAL INFORMATION (US$ IN MILLIONS) (UNAUDITED)
REVENUES THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ------ ------ ------ ------ Entertainment Music Consolidated Companies $ 727 $ 434 $1,147 $ 769 Unconsolidated Companies 9 17 42 49 ------ ------ ------ ------ Total 736 451 1,189 818 Filmed Entertainment Consolidated Companies 737 839 1,355 1,668 Unconsolidated Companies 464 231 871 438 ------ ------ ------ ------ Total 1,201 1,070 2,226 2,106 Recreation & Other Consolidated Companies 242 223 430 404 Unconsolidated Companies 49 72 136 145 ------ ------ ------ ------ Total 291 295 566 549 Entertainment Consolidated Companies 1,706 1,496 2,932 2,841 Unconsolidated Companies 522 320 1,049 632 ------ ------ ------ ------ TOTAL ENTERTAINMENT 2,228 1,816 3,981 3,473 ------ ------ ------ ------ Spirits & Wine Consolidated Companies 1,621 1,513 2,642 2,540 Unconsolidated Companies 62 83 80 144 ------ ------ ------ ------ TOTAL SPIRITS & WINE 1,683 1,596 2,722 2,684 ------ ------ ------ ------ Total Company Consolidated Companies 3,327 3,009 5,574 5,381 Unconsolidated Companies 584 403 1,129 776 ------ ------ ------ ------ TOTAL $3,911 $3,412 $6,703 $6,157 ====== ====== ====== ======
12 15 SUPPLEMENTAL FINANCIAL INFORMATION (US$ IN MILLIONS) (UNAUDITED)
EBITDA THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ----- ----- ----- ----- Entertainment Music Consolidated Companies $ 81 $ 46 $ 102 $ 60 Unconsolidated Companies 0 1 5 5 ----- ----- ----- ----- Total 81 47 107 65 Filmed Entertainment Consolidated Companies (63) 98 30 229 Unconsolidated Companies 107 15 185 42 ----- ----- ----- ----- Total 44 113 215 271 Recreation & Other Consolidated Companies 36 29 70 73 Unconsolidated Companies 10 10 49 29 ----- ----- ----- ----- Total 46 39 119 102 Entertainment Consolidated Companies 54 173 202 362 Unconsolidated Companies 117 26 239 76 ----- ----- ----- ----- TOTAL ENTERTAINMENT 171 199 441 438 ----- ----- ----- ----- Spirits & Wine Consolidated Companies 288 250 432 442 Unconsolidated Companies 4 2 5 2 Charge for Asia -- (60) -- (60) ----- ----- ----- ----- TOTAL SPIRITS & WINE 292 192 437 384 ----- ----- ----- ----- Total Company Consolidated Companies 342 423 634 804 Unconsolidated Companies 121 28 244 78 Charge for Asia -- (60) -- (60) ----- ----- ----- ----- TOTAL 463 391 878 822 Unconsolidated Companies Adjustment (121) (28) (244) (78) Depreciation Expense (69) (57) (130) (115) Amortization of Goodwill & Step-Up of Assets (68) (59) (108) (103) Restructuring Charge - Entertainment (405) -- (405) -- Corporate Expenses (19) (16) (31) (35) ----- ----- ----- ----- Operating Income (Loss) $(219) $ 231 $ (40) $ 491 ===== ===== ===== =====
13 16 SUPPLEMENTAL FINANCIAL INFORMATION PRO FORMA (US$ IN MILLIONS) (UNAUDITED)
REVENUES THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ------ ------ ------ ------ Entertainment Music Consolidated Companies $2,220 $1,994 $3,732 $3,447 Unconsolidated Companies 9 17 42 49 ------ ------ ------ ------ Total 2,229 2,011 3,774 3,496 Filmed Entertainment Consolidated Companies 945 971 1,802 1,962 Unconsolidated Companies 464 409 871 738 ------ ------ ------ ------ Total 1,409 1,380 2,673 2,700 Recreation & Other Consolidated Companies 242 223 430 404 Unconsolidated Companies 49 72 136 145 ------ ------ ------ ------ Total 291 295 566 549 Entertainment Consolidated Companies 3,407 3,188 5,964 5,813 Unconsolidated Companies 522 498 1,049 932 ------ ------ ------ ------ TOTAL ENTERTAINMENT 3,929 3,686 7,013 6,745 ------ ------ ------ ------ Spirits & Wine Consolidated Companies 1,621 1,513 2,642 2,540 Unconsolidated Companies 62 83 80 144 ------ ------ ------ ------ TOTAL SPIRITS & WINE 1,683 1,596 2,722 2,684 ------ ------ ------ ------ Total Company Consolidated Companies 5,028 4,701 8,606 8,353 Unconsolidated Companies 584 581 1,129 1,076 ------ ------ ------ ------ TOTAL $5,612 $5,282 $9,735 $9,429 ====== ====== ====== ======
14 17 SUPPLEMENTAL FINANCIAL INFORMATION PRO FORMA (US$ IN MILLIONS) (UNAUDITED)
EBITDA THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ------- ------- ------- ------- Entertainment Music Consolidated Companies $ 451 $ 385 $ 616 $ 508 Unconsolidated Companies -- 1 5 5 ------- ------- ------- ------- Total 451 386 621 513 Filmed Entertainment Consolidated Companies (95) 25 (34) 130 Unconsolidated Companies 107 38 185 122 ------- ------- ------- ------- Total 12 63 151 252 Recreation & Other Consolidated Companies 36 29 70 73 Unconsolidated Companies 10 10 49 29 ------- ------- ------- ------- Total 46 39 119 102 Entertainment Consolidated Companies 392 439 652 711 Unconsolidated Companies 117 49 239 156 ------- ------- ------- ------- TOTAL ENTERTAINMENT 509 488 891 867 ------- ------- ------- ------- Spirits & Wine Consolidated Companies 288 250 432 442 Unconsolidated Companies 4 2 5 2 Charge for Asia -- (60) -- (60) ------- ------- ------- ------- TOTAL SPIRITS & WINE 292 192 437 384 ------- ------- ------- ------- Total Company Consolidated Companies 680 689 1,084 1,153 Unconsolidated Companies 121 51 244 158 Charge for Asia -- (60) -- (60) ------- ------- ------- ------- TOTAL 801 680 1,328 1,251 Unconsolidated Companies Adjustment (121) (51) (244) (158) Depreciation Expense (78) (76) (156) (152) Amortization of Goodwill & Step-Up of Assets (203) (215) (406) (414) Corporate Expenses (19) (16) (31) (35) ------- ------- ------- ------- Operating Income $ 380 $ 322 $ 491 $ 492 ======= ======= ======= =======
15 18 The results for the second quarter and six months ended December 31, 1998 include PolyGram results for the twenty-one days from its acquisition by the Company on December 10, 1998. The following discussion will also address the results of the underlying businesses on a pro forma basis, as if the PolyGram acquisition and the USA Transactions had occurred at July 1, 1997. Revenues increased 11 percent in the quarter and four percent in the six months primarily due to the PolyGram acquisition and to improved spirits and wine results. Operating income was a loss of $219 million in the quarter and a loss of $40 million in the six months, after a $405 million pre-tax restructuring charge associated with the integration of PolyGram into the existing music and film operations. The restructuring charge is discussed in detail below. Operating income of $231 million in the second quarter of the prior year included a $60 million charge for Asia Pacific spirits and wine operations. Excluding the charges, operating income declined 36 percent in the quarter and 34 percent in the six months. The decrease reflects the disappointing box office release of several motion pictures during the quarter ended December 31, 1998, and higher amortization and depreciation expense. EBITDA from consolidated and unconsolidated companies for the quarter increased 18 percent to $463 million on total revenues from consolidated and unconsolidated companies of $3.9 billion. For the six months the EBITDA increase was seven percent to $878 million on total revenues of $6.7 billion. Excluding the $60 million charge for Asia Pacific spirits and wine operations from last year's results, EBITDA from consolidated and unconsolidated companies increased three percent for the quarter and was essentially flat for the six months. On a pro forma basis, revenues increased seven percent in the quarter to $5.0 billion and three percent in the six months to $8.6 billion. Operating income is 18 percent higher in the quarter and essentially unchanged for the six months. Excluding the $60 million charge for Asia Pacific spirits and wine operations in the prior year, pro forma operating income was flat in the quarter and down 11 percent for the six months, primarily due to the poor performance of the filmed entertainment business which more than offset improvements in all other businesses. Restructuring Charge In connection with management's plan to rationalize its entertainment operations after the acquisition of PolyGram, the Company recorded a restructuring charge in the second quarter of $405 million ($244 million after taxes of $140 million and minority interest of $21 million). The charge related entirely to the Company's existing global music and film production, financial, marketing and distribution operations and includes severance, rationalization of facilities and labels, termination of artists and distribution contracts and costs related to exiting film production arrangements and properties in development. Music operations account for the majority of the charge. The discussions of EBITDA and pro forma results described throughout this management's discussion and analysis exclude this restructuring charge. The components of the $405 million charge are $126 million for severance and other employee related costs, $128 million for facility rationalization and $151 million of contract termination and other costs. The cash and noncash elements of the restructuring charge approximate $318 million and $87 million, respectively. As of December 31, 1998, no significant payments have been made against the charge. The Company anticipates that substantially all of the restructuring costs will be paid by December 31, 1999. The severance and other employee related costs provide for a reduction of approximately 1,200 employees worldwide related to facility closures, duplicate position eliminations and streamlining of operations related to cost reduction initiatives. The facility rationalization costs provide for domestic and international lease terminations and the write-off of the net book value of furniture, fixtures and equipment and leasehold improvements for vacated properties. The costs of contract terminations are comprised primarily of artist contracts, distribution contracts, story property commitments and term deals. 16 19 Entertainment The entertainment segment contributed $1.7 billion to revenues in the quarter, 14 percent more than the prior year period and $2.9 billion in the six months, an increase of three percent over the prior year period. The increase was primarily due to the acquisition of PolyGram, partially offset by lower filmed entertainment revenues. Operating income for the quarter was a loss of $47 million compared to income of $92 million in the prior year and $32 million for the six months versus $208 million in the prior year. The decline in operating income was primarily due to lower motion picture results and increased amortization and depreciation expense. Operating income as a percentage of revenues decreased from 7.3 percent to 1.1 percent in the six months. Total costs, which consist primarily of production and manufacturing costs, distribution and selling expenses, artists' costs and participations, labor and amortization, as a percentage of revenues increased from 92.7 percent to 98.9 percent. The prior year consolidated results include USA Networks from October 21, 1997, at which time the Company's interest increased to 100 percent. In the current year, subsequent to the USA Transactions, the Company's interest is approximately 50 percent of USANi LLC and the results are included in equity earnings in unconsolidated companies. Equity in earnings from unconsolidated companies increased to $33 million in the quarter and $83 million in the six months versus losses last year of $29 million for the quarter and $24 million for the six months. The increase in equity earnings reflects the impact of owning approximately 50 percent of USANi LLC this year compared with 50 percent of USA Networks for the period to October 21st in the prior year. In addition, the Company benefited from the acquisition of a 37 percent interest in Port Aventura in Spain in June 1998 and from improved operating results at Loews Cineplex Entertainment Corporation ("Loews Cineplex") in the current year as compared to Cineplex Odeon Corporation (owned in the prior year). On a pro forma basis, revenues increased seven percent in the quarter to $3.4 billion and three percent in the six months to $6.0 billion. Operating income is 20 percent lower in the quarter and 24 percent lower for the six months. Music Consolidated Operations The Music Group had a strong quarter. Revenues increased 68 percent in the second quarter and increased 49 percent in the six months. Operating income increased 31 percent in the quarter and improved from a loss of $4 million for six months last year to income of $7 million this year. The improved performance is largely due to the impact of owning PolyGram for twenty-one days of the reporting period and to growth in domestic labels. In particular, Geffen Records and Interscope had significant year-on-year improvement. EBITDA reflected the growth and improved over 70 percent in both the quarter and six months. The growth in operating income did not equal that of EBITDA due to higher amortization and depreciation expense resulting from the PolyGram acquisition. On a pro forma basis, revenues from companies increased 11 percent in the quarter and eight percent in the six months. Operating income increased 47 percent in the quarter and more than doubled in the six months. Unconsolidated Operations The equity in earnings from unconsolidated companies was breakeven for the quarter and $5 million for the six months which is essentially flat versus the prior year. The unconsolidated companies are immaterial to the total music segment. They include Universal Concerts Canada and Universal/PACE Amphitheaters Group, L.P., which are both concert joint ventures. Filmed Entertainment Consolidated Operations Filmed entertainment revenues declined 12 percent in the quarter and 19 percent in the six months. Operating income decreased in the quarter from income of $64 million in the prior year to a loss of $79 million in the current year and on a six-month basis from income of $175 million in the prior year to a loss of $4 million in the current year. The prior year second quarter results included operating income of $56 million for USA Networks from October 21st. In the current year the contribution of USANi LLC is included in equity from unconsolidated companies, not in consolidated operations. Excluding the impact of USA Networks, the decline in operating income quarter-on-quarter is less significant. The Motion Picture group results declined because of the disappointing box office performance of second quarter releases (Meet Joe Black, Babe: Pig in the City and Psycho) and difficult comparisons with last year's second quarter which benefited from the carryover of The Lost World: Jurassic Park and Liar, Liar. The box office release of Patch Adams has been strong, however, this film was released very late in the second quarter and did not have much of an impact on 17 20 the results. International Television and Library results declined year-on-year due to start-up costs relating to the new international channels and lower television library sales. EBITDA from consolidated companies declined from $98 million in the prior year to a loss of $63 million in the quarter. The prior year results included $58 million of EBITDA related to USA Networks, which was consolidated from October 21, 1997. There is no contribution from USA Networks in consolidated EBITDA in the current year. On a pro forma basis, Filmed Entertainment includes the results of PolyGram Filmed Entertainment in the motion picture group and the prior year results reflect the USA Transactions as though they had both occurred at July 1, 1997. On a pro forma basis, revenues declined three percent in the quarter to $945 million and eight percent in the six months to $1.8 billion. Operating income decreased in the quarter from income of $1 million in the prior year to a loss of $114 million in the current year and on a six-month basis from income of $86 million in the prior year to a loss of $79 million in the current year. Unconsolidated Operations The equity in earnings from unconsolidated companies improved from a loss of $26 million in the second quarter of the prior year to income of $44 million in the current quarter and from a loss of $29 million for six months in the prior year to income of $71 million in the current year. Revenues from unconsolidated companies essentially doubled in both the quarter and six months. The significant improvement is due primarily to the impact of owning approximately 50 percent of USANi LLC in the current year compared with 50 percent of USA Networks for the period to October 21st in the prior year and to improved operating results at Loews Cineplex in the current year as compared to Cineplex Odeon Corporation (owned in the prior year). In addition to USANi LLC and Loews Cineplex, the unconsolidated companies principally include, United Cinemas International Multiplex B.V., Cinema International Corporation N.V., Cinema International B.V. and Brillstein Grey Entertainment. Recreation and Other Consolidated Operations Revenues for recreation and other increased nine percent in the quarter and six percent in the six months. Operating income was flat quarter-on-quarter at $15 million but declined $8 million in the six months. EBITDA increased 24 percent in the quarter but declined four percent in the six months. The growth in revenues and EBITDA in the quarter reflects the success of the Crash Bandicoot I & II video games and improved sales by Spencer Gifts, partially offset by the weakness of Universal Studios Hollywood. Attendance at the theme park in Hollywood declined 10 percent for the quarter and 13 percent for the six months, largely due to the impact of the Asian economic and currency crisis on tourism. Per capita spending at the park was down slightly year-on-year. Unconsolidated Operations In the six months ended December 31, 1998, the equity in earnings from unconsolidated companies increased from breakeven in the prior year to $7 million in the current year. Revenues from unconsolidated companies decreased six percent while EBITDA increased 69 percent to $49 million. The significant improvement in the six month results is largely due to the acquisition of the 37 percent interest in Port Aventura and a gain recognized by Sega GameWorks L.L.C., on the sale of its game sales operation back to Sega in the first quarter. In addition to Port Aventura and Sega GameWorks, the unconsolidated companies principally include Universal Studios Florida and Interplay Entertainment Corp. At Universal Studios Florida, paid attendance declined four percent in the quarter and three percent year-to-date, while per capita spending increased three percent in the quarter and one percent year-to-date, principally driven by a higher admission price. Spirits and Wine Consolidated Operations The spirits and wine segment performed strongly in the current quarter compared with the prior year quarter which was severely impacted by market conditions in Asia. Revenues increased seven percent in the quarter and four percent in the six months while operating income increased 62 percent in the quarter and 15 percent in the six months. Operating income in the prior year included a $60 million charge related to operations in Asia. Excluding the impact of this charge, operating income increased 18 percent in the quarter but was down three percent for the six months. 18 21 Revenues and operating income in North America were seven percent and 10 percent higher in the quarter and four percent and seven percent higher for the six months, respectively. These improvements reflect growth in certain key brands. Revenues in Latin America were essentially even in the second quarter and declined two percent for the six months while operating income decreased 11 percent in the quarter and 10 percent for the six months. These declines are due to the difficult economic conditions in the region, particularly in Brazil. Asia Pacific's revenues more than doubled in the quarter and operating income increased significantly, compared to a very weak quarter last year. This resulted primarily from increased shipments of higher margin products such as Martell and Royal Salute into the region. For the six months, Asia Pacific's operating income was down four percent, as the region has not yet fully recovered from the difficult economic conditions experienced there after the first quarter last year. Europe's revenues increased four percent in both the quarter and six months while operating income grew 13 percent in the quarter and seven percent in the six months, primarily due to growth in the U.K., Italy, Spain and Portugal. Operating income, excluding the $60 million charge from the prior year's results, as a percentage of revenues, increased from 14.3 percent to 15.7 percent in the quarter reflecting the improvement in Asia Pacific, where predominantly higher margin products are sold, price increases and cost reductions. In the six months ended December 31, 1998, cost of goods sold as a percentage of revenues increased to 52.3 percent from 51.9 percent the prior year. Selling, general and administrative expenses as a percentage of revenues decreased to 33.5 percent from 34.6 percent due to slight reductions in both brand spending and overhead expenses coupled with improved revenues. Total brand spending declined three percent at constant exchange rates in both the quarter and six months. However, brand equity spending increased five percent in the quarter and one percent for the six months. Spirits and wine case volumes, including unconsolidated companies, increased two percent in the quarter but declined one percent in the six months. In the quarter, Martell case volumes increased 16 percent and Royal Salute case volumes increased 74 percent, reflecting improved performance in Asia Pacific. Volumes in North America remain very strong. Globally, Captain Morgan volumes grew 20 percent, ABSOLUT VODKA volumes increased six percent and Crown Royal volumes grew five percent in the quarter. Chivas Regal volumes declined six percent in the quarter due to lower shipments to Latin America which more than offset three percent growth in North America and modest improvement in Asia. Mumm Sekt volumes were five percent lower in the quarter following a strong first quarter due to competitive pressures and trade inventory adjustments. For the six months, Mumm Sekt volumes are up four percent. EBITDA from consolidated companies increased 52 percent in the quarter and 13 percent in the six months. Excluding the impact of the $60 million charge for Asia Pacific from the prior year results, EBITDA would have increased 15 percent in the quarter but decreased two percent in the six months. Unconsolidated Operations The equity in earnings of unconsolidated companies was $1 million in both the quarter and six months compared to $2 million in the prior year quarter and a loss of $1 million in the prior year six months. Revenues from unconsolidated companies declined by 25 percent in the quarter and 44 percent in the six months. EBITDA, however, showed improvement, doubling in both the quarter and six months. The year-on-year variances are primarily due to the entities that are included in unconsolidated companies. In the current year they are Kirin-Seagram Limited in Japan and Seagram (Thailand) Limited. In the second quarter and six months ended December 31, 1997 they also included Doosan Seagram Co., Ltd. in Korea. As a result of an additional investment in Doosan Seagram Co., Ltd. at the end of June 1998, that affiliate's results are now consolidated. Corporate Expenses and Interest, Net and Other Corporate expenses were $22 million in the current quarter as compared to $18 million in the prior year and $36 million for six months compared to $39 million last year. The year-on-year variances are primarily due to increased costs associated with certain stock-based compensation resulting from the change in the market value of the Company's shares during the period. Interest, net and other was $76 million in both the current and prior year quarters as the additional debt to finance the acquisition of PolyGram was not incurred until late in the quarter. 19 22 Net Income Net income was a loss of $226 million, or $0.63 per basic share and $0.62 per diluted share in the quarter compared with net income of $28 million or $0.08 per share (basic and diluted) in the prior year. In the six months, which includes the $1.1 billion after-tax gain on the sale of Tropicana, net income was $938 million or $2.65 per basic share and $2.64 per diluted share. Net income from continuing operations, excluding the entertainment restructuring charge, the prior year charge for Asia Pacific spirits and wine operations and discontinued Tropicana operations, was $18 million or $0.05 per share in the quarter compared with $58 million or $0.17 per share in the prior year. In the six months, net income from continuing operations was $113 million or $0.32 per share compared with $174 million or $0.49 per share in the prior year. Liquidity and Capital Resources Current assets were $10.0 billion at December 31, 1998 as compared to $7.0 billion at June 30, 1998 due primarily to an increase in net receivables, deferred income taxes and prepaid and other current assets resulting from the consolidation of the PolyGram balance sheet as at December 31, 1998. Current liabilities at December 31, 1998 were $10.8 billion compared to $4.7 billion at June 30, 1998 due primarily to the acquisition of PolyGram. Shareholders' equity was $12.1 billion at December 31, 1998 compared to $9.3 billion at June 30, 1998 primarily due to the $2 billion in shares issued as partial payment for the acquisition of PolyGram. Net debt was $9.0 billion compared to $2.7 billion at June 30, 1998 reflecting an increase in both short and long-term borrowings used primarily to finance the acquisition of PolyGram. Net cash of $211 million was provided by operating activities in the six months ended December 31, 1998, an increase of $265 million compared to the prior year period when net cash of $54 million was used for operating activities. The improvement resulted primarily from the collection of receivables and the timing of payments of accounts payable and accrued liabilities. Cash used for investing activities was $5.9 billion in the six months ended December 31, 1998. The $3.3 billion pre-tax proceeds from the Tropicana disposition were more than offset by the use of $8.6 billion for the cash portion of the acquisition of PolyGram, an additional investment in USANi LLC of $231 million and capital expenditures of $216 million. In the prior year, cash used for investing activities was $1.9 billion, primarily due to the $1.7 billion acquisition of the remaining 50 percent of USA Networks. Financing activities in the six months ended December 31, 1998 provided $5.7 billion as compared to $1.7 billion in the six months ended December 31, 1997. Long-term debt of $4.2 billion was issued in the second quarter to finance the PolyGram acquisition. Cash used for discontinued Tropicana operations to the disposition date of August 25, 1998 was $3 million as compared to the $105 million of cash provided by the discontinued Tropicana operations in the six months ended December 31, 1997. The Company's working capital position is reinforced by credit facilities of $6.6 billion. These facilities are used to support the Company's commercial paper borrowings and are available for general corporate purposes. The Company believes its access to external capital resources together with internally-generated liquidity will be sufficient to satisfy existing commitments and plans, and to provide adequate financial flexibility. The Company's Value at Risk ("VaR"), which is the potential loss in fair value, attributable to those interest rate sensitive exposures associated with the Company's exposure to interest rates at December 31, 1998 was $44 million. This exposure is primarily related to long-term debt with fixed interest rates. The increase in the VaR attributable to interest rate sensitive exposures, as compared to the VaR of $11 million at June 30, 1998, is due primarily to the issuance by the Company, in the second quarter of the fiscal year ending June 30, 1999, of long-term debt with fixed interest rates to partially finance the acquisition of PolyGram. There has been no significant change to the Company's VaR which is the potential loss in earnings associated with the Company's exposure to foreign exchange rates, as compared to June 30, 1998. 20 23 Year 2000 Issue The Company has a comprehensive program to address Year 2000 readiness in its internal systems and with its customers and suppliers. The Company's program addresses its most critical internal systems first and, with the exception of PolyGram systems described below, targets to have them Year 2000-compliant by July 1, 1999, the first day of the Company's fiscal year 2000. Implementation/roll-out of the Year 2000 compliant systems would continue through to September 30, 1999. These activities are intended to encompass all major categories of information technology and non-information technology systems in use by the Company, including manufacturing, sales, finance and human resources. The Company is still completing its evaluation of the Year 2000 readiness of PolyGram which it acquired on December 10, 1998. The Company currently expects that critical systems at PolyGram will be Year 2000 compliant on or prior to December 31, 1999. However, due to the Company's recent decision to retain PolyGram Filmed Entertainment ("PFE") unit of PolyGram, an assessment of the Year 2000 readiness of PFE has only recently commenced. The Company does not believe that a failure to fully identify and remediate or replace non-compliant systems at PFE would have a material adverse effect on the Company's financial condition. To date the Company has incurred approximately $20 million in costs related to its Year 2000 readiness program. Such costs are expensed as incurred. The Company currently estimates that the total costs of its Year 2000 readiness programs, including PolyGram, but excluding redeployed resources will not exceed $75 million. The total cost estimate does not include potential costs related to any customer or other claims or the costs of internal software or hardware replaced in the normal course of business. The total cost estimate is based on the current assessment of the Company's Year 2000 readiness needs and is subject to change as the program progresses. The Company is communicating with its major customers, suppliers and financial institutions to determine the extent to which the Company is vulnerable to those third parties' failure to remedy their own Year 2000 issues. While some of the Company's major suppliers and customers contacted have confirmed that they anticipate being Year 2000-compliant on or before December 31, 1999, most of the customers, suppliers and financial institutions contacted have only indicated that they have Year 2000 readiness programs. The Company currently expects that the Year 2000 issue will not pose significant operational problems. However, delays in the implementation of new systems, a failure to fully identify all Year 2000 dependencies in the Company's systems and in the systems of its suppliers, customers and financial institutions, or a failure of such third parties to adequately address their respective Year 2000 issues could have a material adverse effect on the Company's business, financial condition and results of operations. Therefore, the Company's Year 2000 Program includes the development of contingency plans for continuing operations in the event such problems arise. However, there can be no assurance that such contingency plans will be sufficient to handle all problems which may arise. Cautionary Statement Concerning Forward-Looking Statements The statements herein relating to matters that are not historical facts are forward-looking statements that are not guarantees of future performance and involve risks and uncertainties, including but not limited to future global economic conditions, foreign exchange rates, the actions of competitors and other factors beyond the control of the Company including, in the case of the Year 2000 issue, the actions of customers, suppliers and financial institutions. 21 24 THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to (i) the litigation entitled Digital Distribution Inc. c/b/a/ Compact Disc Warehouse v. CEMA Distribution, Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc. and Polygram Group Distribution, Inc., No. 95-3596 JSL, described on page 8 of the Form 10-K, (ii) the investigation of the Attorney General of the State of Florida described on page 9 of the Form 10-K and (iii) the preliminary investigation of the Federal Trade Commission described on page 9 of the Form 10-K. References in those descriptions to Universal Music & Video Distribution, Inc. are hereby amended to also include PolyGram Group Distribution, Inc. as a result of the completion of the Company's acquisition of PolyGram on December 10, 1998. On or about July 15, 1995, Polygram was served with a civil investigation demand from the U.S. Department of Justice ("DOJ") seeking information and documentation relating to an investigation by the DOJ's Antitrust Division (the "Antitrust Division") into certain alleged "collaborative undertakings between PolyGram and other music companies related to cable, wire and satellite-delivered music and music video programmers." In April 1998, PolyGram and certain other major music companies, excluding Universal, were advised by the Anti-Trust Division that it was their tentative recommendation to file a complaint seeking a decree to prevent PolyGram and such major music companies from using foreign collective licensing societies to license music video broadcasters. The Antitrust Division also indicated that it was considering adding to this complaint, a claim seeking to restrict PolyGram and such major music companies from entering into music video broadcasting joint ventures absent prior notice to, and approval from, the DOJ. Thereafter, at the invitation of the Antitrust Division, PolyGram and the major music companies jointly submitted a "White Paper" setting forth their collective view that no complaint was warranted and the investigation should be closed. In July, 1998, a further meeting was held among counsel for PolyGram and the other major music companies and the Antitrust Division to discuss the Antitrust Division's tentative recommendations. No further action has been taken by the DOJ. In October 1998, the Australian Competition and Consumer Commission ("ACCC") served a notice on PolyGram seeking written answers to questions and documents. The ACCC is responsible for enforcing the Trade Practices Act, the statute which governs antitrust law in Australia. The ACCC alleges that PolyGram has engaged in the following anti-competitive conduct: acting in concert with the other major record companies in Australia to prevent the export from Indonesia into Australia of sound recordings; and ceasing to trade with and/or threatening to cease to trade with retailers who stocked and/or imported parallel imports. PolyGram answered the notice and thereafter received a further list of questions relating to issues arising out of the answer to the notice and the documents which were provided to the ACCC. PolyGram has now answered the supplemental notice. PolyGram denies that it has contravened the Trade Practices Act and intends to vigorously defend any enforcement proceedings which the ACCC may commence against PolyGram. On February 4, 1999, the Antitrust Division issued a civil investigative demand to Universal as well as to a number of other motion picture film distributors and exhibitors as part of a civil investigation into compliance with the consent decrees entered in U.S. v. Paramount Pictures, et al. and various other practices in the motion picture distribution and exhibition industry. The civil investigative demands require the distributors and exhibitors to provide documents and other information to the Antitrust Division. The scope of the investigation and the extent, if any, to which it may relate to Universal, is not known at this time. 22 25 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The Exhibit Index filed with this Form 10-Q is on page 25. (b) Current Reports on Form 8-K 1. A Current Report on Form 8-K dated August 25, 1998, as amended, was filed to report under Item 2 the completion of the sale of Tropicana to PepsiCo, Inc. and to file under Item 7 pro forma financial statements that give effect to the sale of Tropicana, the acquisition of PolyGram and certain other transactions, historical financial statements of PolyGram and the press release relating to the completion of the Tropicana transaction. 2. A Current Report on Form 8-K dated September 1, 1998, as amended, was filed to report under Item 5 and file under Item 7, the Company's consolidated financial statements and management's discussion and analysis for the fiscal year ended June 30, 1998. 3. A Current Report on Form 8-K dated November 10, 1998 was filed to report under Item 5 execution by the Company of a definitive agreement to sell certain film library assets of PolyGram Filmed Entertainment to Orion Pictures Library Acquisition Co., Inc. following the Company's acquisition of PolyGram. 4. A Current Report on Form 8-K dated November 13, 1998 was filed to file under Item 7 certain documents relating to the Company's Registration Statements Nos. 33-42877, 33-42959, 333-4136 and 333-62921. 5. A Current Report on Form 8-K dated November 16, 1998 was filed to report under Item 5 and file under Item 7 a press release relating to the Company's strategic reorganization of Universal and the resignation of Frank J. Biondi from the Company's Board of Directors and Universal. 6. A Current Report on Form 8-K dated November 24, 1998 was filed to file under Item 7 (i) pro forma financial statements that give effect to the sale of Tropicana on August 25, 1998 and the proposed acquisition of PolyGram and (ii) historical financial statements of PolyGram. 7. A Current Report on Form 8-K dated December 6, 1998 was filed to report under Item 5 and file under Item 7 a press release relating to the Company's acceptance on December 4, 1998 of all PolyGram shares in the Company's tender offer for all such shares. 8. A Current Report on Form 8-K dated December 9, 1998 was filed to report under Item 5 and file under Item 7 a press release relating to the performance of Universal's filmed entertainment division in the second quarter of the Company's fiscal year ending June 30, 1999. 9. A Current Report on Form 8-K dated December 10, 1998 was filed to report under Item 2 the consummation of the Company's acquisition of PolyGram and to file under Item 7 certain historical financial statements of PolyGram. 10. A Current Report on Form 8-K dated December 14, 1998 was filed to report under Item 5 and file under Item 7 (i) a press release relating to the Company's investor conference on December 14, 1998 and (ii) pro forma financial statements and quarterly supplementary financial information giving effect to the sale of Tropicana on August 25, 1998 and the acquisition of PolyGram. 23 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE SEAGRAM COMPANY LTD. ------------------------------ (Registrant) By: /s/ Robert W. Matschullat ------------------------------ Robert W. Matschullat Vice Chairman and Chief Financial Officer (Principal Accounting Officer) Dated: February 16, 1999 24 27 EXHIBIT INDEX Exhibit Number Description of Exhibit - ------ ---------------------- 10(a) 1996 Stock Incentive Plan of the Company, as amended 10(b) Letter Agreement dated September 30, 1998 between Joseph E. Seagram & Sons, Inc. and Steven J. Kalagher 12(a) Computation of Ratio of Earnings to Fixed Charges - The Seagram Company Ltd. 12(b) Computation of Ratio of Earnings to Fixed Charges - Joseph E. Seagram & Sons, Inc. 27 Financial Data Schedule 25 EX-10.A 2 AMENDED STOCK INCENTIVE PLAN 1 EXHIBIT 10(a) THE SEAGRAM COMPANY LTD. 1996 STOCK INCENTIVE PLAN ARTICLE I PURPOSE The purpose of The Seagram Company Ltd. 1996 Stock Incentive Plan is to provide selected key employees of The Seagram Company Ltd. and its subsidiaries an opportunity to benefit from the appreciation in the value of the common shares of The Seagram Company Ltd., thus providing an increased incentive for such employees to contribute to the future success and prosperity of The Seagram Company Ltd., enhancing the value of the common shares for the benefit of the shareholders and increasing the ability of The Seagram Company Ltd. and its subsidiaries to attract and retain individuals of exceptional skill. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan have the respective meanings set forth in this Article: 2.1 Act: The United States Securities Exchange Act of 1934, as amended. 2.2 Affiliate: A person or entity controlling, controlled by, or under common control with, The Seagram Company Ltd. 2.3 Approval Date: The later of the date of approval of the Plan (a) by the shareholders of The Seagram Company Ltd. and (b) by the applicable regulatory authorities and stock exchanges, each as contemplated by Article XVIII of the Plan. 2.4 Award: An Option, Stock Appreciation Right or other award granted under the Plan. 2.5 Board: The Board of Directors of The Seagram Company Ltd. 2.6 Code: The United States Internal Revenue Code of 1986, as amended. 2.7 Committee: The Seagram Company Ltd. Human Resources Committee or such other persons designated by the Board. 2.8 Common Shares: The common shares without nominal or par value of The Seagram Company Ltd. 2.9 Company: The Seagram Company Ltd., any of its Subsidiaries or any other Affiliate designated by the Board. 2.10 Disability: Inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which constitutes a permanent and total disability, as defined in Section 22(e)(3) of the Code. The determination whether a Participant has suffered a Disability shall be made by the Committee based upon such evidence as it deems necessary and appropriate. 2.11 Disinterested Persons: Members of the Board who are not full time employees of the Company and who are eligible to serve as Plan administrators or to approve Awards under the provisions of Rule 16b-3 promulgated under the Act. The preceding sentence shall have no effect if any specification of such persons is eliminated from the rules promulgated under Section 16 of the Act. This Section 2.11 shall apply only to the Plan and not to any other employee benefit plan of the Company. 2.12 Employer: The Company that employs the employee or Participant. 2.13 Fair Market Value: The mean between high and low prices of the Common Shares as reported on the composite tape for securities traded on the New York Stock Exchange (or, if such exchange is not open on such date, the immediately preceding date on which such exchange is open), or, if the Common Shares are not so listed or traded, the average trading price for the day of the Common Shares as reported on The Toronto Stock Exchange (or, if -1- 2 such exchange is not open on such date, the immediately preceding date on which such exchange is open) or, if the Common Shares are not listed or traded, the mean between high and low prices of the Common Shares as reported on the principal United States national securities exchange on which such shares are listed or admitted to trading (or, if such exchange is not open on such date, the immediately preceding date on which such exchange is open), or, if the Common Shares are not so listed or traded, the mean between the closing bid price and the closing asked price as quoted on the National Association of Securities Dealers Automated Quotation System, or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to the Common Shares, the Fair Market Value shall be the value established by the Committee in good faith and, in the case of an ISO, in accordance with Section 422 of the Code. 2.14 ISO: An incentive stock option within the meaning of Section 422 of the Code. 2.15 Non-ISO: A stock option that is not an ISO. 2.16 Option: A stock option (whether ISO or Non-ISO) granted under the Plan. 2.17 Option Price: The purchase price of one Common Share under an Option. 2.18 Participant: A key employee of the Company who has been selected by the Committee to receive an Award under the Plan. 2.19 Parent Corporation: A parent corporation, as defined in Section 424(e) of the Code. 2.20 Plan: The Seagram Company Ltd. 1996 Stock Incentive Plan, as from time to time amended. 2.21 Retirement: Separation from service with the Company on or after attainment of age 65 or, with the prior written consent of the Company, retirement at an earlier age. 2.22 Stock Appreciation Right: A stock appreciation right granted under the Plan. 2.23 Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code. 2.24 Termination Date: With respect to each Award, a date fixed by the Committee; provided that with respect to an Option, such date shall not be later than the day preceding the tenth anniversary of its date of grant. 2.25 Termination For Cause: A Participant's termination of employment with the Company due to insubordination, willful misconduct, willful failure to implement corrective actions, misappropriation of any funds or property of the Company, unreasonable neglect or refusal to perform duties assigned during employment or the conviction of a felony. ARTICLE III ADMINISTRATION 3.1 Except as otherwise provided in the Plan, the Committee (or any subcommittee thereof) shall administer the Plan and shall have full power to grant Awards, construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, that it believes reasonable and proper. 3.2 The Committee shall consist of not less than three persons, (a) all of whom shall be (i) Disinterested Persons or (ii) if applicable, "non-employee directors" as defined in the rules promulgated under Section 16 of the Act and (b) at least two of whom shall be "outside directors" as defined in Section 162(m) of the Code and the regulations promulgated thereunder. 3.3 Subject to the provisions of the Plan, the Committee (or any Subcommittee thereof) or the Board shall, in its discretion, determine which employees shall be granted Awards and the terms and conditions of Awards. 3.4 Any decision made, or action taken, by the Committee, any Subcommittee thereof or the Board arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. -2- 3 ARTICLE IV LIMITATIONS ON THE AMOUNT OF AWARD GRANTS 4.1 Common Shares Subject to the Plan: The total number of Common Shares upon which Awards may be based shall be 45,000,000, subject to adjustment in accordance with Article XIV of the Plan. These Common Shares shall be authorized but unissued Common Shares. For purposes of this Section, a Stock Appreciation Right granted pursuant to clause (b) of Section 7.1 shall not be deemed to be an Award separate from the Option, or portion thereof, to which it relates. For purposes of this Section, an Option, or portion thereof, exercised through the exercise of such a Stock Appreciation Right shall be treated, to the extent settled in Common Shares, as though the Option, or portion thereof, had been exercised through the purchase of Common Shares, with the result that the Common Shares subject to the Option, or portion thereof, that was so exercised shall not be available for future grants of Awards. 4.2 Common Shares to be Granted to a Participant: During the period from the Approval Date through the sixth anniversary of the Approval Date, the total number of Common Shares available for grants to any one Participant of (a) Awards under the Plan and (b) awards under any other plan of the Company which provides for the grant of Common Shares shall not exceed the lesser of (i) 5% of the outstanding Common Shares on the date when the Plan is adopted by the Board and (ii) 5% of the outstanding Common Shares. 4.3 Cash-Only Awards: With respect to any fiscal year of the Company, the aggregate value (as determined by the Committee) of Awards granted which are exercisable solely for cash, or which upon maturity are payable solely in cash, shall not exceed the aggregate salaries paid or accrued with respect to such fiscal year to all Participants who receive grants of any Awards with respect to such fiscal year; provided, however, that any such Award which may be redeemed or exercised only upon a fixed date or dates at least six months after grant, or incident to death, Retirement, Disability or cessation of employment shall not be included in the foregoing calculation of the aggregate value of Awards granted with respect to any fiscal year. This Section 4.3 (or any part thereof) shall be effective only to the extent that it is required under the rules promulgated under Section 16 of the Act or any other law, rule or regulation applicable to the Company. 4.4 Common Shares to be Granted to Insiders: Under the Plan and any other plan of the Company which provides for the issuance of Common Shares (i) the total number of Common Shares reserved for issuance to all Insiders (as defined below) shall not exceed 10% of the then outstanding Common Shares; (ii) the total number of Common Shares issued to Insiders, within one-year period, shall not exceed 10% of the then outstanding Common Shares; and (iii) the total number of Common Shares issued to any one Insider and to such Insider's associates, within a one-year period, shall not exceed 5% of the then outstanding Common Shares. For purpose hereof, "Insider" means an insider as defined by applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges. ARTICLE V ELIGIBILITY 5.1 Awards may be granted to selected key employees of the Company. ARTICLE VI TERMS OF OPTIONS 6.1 Option Price: Except as provided in Section 6.3 of the Plan, the Option Price shall be no less than the Fair Market Value of a Common Share on the date the Option is granted, but in no event shall the Option Price be less than that permitted by applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges. 6.2 Period of Exercise: The Committee shall determine the dates after which Options may be exercised in whole or in part; provided, however, that an Option shall not be exercised prior to the Approval Date nor later than its Termination Date. The Committee may amend an Option to accelerate the date after which such Option may be exercised in whole or in part, provided that the Company has obtained -3- 4 all applicable approvals, if any, of regulatory authorities and stock exchanges. An Option which has not been exercised on or prior to its Termination Date shall be cancelled. 6.3 Special Rules Regarding ISOs Granted to Certain Employees: Notwithstanding any contrary provisions of Sections 6.1 and 6.2 of the Plan, no ISO shall be granted to any employee who, at the time the Option is granted, owns (directly or within the meaning of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the Option Price under such Option is at least 110% of the Fair Market Value of a Common Share on the date the Option is granted and (b) the Termination Date of such Option is a date not later than the day preceding the fifth anniversary of the date on which the Option is granted. 6.4 Manner of Exercise and Payment: Subject to Section 6.2 of the Plan, an Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the Common Shares being purchased pursuant to the Option. A Participant or his or her legal representative may exercise an Option with respect to less than the full number of Common Shares for which the Option may then be exercised, but a Participant must exercise the Option in full Common Shares. The price of Common Shares purchased pursuant to an Option, or portion thereof, may be paid: a) in United States dollars in cash or by check, bank draft or money order payable to the order of the Company; b) through the delivery of Common Shares with an aggregate Fair Market Value on the date of exercise equal to the Option Price; c) with the consent of the Committee, through the withholding of Common Shares issuable upon exercise with an aggregate Fair Market Value on the date of exercise equal to the Option Price; d) through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the Option Price; or e) by any combination of the above methods of payment; provided, however, that the Company shall not be obligated to purchase or accept the surrender in payment of any such Common Shares if any such action would be prohibited by the applicable laws governing the Company or the Committee shall determine that such action is not in the best interests of the Company. The Committee shall determine acceptable methods for providing notice of exercise, for tendering Common Shares or for delivering irrevocable instructions to a broker and may impose such limitations and prohibitions on the use of Common Shares or irrevocable instructions to a broker to exercise an Option as it deems appropriate. 6.5 Notification of Sales of Common Shares: Any Participant who disposes of Common Shares acquired upon the exercise of an ISO either (a) within two years after the date of the grant of the ISO under which the Common Shares were acquired or (b) within one year after the transfer of such Common Shares to the Participant, shall notify the Company of such disposition and of the amount realized upon such disposition. ARTICLE VII TERMS OF STOCK APPRECIATION RIGHTS 7.1 Grants of Stock Appreciation Rights: A Stock Appreciation Right may be granted (a) independent of an Option or (b) in conjunction with an Option, or portion thereof. A Stock Appreciation Right granted pursuant to clause (b) of the preceding sentence may be granted at the time the related Option is granted or at any time prior to the exercise or cancellation of the related Option. 7.2 Exercise Price: The exercise price per Common Share of a Stock Appreciation Right shall be an amount determined by the Committee but in no event shall such amount be less than the greater of -4- 5 (a) the Fair Market Value of a Common Share on the date the Stock Appreciation Right is granted or, in the case of a Stock Appreciation Right granted in conjunction with an Option, or portion thereof, the Option Price of the related Option and (b) an amount permitted by applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges. 7.3 Period of Exercise: The Committee shall determine the dates after which Stock Appreciation Rights may be exercised in whole or in part; provided, however, that a Stock Appreciation Right shall not be exercised prior to the Approval Date nor later than its Termination Date. The Committee may amend a Stock Appreciation Right to accelerate the date after which it may be exercised in whole or in part, provided that the Company has obtained all applicable approvals, if any, of regulatory authorities and stock exchanges. A Stock Appreciation Right which has not been exercised on or prior to its Termination Date shall be cancelled. A Stock Appreciation Right granted in conjunction with an Option, or portion thereof, shall not be exercised unless such Option, or portion thereof, is otherwise exercisable, and such a Stock Appreciation Right shall be cancelled to the extent the Option to which it relates has been exercised, or has expired, been terminated or been cancelled for any reason. 7.4 Exercise of Stock Appreciation Rights: A Stock Appreciation Right, or portion thereof, shall be exercised in accordance with such procedures as may be established by the Committee. Upon the exercise of a Stock Appreciation Right, the Participant or his or her legal representative shall be entitled to receive from the Company with respect to each Common Share to which such Stock Appreciation Right relates an amount equal to the excess of (a) the Fair Market Value of a Common Share on the date of exercise over (b) the exercise price of the Stock Appreciation Right. Such amount shall be paid in cash and/or Common Shares at the discretion of the Committee. The number of Common Shares, if any, issued as a result of the exercise of a Stock Appreciation Right shall be based on the Fair Market Value of such Common Shares on the date of exercise. Upon the exercise of a Stock Appreciation Right, or portion thereof, granted in conjunction with an Option, or portion thereof, the Option, or portion thereof, to which such Stock Appreciation Right relates shall be deemed in the case of a cash payment to have been cancelled and in the case of a payment in Common Shares to have been exercised. ARTICLE VIII OTHER SHARE-BASED AWARDS 8.1 Other Awards of Common Shares and Awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of, Common Shares may be granted under the Plan in the discretion of the Committee. Such Awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive one or more Common Shares, or the equivalent cash value of such Common Shares, upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Such Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine to whom and when such Awards will be made, the number of Common Shares to be awarded under (or otherwise related to) such Awards, whether such Awards shall be settled in cash, Common Shares or a combination of cash and Common Shares, and all other terms and conditions of such Awards. Notwithstanding the foregoing, certain Awards granted under this Section 8.1 of the Plan may be granted in a manner which is deductible by the Company under Section 162(m) of the Code. Such Awards (the "Performance-Based Awards") shall be based upon stock price, market share, sales, earnings per share, return on equity or costs. ARTICLE IX DIVIDEND EQUIVALENTS 9.1 At or after the grant of an Award, the Committee, in its discretion, may provide the Participant with dividend equivalents with respect to such Award. ARTICLE X -5- 6 AWARD AGREEMENTS 10.1 All Awards shall be evidenced by written agreements executed by the Company and the Participant. Such agreements shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe; provided that with respect to Options, those Options that are intended to be ISOs shall be so designated and all other Options shall be designated Non-ISOs. Notwithstanding Section 2.13, an Award agreement may provide that Fair Market Value shall be determined based on the monetary currency of a Participant's country of residence. Notwithstanding Section 6.4, an Award agreement may require that payment of the Option Price shall be made in such currency and may otherwise restrict the manner of exercise and payment of an Option. ARTICLE XI NONTRANSFERABILITY OF AWARDS 11.1 Each Award shall, during the Participant's lifetime, be exercisable only by the Participant, and neither it nor any right hereunder shall be transferable otherwise than by will, the laws of descent and distribution or be subject to attachment, execution or other similar process; provided, however, that to the extent permitted by applicable law, with respect to any Award, a Participant may designate a beneficiary pursuant to procedures which may be established by the Committee. In the event of any attempt by the Participant to alienate, assign, pledge, hypothecate or otherwise dispose of an Award or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Award by notice to the Participant and the Award shall thereupon be cancelled. This Section 11.1 (or any part thereof) may be altered by the Committee to the extent that it is no longer required under the rules promulgated under Section 16 of the Act or any other law, rule or regulation applicable to the Company. ARTICLE XII CESSATION OF EMPLOYMENT OF PARTICIPANT 12.1 Cessation of Employment other than by Reason of Retirement, Disability, Death or Termination For Cause: If a Participant shall cease to be employed by the Company other than by reason of Retirement, Disability, Death or Termination For Cause, each Award other than, to the extent provided by the Committee, an Award granted under Article VIII of the Plan, held by the Participant shall be cancelled to the extent not previously exercised and all rights hereunder shall terminate at the end of the three-month period commencing on the last day of the month in which the cessation of employment occurred. 12.2 Cessation of Employment by Reason of Termination For Cause: If a Participant shall cease to be employed by the Company by reason of Termination For Cause, each Award, other than, to the extent provided by the Committee, an Award granted under Article VIII of the Plan, held by the Participant shall be cancelled to the extent not previously exercised and all rights hereunder shall terminate on the date of cessation of employment. 12.3 Cessation of Employment by Reason of Retirement or Disability: If a Participant shall cease to be employed by the Company by reason of Retirement or Disability, each Award, other than, to the extent provided by the Committee, an Award granted under Article VIII of the Plan, held by the Participant shall be exercisable until the Termination Date set forth in the Award. Notwithstanding the foregoing, an Award, [other than, to the extent provided by the Committee, an Award granted under Article VIII of the Plan,] shall be cancelled if after Retirement, in the sole determination of the Committee, the Participant (i) engages in activity which is competitive with that of the Company or its Affiliates or (ii) at any time, divulges to any person or entity (other than the Company or any of its Affiliates) any of the trade secrets, methods, processes or other proprietary or confidential information of the Company or any of its Affiliates. -6- 7 12.4 Cessation of Employment by Reason of Death: If a Participant shall die while employed by the Company, or at any time after cessation of employment by reason of Retirement or Disability, an Award may be exercised at any time or from time to time prior to the Termination Date set forth in the Award, by the person or persons to whom the Participant's rights under each Award shall pass by will or by the applicable laws of descent and distribution. Any person or persons to whom a Participant's rights under an Award have passed by will or by the applicable laws of descent and distribution shall be subject to all terms and conditions of the Plan and the Award applicable to the Participant. ARTICLE XIII WITHHOLDING TAXES 13.1 The Company may, in its discretion, require a Participant to pay to the Company the amount, or make other arrangements (including, without limitation, the withholding of Common Shares which would otherwise be delivered as part of or upon exercise of an Award), at the time of exercise or thereafter, that the Company deems necessary to satisfy its obligation to withhold federal, provincial, state or local income or other taxes. ARTICLE XIV ADJUSTMENTS 14.1 If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable, (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Shares or (c) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Awards, the Committee may take any such action as in its judgment shall be necessary to preserve the Participant's rights substantially proportionate to the rights existing prior to such event and, to the extent that such action shall include an increase or decrease in the number of Awards and/or Common Shares subject to outstanding Awards, the number of Awards and/or Common Shares available under Article IV above may be increased or decreased, as the case may be, proportionately. The judgment of the Committee with respect to any matters referred to in this Article shall be conclusive and binding upon each Participant. The exercise by the Committee of its authority under this Article is subject to the approval of the Board as and when required by applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges. ARTICLE XV AMENDMENT AND TERMINATION OF THE PLAN 15.1 The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part or amend it in such respects as the Board may deem appropriate; provided, however, that no such amendment shall be made without approval of the shareholders if such approval is required by Rule 16b-3 under the Act or by any regulatory authorities or stock exchanges. 15.2 No amendment, suspension or termination of the Plan shall, without the Participant's consent, impair any of the rights or obligations under any Award theretofore granted to a Participant under the Plan. 15.3 The Committee may amend the Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Awards meeting the requirements of future amendments or issued regulations, if any, to the Code, the Act or other applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges. 15.4 No amendment shall be effective until all applicable approvals, if any, of regulatory authorities and stock exchanges have been obtained. -7- 8 ARTICLE XVI GOVERNMENT AND OTHER REGULATIONS 16.1 The obligation of the Company to issue, or transfer and deliver, Common Shares for Awards exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by regulatory authorities and any stock exchanges on which Common Shares are traded. 16.2 Notwithstanding any other provision of the Plan, (a) during any period in which a Participant is subject to Section 16 of the Act, if the Participant shall exercise any Award or engage in any other transaction involving an Award or Common Shares received upon the exercise of an Award, the Participant shall comply with the rules promulgated under Section 16 of the Act (and any comparable rules of any other U.S. and non-U.S. regulatory authority), including, without limitation, rules which restrict the exercise of Awards, which limit the resale of Common Shares obtained upon exercise of Awards and which require the reporting of transactions and (b) the Committee may impose any conditions on an Award necessary to render any transaction involving such Award exempt under the rules promulgated under Section 16 of the Act. ARTICLE XVII MISCELLANEOUS PROVISIONS 17.1 The Plan Does Not Confer Employment or Shareholder Rights: The right of the Company to terminate at will (whether by dismissal, discharge or otherwise) the Participant's employment with it at any time is specifically reserved. Neither the Participant nor any person entitled to exercise the Participant's rights in the event of the Participant's death shall have any rights of a shareholder with respect to the Common Shares subject to each Award, except to the extent that, and until, such Common Shares shall have been issued upon the exercise or maturity of each Award. 17.2 The Plan Does Not Confer Rights to Assets: Neither the Participant nor any person entitled to exercise the Participant's rights in the event of the Participant's death shall have any rights to or interest in any specific asset of the Company. 17.3 Plan Expenses: Any expenses of administering the Plan shall be borne by the Company. 17.4 Use of Exercise Proceeds: Cash payments received from Participants upon the exercise of Options shall be used for the general corporate purposes of the Company. 17.5 Indemnification: In addition to such other rights of indemnification as they may have as members of the Board, or the Committee, the members of the Board and the Committee shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding, a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member's own behalf. 17.6 Governing Law: The Plan shall be construed, interpreted and the rights of the Company and Participants (and all other parties) determined in accordance with the internal laws of the State of New York, without regard to the conflict of law principles thereof. ARTICLE XVIII SHAREHOLDER APPROVAL AND EFFECTIVE DATES 18.1 The Plan shall become effective when it is adopted by the Board. However, if (a) the Plan is not approved by the affirmative vote of the holders of a majority of the Common Shares present, or -8- 9 represented by proxy, and entitled to vote at the Annual Meeting of Shareholders of The Seagram Company Ltd. to be held on May 29, 1996, or at any adjournment thereof or (b) the necessary regulatory and stock exchange approvals are not obtained within one year after the date the Plan is adopted by the Board, the Plan and all Awards shall terminate. Awards may not be granted under the Plan after the sixth anniversary of the Approval Date. -9- 10 APPENDIX A TO THE SEAGRAM COMPANY LTD. 1996 STOCK INCENTIVE PLAN ADDITIONAL ARTICLES FOR THE GRANT OF APPROVED OPTIONS TO UNITED KINGDOM PARTICIPANTS ARTICLE XIX PURPOSE 19.1 The purpose of these additional articles ("Additional Articles") for UK Participants is to obtain Approved Option status in respect of Options granted up to the Limit under the Plan to UK Participants. These Additional Articles are to be read as a continuation of the Plan and only modify the Plan in respect of the grant of Approved Options under the Plan to UK Participants. These Additional Articles do not add to or modify the Plan in respect of any other category of Participant. 19.2 The Committee has adopted these Additional Articles in accordance with Section 15.3. ARTICLE XX DEFINITIONS 20.1 The definition of Award contained in Article II of the Plan shall be modified to include Options only and shall be so construed throughout the Plan. 20.2 The definition of Fair Market Value contained in Article II of the Plan shall be modified so that if the Common Shares are not listed or traded on the New York Stock Exchange, the Fair Market Value of a Common Share shall be its market value as determined in accordance with Part VIII of the UK Chargeable Gains Act 1992 and agreed in advance with the Shares Valuation Division of the UK Board of Inland Revenue. 20.3 The definition of Option shall include "Approved Option" unless the context otherwise requires. 20.4 The following additional capitalized terms used in the Plan shall have the respective meanings set forth in this Section: a) Approved Option: An Option granted under the Plan up to the Limit to a UK Participant while the Plan is approved by the UK Board of Inland Revenue under Schedule 9 to the UK Act. b) Limit: The Limit set out in paragraph 28(1) of Schedule 9 to the UK Act which at the time these Additional Articles were adopted was (pound sterling) 30,000 and for purposes of that paragraph, "market value" shall be construed in accordance with paragraph 28(3) of Schedule 9 to the UK Act. c) UK Act: The United Kingdom Income and Corporation Taxes Act 1988. d) UK Participant: A key employee of the Company who has been selected by the Committee to receive an Award under the Plan and who is: (i) resident in the UK for UK income tax purposes; and (ii) is not ineligible to participate in the Plan by virtue of paragraph 8 of Schedule 9 to the UK Act (material interest provisions); and (iii) if he a director of the Company, is required to work, under the terms of his employment with the Company as at the date of grant of the Option, for at least 25 hours per week (excluding meal breaks). -10- 11 e) Shares: Common Shares which satisfy the provisions of paragraphs 10 to 14 inclusive of Schedule 9 to the UK Act. ARTICLE XXI FURTHER LIMITATION ON THE AMOUNT OF AWARD GRANTS 21.1 No Approved Option shall be granted to a UK Participant in excess of the Limit. ARTICLE XXII ELIGIBILITY 22.1 Section 5.1 shall be modified by inserting "who satisfy the definition of UK Participant" at the end of that Section. ARTICLE XXIII TERMS OF OPTIONS 23.1 The first sentence of Section 6.2 shall be deleted and replaced with the following: "The Committee shall determine, as at the date of grant of Approved Options, the date after which such Options may be exercised in whole or in part; provided, however, that an Approved Option shall not be exercised prior to the Approval Date nor later than its Termination Date". 23.2 The second sentence of Section 6.2 shall not apply to Approved Options. 23.3 An Approved Option may not be exercised by any person who is precluded from participation in the Plan by virtue of paragraph 8 of Schedule 9 to the UK Act (material interest provisions). 23.4 The provisions of Section 6.4(b), (c) and (e) of the Plan shall not apply to Approved Options. 23.5 The provisions of Section 6.4 shall read as follows: "provided, however, that the Committee shall determine acceptable methods for providing notice of exercise or for delivering irrevocable instructions to a broker and may impose such limitations on instructions to a broker as it deems appropriate." 23.6 The terms of an Approved Option shall not be amended without the prior approval of the UK Board of Inland Revenue. 23.7 The appropriate number of Common Shares shall be allotted or transferred (as the case may be) within 30 days following the exercise of an Approved Option. ARTICLE XXIV TERMS OF STOCK APPRECIATION 24.1 The provisions of Article VII shall not apply to Approved Options. ARTICLE XXV OTHER SHARE-BASED AWARDS 25.1 The provisions of Article VIII shall not apply to Approved Options. ARTICLE XXVI DIVIDEND EQUIVALENTS 26.1 The provisions of Article IX shall not apply to Approved Options. ARTICLE XXVII -11- 12 AWARD AGREEMENTS 27.1 The provisions of Section 10.1 shall be modified in relation to Approved Options as follows: (i) the word "objective" shall be inserted before "provisions" in the third line; and (ii) the last sentence thereof commencing with the words: "Notwithstanding Section 6.4" shall be omitted therefrom. ARTICLE XXVIII NONTRANSFERABILITY OF AWARDS 28.1 Section 11.1 shall be modified by inserting at the end of that Section: "provided that, in respect of Approved Options, no such alternation shall be effective unless and until it is approved by the UK Board of Inland Revenue". ARTICLE XXIX CESSATION OF EMPLOYMENT OF PARTICIPANT 29.1 The provisions of Section 12.4 shall be modified so that upon the death of a UK Participant, Approved Options will be exercisable until the earlier of: - (i) the expiry of a period of 12 months following such death; and (ii) the Termination Date. ARTICLE XXX ADJUSTMENTS 30.1 Section 14.1 shall be modified so that in respect of Approved Options: (i) any adjustments made by the Committee pursuant to this Section 14.1 shall be made only to the Option Price and/or to the number of Common Shares subject to Approved Options and only in the event of a variation in the Common Stock; and (ii) any adjustment to be made under this Section 14.1 shall be subject to prior approval of the UK Board of Inland Revenue. ARTICLE XXXI AMENDMENT AND TERMINATION OF THE PLAN 31.1 Subject to the provisions of Article XV of the Plan, the Board and the Committee may amend the Plan but no such amendments shall become effective with respect to Approved Options unless and until they are approved by the UK Board of Inland Revenue. -12- EX-10.B 3 LETTER AGREEMENT 1 Exhibit 10(b) September 30, 1998 PERSONAL AND CONFIDENTIAL Mr. Steven J. Kalagher 56 Abbey Road Manhasset, NY 11030 Dear Steve: This letter confirms our understanding regarding certain aspects of your continued employment as President and Chief Executive Officer - The Seagram Spirits And Wine Group and as Executive Vice President of The Seagram Company Ltd. and of Joseph E. Seagram & Sons, Inc., (the "Company" or "Seagram"), subject to the terms and conditions set forth herein. This letter supersedes and replaces the prior letter between you and the Company, dated November 4, 1997. 1. Pension In connection with Seagram's pension, retirement and similar plans applicable to senior executives generally in which you currently participate, the Company agrees to treat separation from employment for purposes of pension benefits in the following manner: (a) In the event your employment is terminated (i) by the Company at any time without cause, or (ii) by you voluntarily with the Company's consent your pension benefit will be calculated pursuant to the provisions of the Benefit Equalization Plan ("BEP") or any replacement plan, including, but not limited to the Additional Service Credit provision. Further, your total annual compensation for purposes of calculating your retirement benefit 2 under BEP will be determined in accordance with paragraph 1(b) hereof. (b) In the event that your employment is terminated under the conditions described in paragraph 1(a) the Company shall use the following formula for determining your annual compensation for fiscal year 1997, and each subsequent year in which you remain employed, for purposes of determining your average final compensation necessary to calculate your pension benefit pursuant to the BEP and the Executive Supplement Plan (the "ESP"), or any replacement plans. To determine such total annual compensation, the Company agrees to use the higher of (a) your base salary plus your actual annual management incentive award under the Management Incentive Plan ("Bonus"), or any replacement plan or (b) your base salary plus your target Bonus, whichever is greater. As we have also agreed, your target Bonus for Fiscal Year 1999, and all future fiscal years, is equal to ninety (90) percent of your annual base salary. The Company further agrees that, for purposes of determining your average final compensation under the BEP and ESP, it will count your last year's salary and bonus twice in making such a determination. (c) Notwithstanding the provisions of paragraph 1(b) above, in the event your employment is terminated by the Company with cause at any time, or you leave without the Company's consent prior to December 27, 2002, your pension benefit will be calculated solely pursuant to the terms of the Pension Plan for Employees of Joseph E. Seagram & Sons, Inc. ("Qualified Plan") and the ESP, or any replacement plans; provided, however, that the determination of your total annual compensation for purposes of calculating your retirement benefit pursuant to the ESP will be in accordance with the provisions of paragraph 1(b) hereof; (d) In the event of your death at any time while you are actively employed the Company will pay benefits under the Qualified Plan and BEP as if you had retired on the date of your death and were qualified for a BEP benefit pursuant to paragraph 1(a) hereof or otherwise and calculated in accordance with the provisions of paragraph 1(b) hereof with respect to your BEP benefit. Accordingly, your spouse, Lynne Kalagher, will receive the two-thirds surviving spouse benefit provided by the Senior Executive Group Term Life Insurance Policy or any replacement program 2 3 ("Group Term Life") which will be payable in accordance with Seagram's normal practices. (e) In the event your employment is terminated under any other circumstances or at any other time, your pension and surviving spouse benefits will be calculated in accordance with the terms of the Qualified Plan, ESP, BEP, Group Term Life, or replacement plans, as are applicable to you based upon then actual service and age, provided, however, that the determination of total annual compensation necessary to calculate your retirement benefit under BEP or ESP will be made in accordance with paragraph 1(b) hereof. 2. Separation Benefits (a) In the event your employment is terminated by the Company without cause or by you with the Company's consent, the Company will provide (i) your annual base salary, (ii) your target Bonus, and (iii) continued participation in the medical, dental and life insurance aspects of our Senior Executive Benefits Program for three (3) years after the date of termination. (b) In the event your employment is terminated for any other reason, severance or separation benefits, if any, will be payable in accordance with the terms of any applicable plans. 3. Confidentiality You represent and agree, as appropriate, that you (i) have not disclosed and shall not disclose the terms of this Agreement to anyone, provided, however, that this shall not preclude disclosure to your counsel, financial advisor and immediate family, (ii) have instructed your counsel, financial advisor and immediate family to whom you have disclosed or may disclose the terms of this Agreement not to disclose such information to anyone, and (iii) have abided by and will continue to abide by The Seagram Company Ltd.'s policies and procedures for worldwide business conduct. 4. General Provisions Except as required by any applicable law, no benefit provided herein shall in any manner be anticipated, assigned or alienated, and any attempt to do so shall be void. This Agreement shall not confer on you any right to be retained in the employ of the Company and the right of the Company to terminate your employment at will, for no reason (whether by dismissal, discharge or otherwise) at any time is specifically 3 4 reserved. This Agreement shall be construed, interpreted and governed in accordance with the laws of the State of New York without reference to rules relating to conflicts of law. If this letter accurately reflects our Agreement, please sign and return it to me. An executed original is enclosed for your records. Very truly yours, /s/ J. Borgia READ, ACCEPTED AND AGREED /s/ S.J. Kalagher - -------------------- Steven J. Kalagher 10/1/98 - ----------- Date 4 EX-12.A 4 COMPUTATION OF RATIO OF EARNINGS 1 Exhibit 12(a) THE SEAGRAM COMPANY LTD. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges
Fiscal Fiscal Six Months Ended Year Ended Year Ended December 31, June 30, June 30, 1998 1997 1998 1997 ------- ------- ------- ------- (millions) Income (loss) from continuing operations before tax $ (157) $ 371 $ 1,611 $ 726 Add (deduct): Dividends from equity companies 37 28 56 107 Fixed charges 211 158 406 376 Interest capitalized, net of amortization (7) (1) (2) (2) ------- ------- ------- ------- Earnings available for fixed charges $ 84 $ 556 $ 2,071 $ 1,207 ------- ------- ------- ------- Fixed Charges: Interest Expense $ 182 $ 133 $ 357 $ 326 Portion of rent expense deemed to represent interest factor 29 25 49 50 ------- ------- ------- ------- Fixed Charges $ 211 $ 158 $ 406 $ 376 ------- ------- ------- ------- Ratio of Earnings to Fixed Charges (a) 3.5x 5.1x 3.2x ======= ======= ======= =======
(a) Fixed charges exceeded earnings by $127 million for the six month period ended December 31, 1998. EX-12.B 5 COMPUTATION OF RATIO OF EARNINGS 1 Exhibit 12(b) JOSEPH E. SEAGRAM & SONS, INC. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges
Fiscal Fiscal Six Months Ended Year Ended Year Ended December 31, June 30, June 30, 1998 1997 1998 1997 ----- ----- ----- ----- (millions) Income from continuing operations before tax $ 88 $ 68 $ 17 $ 122 Add (deduct): Dividends from equity companies 1 1 2 1 Fixed charges 99 85 182 172 Interest capitalized, net of amortization -- -- -- (1) ----- ----- ----- ----- Earnings available for fixed charges $ 188 $ 154 $ 201 $ 294 ----- ----- ----- ----- Fixed charges: Interest Expense $ 93 $ 79 $ 170 $ 159 Portion of rent expense deemed to represent interest factor 6 6 12 13 ----- ----- ----- ----- Fixed Charges 99 85 182 $ 172 ----- ----- ----- ----- Ratio of Earnings to Fixed Charges 1.9x 1.8x 1.1x 1.7x ===== ===== ===== =====
EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE SEAGRAM COMPANY LTD. FOR THE QUARTER ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 U.S. DOLLARS 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 1 1,204 0 3,969 0 2,767 10,018 4,362 (1,271) 37,398 10,816 6,387 0 0 2,909 9,214 37,398 0 5,574 3,274 3,274 2,340 0 117 (157) 75 (131) 1,069 0 0 938 2.65 2.64
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