<PAGE>
<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________________ TO ______________________
COMMISSION FILE NUMBER 33-68992
------------------------
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 13-3438814
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
9 WEST 57TH STREET, NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-756-8900
Indicate by check mark whether the registrant (1) has filed all reports 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 ____ No __X__
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of August 1, 1997 the
registrant had 9,138,465 shares of common stock outstanding.
________________________________________________________________________________
<PAGE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I -- Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- June 30, 1997 (unaudited) and December 31, 1996........................ 3
Consolidated Statements of Income for the three-month and six-month periods ended June 30, 1997 and
1996 (unaudited)..................................................................................... 4
Consolidated Statements of Cash Flows for the six-month periods ended June 30, 1997 and 1996
(unaudited).......................................................................................... 5
Notes to Consolidated Financial Statements............................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 8
Part II -- Other Information
Item 1. Legal Proceedings.................................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders................................................ 13
Item 6. Exhibits and Reports on Form 8-K................................................................... 13
Signatures................................................................................................. 14
</TABLE>
2
<PAGE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 78,276 $ 95,784
Receivables, net................................................................ 167,831 150,817
Inventories, net................................................................ 124,808 117,461
Other current assets............................................................ 17,442 11,036
----------- ------------
Total current assets....................................................... 388,357 375,098
Property, plant and equipment, net................................................... 239,357 263,859
Goodwill, net of accumulated amortization of $21,288 and $23,539 at June 30, 1997 and
December 31, 1996, respectively.................................................... 81,531 90,509
Other noncurrent assets.............................................................. 73,106 52,238
----------- ------------
Total assets............................................................... $ 782,351 $781,704
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt........................... $ 49,060 $ 34,095
Accounts payable................................................................ 238,088 226,827
Taxes currently payable......................................................... 11,268 18,563
Accrued expenses................................................................ 57,075 58,174
----------- ------------
Total current liabilities.................................................. 355,491 337,659
Long-term debt....................................................................... 227,960 229,492
Deferred income taxes................................................................ 2,109 7,409
Minority interests................................................................... 62,932 77,447
Other noncurrent liabilities......................................................... 31,447 23,487
----------- ------------
Total liabilities.......................................................... 679,939 675,494
----------- ------------
Commitments and contingencies........................................................ -- --
Stockholders' equity:
Preferred stock, $.01 par value; authorized 2,500,000 shares; none
outstanding.................................................................... -- --
Common stock, $.01 par value; authorized 11,000,000 shares; issued 9,750,000
shares......................................................................... 97 97
Additional paid-in capital...................................................... 9,653 9,653
Treasury stock (611,535 shares)................................................. (23,200) (23,200)
Retained earnings............................................................... 173,472 157,148
Cumulative foreign currency translation adjustment.............................. (57,610) (37,488)
----------- ------------
Total stockholders' equity................................................. 102,412 106,210
----------- ------------
Total liabilities and stockholders' equity................................. $ 782,351 $781,704
----------- ------------
----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................................. $ 577,073 $ 585,736 $ 1,090,810 $ 1,116,126
----------- ----------- ----------- -----------
Operating expenses:
Cost of sales........................................ 467,811 478,111 892,055 920,315
Selling, general and administrative expenses......... 78,681 79,502 151,621 152,942
Income from settlement of litigation, net............ (9,850) -- (9,850) --
Amortization of intangible assets.................... 926 713 1,960 1,444
----------- ----------- ----------- -----------
Total operating expenses........................ 537,568 558,326 1,035,786 1,074,701
----------- ----------- ----------- -----------
Operating income.......................................... 39,505 27,410 55,024 41,425
----------- ----------- ----------- -----------
Other income (expense):
Interest income...................................... 1,439 2,138 2,778 4,130
Interest expense..................................... (6,987) (8,447) (13,884) (17,180)
Other income......................................... 243 156 515 313
----------- ----------- ----------- -----------
Total other income (expense).................... (5,305) (6,153) (10,591) (12,737)
----------- ----------- ----------- -----------
Income from operations before income taxes and minority
interests in earnings................................... 34,200 21,257 44,433 28,688
Income taxes.............................................. (8,393) (4,964) (12,572) (7,035)
Minority interests in earnings............................ (8,811) (8,686) (13,527) (12,806)
----------- ----------- ----------- -----------
Net income................................................ $ 16,996 $ 7,607 $ 18,334 $ 8,847
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income per common share................................... $1.86 $.83 $2.01 $.97
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares outstanding...... 9,138 9,138 9,138 9,138
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $18,334 $ 8,847
Items not affecting cash:
Depreciation and amortization of intangible assets................................ 20,867 18,410
Minority interests in earnings, net of distributions.............................. (6,612) 11,651
Deferred income taxes and other items, net........................................ (20,854) (8,660)
Changes in working capital:
Receivables....................................................................... (35,414) (32,173)
Inventories....................................................................... (21,411) (11,065)
Accounts payable and accrued expenses............................................. 41,874 13,395
Taxes payable..................................................................... (5,284) 5,358
Other current assets.............................................................. (7,711) (2,046)
----------- -----------
Net cash (used in) provided by operating activities.......................... (16,211) 3,717
----------- -----------
Cash flows from investing activities:
Expenditures for property, plant and equipment.................................... (23,438) (40,401)
Proceeds from disposal of assets.................................................. 7,997 1,249
Other investments................................................................. (3,434) (1,821)
----------- -----------
Net cash used in investing activities........................................ (18,875) (40,973)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......................................... 13,385 13,452
Long-term debt repayments......................................................... (8,873) (6,152)
Net proceeds from issuance of short-term debt..................................... 18,602 2,844
Repurchase of common stock........................................................ -- (1,170)
Common stock dividends............................................................ (2,010) (1,005)
Minority interest loans........................................................... -- (866)
----------- -----------
Net cash provided by financing activities.................................... 21,104 7,103
----------- -----------
Foreign exchange effects on cash and cash equivalents.................................. (3,526) (107)
----------- -----------
Net decrease in cash and cash equivalents.............................................. (17,508) (30,260)
Cash and cash equivalents at beginning of the period................................... 95,784 120,279
----------- -----------
Cash and cash equivalents at end of the period......................................... $78,276 $90,019
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................................................... $13,405 $16,343
----------- -----------
----------- -----------
Income taxes...................................................................... $18,204 $10,088
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
1. BUSINESS DESCRIPTION
As of June 30, 1997, TLC Beatrice International Holdings, Inc. ('TLC
Beatrice' and together with its subsidiaries, the 'Company') and its
subsidiaries was comprised of 11 operating entities and their subsidiaries
located principally in western Europe. The Company's operating entities are
engaged in the wholesale and retail distribution of food, groceries, household
products and beverages, and the manufacture and marketing of ice cream and
desserts, snacks, and beverages. Sales of these products are made to customers
principally in western Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements as of June 30, 1997 and for
the three-month and six-month periods ended June 30, 1997 and 1996 are
unaudited; however, in the opinion of management, all adjustments, which consist
of normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations for such interim periods, are included. The
results of operations for the interim periods presented are not necessarily
indicative of results for an entire year. The Company's Food Distribution
segment shows relatively even sales and operating income throughout the year.
The Grocery Products segment shows greater seasonality, with the majority of
sales and operating income earned during the second and third quarters of the
year. For further information refer to the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1996.
Net income per common share is computed by dividing the net income
applicable to common stockholders by the weighted average number of common
shares outstanding during the period.
3. INVENTORIES
Inventories consisted of the following components:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................................................. $ 12,750 $ 10,428
Work in process............................................................ 157 78
Finished goods............................................................. 111,901 106,955
----------- ------------
Total................................................................. $ 124,808 $117,461
----------- ------------
----------- ------------
</TABLE>
4. INCOME FROM SETTLEMENT OF LITIGATION, NET
The Company recorded $14.9 million income due from the Estate of Reginald
F. Lewis primarily reflecting a return of expenses recorded by the Company in
1992. Offsetting the favorable Settlement Amount (as hereafter defined), the
Company recorded $5.1 million in litigation expenses (which expenses are subject
to court approval) payable to Carlton as reimbursement of its expenses as part
of the Global Settlement (as hereafter defined). See Note 6 to Notes to
Consolidated Financial Statements.
5. INCOME TAXES
Income tax expense is comprised primarily of foreign taxes on income. The
effective tax rate therefore differs from the U.S. Federal statutory rate as a
result of differences among U.S. and foreign rates, losses of certain companies
having no current tax benefits, credits allowable against foreign taxes and
nondeductible expenses such as goodwill amortization.
6. LITIGATION
On May 20, 1994, Carlton Investments ('Carlton') filed a complaint against
TLC Beatrice and the executrices of the Estate of Reginald F. Lewis ('Lewis
Estate') in the Supreme Court of the State of New York, County of New York,
titled Carlton Investments v. TLC Beatrice International Holdings, Inc., et al.
(the 'New York Action'). Carlton alleged that TLC Beatrice breached the
Stockholders' Agreement by paying a $22.1 million compensation package to Mr.
Reginald F. Lewis, former Chairman
6
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
of the Board and Chief Executive Officer of TLC Beatrice. Carlton initially
sought $11.0 million plus interest in damages and attorneys' fees and costs.
On January 4, 1995, Carlton filed a stockholder derivative complaint
allegedly on behalf of TLC Beatrice in the Court of Chancery of the State of
Delaware, New Castle County, entitled Carlton Investments v. TLC Beatrice
International Holdings, Inc., et al., C.A. No. 13950 (the 'Delaware Action'). In
this stockholder derivative action, which had been amended twice, Carlton
challenged the expenditure of corporate funds allegedly paid to the late
Reginald F. Lewis and entities controlled by or affiliated with him between 1987
and 1993. Named as defendants are the executrices of the Lewis Estate, several
entities allegedly controlled by the late Mr. Lewis, together with a number of
current and former directors and a former officer of TLC Beatrice. The
derivative complaint also names TLC Beatrice and three of its subsidiaries as
nominal defendants.
TLC Beatrice and the other defendants had filed answers and affirmative
defenses to the derivative complaint denying all material allegations.
A settlement has resulted from the formation by TLC Beatrice's Board of
Directors on May 24, 1996 of a Special Litigation Committee (the 'SLC'). On that
date, the Board, including Carlton's representative on the Board, Paul
Biddelman, unanimously voted to expand the size of the Board by two seats,
elected Clifford L. Alexander, Jr. and William H. Webster to the Board and
appointed Messrs. Alexander and Webster as directors, with no personal or
business relationships or dealings with the defendants, TLC Beatrice or the
Lewis family, to serve as the members of the SLC. The SLC was charged with the
responsibility of investigating and evaluating the allegations and issues in the
litigation and to consider and determine whether or not continued prosecution of
the Delaware Action was in the best interests of TLC Beatrice and its
shareholders and what action TLC Beatrice should take concerning the Delaware
Action in accordance with Delaware law.
The SLC, through its counsel, entered into a Stipulation of Settlement
dated November 12, 1996 with counsel for all of the defendants, which was
approved over Carlton's objection by the Delaware Chancery Court by Memorandum
Opinion of May 20, 1997 and Final Judgment Order dated June 9, 1997. The
Stipulation of Settlement is a full and final settlement of the Delaware Action
and releases defendants from all claims that were or could have been raised by
Carlton or any other shareholder in the suit. Under the Stipulation of
Settlement, the Lewis Estate has agreed to pay the Company the amount of
$14,932,000 plus interest over the next seven years (the 'Settlement Amount').
The payment of the Settlement Amount is to be secured by the personal guaranty
of Loida N. Lewis and the pledge by the Lewis Estate of shares of Common Stock
of the Company owned by the Lewis Estate.
By Settlement Agreement and Release dated July 11, 1997 (the 'Global
Settlement'), the Company, the Lewis Estate, Carlton and Presidential Life
Insurance Company, individually and as plaintiff class representative
('Presidential Life'), agreed to settle all outstanding litigation among them,
including the New York Action and the dismissal of the Company's appeal before
the United States Court of Appeals for the Second Circuit in the case titled,
Presidential Life Ins. Co. v. Milken, Case No. 92 Civ. 1151 (MP) (the
'Presidential Life Class Action'). The Company's appeal before the Second
Circuit had sought to overturn the final judgment in the Presidential Life Class
Action as constitutionally deficient in several aspects. Pursuant to the Global
Settlement, the dismissal of the Company's appeal was approved by the Second
Circuit on July 17, 1997.
Further, as part of the Global Settlement, the Company agreed not to
contest Carlton's request for reimbursement of legal fees and expenses incurred
by Carlton in prosecuting the Delaware Action, an amount of $5,082,774. Carlton
also agreed not to appeal the Stipulation of Settlement.
By reason of the Stipulation of Settlement and the Global Settlement, all
outstanding litigation between Carlton and the Company has been resolved. In
addition, Carlton released all defendants from any and all claims which have
been, or could have been, or in the future might be, asserted in the Delaware
Action, the New York Action or the Presidential Life Class Action.
7
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is qualified by reference to and
should be read in conjunction with the Company's Unaudited Consolidated
Financial Statements, including the Notes thereto, included elsewhere in this
Report. The Company's net sales and results of operations during the periods
presented have not been significantly affected by inflation. Operating results
for the three and six months ended June 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997 or any
other period.
The Company's net sales, costs, assets and liabilities are for the most
part denominated in local currencies. Therefore, results of operations, as
stated in local currencies, and the Company's business practices and plans with
respect to a particular country, are not significantly affected by exchange rate
fluctuations. However, such results of operations as reported in U.S. dollars
may be significantly affected by fluctuations in the value of the local
currencies in which the Company transacts business in relation to the U.S.
dollar. Results of operations of the Company's subsidiaries are translated into
U.S. dollars on the basis of average exchange rates throughout the period.
Assets and liabilities are translated into U.S. dollars on the basis of rates of
exchange as of the balance sheet dates. Notwithstanding the fact that
substantially all of the Company's cash flow is denominated in foreign
currencies, such currencies have in the past generally fluctuated within a
relatively well-defined range in relation to the U.S. dollar. Accordingly,
although the Company has closely monitored its currency exposure in the past and
will continue to do so, the Company believes that it is not necessary to hedge
its overall foreign currency position at this time.
Operations of the Company's Food Distribution segment are concentrated in
France, and net sales, costs, assets and liabilities of these operations are
therefore denominated almost exclusively in French francs. Operations of the
Company's Grocery Products segment, however, are located in several European
countries, including Spain, Ireland, Belgium, the Netherlands and France. Unless
otherwise indicated, all percentage changes in segment operating results set
forth below have been calculated based on local currency amounts.
RESULTS OF OPERATIONS
The following table provides information concerning the Company's net sales
and operating income, by segment, for the three months and the six months ended
June 30, 1997 and 1996. The approximate percentage changes in net sales and
operating income attributable to operations on a local currency basis and to
changes in exchange rates for such periods are shown in the tables on page 10.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales:
Food Distribution....................................... $465,187 $468,024 $ 914,960 $ 926,669
Grocery Products........................................ 111,886 117,712 175,850 189,457
-------- -------- ---------- ----------
Total Net Sales.................................... $577,073 $585,736 $1,090,810 $1,116,126
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Operating Income:
Food Distribution....................................... $ 19,439 $ 16,154 $ 34,311 $ 30,107
Grocery Products........................................ 14,147 17,133 16,811 20,767
Corporate............................................... 6,582 (5,164) 5,349 (8,005)
Amortization of Intangibles............................. (663) (713) (1,447) (1,444)
-------- -------- ---------- ----------
Total Operating Income............................. $ 39,505 $ 27,410 $ 55,024 $ 41,425
-------- -------- ---------- ----------
-------- -------- ---------- ----------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net sales were approximately $1.1 billion for the six-month period ended
June 30, 1997, a decrease of 2% compared to the corresponding period in 1996, or
a 9% increase on a local currency basis. For the quarter ended June 30, 1997,
net sales were approximately $577 million, a decrease of 2% or an 11% increase
on a local currency basis compared to the corresponding period in 1996.
8
<PAGE>
<PAGE>
The Food Distribution segment had net sales for the six-month period ended
June 30, 1997 of $915 million, a decrease of 1%, or a 10% increase on a local
currency basis, over the comparable period in 1996. Wholesale sales relating to
the Franprix network increased 2%, reflecting an increase in the number of
stores served (411 at June 30, 1997 versus 400 at June 30, 1996) which was
partially offset by a 2.4% decline in sales to comparative Franprix stores in
the first half of 1997 compared to the same period in 1996. Retail sales of
owned Franprix stores were down 4% primarily due to low levels of consumer
spending at the beginning of the period. Net sales of the Leader Price network
increased by 20% reflecting additional volume created by the opening of 26
stores between June 30, 1997 and June 30, 1996. Net sales of the Food
Distribution segment for the three-month period ended June 30, 1997 were $465
million, a decrease of 1% compared to the same period in 1996, or a 12% increase
on a local currency basis. The continued growth of the Leader Price network was
primarily responsible for the increase.
The Grocery Products segment had net sales in the first six months of 1997
of $176 million, a decrease of 7%, or an increase of 3% on a local currency
basis, over the comparable period in 1996. A 5% increase in the Company's ice
cream operations was primarily responsible for the growth reflecting strong
sales from new product introductions and the addition of seven new distributors.
In addition, Tayto Ltd. ('Tayto'), a manufacturer of potato chips and snacks in
Ireland, recorded a 6% increase in net sales due to price increases implemented
in April 1996 and increased volume of crisps sales resulting from strong
promotional activities in the first half of 1997. The Grocery Products segment
reported a 5% decrease in net sales, from $118 million to $112 million, for the
second quarter 1997 versus the second quarter 1996. On a local currency basis,
net sales increased 6%. The Grocery Products segment is highly seasonal with the
majority of sales and income recorded in the second and third quarters of the
year. Year-to-date figures for this segment are indicative of second quarter
results.
Operating income of the Food Distribution segment increased by 14%, or 27%
on a local currency basis, in the first six months of 1997 compared to the same
period in 1996. The 47% increase in Leader Price operating income, reflecting a
12% increase in the total number of stores opened as of June 30, 1997 versus
June 30, 1996 and strong wholesale margins was partially offset by a reduction
in Franprix's operating income. The Franprix wholesale operation was responsible
for the decline, reflecting lower gross margins due to price reductions
initiated in the second quarter of 1996 taken to counter competition in the
Paris area. Operating income for the Food Distribution segment increased 20%
to $19 million, or 35% on a local currency basis, in the second quarter 1997
versus the comparable period in 1996. Both the Franprix and Leader Price
networks showed strong increases of operating income of 12% and 43%,
respectively, in the second quarter of 1997 versus the second quarter of 1996.
Operating income of the Grocery Products segment declined by 19%, or
13% on a local currency basis, in the first half of 1997 versus the same
period in 1996. A decrease in beverage operating income was offset by
increases in the ice cream and snack operations of the Company. Poor weather
conditions, start-up losses of the Company's new bottling factory in France
and increased competition were responsible for the beverage operation's
decline. Interglas S.A. ('Interglas'), an ice cream and yogurt manufacturer
in the Canary Islands, increased operating income due to increased sales and
production efficiencies achieved in 1997 due to new equipment installed in the
first quarter of 1996. Helados La Menorquina S.A. ('La Menorquina'), an ice
cream manufacturer in mainland Spain, increased operating income due to an
increase in sales of 5%, improvements in productivity costs and unusually high
bad debt expenses recorded in 1996 not repeated in 1997. Tayto increased
operating income by 3%, primarily reflecting increased sales. Operating income
of the Grocery Products segment in the second quarter of 1997 of $14 million
decreased 17%, or 9% on a local currency basis, versus the second quarter of
1996. As discussed previously, due to the highly seasonal nature of the
Grocery Products segment, second quarter results and year-to-date results
are highly reflective of each other. Interglas and La Menorquina combined
and Tayto reported increases of 7% each in the three months ended June 30,
1997 versus the comparable period in the prior year while beverage operations
decreased 48%.
Corporate expenses reflect income of $5 million in the six months ended
June 30, 1997 versus an expense of $8 million in the comparable period in 1996
primarily reflecting a favorable settlement in the Company's litigation with
Carlton Investments (see Note 6 to the Notes to Consolidated Financial
Statements). The Company recorded $14.9 million income due from the Estate of
Reginald F. Lewis
9
<PAGE>
<PAGE>
primarily reflecting a return of expenses recorded by the Company in 1992.
Offsetting the favorable Settlement Amount, the Company recorded $5.1 million in
litigation expenses (which expenses are subject to court approval) payable to
Carlton as reimbursement of their expenses as part of the Global Settlement.
The following table details the approximate percentage changes in net sales
and operating income attributable to operations on a local currency basis and to
changes in exchange rates for the six month period ended June 30, 1997 as
compared to the six month period ended June 30, 1996.
<TABLE>
<CAPTION>
NET SALES OPERATING INCOME
--------------------------------- ---------------------------------
PERCENT CHANGE PERCENT CHANGE
ATTRIBUTABLE TO ATTRIBUTABLE TO
---------------------- TOTAL ---------------------- TOTAL
EXCHANGE PERCENT EXCHANGE PERCENT
OPERATIONS RATES CHANGES OPERATIONS RATES CHANGES
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Segment
Food distribution....................... 10% (11)% (1)% 27% (13)% 14%
Grocery products........................ 3 (10) (7) (13) (6) (19)
Total.............................. 9 (11) (2) 11 (10) 1
</TABLE>
The following table details the approximate percentage changes in net sales
and operating income attributable to operations on a local currency basis and to
changes in exchange rates for the three month period ended June 30, 1997 as
compared to the three month period ended June 30, 1996.
<TABLE>
<CAPTION>
NET SALES OPERATING INCOME
--------------------------------- ---------------------------------
PERCENT CHANGE PERCENT CHANGE
ATTRIBUTABLE TO ATTRIBUTABLE TO
---------------------- TOTAL ---------------------- TOTAL
EXCHANGE PERCENT EXCHANGE PERCENT
OPERATIONS RATES CHANGES OPERATIONS RATES CHANGES
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Segment
Food distribution....................... 12% (13)% (1)% 35% (15)% 20%
Grocery products........................ 6 (11) (5) (9) (8) (17)
Total.............................. 11 (13) (2) 12 (11) 1
</TABLE>
Net income for the six months ended June 30, 1997 increased by
approximately $9.5 million from $8.8 million to $18.3 million due to higher
operating income of $13.6 million and lower net interest expense of $1.9 million
offset by higher taxes and minority interest in earnings of $5.5 million and
$700,000 respectively primarily reflecting higher pre-tax income. In addition,
1996 tax expense reflected the recognition of certain deferred tax benefits
adjustments not repeated in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company's current level of indebtedness,
amounting to approximately $277 million at June 30, 1997, of which $228 million
represents long-term debt and $49 million represents short-term debt and current
portion of long-term debt, is such that no significant restrictions on future
earnings or liquidity exist and that the Company's existing level of
indebtedness will not have any adverse impact on its operating flexibility. The
Company, however, continues to monitor its level of indebtedness.
Working capital financing is generally available to each operating
subsidiary of the Company through short-term lines of credit and overdraft
facilities from local banks. At June 30, 1997, TLC Beatrice's subsidiaries had
lines of credit denominated in local currencies totalling $94 million, of which
$61 million remained unused. The Company believes that cash flow from operations
combined with local credit facilities are sufficient, in the aggregate, to meet
anticipated working capital and capital spending requirements, as well as the
Company's debt service requirements for the foreseeable future, including
interest payments.
At June 30, 1997, the Company had working capital of $32.9 million,
compared to working capital of $37.4 million at December 31, 1996.
On October 2, 1995, TLC Beatrice sold $175 million aggregate principal
amount of 11.5% Senior Secured Notes due October 1, 2005 (the 'Notes'). Interest
on the Notes is payable on April 1 and October 1 of each year, commencing April
1, 1996. The Notes rank pari passu in right of payment with all unsubordinated
borrowings of TLC Beatrice and are secured by a security interest in a portion
of the
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capital stock of certain of TLC Beatrice's subsidiaries and certain intercompany
indebtedness. The Indenture relating to the Notes (the 'Indenture') permits TLC
Beatrice's subsidiaries to incur additional indebtedness under certain
circumstances, including up to $25 million for general corporate purposes under
a Facility Agreement (the 'Credit Agreement'), described below, among Banque
Paribas, Smurfit Paribas Bank Limited and TLC Beatrice International (Irish)
Holdings Limited ('Irish Holdings') which is guaranteed by TLC Beatrice.
The Notes are redeemable, at the option of TLC Beatrice, in whole or in
part, at any time on or after October 1, 2000, at the redemption prices set
forth in the Indenture plus accrued interest to the redemption date. In
addition, upon one or more Public Equity Offerings (as defined in the Indenture)
consummated prior to October 1, 1998, TLC Beatrice may at its option redeem up
to $52.5 million aggregate principal amount of Notes from the proceeds thereof
at 110% of the principal amount thereof plus accrued interest to the date of
redemption.
TLC Beatrice is required to offer to repurchase all outstanding Notes at
101% of principal amount plus accrued interest promptly after the occurrence of
a Change of Control (as defined in the Indenture) with respect to TLC Beatrice.
A Change of Control will generally be deemed to occur if (i) the Permitted
Holders (as defined in the Indenture) shall beneficially own in the aggregate
less than 20% of the aggregate voting power of all classes of Voting Stock (as
defined in the Indenture) of TLC Beatrice; or (ii) any person or entity (other
than a Permitted Holder) shall beneficially own either more than 50% of the
aggregate voting power of all classes of Voting Stock of TLC Beatrice or shares
of Voting Stock of TLC Beatrice representing aggregate voting power greater than
that represented by the aggregate shares of Voting Stock then beneficially owned
by the Permitted Holders; or (iii) any such person or entity shall elect a
majority of the Board of Directors of TLC Beatrice. There can be no assurance
that TLC Beatrice will have sufficient funds to repay the Notes should a Change
of Control occur.
The Indenture restricts, among other things, the ability of TLC Beatrice
and its Restricted Subsidiaries (as defined in the Indenture) to incur
indebtedness, incur liens, enter into sale and leaseback transactions, make
restricted payments, enter into asset dispositions and engage in transactions
with affiliates. The Indenture also limits the ability of TLC Beatrice and its
Restricted Subsidiaries to enter into agreements that restrict the payment of
dividends and other payments by any Restricted Subsidiary to the Company. In
addition, the Indenture restricts the ability of TLC Beatrice to merge or
consolidate with or transfer all or substantially all of its assets to another
entity.
On October 6, 1995, Irish Holdings entered into the Credit Agreement
(amended as of February 26, 1997) pursuant to which Irish Holdings can initially
borrow up to the lower of (a) 16 million Irish Punts (approximately $25.9
million at the then-prevailing foreign exchange rate) and (b) an amount
calculated as follows: 34 million Irish Punts plus any share capital contributed
in cash to Tayto, Irish Holdings' principal operating subsidiary, less the
cumulative amount of cash dividends paid and management fees and intercompany
loans made by Tayto to Irish Holdings from the date of the Credit Agreement. The
amount available for borrowing under the Credit Agreement is reduced to (i) 9.6
million Irish Punts (approximately $14.6 million at the June 30, 1997 foreign
exchange rate) from February 1, 1999 through January 31, 2000 and (ii) 3.2
million Irish Punts (approximately $4.9 million at the June 30, 1997 foreign
exchange rate) from February 1, 2000 through January 31, 2001, at which time all
amounts outstanding must be repaid. Interest on borrowings in Irish Punts is
payable at the rate of the Dublin Interbank Offering Rate ('DIBOR') plus 1.65%.
The Credit Agreement also provides for an alternative currency option pursuant
to which Irish Holdings can borrow in certain other currencies at an interest
rate equal to LIBOR plus 1.65%. The Credit Agreement contains restrictions on
certain activities of Irish Holdings and Tayto, including, among other things,
the incurrence of indebtedness or encumbrances, entering into agreements other
than in the ordinary course of business, the making of certain capital
expenditures and the acquisition or sale of assets outside the ordinary course
of business. In addition, Irish Holdings and Tayto are required to maintain
certain financial ratios. The Credit Agreement is guaranteed by TLC Beatrice and
secured by a pledge of the common stock of Tayto owned by Irish Holdings. As of
June 30, 1997, approximately $15.0 million (at the then-prevailing foreign
exchange rate), was borrowed under the Credit Agreement.
In the six months ended June 30, 1997, cash used in operating activities
was $16.2 million.
In the six months ended June 30, 1997, cash provided by financing
activities was $21.1 million, primarily reflecting approximately $18.6 million
in net proceeds from the issuance of short-term debt.
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In the six months ended June 30, 1997, cash used in investing activities
was $18.9 million, primarily reflecting capital expenditures. The Company
estimates its 1997 net capital expenditures will be approximately $40 million.
The Company anticipates that such expenditures will be applied to the costs of
new Leader Price store openings and further expansion of the Company's ice cream
sales in Spain.
Pursuant to certain agreements entered into in 1992, TLC Beatrice
International Holdings France S.A., an indirect wholly-owned subsidiary of the
Company ('TLC France'), is obligated under certain circumstances to purchase the
ownership interests in Distribution Leader Price and Retail Leader Price from
the minority stockholders of Distribution Leader Price and Retail Leader Price,
who, directly or indirectly, are various members of the Baud family and a
corporate entity controlled by the Baud family (collectively, the 'Baud Minority
Stockholders'). At any time on or after July 1, 1997 and prior to June 30, 2027,
the Baud Minority Stockholders can exercise their right to require TLC France to
purchase their shares in Distribution Leader Price and Retail Leader Price (the
'Put Right'), and TLC France can exercise its right to require the Baud Minority
Stockholders to sell their shares in Distribution Leader Price and Retail Leader
Price (the 'Call Right'), without restriction. The price to exercise the Put
Right is based on a formula calculated at the time of exercise which sets a
purchase price at a multiple of the average annual net income per share of
Distribution Leader Price and Retail Leader Price, as applicable, for the two
fiscal years prior to exercise. If the Put Right is exercised after July 1,
1997, and as long as the Notes are outstanding, the purchase price for such
shares is payable 25% on the closing of the purchase of such shares, 45% on the
first anniversary of such closing and 30% on the second anniversary of such
closing, together with interest thereon at PIBOR. After repayment of the Notes,
the purchase price for such shares is payable 50% on the closing of the purchase
of such shares and 50% on the first anniversary of such closing, without
interest. Solely for purposes of illustration, if the Baud Minority Stockholders
were to have exercised their Put Right on December 31, 1996, using the formula
that would be in effect on July 1, 1997, the total purchase price for such
shares would have been approximately $143 million. The price to exercise the
Call Right is based on the same formula as in the exercise of the Put Right,
except that the multiple of average annual net income is higher. Distribution
Leader Price and Retail Leader Price have shown substantial earnings growth
during the past three years. If such companies' earnings were to continue to
increase during the two fiscal years prior to the exercise of such option, as to
which no assurance can be given, the purchase price payable upon exercise of the
Put Right and and Call Right would increase materially.
In addition to the foregoing, the Company, including in certain
circumstances TLC Beatrice, is a party to separate stockholder agreements with
the other Baud stockholders and certain other minority stockholders. Certain of
these agreements and the by-laws of certain subsidiaries restrict the sale of
the minority stockholders' interest or require the Company or the minority
stockholders, as the case may be, to offer to sell their shares to the other
stockholders prior to selling such shares to a third party and/or require the
Company to purchase these interests under certain circumstances. These local
minority stockholders have the option to require the Company to purchase their
interests in whole or in part at any time. If all of such options were exercised
in full, the Company's aggregate purchase obligation is estimated to be
approximately $35 million as of December 31, 1996.
If any or all of such minority stockholders require the Company to purchase
their interest in certain subsidiaries of the Company pursuant to the put rights
described above, the Company believes cash flows from operations, together with
the Company's potential financing sources, will be sufficient to meet any
purchase obligation that may result. No assurance can be given, however, that
the Company will be able to satisfy its purchase obligations from these sources.
The Spanish and Canary Islands provincial governments instituted a set of
tax incentives beginning in 1994 which Interglas has opted to take advantage of
for its 1994 and 1995 tax years. Interglas is required to make qualifying
investments in productive machinery and equipment and/or local government
interest-bearing bonds in the amount of $13.8 million in 1997, $13.8 million in
1998 and $370,000 in 1999 in order to qualify for these tax incentives. The
Company has provided for deferred taxes on these requirements equal to the 35%
tax rate on $28.0 million, or approximately, $9.8 million, in the event that the
required investment obligations are not fulfilled. There can be no assurances
that changes in existing Canary Islands tax rules and requirements will not
occur or that the Company will be able to make the qualifying investments in the
future. By reason of these uncertainties, the Company has recorded the potential
full deferred tax liability. If the Company can fulfill these investment
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requirements, the deferred tax liability may be reversed depending upon the
relevant facts and circumstances existing at the time.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ('SFAS') No. 130, 'Reporting Comprehensive
Income.' SFAS No. 130 requires a reconciliation of net income to comprehensive
income in the financial statements. Comprehensive income includes items that are
excluded from net income and reported as components of stockholders' equity,
such as unrealized gains and losses on certain investments in debt and equity
securities, foreign currency items and minimum pension liability adjustments.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ('SFAS') No. 131, 'Disclosure about Segments of
an Enterprise and Related Information.' SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company has not yet determined what additional disclosures may be
required in connection with adopting SFAS No. 131.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Except for historical matters, the matters discussed in Part I, Item 2.
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' are forward-looking statements that involve risks and uncertainties.
Forward-looking statements are based on management's current views and
assumptions and involve risks and uncertainties that could significantly affect
expected results. TLC Beatrice wishes to caution the reader that the factors
below in some cases have affected and could affect TLC Beatrice's actual
results, causing results to differ materially from those in any forward-looking
statement. These factors include: governmental regulations relating to new store
openings, adverse market trends and purchasing habits of consumers living in the
Paris metropolitan area which adversely affect Franprix, competition in the
Paris area, negotiations and the then-current relationships with minority
stockholders, and foreign exchange rates.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in the Company's Form 10-K for the year ended
December 31, 1996, the Company was a defendant in certain legal proceedings in
Delaware and New York, brought by Carlton Investments. All legal proceedings
between Carlton and the Company have now been resolved. See Item 3 to the
Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1996
and Note 6 to the Consolidated Financial Statements included herein under Part
I.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27. Financial Data Schedule.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June 30,
1997.
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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.
TLC BEATRICE INTERNATIONAL
HOLDINGS, INC.
<TABLE>
<S> <C>
Date: August 6, 1997 By /s/ Loida N. Lewis
........................................................
LOIDA N. LEWIS
CHAIRMAN
Date: August 6, 1997 By /s/ Peter Offermann
........................................................
PETER OFFERMANN
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
14
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 78,276 95,784
<SECURITIES> 0 0
<RECEIVABLES> 167,831 150,817
<ALLOWANCES> (5,419) (5,807)
<INVENTORY> 124,808 117,461
<CURRENT-ASSETS> 17,442 11,036
<PP&E> 239,357 263,859
<DEPRECIATION> (193,280) (189,536)
<TOTAL-ASSETS> 782,351 781,704
<CURRENT-LIABILITIES> 355,491 337,659
<BONDS> 227,960 229,492
<COMMON> 97 97
0 0
0 0
<OTHER-SE> 102,315 106,113
<TOTAL-LIABILITY-AND-EQUITY> 782,351 781,704
<SALES> 1,090,810 2,225,313
<TOTAL-REVENUES> 1,090,810 2,225,313
<CGS> 892,055 1,831,006
<TOTAL-COSTS> 1,035,786 2,138,783
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,884 30,778
<INCOME-PRETAX> 44,433 64,508
<INCOME-TAX> 12,572 17,496
<INCOME-CONTINUING> 18,334 19,601
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 18,334 19,601
<EPS-PRIMARY> 2.01 2.14
<EPS-DILUTED> 0 0
</TABLE>
