Mr. FRIEL. As, I think, of about May 1, 1934, we bought the stock of Maryland Distillery, which was a company that had a plant in Baltimore and which had been operating but selling very little whisky. In July or August 1935, we organized the Julius Kessler Distilling Co., and about 1935 we organized the Joseph E. Seagram & Sons, à Delaware corporation which constructed a plant in Kentucky. They are the major units. Calvert Distilling Co. was originally a subsidiary of Maryland Distillery and later became a direct subsidiary of the parent company. Mr. BUCK. Mr. Friel, I hand you a chart that was given to me by your counsel some time ago. I ask you to look it over and state whether or not that corporate set-up indicated in that chart is approximately correct. Mr. FRIEL. How long ago did you get this? Mr. BUCK. That does depict the corporate set-up in the United States? Mr. FRIEL. Yes; and Canada. Mr. BUCK. And is approximately correct as the status stands now? Mr. FRIEL. Yes. Mr. BUCK. I will submit it for the record, if it is agreeable, Mr. Chairman, and ask the committee if they would like to see it. Acting Chairman REECE. It may be received (The chart was marked "Exhibit No. 410” and is included in the appendix facing p. 2687.) Acting Chairman REECE. You want that printed in the record, I assume. Mr. BUCK. Yes. Acting Chairman REECE. These will all be printed unless it is otherwise indicated. Mr. BUCK. You started in the United States with a capitalization, you say, of a million some-odd thousand dollars? Mr. FRIEL. That's right. Mr. Buck. What is the present size of the aggregate corporate holdings Mr. FRIEL. In the United States? Mr. FRIEL. Oh, I would say roughly we have today invested in the United States about $60,000,000 to $65,000,000. Mr. BUCK. Most of it earned ? Mr. FRIEL. Well, actually the earnings in the United States, as such, for the American corporation since repeal, after taxes, have been somewhere, I would say, around $15,000,000. Mr. Buck. You say that is the earnings in the United States since repeal ? Mr. FRIEL. Of the American companies? Mr. Davis. Does that include any profit employed in reinvestment or expansion? Mr. FRIEL. Well, we did not declare any dividends for 6 years so that we put all of our profits right back. Mr. Davis. Are you counting those 6-year profits you mention within the $15,000,000 in profits you speak of? Mr. FRIEL. $15,000,000, plus money that was sent down from Canada for investment. Mr. Davis. All right. Mr. BUCK. Approximately how many subsidiary corporations are there now held by Distillers Corporation, Seagrams, Ltd.? Mr. FRIEL. If you will lend me that chart I will count them. Mr. BUCK. How many indirect, if there are any, in the United States? What I am trying to do is to get at your subsidiaries in the United States and those abroad. Mr. FRIEL. About 20 to 22 or so. Mr. FRIEL. Yes. May I add there just for the minute that we are going through a simplification program right now consolidating a number of these corporations. Mr. Buck. This accumulation has taken place since repeal of the eighteenth amendment in 1933 ? Mr. FRIEL. That is correct. Mr. BUCK. Are you engaged in any other business aside from intoxicating beverages? Mr. FRIEL. None. Mr. FRIEL. I would say three active and probably two or three inactive. Mr. BUCK. Would you name those, please, sir, Mr. Friel ? Mr. FRIEL. Distillers Corporation, Ltd.; Joseph E. Seagram & Sons, Ltd., and Robert Brown & Co. Mr. BUCK. Do you have any holdings in Scotland ? Х Mr. FRIEL. There are a couple of inactive companies in Scotland that we just formed to protect names. BANKING CONNECTIONS OF SEAGRAMS Mr. BUCK. Let's take the domestic or American branch of your business. Who are your bankers? Whom do you borrow money from? Mr. FRIEL. We have 22; I think you have a list. We gave you a copy of our credit in answer to your questionnaire. Mr. BUCK. Is this the list? Mr. BUCK. Is this the only bank-credit agreement you have? Mr. Buck. In negotiating this bank-credit agreement, was it done through the Bankers Trust Co. in New York? Mr. FRIEL. Not altogether. It was done through the Bankers Trust Co, and the Manufacturers Trust Co. of New York. Mr. BUCK. Jointly by Bankers Trust and Manufacturers Trust? Mr. BUCK. Is Mr. Keidel, of the Bankers Trust Co., the bankers' Mr. BUCK. Do you have any objection to filing this agreement in the record ? Mr. FRIEL. I don't know. Is it necessary? Mr. BUCK. I think it would save me time of questioning about it if we could just file it in the record. Mr. FRIEL. I don't think it is necessary. I think there is a copy with the S. E. C. Why put it in the record ? Mr. Buck. Mr. Chairman, I don't know just what to do in that case. I would like to file it in the record. I feel that it would be of interest to the committee. Acting Chairman REECE. You feel that it should go into the record ? Mr. BUCK. I think so. It helps give the corporate background and its connections, so to speak, and I also intend to show, in connection with another one of the four companies, that Acting Chairman REECE (interposing). Unless there is some valid reason why it should not go into the record, I think the committee would be disposed to receive it. Mr. FRIEL. It is just that it contains a lot of confidential information that I don't see how it could affect these purposes. Mr. BUCK. I don't know. I want to comply with your request as far as possible and at the same time I want the committee to know the situation. My point here is this: You have this picture of the Seagram Corporation, and I propose to show that there are other corporations in the same business being financed practically through the same sources. Acting Chairman REECE. If it is agreeable, I would suggest that the committee accept it. If not, then it is a matter which the committee itself will have to determine, I presume, in executive session. Mr. O'CONNELL. Mr. Friel, did I understand you to say that a copy of that agreement was filed with the S. E. C. Mr. FRIEL. I am pretty sure it is. Mr. O'CONNELL. If it is filed with the S. E. C., it would be filed as a public record. If that is so, I don't quite understand that it would be confidential. You don't know for sure whether that is filed with the S. E. C.? Mr. FRIEL. They don't, as a rule, look there. Now they are on notice where to look for it. Acting Chairman REECE. The committee will accept it and determine what disposition shall be made of it. Х Mr. Buck. All right, sir; thank you. The agreement referred to was marked "Exhibit No. 411” and is included in the appendix on p. 2687.) Mr. BUCK. Mr. Friel, will you state the maximum allowance of credit by the banks under this agreement? Mr. FRIEL. At the present time? Mr. Davis. Did I understand that at the inception your company borrowed. $20,000,000 from this bank? When was that, Mr. Friel? Mr. FRIEL. That isn't quite correct. That contract provides that we have the right to borrow $20,000,000, divided as follows: We could borrow up to $10,000,000 for a period of 2 years and then $10,000,000 more seasonally. We never did borrow $20,000,000 under that contract. Mr. Davis. How much have you paid back of what you did borrow? Mr. FRIEL. Well, we have been up and down. We have paid back as much as nine or ten million dollars of the maximum amount that we borrowed under that credit. Mr. Davis. Do you mean you have paid back nine or ten million dollars all told, or out of each of the $10,000,000 periods? Mr. FRIEL. You reach peaks during the winter months of the year, say in December, and you reach a low point some time during the spring or summer. When I say we paid back nine or ten million dollars I mean we had reduced the loan from the high point to the low point in the summer. Mr. Davis. You paid it back out of profits, I assume. Mr. FRIEL. Not necessarily. It may have been out of accounts receivable. The biggest part of the money was borrowed to finance the wholesaler who in turn was financing the retailer. Mr. Davis. Have you sold any securities in the United States since repeal? Mr. FRIEL. We sold $15,000,000 worth of preferred stock. Mr. Buck. In other words, might this agreement be characterized as an open-credit agreement with a maximum limit of $20,000,000? Mr. ÈRIEL. Yes; in other words it gives us a contract right to borrow. Mr. Buck. Over a period of time until 1942? Dr. THORP. Was there any separate financing done by the separate subsidiary companies, or does the whole structure act as a unit from the point of view of financing arrangements? Mr. FRIEL. Each of the separate subsidiary companies that has become a part to this agreement has a right to borrow direct. They do so and their borrowings are restricted to the agreement. ADVANTAGE OF HOLDING COMPANY SET-UP TO PRODUCER Dr. THORP. I wonder if I could just at this moment raise a question. We have had some discussions here in the committee with regard to the desirability or the usefulness of holding company arrangements. Is there anything that you could introduce that would indicate advantages to you of a structure in which there was a holding company with a series of subsidiaries rather than an organization which was singly integrated ? Mr. FRIEL. Oh, I think so, because one thing you would want separate companies to protect your trade names. Further you need separate companies to comply in some cases with the separate State laws in the States where you operate. You just couldn't have one corporation. Dr. THORP. How does it work with regard to protecting the trade names? Mr. FRIEL. By giving the trade name right to the corporation itself, qualifying it in a State or organizing in the State. It gives you at least a good start from which to proceed in protecting your trade names. Dr. THORP. In other words, there are two levels with regard to the importance of names, the brand name and the name of the company, and by having a number of subsidiaries you can, therefore, have a number of company names which may also have a public appeal of some sort. Mr. FRIEL. To the extent that you want to merchandise the separate brands. Dr. THORP. So the tendency is, and that I suppose would be one reason for taking over certain of these old-established companies, to get the name of the company. Mr. FRIEL. We did not take over any old-established companies; not in this country: Dr. THORP. I don't quite follow the point, then. Or is it that you have set up separate companies so you would have separate names which you could develop ? Mr. FRIEL. We have developed separate names ourselves. Dr. THORP. From the point of view of financial responsibility, is there any advantage, financial risk, something of that sort, in having a number of subsidiaries? Mr. FRIEL. No; not that I know of. Mr. Buck. Mr. Friel, as a matter of fact it isn't necessary to have subsidiaries to hold brand names, is it? Mr. FRIEL. Yes; when you are using surnames, family names. Mr. FRIEL. We haven't got so many. I don't think we have all together more than 10 or 12 brands. Mr. BUCK. Brands of whisky? Mr. BUCK. Well, practically or not; I mean it is one way or the other, isn't it? They are or they are not. Mr. FRIEL. Will you repeat your question? |