<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- ----------------------------------------------------------
FORM 10-K
<TABLE>
<S> <C>
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO
</TABLE>
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9 WEST 57TH STREET 10019
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 756-8900
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of February 28, 1997, the number of shares outstanding of the
registrant's Common Stock, par value $.01 per share, was 9,138,465 shares. There
is no trading market for the Common Stock. Accordingly, the aggregate market
value of the Common Stock held by non-affiliates of the registrant is not
determinable. See Part II, Item 5 of this Report.
________________________________________________________________________________
<PAGE>
CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
OR
REFERENCE
-----------
<S> <C>
PART I
ITEM 1. Business.................................................................................. 1
ITEM 2. Properties................................................................................ 7
ITEM 3. Legal Proceedings......................................................................... 8
ITEM 4. Submission of Matters to a Vote of Security Holders....................................... 12
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 13
ITEM 6. Selected Financial Data................................................................... 13
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 16
ITEM 8. Financial Statements and Supplementary Data............................................... 26
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 26
PART III
ITEM 10. Directors and Executive Officers of the Registrant........................................ 27
ITEM 11. Executive Compensation.................................................................... 29
ITEM 12. Security Ownership of Certain Beneficial Owners and Management............................ 39
ITEM 13. Certain Relationships and Related Transactions............................................ 41
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 43
</TABLE>
<PAGE>
PART I
As used in this Report, unless the context otherwise requires, 'TLC
Beatrice' refers to TLC Beatrice International Holdings, Inc. and references to
the 'Company' shall mean TLC Beatrice and its subsidiaries, certain of which
subsidiaries are not wholly-owned, directly or indirectly, by TLC Beatrice.
References in this Report to 'subsidiaries' refer to both TLC Beatrice's
wholly-owned and majority owned subsidiaries, unless the context otherwise
requires. TLC Beatrice's operations are conducted entirely through its
subsidiares.
ITEM 1. BUSINESS
The Company is an international food and grocery products company with
operations principally in western Europe. The Company's operations are comprised
of two segments: Food Distribution and Grocery Products. Food Distribution
operations are concentrated in the wholesale and retail distribution of dry
groceries, beverages, household products and frozen food in France. Through its
Grocery Products segment, the Company manufactures and markets ice cream and
dessert products, potato chips, snacks and beverages principally in selected
western European markets. The Company's business is conducted principally
through 11 entities (the 'Principal Companies') and their respective
subsidiaries, which have sales in over 20 countries and manufacturing facilities
in six countries.
The table below sets forth the percentage of TLC Beatrice's direct and
indirect ownership, and country of organization, of each of the Principal
Companies:
<TABLE>
<CAPTION>
PERCENTAGE COUNTRY
PRINCIPAL COMPANY OWNERSHIP OF ORGANIZATION
- ---------------------------------------------------------------- ---------- -----------------------
<S> <C> <C>
FOOD DISTRIBUTION
Franprix
Etablissements Baud S.A. (wholesale operations) 97.0% France
Minimarche Group (retail operations) 74.0 France
Leader Price
Distribution Leader Price S.A. (wholesale operations) 51.0 France
Retail Leader Price Group (retail operations) 51.0 France
GROCERY PRODUCTS
Ice Cream
Helados La Menorquina S.A. 65.0 Spain
Interglas S.A. 65.0 Spain (Canary Islands)
Potato Chips and Snacks
Tayto, Ltd. 97.4 Ireland
Beverage
Frisdranken Industrie Winters B.V. 100.0 Netherlands
Sunco N.V. 80.0 Belgium
Saint Alban Boissons S.A. 95.0 France
Bireley's California Orange (Thailand) Co. Ltd. 95.3 Thailand
</TABLE>
The Company's operations are decentralized, enabling local management to
develop and implement business plans tailored to local market conditions.
Generally, the management of each subsidiary has primary responsibility for such
subsidiary's day-to-day operations. Management of each individual operating
company is responsible for attaining financial and other goals established
jointly with, and then monitored by, corporate and segment management. In the
case of Etablissements Baud S.A. ('Baud'), Distribution Leader Price S.A.
('Distribution Leader Price'), Interglas S.A. ('Interglas'), Helados La
Menorquina S.A. ('La Menorquina'), the Minimarche Group ('Minimarche'), the
Retail Leader Price Group ('Retail Leader Price'), Sunco N.V. ('Sunco') and
Tayto, Ltd. ('Tayto'), management includes local minority stockholders. See
' -- Relationships with Minority Stockholders.'
For a discussion of certain business segment and geographic data, see Part
II, Item 8. 'Financial Statements and Supplementary Data -- Note 17 of Notes to
Consolidated Financial Statements.'
1
<PAGE>
FOOD DISTRIBUTION
The Company is a major wholesale and retail distributor of dry groceries,
beverages, household products and frozen food, operating through its Franprix
and Leader Price networks. The Company's Franprix network consisted at December
31, 1996 of 416 supermarkets and superettes in the Paris metropolitan area. The
Leader Price network consisted at December 31, 1996 of 241 stores. The
objectives of the Company's Food Distribution segment are (1) to preserve its
position in the Paris metropolitan area under the Franprix name and (2) to
capitalize on the trend toward discount retailing by expanding its operations
throughout France and by entering neighboring European markets under the Leader
Price name.
FRANPRIX
Franprix stores are generally neighborhood supermarkets and superettes
carrying an assortment of 4,000 to 6,000 grocery products. Of the 416
supermarkets and superettes in the Franprix network, 31 are owned and operated
by Minimarche and 385 are owned and operated by franchisees. The Franprix stores
are supplied with dry groceries, beverages, household products and frozen food
by Baud, the Company's wholesale distribution subsidiary. Baud distributes such
products on a wholesale basis almost exclusively to Franprix stores, and
distributes a small amount of such products to smaller, non-franchised stores.
Based on published industry data for 1996, the Franprix network has the largest
number of supermarkets in the Paris metropolitan area, approximately 25% of the
total number, and the most supermarket selling space in the supermarket category
(supermarkets are categorized as those stores with 4,000 to 25,000 square feet
of selling space). At present, slightly less than one-half of the Franprix
stores are superettes, with an average size of 3,800 square feet. Franprix has
no stores in the hypermarket category, which are stores in excess of 25,000
square feet of selling space.
The Paris metropolitan area constitutes the largest consumer market in
France, with approximately ten million people. The Franprix outlets are
generally in densely populated areas where there is limited direct competition
from larger supermarkets and hypermarkets. The Company believes that Baud's
position in the highly visible Paris market has enabled it to negotiate
competitive discounts, rebates and promotional allowances from food and grocery
manufacturers.
Under the Company's franchise agreements with its Franprix franchisees, the
franchisees are obligated to purchase their dry groceries, beverages, household
products and frozen food exclusively from the Company and are required to use
the Franprix name. The franchisees are free to purchase other goods from other
sources. The Company does not receive any franchise or other fees from its
Franprix franchisees. The consideration the Company receives is reflected in the
prices charged for the products purchased. The Company has a right of first
refusal on franchised Franprix stores if a franchisee desires to sell his store
to a third party.
The Company provides marketing support to the Franprix stores, including
advice on store layout and appearance, product mix and promotional materials.
The Company utilizes promotional programs under which the Company offers 100 to
150 items at discount prices to increase traffic and purchases in the Franprix
stores.
In addition to selling brand name products, the Company markets goods under
several private label brand names (including Leader Price), which accounted for
approximately 29% of Baud's total net sales in 1996. Private label products,
which are generally priced below comparable brand name products to appeal to
price sensitive customers, provide the Company with additional leverage in
negotiations with brand suppliers.
Franprix franchisees are generally independent entrepreneurs. Many have a
long affiliation with the Baud organization. Of the 416 stores in the Franprix
network, 31 are owned by the Company and 10 are owned by children of the late
Jacques Baud, a former Vice President of Baud. These 41 stores represent
approximately 18% of total Baud sales and approximately 10% of the number of
stores in the network. The 31 stores owned by the Company represent
approximately 14% of total Baud sales and approximately 7% of the number of
stores in the network. Company-owned Franprix stores operate under the same
arrangements with Baud as franchised Franprix stores. Of the Franprix stores not
owned by the Company or the children of Jacques Baud, 96 are owned by an
affiliated group
2
<PAGE>
consisting of members of a single family, and 40 are owned by franchisees who
have five to seven stores each. Each of the remaining franchisees has one or two
stores.
Baud distributes dry grocery products from its 520,000 sq. ft. warehouse at
Chennevieres located nine miles from Paris. Baud also leases a 200,000 square
foot facility from which it delivers bulk products. Its efficiently run
distribution system is designed and managed to make deliveries on a cost
effective basis in the congested Paris metropolitan area via its fleet of 200
leased trucks. Baud receives orders from a computer controlled system, which
facilitates delivery scheduling and inventory management.
LEADER PRICE
In 1991, in response to increasing consumer demand for lower priced
products, the Company developed a range of items under the Leader Price brand
name which were initially introduced in certain Franprix stores. Since then, the
Company has expanded the concept to include Leader Price stores which carry a
limited range of approximately 1,800 items, almost all of which carry the Leader
Price brand name. Of the 241 Leader Price stores, 201 are wholly or partially
owned by the Company's Retail Leader Price subsidiary. Leader Price's wholesale
activities are conducted by the Company's Distribution Leader Price subsidiary.
Leader Price stores are obligated to purchase all products except produce from
the Company.
The Company's objective with Leader Price is to offer consumers good
quality products with prices at least 20%, and as much as 50%, below national
brands. It is common practice for French food distributors to offer products in
three price ranges: higher priced national brands; store brands or secondary
brands at 15 to 25% lower prices; and discount products at 20 to 50% lower
prices. Leader Price products offer consistent quality at discount prices.
Leader Price stores are clean, well-ordered and brightly lit. The sizes,
which typically range from 7,000 to 10,000 square feet of selling space, are
comparable to traditional supermarkets in France. Racks for the products are
simple in design, facilitate frequent restocking and display products in an
attractive way. The product range of approximately 1,800 items is one-quarter
that of an average Franprix supermarket, which improves product turnover and
simplifies product handling. Labor costs are minimized by the limited product
range and by eliminating labor-intensive departments such as bakery,
delicatessen and meat cutting. The everyday low price policy results in reduced
time and expense required to change product prices.
Leader Price stores all offer the same range of products and have a similar
appearance. Store operations are closely monitored with respect to labor costs
and other expenses. The lower costs and investment required in a Leader Price
store compared to a traditional supermarket permit store profitability to
compare favorably with that of a traditional supermarket despite lower selling
prices. Leader Price stores are required to offer the same products at the same
prices with uniform layout, signage, operating practices and staffing.
As of December 31, 1996, the Leader Price network had 241 stores, of which
201 were wholly or partially owned by the Company and 40 were franchised. The
Company intends to manage the Leader Price network through direct ownership and
minority equity stakes with select franchisees which carry rights providing
elements of control. The Company believes this approach ensures greater control
over store operations and standards as the network expands. As with Franprix,
the Company does not receive any franchise or other fees from franchisees. The
consideration the Company receives is reflected in the prices charged for the
products purchased. The Company has a right of first refusal on franchised
Leader Price stores if a franchisee desires to sell his stores to a third party.
The Leader Price stores are serviced from Distribution Leader Price's
warehouse at Gretz, near Paris. The warehouse was constructed to the Company's
specifications and became fully operational in the latter part of 1993. The
facility has 550,000 sq. ft. of warehousing space, as well as administrative
facilities to process orders. Order entry, delivery and inventory management
systems are computer based, and electronic ordering systems are in place. The
Company uses outside transport companies to supply the Leader Price stores. The
Company believes this arrangement permits it to respond to growth in the Leader
Price network not only in the Paris area but also in other areas of France where
3
<PAGE>
Company-owned trucks would not be cost effective. Deliveries are managed so
that, in general, full truckloads are delivered to stores, reducing delivery
times and loading costs.
GROCERY PRODUCTS
The Company is a major ice cream manufacturer and marketer in Spain,
including the Canary Islands and is the leading manufacturer of potato chips and
snacks in the Republic of Ireland. The Company also manufactures and markets a
variety of beverages and soft drinks. The Company's strategy for its Grocery
Products segment is to develop new products designed to appeal to a variety of
consumers, to differentiate the Company's branded products from those of its
competitors and to focus its resources on maintaining or building market share
and on products with potential for growth.
ICE CREAM AND DESSERTS
The Company manufactures ice cream products in Spain, including the Canary
Islands and markets such products throughout western Europe. Increasing market
integration in Europe has led the Company to emphasize a greater degree of
uniformity of ingredients, composition and packaging of its ice cream products
so that they may be sold with little modification in all European Union
countries. In Spain and the Canary Islands, the Company's most important product
categories are ice cream novelties which are purchased on impulse for immediate
consumption and ice cream desserts.
La Menorquina, operating in Spain, including the Balearic Islands, and
Portugal, has established itself as a leading supplier to the restaurant sector
by developing sophisticated ice cream desserts. Examples of these desserts
include frozen natural orange, apple, coconut and other fruit shells filled with
natural fruit-flavored ice cream, multi-layer ice cream cakes and frozen
desserts in stylized ceramic dishes. While supermarkets are not currently the
major outlets for ice cream in these markets due to consumption habits and the
small size of home freezers in such markets, the Company has developed products
that are suitable for this 'take home' sector of the market as it develops. La
Menorquina also exports to customers in other countries. Approximately 33% of La
Menorquina sales during the year ended December 31, 1996 were derived from
products developed during the last three years.
In the Canary Islands, Interglas is the leading ice cream supplier under
its Kalise brand name, and has a significant share of the yogurt and desserts
market. In 1996, approximately 65% of ice cream sales were high margin ice cream
novelties, cakes and specialty frozen desserts. The Company has increased its
sales by developing innovative products that are designed to appeal to the over
six million tourists who visit the Canary Islands each year.
POTATO CHIPS AND SNACKS
The Company, through Tayto, has a dominant position in the Irish potato
chip market and is a leading manufacturer of processed snacks in Ireland. During
1996, the Company believes that its market shares in these markets, based on net
sales, were approximately 60% and 38%, respectively. Under its primary brand
name, Tayto, and secondary brand name, King, the Company distributes to
approximately 6,000 outlets, representing nearly all of the points of sale in
Ireland where snack products are sold. The Company strives to manufacture the
highest quality products, receiving the Irish Quality Mark, which now appears on
Tayto's packaging, in each year from 1990 through 1996.
BEVERAGE OPERATIONS
The Company's principal bottling operations consist of Frisdranken
Industrie Winters B.V. ('Winters') and Sunco, each of which produces soft drinks
on a contract basis for supermarket private labels and major international
brands. The Company also manufactures and markets a variety of beverages and
soft drinks under the Company's own brand names. Winters, located in the
Netherlands, produces soft drinks, principally in cans, for sale throughout
western Europe. Sunco, located in Belgium, produces soft drinks in plastic
bottles for sale principally in Belgium, France and
4
<PAGE>
Germany. Bireley's, well-known in Thailand, is a marketer of non-carbonated
orange drinks and other beverages in that country.
In January 1996, the Company established a new company, St. Alban Boissons
S.A., to acquire the brand name and business assets of a mineral water company
in southern France. During 1996 a new factory was constructed to produce soft
drinks and mineral water in plastic and glass bottles and in cans, while
continuing to produce 'St. Alban' brand mineral water at its former facility.
CUSTOMERS AND COMPETITION
The Company believes that its aggregate sales are not concentrated in, or
materially dependent on, any single customer or small group of customers.
However, certain individual markets in which the Company competes are subject to
increasing customer concentration by one or a few supermarket chains or buying
cooperatives. For example, a group consisting of members of a single family
which owns 96 Franprix stores accounted for approximately 32% of 1996 sales by
Baud in France.
The Food Distribution and Grocery Products segments in general are very
competitive, and the Company faces substantial competition throughout its
activities and product lines from many companies, some of which have greater
financial resources than the Company and some of which offer other, better-known
branded products. Competition in the Food Distribution segment is largely a
function of service and price. Competition in the Grocery Products segment is
generally based on quality, product innovation, price, availability and brand
name recognition.
The Company's main competitors in its Food Distribution segment are
Carrefour S.A., Promodes and Auchan. In its Grocery Products segment, the
Company's main competitors are Procter & Gamble, Inc. and United Biscuits U.K.
Ltd. in the potato chip and processed snack markets and Nestle S.A., Unilever
PLC and Danone S.A. in the ice cream, yogurt and frozen dessert markets. The
Company believes it competes effectively on the basis of the factors affecting
its industry segments.
RAW MATERIALS
Various agricultural commodities constitute the principal raw materials
used by the Company in the manufacture of its grocery products. Primary items
include milk powder, butter, potatoes, vegetable oil and sugar. None of the raw
materials for the Company's significant products are currently in short supply
and most are available from many different independent suppliers. Prices of
agricultural commodities tend to fluctuate in response to various seasonal,
climatic and economic factors, which generally affect the Company's competitors
as well.
TRADEMARKS, TRADE NAMES AND LICENSES
The Company has locally registered trademarks for many of its products.
Trademarks are important to the Company because local brand name recognition is
a critical element to its success.
In 1987, Beatrice Companies, Inc. assigned the trade name and trademark
Beatrice to the Company for use on its products anywhere in the world, except
the United States. However, Beatrice Companies, Inc. and its affiliates are
permitted to use the trade name and trademark Beatrice in connection with
products which they manufacture or distribute anywhere in the world. Although
the name Beatrice is contained in the Company's trade name and is part of its
corporate identity, it is not currently anticipated that the name Beatrice will
be used by the Company to a significant degree as an identifying trademark in
connection with local product marketing and sales.
In 1992, Geimex S.A.R.L., a French limited liability company partially
owned by Jean Baud ('Geimex'), assigned to Baud ownership of the Leader Price
trademark and the exclusive right to use the trademark in the French territory
pursuant to an Assignment of Trademark (the 'Leader Price Assignment') which
superseded a prior licensing agreement. Pursuant to the Leader Price Assignment,
Baud agreed not to expand the Leader Price trademark to foreign countries and
granted to Geimex an exclusive license to use the trademark in the overseas
French territories in return for which Geimex agreed to grant any foreign third
parties only the right to distribute, and not the right to manufacture, products
under the Leader Price trademark. In addition, pursuant to the Leader Price
5
<PAGE>
Assignment, Geimex granted to Baud a right of first refusal prior to assigning
to a foreign third party any rights under the Leader Price trademark, and the
shareholders of Geimex granted to Baud a right of first refusal prior to selling
all or any portion of their shares of Geimex. The Company anticipates entering
into arrangements for using the Leader Price name outside the French territory.
However, no assurance can be given that the Company will succeed in entering
into such arrangements.
The Company is not aware of any factors which would adversely affect its
ability to utilize any of its major trademarks. Patents are not considered
material to the conduct of the Company's business.
EMPLOYEES
As of December 31, 1996, the Company had approximately 4,700 employees,
although the number of employees may vary by as many as 1,000 from time to time
based on the Company's seasonal needs. TLC Beatrice's subsidiaries are managed
by local nationals. Substantially all of the Company's full-time employees,
other than management personnel, are hourly employees represented by unions.
Management of the Company believes no single union relationship or agreement is
material to the Company's aggregate results. Labor relations, including
compensation and severance, are governed by local law. The Company believes its
relations with its employees are satisfactory. During the past five years, no
subsidiary has experienced any work stoppage or labor-related problem material
to the Company as a whole.
GOVERNMENTAL REGULATION
Virtually all of the Company's operations are subject to the laws and
regulations of foreign countries, which differ from country to country, as well
as the laws and regulations of the United States. The production, distribution
and sale of many of the Company's products are subject to governmental
regulation regarding the production, sale, safety, sanitation, labeling and
ingredients of such products in the various countries in which the Company
operates. In addition, in various markets the manufacture of many of the
Company's products is subject to governmental regulation relating to the
discharge of materials into the environment. Compliance with existing
legislation and regulations relating to environmental matters has not had, and
is not expected to have, a material adverse effect on the Company's capital
expenditures or results of operations.
During the fourth quarter of 1996, new French regulations were enacted
which place certain restrictions on the opening of new food stores over 3,000
square feet in size. During the year ended December 31, 1996, the Company opened
35 new Leader Price stores versus 50 and 48 stores in the years ended December
31, 1995 and 1994, respectively. The Company anticipates that in 1997 and for
the foreseeable future, the number of Leader Price store openings will
approximate 30 per year; however no assurance can be given that this number of
openings can be achieved. See Part II, Item. 7. 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
RELATIONSHIPS WITH MINORITY STOCKHOLDERS
Certain of TLC Beatrice's operating subsidiaries have local minority
stockholders whose equity interests in these subsidiaries range from 2.6% to
49%. The subsidiaries that have the largest equity interests owned by local
stockholders include Distribution Leader Price (49%), Retail Leader Price (49%),
Interglas (35%), La Menorquina (35%) and Minimarche (26%). In most cases, the
local stockholders are responsible for the management of these subsidiaries.
The Company believes that equity participation by local management is
beneficial in that it gives them a direct interest in the business which they
manage and thus provides an incentive to enhance performance of that business.
While the Company believes that it generally has satisfactory relationships with
the management of its subsidiaries, the ability of the Company to achieve its
earnings and other objectives could be adversely affected if relations with
certain local stockholders were not satisfactory.
The minority stockholders of Distribution Leader Price and Retail Leader
Price, directly or indirectly, are various members of the Baud family and a
corporate entity controlled by the Baud family
6
<PAGE>
(collectively, the 'Baud Minority Stockholders'). Pursuant to certain agreements
entered into in 1992, the Company is obligated under certain circumstances to
purchase the Baud Minority Stockholders' ownership interests in Distribution
Leader Price and Retail Leader Price. The agreements provide that prior to June
30, 1997, if certain members of the Baud family cease to hold their management
positions with the applicable company and the Company fails to propose and vote
in favor of one of certain members of the Baud family as a replacement, the Baud
Minority Stockholders have the right to require TLC France to purchase all of
the Baud Minority Stockholders' shares of Distribution Leader Price and Retail
Leader Price (the 'Put Right'), and TLC France has the right to purchase all of
the Baud Minority Stockholders' shares of Distribution Leader Price in the event
that the Baud Minority Stockholders exercise their put option with respect to
the shares of Retail Leader Price. In addition, at any time on or after July 1,
1997 and prior to June 30, 2027, the Baud Minority Stockholders can exercise the
Put Right, and TLC France has the right to purchase all of the Baud Minority
Stockholders' shares of 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, with a guaranteed minimum return on the Baud Minority Stockholders'
aggregate investment if an option is exercised prior to July 1, 1997. If the Put
Right is exercised after July 1, 1997, and as long as TLC Beatrice's 11.5%
Senior Secured Notes due October 1, 2005 (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 the Paris
Interbank Offering Rate ('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 the
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
certain other local minority stockholders of Baud, Sedipro, S.A. and Minimarche
(collectively, 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. See Part
II, Item 7. 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources' and Part II, Item 8.
'Financial Statements and Supplementary Data -- Note 5 of Notes to Consolidated
Financial Statements.'
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 9 West 57th Street
in New York City, where the Company currently leases approximately 7,000 square
feet of space. The lease for this space expires June 30, 2003. The Company has
leased this space since March 1995 when it amended its prior lease for 23,000
square feet in the same building. Net base rental expense for the Company's
current executive office space is approximately $362,000 per annum over the life
of the lease. In addition, as a fee for the amendment to the Company's prior
lease, the Company paid $500,000 in each of 1994 and 1995, and has or will make
annual payments of $800,000 in each of 1996 through
7
<PAGE>
1999. The Company also maintains divisional offices for its Food Distribution
operations in Paris, France and its Grocery Products operations in Ninove,
Belgium. Rental expense for leased property in the Food Distribution division
office was approximately $222,000, $266,000 and $169,000 in 1994, 1995 and 1996,
respectively. Rental expense for the Grocery Products division office was
approximately $19,000 in each of 1994 and 1995. In 1996, the Grocery Products
division relocated to office space in the Company's Sunco operations in Ninove,
Belgium and no longer pays outside rental expense.
The Company also owns and leases manufacturing plants, warehouse
distribution centers, retail stores and other facilities in the various
countries in which it operates. The Company believes the facilities are suitable
and adequate for the conduct of its business. The following table sets forth
information with respect to the approximate number of facilities owned or leased
as of December 31, 1996:
<TABLE>
<CAPTION>
MANUFACTURING DISTRIBUTION OTHER TOTAL
--------------- --------------- --------------- ---------------
OWNED LEASED OWNED LEASED OWNED LEASED OWNED LEASED
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Food Distribution......... 0 0 7 149 0 1 7 150
Grocery Products.......... 8 3 10 25 3 2 21 30
----- ----- ----- ------ ----- ----- ----- ------
Total................ 8 3 17 174 3 3 28 180
----- ----- ----- ------ ----- ----- ----- ------
----- ----- ----- ------ ----- ----- ----- ------
</TABLE>
The aggregate rental expense for leased property for the Food Distribution
operations was $12.4 million, $17.6 million and $19.0 million in 1994, 1995 and
1996, respectively. The increase from 1994 through 1996 is primarily
attributable to the expansion of the Leader Price network. The aggregate rental
expense for leased property for the Grocery Products operations was $4.1
million, $7.1 million and $5.6 million in 1994, 1995, and 1996, respectively.
The decline in Grocery Products rental expense in 1996 reflects 1995 subsidiary
dispositions.
ITEM 3. LEGAL PROCEEDINGS
TLC BEATRICE IS A DEFENDANT IN CERTAIN LEGAL PROCEEDINGS BROUGHT BY CARLTON
INVESTMENTS, A CALIFORNIA LIMITED PARTNERSHIP ('CARLTON'), AS DESCRIBED BELOW.
NOTWITHSTANDING THE INFORMATION SET FORTH IN THIS REPORT, TLC BEATRICE RESERVES
ANY AND ALL CLAIMS OR DEFENSES THAT IT HAS OR MAY HAVE AGAINST CARLTON.
On May 20, 1994, Carlton, formed and controlled by former officers and
employees of Drexel Burnham Lambert, Inc. ('Drexel'), filed a two-count
Complaint against TLC Beatrice and against Mrs. Loida Nicolas Lewis, the
Chairman and Chief Executive Officer of TLC Beatrice, and Ms. Leslie N. Lewis, a
Director of TLC Beatrice and a daughter of Loida Nicolas Lewis, as Executrices
of The Estate of Reginald F. Lewis (the 'Lewis Estate') titled, Carlton
Investments v. TLC Beatrice International Holdings, Inc., et al., Index No.
114798/94, Supreme Court of the State of New York, County of New York (the 'New
York Suit'). Reginald F. Lewis was TLC Beatrice's founder and served as its
Chairman and Chief Executive Officer from its organization until his death in
January 1993.
In Count I of the Complaint, Carlton alleges that TLC Beatrice breached the
Stockholders' Agreement dated as of November 30, 1987, as amended, by and among
TLC Beatrice and the original purchasers of TLC Beatrice's Common Stock (the
'Stockholders' Agreement') when TLC Beatrice paid Reginald F. Lewis a $22.1
million compensation package for services rendered to TLC Beatrice from 1988
through 1992. Carlton claims that payment of the compensation package violated a
provision of the Stockholders' Agreement restricting certain transactions
between TLC Beatrice and its affiliates. As a result of the alleged breach,
Carlton asserts that it has been damaged in an amount estimated to be not less
than $11,460,000, plus interest; it also claims that it is entitled, pursuant to
a provision in the Stockholders' Agreement, to recover its attorneys' fees and
litigation expenses.
In Count II of the Complaint, Carlton alleged that Reginald F. Lewis
tortiously interfered with the Stockholders' Agreement by causing TLC Beatrice
to pay the compensation package. As a result of the alleged interference,
Carlton asserts that it has been damaged in an amount estimated to be not less
than $11,460,000, plus interest; it also seeks punitive damages for the alleged
interference. On September 21, 1994, the Supreme Court of New York County
granted the motion of TLC Beatrice and
8
<PAGE>
the Lewis Estate to dismiss this claim. In so ruling, the Court found that
Carlton had not stated a claim against the Lewis Estate for tortious
interference. On November 29, 1994, Carlton filed a Notice of Appeal from the
September 21, 1994 order, but has not prosecuted this appeal.
On December 2, 1994, TLC Beatrice responded to the Complaint by filing an
Answer, Affirmative Defenses and Counterclaim. In the Answer, TLC Beatrice
denied all material allegations of the Complaint and set forth 17 affirmative
defenses thereto. TLC Beatrice defends against the Complaint by alleging, among
other things, that Mr. Lewis earned the compensation package for his successful
and dynamic leadership of the Company from 1988 through 1992. TLC Beatrice
claims that the 1992 payment to Mr. Lewis was not prohibited by the terms of the
Stockholders' Agreement for a variety of reasons. Among other things, TLC
Beatrice alleges that the Stockholders' Agreement does not preclude compensation
to TLC Beatrice's officers, and that it was not anticipated at the time the
Stockholders' Agreement was executed that Mr. Lewis would be required to devote
nearly all of his time and efforts to the day-to-day management of the Company,
including having to relocate his family to Europe. In addition, TLC Beatrice
alleges that the compensation package was approved in 1990 and therefore,
Carlton, by its years of inaction, waived any claims or objections it had to the
compensation package. TLC Beatrice further alleges that Carlton lacks standing
to assert its claim under the Stockholders' Agreement.
TLC Beatrice also defends against the Complaint by asserting that, because
Carlton wrongfully acquired the stock it claims to control through a pattern of
fraud and breaches of fiduciary duties committed by a group of Drexel officers
including Peter Ackerman (the 'Ackerman Group') in connection with the
Acquisition and thereafter, Carlton is barred by its misconduct from asserting
its claims.
Based on the foregoing allegations, TLC Beatrice contends that Carlton is
barred by its misconduct from pursuing the Complaint and that the Stockholders'
Agreement is unenforceable by Carlton. TLC Beatrice and the Lewis Estate also
have a four-count Counterclaim against Carlton, Paul Biddelman and Peter
Ackerman based on these allegations.
On January 10, 1995, Carlton and Messrs. Biddelman and Ackerman moved to
dismiss TLC Beatrice's Counterclaims and certain of its affirmative defenses,
including the defenses that claim that Carlton is barred from asserting its
rights under the Stockholders' Agreement by its alleged misconduct. Among other
arguments, Carlton asserts that these affirmative defenses are barred in that
they seek to relitigate claims which were allegedly conclusively settled, and
from which Carlton was allegedly released, in connection with the court-approved
settlement in 1992 of over 180 lawsuits including approximately 60 class and
derivative actions filed against Michael Milken and hundreds of other
individuals and entities, including Mr. Ackerman, Mr. Biddelman and Carlton
relating to their allegedly unlawful activities relating to aspects of business
of Drexel Burnham Lambert Group, Inc., its subsidiaries and affiliates.
The motion to dismiss was denied in part and granted in part by Order of
the Court on June 3, 1996. The Court denied Carlton's motion to dismiss TLC
Beatrice's affirmative defenses, but granted the motion to dismiss the
counterclaims. Carlton filed a Notice of Appeal from the denial of its motion to
dismiss the affirmative defenses which is pending before the appellate court.
The above-described litigation is in the early stages. TLC Beatrice has
served written document requests and interrogatories upon Carlton and has
requested the depositions of various Carlton partners but discovery was stayed
by Carlton's motions and because of the focus of the parties' efforts in taking
discovery in the Delaware litigation described below. TLC Beatrice intends to
defend against the Complaint and pursue its defenses vigorously, and believes
that the Complaint is without merit, although no assurance can be given
regarding the outcome of such litigation. Carlton has been enjoined from
prosecuting this action by the Delaware Chancery Court pending that Court's
review of the proposed settlement of the Delaware derivative litigation
described below. For further information with respect to the litigation,
reference is hereby made to the Complaint and the Answer which have been filed
as Exhibits to Registration Statement No. 33-88602 of TLC Beatrice filed with
the Securities and Exchange Commission and which are incorporated herein by
reference.
9
<PAGE>
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. In this stockholder
derivative action, which has been amended twice, Carlton seeks to recover for
the benefit of TLC Beatrice millions of dollars 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 Mr. Lewis'
estate, several entities allegedly controlled by the late Mr. Lewis (TLC Group
L.P., TLC Holdings Corp., TLC General Corp. and McCall Pattern Holdings, Inc.),
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 have filed answers and affirmative
defenses to the derivative complaint denying all material allegations. For
further information concerning the allegations of Carlton in this derivative
lawsuit, reference is made to the derivative complaint, as amended, which have
been filed as an Exhibit to Registration Statement No. 33-88602 of TLC Beatrice
filed with the Securities and Exchange Commission and which is incorporated
herein by reference.
In the Delaware litigation the parties have engaged in extensive discovery
with the production of over 100,000 documents and scores of depositions being
taken. All further discovery has been stayed and all further pretrial dates have
been continued by the Delaware Chancery Court on November 27, 1996, pending the
Court's review of the proposed settlement of the litigation described below.
This proposed settlement results 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, and 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 derivative complaint was in the best interests of TLC
Beatrice and its shareholders and what action TLC Beatrice should take
concerning the litigation in accordance with Delaware law.
To give the SLC time to complete its objectives and to save TLC Beatrice
expense, TLC Beatrice moved the Delaware Chancery Court in June of 1996 for a
stay of discovery. Carlton objected, and as a result the Court denied the stay,
requiring the SLC to conduct its investigation and evaluation while the parties
continued with discovery. The SLC engaged counsel and experts it deemed
necessary to accomplish its purpose.
Over the course of nearly six months, the SLC investigated the allegations
and claims in the derivative complaint, including a review of all depositions
taken in the derivative action, a review of all of the documentary discovery
made or given by the parties and non-parties in the derivative action,
interviews with numerous witnesses, a study of the legal principles applicable
to the derivative action and an extensive analysis of the substantial discovery
in conjunction and consultation with its experts. In evaluating the litigation,
the SLC considered, among other things, the expense and length of time necessary
to prosecute the derivative action, the defenses asserted by the defendants in
the derivative action, the uncertainties of the outcome of the derivative
action, the benefit provided by a settlement of the derivative action to the
Company and its stockholders and that even if the derivative action were
resolved in the plaintiff's favor, that with appellate review, which would be
likely, it could be many years before a final adjudication of the derivative
action.
Based on the foregoing considerations, the SLC, through its counsel,
entered into a Stipulation of Settlement dated November 12, 1996 with counsel
for all of the defendants. Subject to the approval of the Court of Chancery of
the State of Delaware, the Stipulation of Settlement would be a full and final
settlement of the derivative action and would release 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 at the rate of 8% per annum
until the Effective Date (as hereinafter defined) (the 'Settlement Amount'),
pursuant to the following terms: (a) On the Effective Date, $2,000,000 in cash
and a secured promissory note for
10
<PAGE>
the unpaid balance of the Settlement Amount, (b) from and after the Effective
Date, interest on the Settlement Amount shall be paid at a rate equal to the
U.S. prime rate plus 1/2 of 1 percent compounded daily, (c) $500,000 in cash on
May 1 and November 1 of each year, until payment of the Settlement Amount in
full, and (d) a final payment of the balance of the Settlement Amount on May 1,
2004 if not paid in full prior thereto. For purposes of the Stipulation of
Settlement, the Effective Date shall be the date that the approval of the
Stipulation of Settlement is considered final, which shall be the latest to
occur of (i) the expiration of the time for filing or noticing of any appeal or
motion for reargument from the judgment, if any, of the Chancery Court of the
State of Delaware approving the Stipulation of Settlement, (ii) the date of
final affirmance on any appeal or reargument, (iii) the expiration of time for
petitions for writs of certiorari and if certiorari is granted, the date of
final affirmance following review pursuant to such grant or (iv) the final
dismissal of any appeal or proceedings on certiorari.
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, the number of shares to
be pledged to be determined as follows: number of shares pledged = Settlement
Amount divided by $25.00 multiplied by 4.
Carlton has indicated its intent to oppose the settlement. After the
Delaware Chancery Court stayed all further discovery until it reviewed the
settlement, the SLC on December 23, 1996 filed a 162-page brief in support of
the settlement it negotiated, analyzing and evaluating the claims and explaining
how it arrived at the settlement. By Order of January 13, 1997, the Court set
April 16, 1997 as the date for argument on the SLC's request that the settlement
be approved. The Court also set a briefing schedule for Carlton and the parties
to file briefs in opposition or support of the Settlement. Over Carlton's
objection, the Court also enjoined Carlton and all other shareholders from
initiating or prosecuting any lawsuit asserting claims that were or could have
been asserted in the Delaware litigation or which arise from or relate to any of
the matters or transactions referred to in the litigation. Carlton also sought
discovery from the SLC and its counsel, the scope of which the SLC objected to
and filed a motion for a protective order that was granted by the Court's
decision of January 28, 1997. Specific notice of the settlement has been sent to
TLC Beatrice shareholders.
There can be no assurance that the Stipulation of Settlement will be
approved, or if approved, what its final terms may be.
On July 20, 1995, Carlton filed a motion for contempt against TLC Beatrice,
its counsel and the Lewis Estate in the case entitled Presidential Life
Insurance Co. v. Milken Milken, et al., pending in the U.S. District Court for
the Southern District of New York before the Honorable Milton Pollack as Case
No. 92 Civ. 1151 (MP) ('Presidential Life'), asserting that certain of TLC
Beatrice's affirmative defenses in the New York Suit constituted 'claims'
allegedly dismissed and released under the July 17, 1992 order and final
judgment in Presidential Life (the 'Order and Final Judgment'). Presidential
Life was a class action which, as described by counsel for the class members,
was instituted for the purpose of marshaling and laying to rest, as part of a
broader settlement of other litigation, all previously unasserted claims against
Michael Milken and hundreds of other individuals and partnerships concerning
their activities related to Drexel and its affiliates. On July 27, 1995, TLC
Beatrice filed a motion seeking leave to intervene in Presidential Life for the
purpose of resolving the extent, if any, to which the Order and Final Judgment
is binding on TLC Beatrice or precludes any of its affirmative defenses in the
New York Suit, and also filed a separate motion seeking to vacate the Order and
Final Judgment to the extent it purports to preclude TLC Beatrice's assertion of
such affirmative defenses or claims seeking the cancellation of Carlton's common
stock. In these motions, TLC Beatrice asserts, among other things, that even if
the Order and Final Judgment is binding on TLC Beatrice, it precludes only
claims by class members, and does not preclude affirmative defenses to
subsequently filed claims by any of the defendants. In addition, TLC Beatrice
asserts that the proceedings in Presidential Life, including the Order and Final
Judgment, are not binding upon it (i) because it never received adequate notice
of the action; (ii) because Presidential Life was a collusive suit brought in
order to accommodate the defendants' demand, as an express condition to the
settlement of other litigation against them, that they receive immunity from
future civil liability in connection with their Drexel-related activity; (iii)
because the court lacked subject matter jurisdiction over such a suit and over
any claims by TLC
11
<PAGE>
Beatrice against Carlton; and (iv) because the named plaintiff and class counsel
did not adequately represent the interests of class members, purportedly
including TLC Beatrice. By order dated September 12, 1995, Judge Pollack denied
Carlton's motion for contempt finding that his order did not preclude TLC
Beatrice from asserting its affirmative defenses. Carlton did not appeal. By
orders dated September 25, 1995, Judge Pollack denied TLC Beatrice's motion to
intervene and motion for relief from the Order and Final Judgment. On October
24, 1995, TLC Beatrice filed a Notice of Appeal from such orders to the U.S.
Court of Appeals for the Second Circuit. Carlton filed a motion to dismiss the
appeal which was denied by the Second Circuit after briefing of the appeal was
complete.
The Second Circuit reversed Judge Pollack by its decision of August 26,
1996, and remanded the matter to Judge Pollack to obtain his views on specific
issues and indicated that upon Judge Pollack's decision the same panel of the
Second Circuit would hear the appeal on an expedited basis. Further briefing and
argument before Judge Pollack on October 26, 1996 resulted in Judge Pollack's
denial again of TLC Beatrice's motions. TLC Beatrice appealed and, after an
expedited briefing by the parties, oral argument was heard by the Second Circuit
on January 24, 1997. No decision has yet been handed down.
TLC Beatrice's outside litigation counsel has advised TLC Beatrice that at
this time the extent of TLC Beatrice's liability, if any, as a result of the
above described litigation, is not determinable. The ultimate outcome that may
result from these matters may have a material effect on TLC Beatrice's
consolidated financial condition and/or results of operations. In addition,
under certain circumstances, TLC Beatrice is obligated to reimburse the
directors for their share of any judgment and litigation expenses. See Part II,
Item 7. 'Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources.'
TLC Beatrice and its subsidiaries are also involved in certain other legal
actions and claims arising in the ordinary course of business. Management
believes that the outcome of such other litigation will not have a material
adverse effect on the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no established trading market for the Common Stock. TLC
Beatrice has no current intention to list the Common Stock for trading on any
securities exchange or on any automated dealer quotation system. The Transfer
Agent and Registrar for TLC Beatrice's Common Stock is The Bank of New York,
located in New York, New York. On February 28, 1997, there were approximately 50
holders of record of Common Stock.
On January 17, 1997, the Board of Directors declared a dividend on the
Common Stock of $.22 per share, which was paid on February 5, 1997 to holders of
record on January 28, 1997. On January 19, 1996, the Board of Directors declared
a dividend on the Common Stock of $.11 per share, which was paid on February 15,
1996 to holders of record on February 5, 1996. On January 19, 1996, the Board of
Directors also established a policy providing for the payment of dividends not
less than annually, subject to the availability of surplus and net profits and
further subject to declaration by the Board of Directors. The Board of Directors
will make any such determination in light of conditions then existing, including
the Company's earnings, financial condition and capital requirements,
restrictions in the Indenture (as defined herein), credit and other agreements,
business conditions and other factors. See Part II, Item 7. 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources' and Part II, Item 8. 'Financial
Statements and Supplementary Data -- Notes 11 and 13 of the Notes to
Consolidated Financial Statements.'
TLC Beatrice's ability to pay dividends and make other distributions on its
Common Stock will depend on distributions from its subsidiaries, which
distributions will depend on the earnings and cash flow of such subsidiaries.
TLC Beatrice is a holding company whose operations are conducted
exclusively through its subsidiaries. Its assets consist primarily of its
investments in its subsidiaries, and a substantial portion of the consolidated
liabilities of the Company have been incurred by such subsidiaries.
The ability of TLC Beatrice's subsidiaries to make distributions to TLC
Beatrice will be subject to, among other things, the prior claims of such
subsidiaries' creditors, including trade creditors. TLC Beatrice's right to
participate in the distribution of the assets of any subsidiary upon such
subsidiary's liquidation or reorganization will also be subject to the prior
claims of such subsidiary's creditors, including trade creditors, except to the
extent that TLC Beatrice may itself be a creditor with recognized claims against
such subsidiary (in which case, the claims of TLC Beatrice would still be
subject to the prior claims of any secured creditor of such subsidiary and of
any other holder of indebtedness of such subsidiary that is senior to that held
by TLC Beatrice).
The ability of TLC Beatrice to pay, and any determination by the Board of
Directors with respect to, dividends or other distributions on Common Stock will
be subject to Delaware law, which provides that dividends on a corporation's
capital stock may be paid either out of its surplus, as defined and computed in
accordance with Delaware law, or in case there is no such surplus, out of its
net profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
Many of TLC Beatrice's operating subsidiaries have local minority
stockholders whose equity interests in these subsidiaries range from 2.6% to
49%. Any dividends paid by such operating subsidiaries would be shared pro rata
with such local stockholders. See Part I, Item 1. 'Business -- Relationships
with Minority Stockholders.'
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with Part II, Item
8. 'Financial Statements and Supplementary Data -- Consolidated Financial
Statements,' including the Notes thereto, and Part II, Item 7. 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.' The
consolidated financial data for fiscal years 1992 through 1996 have been derived
from audited consolidated financial statements. The Company reports its results
in U.S. dollars. However, since the
13
<PAGE>
Company's operations are conducted principally in France, Spain and Ireland,
fluctuations in the value of currencies in which the Company transacts business
in relation to the U.S. dollar may significantly affect the Company's reported
results of operations and stockholders' equity.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Net sales................................................ $2,225,313 $2,072,613 $1,821,670 $1,656,336 $1,664,602
Cost of sales............................................ 1,831,006 1,693,288 1,435,143 1,275,644 1,237,393
Selling, general and administrative expenses(1).......... 307,777 300,013 314,948 311,901 340,364
Special charges(2)....................................... -- -- -- 8,650 39,943
---------- ---------- ---------- ---------- ----------
Operating income......................................... 86,530 79,312 71,579 60,141 46,902
Interest income.......................................... 8,140 9,372 8,601 9,298 12,501
Interest expense......................................... (30,778) (32,974) (32,715) (37,023) (37,170)
Other income(3).......................................... 616 7,182 13,729 646 4,627
---------- ---------- ---------- ---------- ----------
Income from operations before income taxes and minority
interests in earnings.................................. 64,508 62,892 61,194 33,062 26,860
Income taxes(4).......................................... (17,496) (20,470) (35,999) (19,445) (29,638)
Minority interests in earnings........................... (27,411) (23,966) (13,882) (12,570) (13,792)
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item.................. 19,601 18,456 11,313 1,047 (16,570)
Extraordinary item, net of tax(5)........................ -- (3,092) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)........................................ $ 19,601 $ 15,364 $ 11,313 $ 1,047 $ (16,570)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per common share:
Income (loss) before extraordinary item.................. $ 2.14 $ 2.01 $ 1.23 $ .11 $ (1.91)
Extraordinary item....................................... -- (.33) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) per common share................... $ 2.14 $ 1.68 $ 1.23 $ .11 $ (1.91)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OTHER DATA:
Franprix stores open at end of year(6)................... 416 412 425 424 422
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Leader Price stores open at end of year(6)............... 241 206 156 108 59
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash dividends per common share...................... $ .11 $ -- $ -- $ -- $ .60
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficiency).................................... $ 37,439 $ 42,283 $ 8,807 $(163,361) $ 10,853
Total assets.................................................... 781,704 815,575 735,503 756,980 795,871
Short-term debt and current portion of
long-term debt................................................ 34,095 64,647 87,898 292,485 124,407
Long-term debt.................................................. 229,492 223,308 145,209 29,714 179,177
Total common stockholders' equity............................... 106,210 97,047 93,222 65,358 86,306
</TABLE>
- ------------
(1) Includes amortization of intangible assets. See Part II, Item 8. 'Financial
Statements and Supplementary Data -- Consolidated Financial Statements.'
(2) During 1993, the Company recorded special charges in the amount of $8.7
million for the corporate headquarters located in New York. These charges
included a write-off for excess office lease space of $3.0 million and
employee severance expense of $5.7 million. During 1992, the Company
recorded special charges in the amount of $39.9 million for restructuring
charges and special compensation expense. The restructuring charges included
write-offs for plant closures of ice cream companies in Belgium and Spain
and severance expense for redundant personnel throughout the Company. The
write-offs for plant closures and severance expense amounted to $12.4
million and $4.4 million, respectively. Other miscellaneous reorganization
charges amounted to $1.0 million. In 1992, the Company paid to Mr. Reginald
F. Lewis, the Company's then Chairman and Chief Executive Officer, a
compensation package consisting of $16.6 million in cash and a $5.5 million
demand note bearing interest at a rate per annum equal to the prime rate
plus 1%. The demand note was paid in October 1993. The package included $3.0
million per year for the three-year period December 1, 1987 through November
30, 1990 and annual salary, bonus and certain other benefits, commencing
December 1, 1990 through December 31, 1992. The total amount of compensation
expense recorded as special charges amounted to $22.1 million. The
compensation
(footnotes continued on next page)
14
<PAGE>
(footnotes continued from previous page)
package for Mr. Lewis was approved by the Board of Directors of the Company
by resolution adopted in December 1990. At that time, an issue was raised as
to whether any stockholder might claim that the payment of the compensation
package was prohibited under the terms of the Stockholders' Agreement. While
TLC Beatrice did not believe that such payment was prohibited by the
Stockholders' Agreement, the Board of Directors, with the acquiescence of
Mr. Lewis, did not obtain advice from outside counsel resolving the issue
until late 1992, when, in anticipation of proposed legislative changes in
the tax treatment of executive compensation, TLC Beatrice determined to
resolve the issue. In December 1992, the Board of Directors sought and
obtained advice from outside counsel to the effect that the compensation
package was not prohibited under the terms of the Stockholders' Agreement,
and the package was paid at that time. These payments were made in late 1992
in anticipation of proposed legislative changes in the tax treatment of
executive compensation. In addition, in March 1993, TLC Beatrice obtained a
written opinion from outside counsel which concluded that payment of the
compensation package to Mr. Lewis did not violate restrictions in the
Stockholders' Agreement on certain transactions with holders of 5% or more
of the equity securities of TLC Beatrice or an affiliate.
(3) During the year ended December 31, 1995, the Company sold three
subsidiaries: Artigel GmbH & Co. Kg, a 70% owned ice cream manufacturer in
Germany, and two wholly owned ice cream distributors, Artic S.A. in Belgium
and Artic France S.A.R.L. in France. Additionally, the Company ceased
operations of its subsidiary, Dairyworld S.A., a Swiss trader of bulk dairy
products.The Company recorded pre-tax gains on such sales and dispositions
of approximately $10.5 million, which have been included in other income.
The Company also recorded charges relating to non-cash exchange losses
recorded in compliance with Statement of Financial Accounting Standards
('SFAS') No. 52, 'Foreign Currency Translation,' in the amount of
approximately $4.8 million. During 1995, the Company determined that
advances from foreign subsidiaries were no longer of a long-term investment
nature. Additionally, certain advances were either forgiven in connection
with the sale of certain subsidiaries, converted into dividends or settled
through other non-cash transactions. Accordingly, the translation
adjustments related to these advances, previously included in cumulative
translation adjustment, have been included in other income for the year
ended December 31, 1995. Also during 1995, the Company sold other
investments for approximately $467,000, recorded equity in earnings from
minority-owned Leader Price stores of approximately $331,000, and received
additional proceeds of $703,000 from the 1994 sale of Choky, S.A., described
below, which have been included in other income. During the year ended
December 31, 1994 the Company sold four wholly-owned subsidiaries: Premier
Is A/S, an ice cream manufacturer in Denmark, Choky S.A. a distributor of
powdered drink products in France, Sodialim S.A., an institutional food
distributor in France, and Gelati Sanson S.p.A., an ice cream manufacturer
in Italy. The Company recorded pre-tax gains on such sales of approximately
$12.1 million in 1994, which have been included in other income. The Company
recorded after-tax gains on such sales of approximately $3.9 million. Also
during 1994, the Company sold other investments for a gain of approximately
$1.6 million, which has also been included in other income. During the year
ended December 31, 1991, the Company sold its 20% equity investment in its
Canadian affiliate and its wholly-owned subsidiary, Maxime Delrue, S.A., a
French distributor of juice and other food products. The Company recorded
gains on such sales of approximately $4.6 million and $18.8 million in 1992
and 1991, respectively, which have been included in other income.
(4) During 1996, the Company recognized the tax benefit related to the startup
losses of its Leader Price operations previously not recognized under SFAS
109 in the amount of $3.7 million. In addition, the Company recognized a tax
benefit due to a settlement of a tax audit at its French holding company,
TLC France, and the tax benefit from the qualified investments made at its
Canary Islands' subsidiary, Interglas, in the amounts of $2.9 million and
$2.8 million, respectively. During 1995, the Company favorably concluded a
tax audit for its Canary Islands' subsidiary with respect to a tax incentive
investment reserve set up in 1991 and qualified investments made from
(footnotes continued on next page)
15
<PAGE>
(footnotes continued from previous page)
1992 through 1995 related to this reserve which resulted in a reduction in
income tax expense of $10.9 million.
(5) During the year ended December 31, 1995 the Company recorded an
extraordinary loss of $3.1 million relating to the write-off of certain
deferred debt issuance costs and other costs incurred relating to long-term
debt repaid prior to maturity. The pre-tax amount of $4.6 million was
recorded net of an income tax benefit of $1.5 million.
(6) Includes Company-owned and franchised stores.
ITEM 7. 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 Part II, Item 8. 'Financial Statements and
Supplementary Data -- Consolidated Financial Statements,' including the Notes
thereto. The Company's net sales and results of operations during the periods
presented have not been significantly affected by inflation.
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. The Company has in the past and will
continue to closely monitor its currency exposure.
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. The
approximate percentage of the Company's operating income, before special
charges, attributable to operations in French francs was 66% in 1996, 59% in
1995 and 67% in 1994. A significant portion of the Company's remaining operating
income was attributable to operations denominated in Spanish pesetas, and, to a
lesser extent, Irish punts, and, prior to 1995, Italian lira. See Part II, Item
8. 'Financial Statements and Supplementary Data -- Note 17 of Notes to
Consolidated Financial Statements.' Unless otherwise indicated, all percentage
changes in segment operating results set forth below have been calculated based
on local currency amounts.
Beginning with the year ended December 31, 1995, and as reflected below
under ' -- 1995 Compared with 1994,' the Company has redefined the components of
its Food Distribution segment to consist of the Company's (i) Franprix network,
which consists of Baud, which is the Company's Franprix wholesale operation, and
Minimarche, which owns and operates the Franprix and certain of the Leader Price
retail stores owned by the Company, and (ii) Leader Price network, which
consists of Distribution Leader Price, the Company's Leader Price wholesale
operation, and Retail Leader Price, which operates a majority of the Leader
Price retail stores owned by the Company. This redefinition differs from the
Company's earlier definition of its lines of business for the year ended 1994,
which classified the Company's wholesale operations under both the Franprix
network and the Leader Price network as one line of business and its retail
operations under both the Franprix network and the Leader Price network as
another line of business.
During the year ended December 31, 1995, the Company sold three
subsidiaries: Artigel GmbH & Co. Kg ('Artigel'), a 70% owned ice cream
manufacturer in Germany, and two wholly-owned ice cream distributors, Artic S.A.
('Artic') in Belgium and Artic France S.A.R.L. ('Artic France') in France.
Artigel, Artic and Artic France had combined net sales in 1995 and 1994 of $66.3
million and $75.6 million, respectively. Artigel, Artic and Artic France are
sometimes referred to collectively herein as the 'Northern Ice Cream
Subsidiaries.'
16
<PAGE>
During 1994 the Company sold four wholly-owned subsidiaries. In May 1994,
the Company sold Choky S.A. ('Choky'), a distributor of powdered drink products
in France. In July 1994, the Company disposed of two subsidiaries, Premier Is
A/S, ('Premier'), an ice cream manufacturer in Denmark, and Sodialim S.A.
('Sodialim'), an institutional food distributor in France. Gelati Sanson S.p.A.
('Sanson'), an ice cream manufacturer in Italy was sold in September 1994.
Choky, Premier, Sodialim and Sanson are referred to collectively as the 'Sold
Subsidiaries.' See ' -- 1995 Compared with 1994,' and Part II, Item 8.
'Financial Statements and Supplementary Data -- Note 3 of Notes to Consolidated
Financial Statements.'
RESULTS OF OPERATIONS
The following table provides information concerning the Company's net sales
and operating income, by segment, for fiscal years 1994 through 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 pages 19 and 21 below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Sales:
Food Distribution.............................................. $1,867,568 $1,640,994 $1,356,532
Grocery Products............................................... 357,745 431,619 465,138
---------- ---------- ----------
Total Net Sales........................................... $2,225,313 $2,072,613 $1,821,670
---------- ---------- ----------
---------- ---------- ----------
Operating Income:
Food Distribution.............................................. $ 59,055 $ 49,995 $ 51,653
Grocery Products............................................... 43,559 42,374 43,354
Corporate Expenses............................................. (13,144) (10,317) (20,200)
Amortization of Intangibles(1)................................. (2,940) (2,740) (3,228)
---------- ---------- ----------
Total Operating Income.................................... $ 86,530 $ 79,312 $ 71,579
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------
(1) Includes amortization of 1987 Acquisition goodwill only.
1996 COMPARED WITH 1995
Net sales were approximately $2.2 billion for the year ended December 31,
1996, an increase of 7% compared to the corresponding period in 1995, or a 10%
increase on a local currency basis. Excluding the net sales of the Northern Ice
Cream Subsidiaries for the year ended December 31, 1995, net sales would have
increased 11%, or 14% on a local currency basis, in 1996 versus 1995. For the
three months ended December 31, 1996, excluding the net sales of the Northern
Ice Cream Subsidiaries, net sales would have increased 7% or 12% on local
currency basis versus the comparable 1995 period. The increase in fourth quarter
1996 versus fourth quarter 1995 net sales was primarily attributed to growth in
the Food Distribution Segment as the Grocery Products segment is highly seasonal
with the majority of sales occurring in the second and third quarters.
The Food Distribution segment had net sales for the year ended December 31,
1996 of $1.9 billion, an increase of 14%, or a 17% increase on a local currency
basis, over 1995. Wholesale sales to the Franprix network declined by 5%,
primarily reflecting a 3% decline in sales to comparative Franprix stores in
1996 versus 1995. Net sales relating to the Leader Price network increased by
42% in 1996 versus 1995, reflecting the additional volume created by the opening
of 35 stores between December 31, 1995 and December 31, 1996. The Company
anticipates that in 1997 and for the foreseeable future the number of Leader
Price store openings will approximate 30 per year; however, no assurance can be
given that this number of openings can be achieved. Fourth quarter sales of the
Franprix network declined by 2% from the fourth quarter in 1995 while Leader
Price network sales increased 29% in the same period 1996 versus 1995.
The Grocery Products segment had net sales in 1996 of approximately $358
million, a decrease of 17%, or 15% on a local currency basis, over 1995.
Excluding the net sales of the Northern Ice Cream Subsidiaries for the year
ended December 31, 1995, net sales would have decreased 2% or increased 1% on a
local currency basis, in 1996 versus 1995. Increased sales in snack foods and
ice cream
17
<PAGE>
operations was offset by lower sales in beverage operations. Snack food sales
increased 7% due to the full year impact of price increases in the second
quarter of 1995. The Company's Spanish ice cream operations, consisting of
Interglas S.A. ('Interglas') and Helados La Menorquina S.A. ('La Menorquina'),
also experienced sales growth in 1996 versus 1995. Net sales of Interglas
increased by 3% due to price increases in ice cream products and increased
yogurt sales. Net sales of La Menorquina increased by 5% primarily due to
increased distributor and export sales. Beverage operation sales declined 6%,
primarily due to unfavorable weather conditions during high selling months,
overcapacity in the German market which has resulted in heavy price competition
and lower contract filling requirements by major customers.
Operating income of the Food Distribution segment increased by 18%, or 21%
on a local currency basis, in 1996 compared to 1995. Leader Price reported a
significant increase in operating income, primarily due to an increase in the
number of Leader Price stores from 206 in December 1995 to 241 in December 1996
and improved profitability of previously opened stores. This increase was
partially offset by a decline in Franprix's operating income. The shortfall in
Franprix's operating income was due to a decline in wholesale sales of 5%, lower
gross margins due to price reductions to counter competition in the Paris area
and fewer suppliers offering cash discounts for early payment of invoices. For
retail operations, operating income was impacted by expenses relating to the
adoption of a new Franprix logo, operating losses from a newly opened Franprix
store and one-time expenses associated with the closing of an underperforming
store. The Company's traditional Franprix supermarkets located in the Paris
metropolitan area are experiencing intensified competition from hypermarkets and
discount stores. The Company has responded by reducing its prices and developing
an updated store design. This trend will continue to negatively affect Franprix
operations but is beneficial to the Company's Leader Price discount operations.
Operating income of the Grocery Products segment increased by 3% or 5% on a
local currency basis for the year ended December 31, 1996 compared to 1995.
Excluding the Northern Ice Cream Subsidiaries from 1995 results, operating
income would have decreased 5%, or 3% on a local currency basis, for 1996 versus
1995. Improved performance of Tayto Ltd. ('Tayto') and Interglas was offset by
lower operating income at the Company's beverage operations and at La
Menorquina. Tayto, a manufacturer of potato chips and snacks in Ireland,
recorded a 2% increase in operating income due to a 7% increase in net sales
slightly offset by higher costs associated with Tayto changing to more expensive
foil packaging. Interglas reported a 3% increase in operating income due to
increased net sales. La Menorquina experienced a 12% decline in operating income
primarily due to the recognition in 1995 of previously deferred exchange gains
not repeated in 1996. Excluding this one-time gain in 1995, La Menorquina's
operating income would have declined by less than 1%, primarily reflecting bad
debt expenses relating to the bankruptcy of one client offset by improvements in
production processes and purchasing prices of materials. Beverage operations
posted a 23% decline in operating income primarily from a drop in earnings at
Frisdranken Industrie Winters B.V. ('Winters'), the Company's producer of soft
drinks in the Netherlands. The decline in operating income at Winters was
attributed to a 10% drop in sales due to unfavorable summer weather conditions,
lower gross margin due to competitive pressure in Germany and higher production
costs associated with the transition to a new type of can.
Corporate expenses increased from $10.3 million to $13.1 million in the
year ended December 31, 1996 versus the same period in 1995 primarily reflecting
an increase of $3.8 million, to $5.8 million, of legal and professional expenses
relating to the litigation with Carlton Investments. See Part I, Item 3. 'Legal
Proceedings.'
18
<PAGE>
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 year ended December 31, 1996 as compared to
the year ended December 31, 1995.
<TABLE>
<CAPTION>
NET SALES OPERATING INCONE
--------------------------------- ---------------------------------
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.................. 17% (3)% 14% 21% (3)% 18%
Grocery products................... (15) (2) (17) 5 (2) 3
Grocery products, excluding
Northern Ice Cream
Subsidiaries..................... 1 (3) (2) (3) (2) (5)
Total......................... 10 (3) 7 14 (3) 11
Total, excluding Northern Ice
Cream Subsidiaries.......... 14 (3) 11 10 (3) 7
</TABLE>
Net income for the year ended December 31, 1996 increased by approximately
$4.2 million to $19.6 million, compared to $15.3 million in the year ended
December 31, 1995. The increase was primarily due to higher operating income of
$7.2 million, lower tax expense of $3.0 million, lower net interest expense of
$1.0 million and a 1995 reporting of an extrarodinary item of $3.1 million
offset by lower other income of $6.6 million and higher reported minority
interest in earnings of $3.4 million. The reduction in tax expense was
attributable to the recognition of a deferred tax asset, previously not
recognized under Statement of Financial Accounting Standards ('SFAS') No. 109,
'Accounting for Income Taxes', on the startup losses of the Company's Leader
Price operations, the reduction of the statutory tax rate in the Canary Islands
and the favorable settlement of a tax audit at the Company's French holding
company. These reductions were partially offset by an increase in U.S. tax
losses for which no tax benefit is recognized under SFAS No. 109 and a decrease
in the tax benefit recognized, as compared to 1995, related to the tax incentive
reserves at the Company's Canary Islands' subsidiary Interglas. Other income was
lower in 1996 versus 1995 due to the sale in 1995 of three subsidiaries and the
recognition of one-time exchange losses. See ' -- 1995 Compared with 1994.'
1995 COMPARED WITH 1994
Net sales were approximately $2.1 billion for the year ended December 31,
1995, an increase of 14% compared to 1994, or a 3% increase on a local currency
basis. Excluding the net sales of the Sold Subsidiaries for the year ended
December 31, 1994, net sales would have increased by 22%, or 10% on a local
currency basis, in 1995 versus 1994. Fourth quarter net sales of approximately
$527 million for the quarter ended December 31, 1995, represented an increase of
28%, or 20% on a local currency basis, from the comparable period in 1994. The
significant increase was primarily due to the expansion of the Leader Price
network as described below.
The Food Distribution segment had net sales for the year ended December 31,
1995 of $1.6 billion, an increase of 21%, or 9% on a local currency basis, over
the comparable period in 1994. Partially offsetting the sales increase was a
decline in net sales due to the 1994 disposition of two of the Sold
Subsidiaries, Choky and Sodialim. Excluding these two companies' net sales from
1994, net sales would have increased by 26%, or 13% on a local currency basis.
Wholesale and retail sales relating to the Franprix network declined by 3% in
1995 compared with 1994. Price cutting strategies from hypermarket competitors
and discount retailers along with sluggish consumer spending were responsible
for such decline. Consumers living in the Paris area have been commuting to
hypermarkets and other discount stores outside Paris to make major purchases of
groceries and other household items. Franprix stores, generally located in the
Paris metropolitan area, have been adversely affected by such trend. Sales
relating to the Leader Price network increased by 45% in 1995 versus 1994,
primarily reflecting the additional volume created by the opening of 50 stores
between December 31, 1994 and December 31, 1995. Leader Price sales were
especially strong in the fourth quarter of 1995 as reflected by an 87% increase
in net sales over the fourth quarter of 1994. The larger
19
<PAGE>
base of opened stores in the fourth quarter of 1995 versus the fourth quarter of
1994 was primarily responsible for the significant increase. The Company does
not believe that Franprix results were materially impacted by the growth of the
Leader Price network.
The Grocery Products segment had net sales in 1995 of $432 million, a
decrease of 7%, or a 15% decrease on a local currency basis, over the comparable
period in 1994. The decrease was primarily due to a decline in net sales due to
the 1994 disposition of two of the Sold Subsidiaries, Premier and Sanson.
Excluding these two companies' net sales from 1994, net sales for the Grocery
Products segment would have increased by 8%, or declined 2% on a local currency
basis in 1995, compared with 1994. Increased net sales in southern ice cream
operations, consisting of Interglas and La Menorquina, were substantially offset
by lower sales in the beverage and ice cream operations in northern Europe and
the Company's snack operations in Ireland. La Menorquina, the Company's ice
cream operation in mainland Spain, posted a 14% increase in net sales primarily
due to significantly higher export and supermarket sales in 1995 versus 1994.
Interglas reported a 6% increase in net sales due to successful new product
introductions, strong yogurt sales and lower discounts offered to distributors.
The Company's ice cream operations in Belgium and Germany, Artic and Artigel,
respectively, recorded a combined decrease in net sales of 22% from the prior
year. Artigel's decrease was attributable to lower sales to major distributors
which were diversifying their purchasing portfolios in order to reduce reliance
on any single source. Artic's decline was due to lower export sales and reduced
sales to distributors, due in part to overstock of inventories at the
distributor level carried over from the fourth quarter of 1994. An 8% decrease
in net sales at Winters in the Netherlands was primarily responsible for the
decrease in the total beverage operation sales of 3% during 1995 versus 1994.
Winters' decline was primarily due to unusually high 1994 sales of iced tea
products to a single customer related to product promotions not repeated by this
customer in 1995. Tayto, the leading potato chip and snack company in Ireland,
reported a 2% reduction of net sales due to increased promotional activity by
competitors.
Total combined segment operating income (operating income before corporate
expenses and amortization of intangibles) for the year ended December 31, 1995
decreased by 3% to $92 million, or an 11% decrease on a local currency basis,
over the comparable period in the prior year. Excluding the segment operating
income of the Sold Subsidiaries for the year ended December 31, 1994, segment
operating income would have increased by 13%, or 3% on a local currency basis,
in 1995 versus 1994.
Operating income of the Food Distribution segment declined 3%, or 13% on a
local currency basis, in 1995 compared to 1994. Excluding Choky and Sodialim,
segment operating income increased 4%, or decreased 7% on a local currency
basis. The 32% increase in the number of Leader Price stores from 156 in
December 1994 to 206 in December 1995 was responsible for a 31% increase in
Leader Price operating income. Continued margin pressure and overall volume
decline in the Franprix network was responsible for a 22% decline in operating
income for the combined results of both Baud and Minimarche.
Operating income of the Grocery Products segment decreased by approximately
$1 million to $42 million in 1995 compared to 1994. Excluding Premier, Sanson
and the sale of idle property in Puerto Rico from 1994 results, operating income
would have increased by 16% on a local currency basis in 1995 versus 1994. Also
included in 1994 operating income of the Grocery Products segment was
approximately $2 million in accelerated depreciation expenses. La Menorquina and
Interglas reported increases in operating income of 28% and 3%, respectively,
primarily related to sales increases of 14% and 6%, respectively, greater
production efficiencies and better expense controls experienced during 1995
versus the prior year. La Menorquina also benefitted from the recognition of
previously deferred exchange gains related to export sales. Offsetting these
improvements in such companies' operating profit was a decline in gross margins.
Such decline was due at Interglas to increases in raw material prices and higher
packaging costs and due at La Menorquina to below average weather in mainland
Spain which resulted in lower sales of high margin ice cream novelties. The
northern ice cream operations, Artigel and Artic, reported a 1995 loss of $3
million versus a 1994 loss of $5 million. Included in the 1994 net loss was $3.6
million in special bad debt and restructuring charges consisting of severance
expense, writeoffs of obsolete inventory and additional plant shut-down
expenses. Excluding these special reserves, northern ice cream operating income
would have declined by $1.6
20
<PAGE>
million, primarily reflecting a 22% decline in net sales in 1995 versus 1994.
Winters experienced a 23% decline in operating income in 1995 versus 1994,
primarily due to decreased net sales of 8%, lower margins resulting from
increased competition and higher labor and freight costs associated with
increased export sales outside Europe.
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 year ended December 31, 1995 as compared to
the year ended December 31, 1994.
<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.................. 9% 12% 21% (13%) 10% (3%)
Food distribution, excluding Sold
Subsidiaries..................... 13 13 26 (7) 11 4
Grocery products................... (15) 8 (7) (8) 6 (2)
Grocery products, excluding Sold
Subsidiaries..................... (2) 10 8 16 10 26
Total......................... 3 11 14 (11) 8 (3)
Total, excluding Sold
Subsidiaries................ 10 12 22 3 10 13
</TABLE>
Net income for 1995 increased by $4.1 million to $15.4 million compared to
$11.3 million in 1994. The increase was primarily due to lower tax expense of
$15.5 million and improved operating income of $7.7 million and lower net
interest expense of $.5 million, offset by a decrease of other income of $6.5
million and higher reported minority interest in earnings of $10.1 million and
the recognition of an extraordinary loss of $3.1 million.
During the year ended December 31, 1995, the Company sold three
subsidiaries: Artigel GmbH & Co. Kg, a 70% owned ice cream manufacturer in
Germany, and two wholly owned ice cream distributors, Artic S.A. in Belgium and
Artic France S.A.R.L. in France. Additionally, the Company ceased operations of
its subsidiary, Dairyworld S.A., a Swiss trader of bulk dairy products. The
Company recorded pre-tax gains on such sales and dispositions of approximately
$10.5 million, which have been included in other income. The Company also
recorded charges relating to non-cash exchange losses recorded in compliance
with SFAS No. 52 in the amount of approximately $4.8 million. During 1995, the
Company determined that advances from foreign subsidiaries were no longer of a
long-term investment nature. Additionally, certain advances were either forgiven
in connection with the sale of certain subsidiaries, converted into dividends or
settled through other non-cash transactions. Accordingly, the translation
adjustments related to these advances, previously included in cumulative
translation adjustment, have been included in other income for the year ended
December 31, 1995. Also during 1995, the Company sold other investments for
approximately $467,000, recorded equity in earnings from minority-owned Leader
Price stores of approximately $331,000, and received additional proceeds of
$703,000 from the 1994 sale of Choky, S.A. which have been included in other
income.
During the year ended December 31, 1994, the Company sold the Sold
Subsidiaries. The Company recorded pre-tax gains on such sales of approximately
$12.1 million in 1994 which have been included in other income. Also during
1994, the Company sold other investments for a pre-tax gain of approximately
$1.6 million which has also been included in other income.
The decrease in tax expense was attributable to taxes related to asset
dispositions recorded in 1994 of $8.2 million and a reversal of tax contingency
reserves in 1995 of $10.9 million.
During the year ended December 31, 1995 the Company recorded an
extraordinary loss of $3.1 million relating to the write-off of certain deferred
debt issuance costs and other costs incurred relating
21
<PAGE>
to long-term debt repaid prior to maturity. The pre-tax amount of $4.6 million
was recorded net of an income tax benefit of $1.5 million.
SEASONALITY
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. Results of the Grocery Products segment
are affected by summer weather conditions which impact sales of ice cream,
dessert and soft drink products. While the working capital needs of the Food
Distribution segment remain stable throughout the year, the working capital
levels of the Grocery Products segment increase during the second and third
quarters because of higher inventories and receivables.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company's current level of indebtedness,
amounting to approximately $264 million at December 31, 1996, of which $230
million represents long-term debt and $34 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 December 31, 1996, TLC Beatrice's subsidiaries
had lines of credit denominated in local currencies totalling $91 million, of
which $74 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 December 31, 1996, the Company had working capital of $37.4 million,
compared to working capital of $42.3 million at December 31, 1995.
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 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
22
<PAGE>
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
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: 28 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 $15.9
million at the December 31, 1996 foreign exchange rate) from February 1, 1999
through January 31, 2000 and (ii) 3.2 million Irish Punts (approximately $5.3
million at the December 31, 1996 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 December 31, 1996, no indebtedness
was outstanding under the Credit Agreement.
For the years ended December 31, 1996, 1995 and 1994, cash provided by
operating activities was $74.6 million, $75.8 million and $48.3 million,
respectively.
In the year ended December 31, 1996, cash used in financing activities was
$21.3 million, primarily reflecting approximately $37.6 million in repayments of
short-term debt offset by $18.4 million in net proceeds from issuance of
long-term debt.
In the year ended December 31, 1995, cash provided by financing activities
was $49.3 million, primarily reflecting net proceeds from the issuance of the
Notes, offset by the repayments of $136.4 million and $6.4 million of long-term
and short-term indebtedness, respectively.
In 1994, cash used in financing activities was $79.4 million, primarily
reflecting the net repayments of short-term indebtedness of $41.2 million and
long-term indebtedness of $34.7 million.
For the year ended December 31, 1996, cash used in investing activities was
$76.9 million primarily reflecting disbursements for net capital expenditures.
For the year ended December 31, 1995, cash used in investing activities was
$83.8 million, primarily reflecting disbursements for net capital expenditures
of $60.9 million, bond investments relating to the Canary Island tax incentive
program (described below) of $10.4 million and equity ownership stakes in Leader
Price stores of $8.7 million.
For the year ended December 31, 1994, cash provided by investing activities
was $48.6 million, primarily as a result of the proceeds received from the sale
of the Sold Subsidiaries of $87.4 million principally offset by net capital
expenditures of $40.5 million.
23
<PAGE>
The 1996 net capital expenditures of approximately $74.0 million, primarily
related to (i) the construction of St. Alban's manufacturing facility in France,
(ii) the construction of a warehouse in Ireland to consolidate Tayto's warehouse
operations, (iii) Leader Price store openings and (iv) increased purchases of
ice cream cabinets.
The 1995 net capital expenditures of approximately $60.9 million were
applied primarily toward the maintenance and further expansion of the Company's
ice cream sales in Spain and distribution network in France and the costs of new
store openings, which primarily consisted of Leader Price stores. The reduction
in 1994 net capital expenditures reflects the disposition of the corporate
aircraft and the sale of idle property in Puerto Rico.
The Company estimates its 1997 net capital expenditures will be at
approximately $40 million. The Company anticipates that, as in 1996, such
expenditures will be applied primarily to the costs of new Leader Price store
openings and further expansion of the Company's ice cream sales in Spain. See
Part I, Item 1. 'Business -- Governmental Regulation.'
Pursuant to certain agreements entered into in 1992, the Company is
obligated under certain circumstances to purchase the Baud Minority
Stockholders' ownership interests in Distribution Leader Price and Retail Leader
Price. The agreements provide that prior to June 30, 1997, if certain members of
the Baud family cease to hold their management positions with the applicable
company and the Company fails to propose and vote in favor of one of certain
members of the Baud family as a replacement, the Baud Minority Stockholders have
the right to require TLC France to purchase all of the Baud Minority
Stockholders' shares pursuant to the Put Right, and TLC France has the right to
purchase all of the Baud Minority Stockholders' shares of Distribution Leader
Price in the event that the Baud Minority Stockholders exercise their put option
with respect to the shares of Retail Leader Price. In addition, at any time on
or after July 1, 1997 and prior to June 30, 2027, the Baud Minority Stockholders
can exercise the Put Right, and TLC France can exercise 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, with a
guaranteed minimum return on the Baud Minority Stockholders' aggregate
investment if an option is exercised prior to July 1, 1997. 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 the 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. See Part II, Item 7.
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity
24
<PAGE>
and Capital Resources' and Part II, Item 8. 'Financial Statements and
Supplementary Data -- Note 5 of Notes to Consolidated Financial Statements.'
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.
As a consequence of the termination of certain long-standing income tax
incentives in the Canary Islands as of December 31, 1991, transition rules were
promulgated by the Spanish and Canary Island provincial governments. To preserve
the tax advantages granted under these prior incentives, the transition rules
required investments by TLC Beatrice Canary Islands subsidiary, Interglas, in
certain approved investments over the five-year period from 1992 to 1996. A
variety of investments were eligible, including productive machinery and
equipment and/or local government interest-bearing bonds. Interglas satisfied
the last investment required under the transition rules of approximately $8
million entirely from internal cash flow. The Company recognized an income tax
benefit of $2.8 million in 1996 due to the satisfaction of this investment
requirement.
In addition, the Canary Islands instituted new tax incentives beginning in
1994. Interglas opted to take advantage of these incentives for its 1994 and
1995 tax years and is required to make qualifying investments of $16.8 million
in 1997, $16.8 million in 1998 and $440,000 in 1999. The Company has provided
for deferred income taxes on these requirements equal to the 35% tax rate on $34
million, or approximately, $11.9 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
requirements, the deferred tax liability may be reversed depending upon the
relevant facts and circumstances existing at the time.
TLC Beatrice is a defendant in lawsuits with Carlton Investments alleging,
among other things, a breach of the Stockholders' Agreement, waste of corporate
assets and breaches of fiduciary duties. TLC Beatrice intends to vigorously
defend against these actions and believes these allegations to be without merit.
TLC Beatrice's outside litigation counsel has advised TLC Beatrice that at this
time the extent of TLC Beatrice's liability, if any, is not determinable. The
ultimate outcome that may result from these matters may have a material effect
on TLC Beatrice's consolidated financial condition and/or results of operations.
See Part I, Item 3. 'Legal Proceedings.'
TAX MATTERS
TLC Beatrice is presently a personal holding company within the meaning of
Section 542 of the Internal Revenue Code of 1986, as amended. It could therefore
be subject to a special United States federal income tax (in addition to the
regular corporate tax) under certain circumstances. If applicable, the
additional tax is imposed at a rate of 28% through 1992, and 39.6% thereafter,
based on such corporation's taxable income (computed after certain adjustments,
including a reduction for capital gains, the regular federal income tax and a
limited use of the net operating loss deduction) reduced by certain dividends
paid ('undistributed personal holding company income'). For the one-month period
ended December 31, 1987 and the nine years ended December 31, 1996, the Company
had no undistributed personal holding company income and therefore the tax did
not apply.
Currently, many of the countries in which the Company's subsidiaries are
located impose a withholding tax of approximately 5% to 15% on dividends paid by
such subsidiaries to the Company. Such taxes may generally be credited against
federal income taxes payable by the Company in the United States. However,
because the Company does not have significant taxable income in the United
States, it may be unable to use any or all of such credits.
25
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical matters, the matters discussed in Part II, Item 7.
'Management's Discussion and Analysis of Financial Condition and Results of
Operations,' as well as other portions of this Form 10-K, are forward-looking
statements that involve risks and uncertainties. Such forward-looking statements
include, but are not limited to, statements about future openings of Leader
Price stores and changes in rates of growth as a result thereof, results of
Franprix, obligations with minority stockholders and the litigation with Carlton
Investments. 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,
continued adverse market trends and purchasing habits of consumers living in the
Paris metropolitan area which adversely affect Franprix, negotiations and the
then-current relationships with minority stockholders, determinations of
judicial authorities with respect to the litigation with Carlton Investments and
foreign exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information that are
required to be included pursuant to this Item 8 are listed in Item 14 of this
Report under the caption '(a)1.' and follow Item 14. The financial statements
and supplementary financial information specifically referenced in such list are
incorporated in this Item 8 by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors are elected by the stockholders of TLC Beatrice at its annual
meeting or, in the case of a vacancy, appointed by the stockholders or by the
directors then in office to serve until the next annual meeting or until their
successors are elected and qualified. The officers of TLC Beatrice are elected
by and serve at the pleasure of the Board of Directors. Set forth below is
certain information concerning the directors and executive officers of TLC
Beatrice.
<TABLE>
<CAPTION>
NAME POSITION AGE
- --------------------------------------- ---------------------------------------------- ---
<S> <C> <C>
Loida Nicolas Lewis.................... Chairman and Chief Executive Officer; Director 54
Reynaldo P. Glover..................... Executive Vice President, General Counsel and
Assistant Secretary; Director 53
Peter Offermann........................ Executive Vice President and Chief Financial
Officer 52
Dennis P. Jones........................ Executive Vice President, Operations 45
Daniel Jux............................. President, Food Distribution Division 53
Vincent P. O'Sullivan.................. President, Grocery Products Division 51
Charles Clarkson....................... Vice President; Secretary; Deputy Counsel 49
Terri L. Pike.......................... Controller 34
Rene S. Meily.......................... Vice President, Director of Communications 43
Imelda M. Nicolas...................... Vice President, Training and Development 51
Clifford L. Alexander, Jr.............. Director 63
Lee A. Archer, Jr...................... Director 73
Dort A. Cameron III.................... Director 53
Robert C. deJongh...................... Director 50
Anthony S. Fugett...................... Director 43
Leslie N. Lewis........................ Director 24
James E. Obi........................... Director 54
Ricardo J. Olivarez.................... Director 55
Samuel P. Peabody...................... Director 72
William H. Webster..................... Director 72
</TABLE>
Loida Nicolas Lewis has been a director of TLC Beatrice since December 22,
1993. She became Chairman of TLC Beatrice effective February 1, 1994 and Chief
Executive Officer in July 1994. From 1979 through 1990, Mrs. Lewis served as a
General Attorney for the United States Immigration and Naturalization Service.
From February 1993 she has been Chairman of The Reginald F. Lewis Foundation,
Inc., a private foundation. Mrs. Lewis was an associate attorney with Antonio C.
Martinez from 1977 to 1979 and legal clerk at Manhattan Legal Services from 1970
to 1973. Mrs. Lewis is the mother of Leslie N. Lewis, sister of Imelda M.
Nicolas and sister-in-law of Anthony S. Fugett.
Reynaldo P. Glover has been a director of TLC Beatrice since July 1995 and
Executive Vice President, General Counsel and Assistant Secretary of TLC
Beatrice since July 1994. Since September 1994, Mr. Glover has served as of
counsel to the law firm Rudnick & Wolfe. From 1991 through July 1994 he was a
general partner of the law firm Miller, Shakman, Hamilton, Kurtzson & Schlifke.
From 1987 through 1991 he was a general partner of the law firm Jenner & Block.
Peter Offermann has been Executive Vice President and Chief Financial
Officer of TLC Beatrice since December 1994. Since May 1994, Mr. Offermann has
been the President of Offermann Financial, Inc., a financial consulting firm.
From 1968 through May 1994, he served in a number of positions with Bankers
Trust Company and its affiliates, including as Managing Director of BT
Investment Partners, Inc. from October 1992 through May 1994, Managing Director
of BT Securities Corporation from October 1991 through October 1992, and
Managing Director of
27
<PAGE>
Bankers Trust Company from 1986 through September 1991. Mr. Offermann is a
director of Jan-Bell Marketing, Inc. and National Auto Finance Company, Inc.
Dennis P. Jones has been Executive Vice President, Operations of TLC
Beatrice since January 1993. He served as Senior Vice President, Business
Planning and Development of TLC Beatrice from March 1990 to January 1993, and
Vice President, Business Planning and Development of TLC Beatrice from 1987 to
March 1990.
Daniel Jux has been the President of the Food Distribution Division of TLC
Beatrice since June 1990. He was Financial Director of the Food Distribution
Division of TLC France from February 1988 to June 1990. Previously he was Field
Manager from 1985 to 1988 and Financial Director from 1982 to 1985 of Boucheries
Bernard, a French meat company.
Vincent P. O'Sullivan has been President of the Grocery Products Division
since January 1994. Mr. O'Sullivan has also been the Chairman and Managing
Director of Tayto, the Company's snack company in Ireland, for more than five
years.
Charles Clarkson has been Vice President, Secretary and Deputy Counsel of
TLC Beatrice since July 1996. From July 1994 to July 1996 he was Secretary and
Counsel of TLC Beatrice. From April 1993 to July 1994, he was Assistant
Secretary and Counsel of TLC Beatrice. From March 1993 through January 1994, he
also served as a consultant to TLC Beatrice. From May 1990 through March 1993,
Mr. Clarkson was on a leave of absence from TLC Beatrice. He was Assistant
Secretary of TLC Beatrice from April 1990 to October 1990 and Secretary of TLC
Beatrice from August 1987 to April 1990. Mr. Clarkson was a partner of the law
firm Lewis & Clarkson or its successor from 1979 until May 1990.
Terri L. Pike has been Controller of TLC Beatrice since July 1993 and
previously served as Assistant Controller of TLC Beatrice from July 1992 to July
1993. Ms. Pike was Controller of the Office of Environmental Policy/Legal
Services Group for W.R. Grace & Co. from July 1991 to July 1992.
Rene S. Meily has been Vice President, Director of Communications of TLC
Beatrice since April 1995. From March 1994 through March 1995 he served as a
consultant to TLC Beatrice. Mr. Meily was Vice President, Director of
Communications of TLC Beatrice from November 1989 through January 1994 and
Director of Communications from June 1988 through November 1989. From 1987 to
1988 he served as Client Service Manager for Burson-Marsteller Inc.
Imelda M. Nicolas has been Vice President, Training and Development of TLC
Beatrice since January 1996. From March 1994 through January 1996 she served as
Assistant to the Chairman of TLC Beatrice. Since 1993 she has been Chairperson
of the National Commission of Women for the Philippines. From 1986 through 1992
she was a presidential assistant in the Office of the President of the
Philippines under President Corazon C. Aquino. She is the sister of Loida
Nicolas Lewis and the aunt of Leslie N. Lewis.
Clifford L. Alexander, Jr. has been a director of TLC Beatrice since May
24, 1996. Since January 1981, Mr. Alexander has been the President of Alexander
& Associates, Incorporated, a private consulting firm. From February 1977
through January 1981, Mr. Alexander served as Secretary of the Army. Mr.
Alexander is a director of MCI Communications Corporation, The Dun & Bradstreet
Corporation, The Dreyfus Third Century Fund, Dreyfus General Family of Funds and
Dreyfus Premier of Funds, Mutual of America Life Insurance Company, and American
Home Products.
Lee A. Archer, Jr. has been a director of TLC Beatrice since February 1988.
From 1976 to 1987, he was a Vice President of General Foods Corporation. Since
1987, he has been Chairman and Chief Executive Officer of Organizational
Publishing Company.
Dort A. Cameron III has been a director of TLC Beatrice since July 1995.
Since 1984, Mr. Cameron has been the general partner of BMA Limited Partnership,
which is the general partner of Investment Limited Partnership, an investment
partnership focusing on high-yield securities, structured transactions and
certain direct equity investments. Since 1988, Mr. Cameron has been the
co-general partner of EBD L.P., which is the general partner of The Airlie
Group, L.P., an investment partnership focusing on hedged arbitrage
transactions. Since 1993, Mr. Cameron has been the Chairman of the Board of
Entex Information Services, Inc., a computer reseller and service corporation.
Since 1994, Mr.
28
<PAGE>
Cameron has been the Chairman of the Board of Milestone Capital Management. Mr.
Cameron is a director of Foodbrands America, Inc. and Perkins Restaurants, Inc.
Robert C. deJongh has been a director of TLC Beatrice since February 1988.
For more than five years, Mr. deJongh has headed the U.S. Virgin Islands
architectural firm of deJongh & Associates.
Anthony S. Fugett has been a director of TLC Beatrice since January 1993.
Since May 1989, he has been President and Chief Executive Officer of ASF
Systems, Inc., a computer systems integration company. From 1977 through May
1989, he was an executive with the International Business Machines Corporation.
He is a brother-in-law of Loida Nicolas Lewis and uncle of Leslie N. Lewis.
Leslie N. Lewis has been a director of TLC Beatrice since December 1991.
Beginning in 1991, Ms. Lewis attended Harvard University, from which she
graduated in 1995. She has held summer analyst positions at McKinsey & Co.
during the summer of 1994, TLC Beatrice during the summer of 1993 and at Lion
Advisors, L.P. during the summer of 1992. She is a daughter of Loida Nicolas
Lewis and a niece of Imelda M. Nicolas and Anthony S. Fugett.
James E. Obi has been a director of TLC Beatrice since February 1988. For
more than five years Mr. Obi has been a Chartered Life Underwriter and Agency
Manager for The Equitable Life Assurance Society of the United States.
Ricardo J. Olivarez has been a director of TLC Beatrice since February
1988. Since April 1988, he has been the Controller of Southern California
Association of Governments.
Samuel P. Peabody has been a director of TLC Beatrice since February 1988.
For more than five years, Mr. Peabody has been an educational consultant.
William H. Webster has been a director of TLC Beatrice since May 24, 1996.
Since September 1991, Mr. Webster has been a partner with the law firm of
Milbank, Tweed, Hadley & McCloy. From May 1987 through September 1991, Mr.
Webster served as Director of Central Intelligence. From February 1978 through
May 1987, Mr. Webster served as Director of the Federal Bureau of Investigation.
Mr. Webster is a director of Anheuser-Busch Companies, Inc., Maritz Inc.,
Pinkerton, Inc. and Next Wave Telecom, Inc.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by TLC Beatrice to (i)
its Chairman of the Board and Chief Executive Officer and (ii) each of the four
most highly compensated individuals serving as executive officers of the Company
at the end of 1996 (collectively, the 'Named Executives'), for services rendered
in all capacities to TLC Beatrice during the periods indicated.
29
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ----------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS (#) COMPENSATION($)
- ---------------------------------- ---- ---------- -------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Loida Nicolas Lewis 1996 1,000,000 750,000 -- 80,000 4,750(2)
Chairman of the Board 1995 -- 750,000 -- -- --
and Chief Executive 1994 -- -- -- -- --
Officer(1)
Dennis P. Jones 1996 250,000 187,500 -- 80,000 4,750(2)
Executive Vice President, 1995 250,000 155,000 -- -- 4,620(2)
Operations 1994 195,000 101,250 -- -- 4,620(2)
Peter Offermann 1996 300,000 120,000 -- 80,000 4,750(2)
Executive Vice President and 1995 240,000 150,000 -- -- 1,072(2)
Chief Financial Officer(3) 1994 10,239 40,000 -- -- --
Reynaldo P. Glover 1996 275,000 110,000 -- 80,000 4,750(2)
Executive Vice President, 1995 275,000 115,000 -- -- 4,620(2)
General Counsel and Assistant 1994 232,500 140,000 -- 100,000(4) 4,620(2)
Secretary; Director(5)
Vincent P. O'Sullivan 1996 262,566 121,006(6) -- 35,000 --
President, Grocery Products 1995 241,618 159,270 -- -- --
Division and Managing Director, 1994 231,333 86,724 -- -- --
Tayto, Ltd.
</TABLE>
- ------------
(1) Loida Nicolas Lewis became Chairman of TLC Beatrice effective February 1,
1994 and Chief Executive Officer on July 27, 1994. She did not receive any
salary or bonus for her services to TLC Beatrice in 1994 and only received a
bonus for 1995. Mrs. Lewis did, however, receive compensation from TLC
Group, L.P. in the amount of $1 million in each of 1995 and 1994. TLC
Beatrice paid TLC Group an annual fee of $1 million pursuant to the
Stockholders' Agreement in each of 1994 and 1995. Commencing January 1,
1996, Mrs. Lewis has been compensated as an employee of TLC Beatrice and has
not received compensation from TLC Group, L.P. See Part III, Item 13.
'Certain Relationships and Related Transactions.'
(2) Reflects TLC Beatrice-matching contributions to the Beatrice International
Savings Plan, as allowable under Section 401(k) of the Internal Revenue Code
of 1986, as amended.
(3) Mr. Offermann is the President of Offermann Financial, Inc., which provided
financial advisory services to TLC Beatrice prior to Mr. Offermann joining
the Company in December 1994. TLC Beatrice paid fees to Offermann Financial,
Inc. of $150,000 in 1994. See Part III, Item 13. 'Certain Relationships and
Related Transactions.'
(4) Pursuant to his employment agreement, Mr. Glover received 100,000 stock
appreciation rights ('SARs') in 1994, 25,000 of which vested in each of 1994
and 1995. The remaining SARs have been cancelled. See ' -- Employment and
Other Agreements.'
(5) Mr. Glover is of counsel to the law firm Rudnick & Wolfe, which has been and
continues to be retained by TLC Beatrice to perform legal services on behalf
of TLC Beatrice. TLC Beatrice paid fees to Rudnick & Wolfe of approximately
$248,000 in 1994 and approximately $1,283,000 in 1995 and approximately
$521,000 in 1996. In addition, prior to July 1994, Mr. Glover was a general
partner of Miller, Shakman, Hamilton, Kurtzon and Schlifke, a law firm which
was retained by TLC Beatrice to perform substantial services in 1994. The
fees paid to Miller, Shakman, Hamilton, Kurtzon and Schlifke and Mr. Glover
for legal services in 1994 were approximately $147,000. See Part III, Item
13. 'Certain Relationships and Related Transactions.'
(6) Reflects Mr. O'Sullivan's bonus for services as Managing Director of Tayto.
The amount of bonus earned for 1996 as President of TLC Beatrice's Grocery
Products Division has not been determined because it was not calculable as
of the date of this Report. In accordance with the Securities and Exchange
Commission's rules on executive compensation, these amounts will be included
for such year in TLC Beatrice's Annual Report on Form 10-K for the year
ended December 31, 1997.
30
<PAGE>
The following table contains information regarding grants of stock options
and SARs made to the Named Executives in 1996.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENT
OF
NUMBER TOTAL
OF OPTIONS/
SECURITIES SARS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED ASSUMED ANNUAL RATES OF STOCK
OPTIONS/ TO PRICE APPRECIATION FOR OPTION
SARS EMPLOYEES EXERCISE OR TERM(3)
GRANTED IN 1996 BASE PRICE EXPIRATION -------------------------------
NAME (#)(1) (%) ($/SHARE)(2) DATE 5% ($) 10% ($)
- -------------------------------------- ----------- --------- ------------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Loida Nicolas Lewis................... 80,000 14 $ 25.00 1/19/06 1,257,789 3,187,485
Dennis P. Jones....................... 80,000 14 25.00 1/19/06 1,257,789 3,187,485
Peter Offermann....................... 80,000 14 25.00 1/19/06 1,257,789 3,187,485
Reynaldo P. Glover.................... 80,000 14 25.00 1/19/06 1,257,789 3,187,485
Vincent P. O'Sullivan................. 35,000 6 25.00 1/19/06 550,283 1,394,525
</TABLE>
- ------------
(1) All options granted in 1996 were granted under the 1996 Stock Option Plan
(as defined below). For a summary of the terms of such options, see the
discussion under ' -- 1996 Long Term Incentive Stock Option Plan.'
(2) The exercise price per share of the options granted was equal to the fair
market value of the Common Stock of the date of grant, as determined by the
Board of Directors.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation, mandated by rules
promulgated by the Securities and Exchange Commission, of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date, and are not intended to forecast possible future
appreciation, if any, in the price of the Company's Common Stock. The gains
shown are net of the option exercise price, but do not include deductions
for federal or state income taxes or other expenses associated with the
exercise of the options or the sale of the underlying shares. The actual
gains, if any, on the exercise of the stock options will depend on the
future performance of the Common Stock, the optionholder's continued
employment through the option period and the date on which the options are
exercised.
The following table sets forth information regarding stock options and SARs
held by the Named Executives as of the end of 1996.
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND
YEAR-END 1996 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR-END AT FISCAL YEAR-END
SHARES (#) ($)(1)
ACQUIRED VALUE ------------------ --------------------
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- -------- ------------------ --------------------
<S> <C> <C> <C> <C>
Loida Nicolas Lewis................. -- -- 0/80,000 0/0
Dennis P. Jones..................... -- -- 0/80,000 0/0
Peter Offermann..................... -- -- 0/80,000 0/0
Reynaldo P. Glover.................. -- -- 0/130,000(2) 0/0
Vincent O'Sullivan.................. -- -- 0/35,000 0/0
</TABLE>
- ------------
(1) There is no trading market for the Common Stock. However, based on
management's belief that the fair market value of the Common Stock is $25.00
per share, TLC Beatrice believes that the SARs and stock options held by the
Named Executives were not in-the-money on December 31, 1996.
(footnotes continued on next page)
31
<PAGE>
(footnotes continued from previous page)
(2) Represents securities underlying 50,000 SARs and 80,000 stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation policies are determined and executive officer
compensation decisions are made by the Compensation Committee of the Board of
Directors (the 'Compensation Committee'). During 1996, the members of the
Compensation Committee were Anthony S. Fugett, James E. Obi and Lee A. Archer,
Jr.
During 1996, none of the members of the Compensation Committee was an
officer or employee of TLC Beatrice or any of its subsidiaries or a former
officer of TLC Beatrice or any of its subsidiaries.
EMPLOYMENT AND OTHER AGREEMENTS
The Company is a party to employment agreements with Reynaldo P. Glover,
Peter Offermann, Daniel Jux and Vincent P. O'Sullivan. Mr. Glover's employment
agreement commenced August 1, 1994 and can be terminated by Mr. Glover upon at
least six months' prior written notice or by TLC Beatrice, with or without
cause, effectively immediately upon written notice. Under such agreement, Mr.
Glover receives a base salary of $275,000 per annum and an annual performance
bonus determined in accordance with TLC Beatrice's management incentive plan.
TLC Beatrice paid Mr. Glover an additional one-time signing payment of $100,000
in 1994. Pursuant to his employment agreement, Mr. Glover also received (subject
to vesting) 100,000 SARs in 1994 with an exercise price of $30.00 per share
under the TLC Beatrice Stock Incentive Plan (the '1992 Plan'). Twenty-five
thousand of these SARs vested in each of 1994 and 1995 and the remaining SARs
were cancelled in 1996 upon the adoption of the TLC Beatrice 1996 Long Term
Incentive Stock Option Plan. See ' -- 1996 Long Term Incentive Stock Option
Plan.' The outstanding SARs will become exercisable for a period of 90 days
either upon a Change of Control (as defined in the 1992 Plan) or, at TLC
Beatrice's option, when Mr. Glover leaves TLC Beatrice. Mr. Glover is also
eligible to participate in TLC Beatrice's benefit plans offered generally to
executive employees and is eligible for certain other fringe benefits. Upon
termination by TLC Beatrice, other than for cause, Mr. Glover is entitled to
receive two years' base pay if terminated in the first year, eighteen months'
base pay if terminated in the second year and one years' base pay if terminated
in the third year or later, such amounts in all cases to be paid on a monthly
basis.
Mr. Offermann's employment agreement commenced January 1, 1997 and
terminates on January 1, 2000, except that on the first and each succeeding
anniversary of such employment agreement, the employment agreement shall be
extended for one year unless notice of termination is given by Mr. Offermann or
TLC Beatrice prior to such anniversary date. Under such agreement, Mr. Offermann
receives a base salary of $300,000 and an annual performance bonus in accordance
with TLC Beatrice's Annual Incentive Plan (as defined herein), targeted at not
less than forty percent of base salary. See ' -- Employee Benefit Plans.' Mr.
Offermann is also eligible to participate in TLC Beatrice's benefit plans
offered generally to executive employees. Upon termination by TLC Beatrice,
other than for cause, Mr. Offermann is entitled to receive (i) base salary for
twenty-four months or through the conclusion of the term of his agreement,
whichever is longer, (ii) an amount equal to the pro rata target bonus for the
year in which he is terminated (the 'Pro Rata Amount') and (iii) an additional
payment to be paid on a date mutually agreed by Mr. Offermann and TLC Beatrice
(not to exceed eighteen months after termination) equal to the Pro Rata Amount.
In the event of a change of control (as defined in the employment agreement),
Mr. Offermann may, at his option, upon thirty days written notice, given within
one hundred eighty days following the change of control, terminate the
employment agreement and receive the amount he would be entitled to had he been
terminated other than for cause.
Mr. O'Sullivan has separate employment agreements with TLC Beatrice and
Tayto. Mr. O'Sullivan's employment agreement with TLC Beatrice commenced January
1, 1994 and can be terminated by Mr. O'Sullivan upon at least six months' prior
written notice or by TLC Beatrice, with or without cause, immediately upon
written notice. Under such agreement, Mr. O'Sullivan receives a base salary of
$110,000 per annum and an annual performance bonus determined in accordance with
TLC Beatrice's
32
<PAGE>
management incentive plan. Under such agreement, Mr. O'Sullivan waived coverage
under all fringe benefit programs maintained or offered by TLC Beatrice to its
employees except the Beatrice International Pension Plan and those benefits
provided for specifically in his employment agreement. Upon termination, other
than for cause, Mr. O'Sullivan is entitled to receive regular salary and bonus
for a period equal to the number of full months that elapse following December
31, 1993 and prior to termination during which Mr. O'Sullivan served as
President of the Grocery Products Division, up to a maximum of 30 months.
Mr. O'Sullivan's employment agreement with Tayto commenced January 1, 1994,
and has a three-year term which can be extended until Mr. O'Sullivan reaches age
65. Such agreement can be terminated by Mr. O'Sullivan upon at least six months'
prior written notice or by Tayto, with or without cause, upon thirty days' prior
written notice. Under such agreement, Mr. O'Sullivan receives a base salary of
92,040 Irish pounds per annum and an annual performance bonus in accordance with
TLC Beatrice's management incentive plan. Under such agreement, Mr. O'Sullivan
is eligible to participate in the Tayto Ltd. Non-Contributory Pension Plan, and
is entitled to certain fringe benefits. Upon termination other than for cause or
following six months' prior written notice of termination by Mr. O'Sullivan
following a change in control (as defined in such agreement), Mr. O'Sullivan is
entitled to receive his current base salary and target bonus for the unexpired
term of such agreement.
Mr. Jux has an employment agreement with TLC France, which commenced
September 1, 1988 and is terminable at any time, with or without cause, by
either TLC France or Mr. Jux upon six months' prior notice. Mr. Jux receives
base salary of 1,350,000 French Francs per annum plus an annual performance
bonus of up to 60% of base salary, the exact amount depending on the achievement
of certain financial and other objectives established each year by the Company.
In addition, Mr. Jux is entitled to participate in the retirement and insurance
plans of TLC France and is eligible for certain other customary fringe benefits.
Upon termination, other than for serious professional misconduct, Mr. Jux is
entitled to a lump-sum payment equal to six months' base salary.
EMPLOYEE BENEFIT PLANS
Beatrice International Pension Plan. Generally, employees of TLC Beatrice
and participating subsidiaries and affiliates of TLC Beatrice ('Participating
Employers') who are in executive, managerial, technical, professional,
administrative, clerical or sales positions or who are members of covered
collective bargaining units, and who have performed 1,000 hours of service, are
covered by the Beatrice International Pension Plan ('BIPP'), which is designed
to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the 'Code'). BIPP provides a monthly retirement benefit at age 65 equal to 1.5%
of final average monthly earnings multiplied by years of benefit service, less
1.5% of monthly Social Security benefits multiplied by years of benefit service
(not to exceed, however, 50% of monthly Social Security benefits), reduced by
amounts payable under other defined benefit plans. 'Final average monthly
earnings,' as defined in BIPP, means average monthly cash compensation
(excluding payments under long-term incentive plans and expense reimbursements)
over five consecutive years for which earnings were highest during a
participant's last fifteen calendar years of employment, or if greater, the 60
consecutive months during the last 120 months of service during which earnings
were highest. BIPP also provides early retirement benefits and a surviving
spouse benefit if a participant dies after satisfying certain requirements.
The normal form of payment under BIPP is a life annuity if the participant
is unmarried, or a 50% joint and survivor annuity, if married. There are,
however, optional forms of payment available, including other joint and survivor
annuities, and a life annuity with a guaranteed payment period of up to fifteen
years. The Code imposes a limitation on the benefits that may be paid under BIPP
as of January 1, 1989. The amount of annual compensation which could be taken
into account for benefit plan purposes in 1996, 1995 and 1994 was $150,000. The
Company has a non-qualified supplemental pension plan to provide benefits that
participants would have been entitled to receive under BIPP were it not for
these and other limitations.
33
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000....................................... $ 24,542 $ 32,723 $ 40,904 $ 49,084 $ 57,663
150,000....................................... 30,167 40,223 50,279 60,334 70,788
175,000....................................... 35,792 47,723 59,654 71,584 83,913
200,000....................................... 41,417 55,223 69,029 82,834 97,038
225,000....................................... 47,042 62,723 78,404 94,084 110,163
250,000....................................... 52,667 70,223 87,779 105,334 123,288
300,000....................................... 63,917 85,223 106,529 127,834 149,538
400,000....................................... 86,417 115,223 144,029 172,834 202,038
450,000....................................... 97,667 130,223 162,779 195,334 228,288
500,000....................................... 108,917 145,223 181,529 217,834 254,538
</TABLE>
Based on estimated Social Security benefit levels, the table reflects
annual benefit payments under BIPP and the non-qualified supplemental pension
plan in the form of a straight life annuity to participants at specified annual
salary levels and with specified lengths of service under BIPP. BIPP provides
that (i) the definition of the term 'final average monthly earnings' for
purposes of that plan includes earnings through the month of termination, (ii)
the reduction factors for early retirement and deferred pensions are 6% for each
year between ages 55 and 60 and (iii) no reduction factors apply above age 60 or
above age 55 if the sum of the participant's age and years of service is at
least 90. At December 31, 1996, Mr. Jones had 18 years of credited service, Mr.
O'Sullivan had three years of credited service, Messrs. Glover and Offermann
each had two years of credited service and Mrs. Lewis had one year of credited
service for purposes of BIPP.
Beatrice International Supplemental Pension Plan. The Beatrice
International Supplemental Pension Plan ('SPP') provides supplemental retirement
income for participants and their beneficiaries. A participant is any employee
of TLC Beatrice or any of its affiliates or subsidiaries who is a participant
under BIPP. Participants are entitled to receive the actuarial equivalent of (i)
the amount by which their benefits under BIPP are reduced as a result of the
operation of Sections 415 (limit on benefits) and 401(a)(17) (annual limit on
compensation) of the Code and (ii) the amount by which their benefits under BIPP
and SPP are reduced due to the deferral of their compensation after 1985.
Additionally, officers of TLC Beatrice holding the office of Vice President or
higher, whose employment with TLC Beatrice and its affiliates terminates after
any 'change in control' (as defined in SPP) and before their benefit under BIPP
becomes nonforfeitable, shall be entitled to an amount equal to the benefit
under BIPP that they would have been entitled to had they performed the minimum
number of years of service necessary to qualify for a benefit thereunder.
Benefits shall be calculated on the basis of a monthly benefit for the life of
the employee and are paid in a lump sum or, in the sole discretion of the
committee which administers BIPP and SPP, in any form of benefit provided for
under BIPP.
Beatrice International Savings Plan. The Beatrice Companies, Inc.'s Board
of Directors approved the establishment of the Beatrice Employee Savings Trust
(the 'Prior Plan'), which became effective July 1, 1984. Effective as of
December 1, 1987, TLC Beatrice established the Beatrice International Savings
Plan ('BISP') for the benefit of its employees and retirees, and those of
Participating Employers, who were employees and retired employees of Beatrice
International Food Company and who participated or were eligible to participate
in the Prior Plan. Other salaried and hourly employees of the Company and
Participating Employers (and part-time employees who have completed a year of
service with the Company or a Participating Employer) are also eligible to
participate in BISP if they so elect. BISP is designed to qualify under Sections
401(a) and 401(k) of the Code as a profit-sharing plan. BISP allows participants
to defer up to 17% of their eligible compensation on a pre-tax basis, except
that pre-tax contributions were limited to $9,500 for 1996 and $9,240 for 1995
and 1994 to conform with the Tax Reform Act of 1986. Subject to certain
limitations, the BISP also permits participants to make after tax contributions.
TLC Beatrice and Participating Employers make matching contributions of 50% of
the amount of salary deferral and after-tax contributions (up to 6% of
compensation) elected by a BISP participant.
34
<PAGE>
Amounts contributed for a participant are held in trust until distributed
either in a lump sum, or installments, pursuant to the provisions of the plan.
All employee contributions are 100% vested. Fifty percent of the employer's
contributions vest after three years of employment. One hundred percent of the
employer's contributions vest after five years of employment. Employee
contributions and employer matching contributions are invested at the employee's
discretion in investment alternatives offered by the plan.
During 1996, TLC Beatrice made contributions to BISP on behalf of Mrs.
Lewis, Messrs. Jones, Offermann and Glover in the amount of $4,750 each.
Management Incentive Plan. Certain members of TLC Beatrice's eligible
senior management employees, as approved by the Chairman and Chief Executive
Officer, participate in TLC Beatrice's Management Incentive Plan ('MIP').
Certain other members of management participated at the discretion of officers
named in MIP. Participants in MIP earned annual bonuses based upon (i) the
yearly financial performance of the business unit of the Company for which they
performed services, as compared with the financial targets set for it by members
of TLC Beatrice's management; and (ii) individual performance, as compared with
individual performance goals developed jointly by participants and their
supervisors. The maximum bonus that could be earned under MIP varied from 85% of
a participant's base salary (for the most highly compensated participants) to
25% of a participant's base salary (for the least highly compensated
participants). Base salary meant gross earnings before BISP deferrals for the
applicable year, excluding MIP bonuses, long-term incentive awards, overbase
allowances, imputed income from fringe benefit plans and non-recurring payments
such as moving expenses. The criteria used in developing financial targets
included the operating earnings, cash flow and return on total capital for the
business unit of the participant. Individual performance goals included both
quantifiable and non-quantifiable criteria and incorporated specific objectives,
plans of action and timetables for accomplishment. The Chairman and Chief
Executive Officer could, prior to the end of the applicable year, change
financial targets or individual performance goals.
ANNUAL INCENTIVE PLAN
On January 19, 1996, the Board of Directors of TLC Beatrice established the
TLC Beatrice 1996 Annual Incentive Plan (the 'Annual Incentive Plan') for the
purpose of promoting the long-term financial performance of the Company by
providing incentive compensation opportunities to officers, managers and other
key employees of TLC Beatrice's New York based corporate staff. Each
participant's award under the Annual Incentive Plan for any fiscal year is based
on the Company's financial performance as well as, where appropriate, the
participant's own individual performance. The Annual Incentive Plan is
administered by the Compensation Committee.
Participants in the Annual Incentive Plan are chosen by the Compensation
Committee, upon the recommendation of the Chief Executive Officer of TLC
Beatrice. At the beginning of each fiscal year, an individual target award (an
'Individual Target Award') is established for each participant based on a
percentage of such participant's base salary. The Annual Incentive Plan
contemplates that the applicable percentage will vary by Company position and
range from 10% to 75% of base salary, as determined by the Compensation
Committee. Actual awards under the Annual Incentive Plan are based on the
following factors: (i) the Company's actual earnings from operations ('Actual
Earnings') as compared to targeted earnings ('Target Earnings') established at
the beginning of each fiscal year; (ii) the Company's achievement of any other
special, strategic or other performance factors; and (iii) the individual
performance of each participant.
The maximum amount of funds made available by the Company for the purpose
of making awards under the Annual Incentive Plan in any fiscal year (the
'Maximum Available Awards Fund') is the aggregate amount of all Individual
Target Awards established at the commencement of the fiscal year (the 'Incentive
Award Pool') multiplied by a percentage based on the Company's Actual Earnings
as compared to Target Earnings for such fiscal year. Depending on Actual
Earnings, the Maximum Available Awards Fund in any fiscal year may equal from 0%
to 150% of the Incentive Award Pool. In years in which the Company's Actual
Earnings meet or exceed 80% of the Target Earnings, the Chief Executive Officer
and the Compensation Committee also have discretion to make available to the
Chief
35
<PAGE>
Executive Officer an additional discretionary bonus pool of an amount equal to
up to 25% of the Incentive Award Pool, which amount is payable at the discretion
of the Chief Executive Officer to any one or more employees as an additional
bonus to any bonus otherwise payable under the Annual Incentive Plan, based on
other performance measures that are deemed appropriate. The amount of the award
paid to each participant is equal to such participant's proportionate share
(based on his or her Individual Target Award) of the Maximum Available Awards
Fund, subject to adjustment by the Compensation Committee.
1996 LONG TERM INCENTIVE STOCK OPTION PLAN
On January 19, 1996, TLC Beatrice established the TLC Beatrice 1996 Long
Term Incentive Stock Option Plan (the '1996 Stock Option Plan') to promote the
long-term financial performance of TLC Beatrice by attracting, retaining and
motivating Key Employees (as defined in the 1996 Stock Option Plan) and
Consultants (as defined in the 1996 Stock Option Plan). The Board of Directors
administers the 1996 Stock Option Plan, which provides for the grant of options
with respect to a maximum of 750,000 shares of Common Stock. Each Key Employee
and Consultant may receive options to purchase a maximum of 100,000 shares of
Common Stock under the 1996 Stock Option Plan in any calendar year, as
determined by the Board of Directors. The exercise price for an option granted
pursuant to the 1996 Stock Option Plan which is intended to meet the
requirements of Section 422(b) of the Code (an 'ISO'), which may be granted only
to a Key Employee, cannot be less than 100% (or 110% in certain cases) of the
fair market value (as calculated in accordance with the 1996 Stock Option Plan)
of a share of Common Stock on the date the ISO is granted. The exercise price
for each non-ISO option granted pursuant to the 1996 Stock Option Plan (a
'NQSO'), which may be granted to either a Key Employee or a Consultant, shall be
determined by the Board of Directors on the date that the NQSO is granted. Each
option granted under the 1996 Stock Option Plan shall be evidenced by a stock
option agreement between the Key Employee or Consultant, as the case may be, and
TLC Beatrice, which agreement may contain additional terms not inconsistent with
the 1996 Stock Option Plan.
Each option granted under the 1996 Stock Option Plan shall become
exercisable, in full or in part, as the Board of Directors determines, provided
that no option may become exercisable prior to the later of the listing of the
Common Stock on any national securities exchange or interdealer quotation system
or thirty months from the grant of such option except options granted to an
optionee whose ISO or NQSO is subject to the taxation laws of the Netherlands or
Belgium, in which case such options shall be exercisable immediately upon
granting. The Board of Directors may postpone the exercise of an option in order
to (i) effect or maintain registration or qualification of the 1996 Stock Option
Plan, or Common Stock issuable thereunder, under any applicable securities law,
(ii) take any action required to comply with restrictions incident to the
listing on any securities exchange of, or the maintenance of a public market
for, the Common Stock or (iii) determine that the actions described in (i) or
(ii) need not be taken. No postponement of the exercise of an option granted
under the 1996 Stock Option Plan will extend the termination or expiration date
of such option. In the event of a Change of Control (as defined in the 1996
Stock Option Plan) of TLC Beatrice, any unvested options shall become fully
vested and immediately exercisable.
Each option granted under the 1996 Stock Option Plan shall terminate as
determined by the Board of Directors, but not later than the earliest of (i) ten
years (or five years in the case of certain ISOs) from the date of grant, (ii)
ninety days after the grantee's employment or relationship with TLC Beatrice
terminates other than 'for cause' (as defined in the 1996 Stock Option Plan),
(iii) two years after the grantee's employment or relationship with TLC Beatrice
terminates other than 'for cause' if such termination occurs within two years
following a Change of Control of TLC Beatrice and (iv) immediately upon the
termination of the grantee's employment or relationship with TLC Beatrice 'for
cause.' The 1996 Stock Option Plan will terminate on December 31, 2000, unless
terminated earlier by the Board of Directors.
Provisions of the 1996 Stock Option Plan relating to extension of its
termination date, the amount of Common Stock for which options may be granted,
the eligibility standards for participants and the period during which options
may be exercised may only be amended with shareholder approval.
36
<PAGE>
Amendment or termination of the 1996 Stock Option Plan shall not affect the
validity or terms of any option previously granted thereunder in a manner
adverse to the grantee without the consent of such grantee.
On January 19, 1996, the Board of Directors of TLC Beatrice granted
non-qualified options with respect to 563,000 shares of Common Stock to
seventeen Key Employees under the 1996 Stock Option Plan. Pursuant to the stock
option agreements related to these grants, these options will become exercisable
in accordance with the 1996 Stock Option Plan at an exercise price of $25 per
share, provided that such options may not be exercised until the option holders
have completed seven years of employment with the Company from the date of such
grants. These stock option agreements also provide that notwithstanding a Key
Employee's length of employment, (i) options held for thirty months from the
date of grant become exercisable immediately for up to 50% or 100% of the
underlying shares if the five-day public market average closing price of the
Common Stock exceeds $40 or $50, respectively. In addition, if there is not a
public market for the Common Stock as of February 1, 2000, then (a) option
holders will be entitled to buy out rights with respect to 50% or 100% of the
underlying shares if the fair market value of the Common Stock is at least $40
or $50, respectively, at a purchase price per share equal to the excess of the
fair market value over the exercise price, not to exceed $25, (b) the Company
will be entitled to purchase 100% of the underlying shares at a purchase price
per share of $1 if the fair market value of the Common Stock is less than $40
and (c) the Company will be entitled to terminate such agreements if the fair
market value of the Common Stock is less than the exercise price.
1992 STOCK INCENTIVE PLAN
In December 1992, TLC Beatrice established a Stock Incentive Plan (the
'1992 Plan') to reward officers, key employees and directors for service to the
Company and to provide incentives for future service and enhancement of
shareholder value. The Compensation Committee administers the 1992 Plan. The
1992 Plan provided for awards of up to 500,000 stock appreciation rights
('SARs') to directors and key employees and up to 100,000 shares of phantom
stock to officers and members of TLC Beatrice's management, each as determined
by the Compensation Committee. With the adoption of the 1996 Stock Option Plan,
no further awards of SARs or phantom stock will be made under the 1992 Plan. See
' -- 1996 Long Term Incentive Stock Option Plan.'
Upon a Change in Control (as defined in the 1992 Plan) or, at TLC
Beatrice's option, when a plan participant leaves the Company, TLC Beatrice will
pay to the participant in cash the fair market value of the aggregate number of
SARs and phantom stock awarded to such participant less the Exercise Price (as
defined in the 1992 Plan) of each SAR or share of phantom stock. Under the 1992
Plan, in the event that the Common Stock is not traded in the public market, the
determination of fair market value, both for purposes of SARs and phantom stock
rights, is determined solely at the discretion of the Compensation Committee.
The 1992 Plan does not provide any parameters limiting the Compensation
Committee in this regard, and there are a variety of permissible methods for
determining fair market value. Awarded SARs and shares of phantom stock are
subject to forfeiture under certain circumstances.
On December 1, 1992, 5,000 SARs were awarded to each member of the Board of
Directors and to several key employees, for a total of 55,000 SARs. In 1993,
25,000 shares of phantom stock were awarded to certain members of TLC Beatrice's
management. In 1994, 200,000 SARs were awarded to certain members of TLC
Beatrice's management. Also during 1994, the rights to 20,000 shares of phantom
stock and 10,000 SARs were waived pursuant to certain severance agreements of
key management personnel. In January 1995, 75,000 of the 200,000 SARs awarded in
1994 were forfeited in connection with the termination of certain employment
agreements. In January 1996, 50,000 SARs awarded under the 1992 Plan were
cancelled with the adoption of the 1996 Stock Option Plan.
FINANCIAL COUNSELING PLAN
Each executive officer of TLC Beatrice is entitled to annual financial
counseling services having a value of $3,000 to $10,000 depending on his or her
position, and certain senior officers are entitled to
37
<PAGE>
an additional $5,000 for an estate review in the fifth year of participation and
the year of retirement. The financial counseling services include tax and estate
planning, tax return preparation assistance and personal financial management
advice.
BEATRICE INTERNATIONAL FOOD COMPANY SEVERANCE POLICY
TLC Beatrice maintains the Beatrice International Food Company Severance
Policy (the 'Policy') for eligible employees who are not exempt under the
Federal Fair Labor Standards Act and are employed on a full-time basis at TLC
Beatrice's corporate headquarters (the 'Covered Employees'). TLC Beatrice may,
in its sole discretion, extend the policy to non-exempt persons employed by one
or more of its divisions or subsidiaries. Severance benefits are available to
employees who are unemployed following termination without cause or resignation
with good reason. TLC Beatrice may, in its sole discretion, award severance pay
to an employee terminated for poor job performance or may classify any
termination as a 'special situation separation' and establish a separate
severance policy. Covered Employees who become unemployed because of death,
disability or misconduct are not eligible for benefits under the Policy. A
Covered Employee who is bonus eligible and is in salary grade 14 or above is
entitled to an amount equal to (i) one year's base salary at the highest annual
rate in effect during the three-year period prior to termination of employment
and (ii) his target bonus under the bonus plan in effect at the date of
termination. A Covered Employee who is not bonus eligible or is in salary grade
15 or below is entitled to an amount equal to nine months' base salary at the
highest annual rate in effect during the three-year period prior to termination
of employment. Benefits are paid on a schedule determined by TLC Beatrice. If an
employee is entitled to receive severance pay benefits, he is entitled to
continue receiving basic health and welfare plan benefits until the earliest of
(i) the date the Covered Employee is covered by another employer's plan, (ii)
the date that is six months after a Covered Employee receives a severance
payment in a lump sum or (iii) the date the Covered Employee ceases to receive
severance pay installments. In 1995 and 1994, excluding termination agreements
with certain of TLC Beatrice's former executive officers (see ' -- Employment
and Other Agreements'), accruals in the amount of $600,000 and $700,000,
respectively, were set up for severance payments to be made in 1994 through 1996
under the Policy.
COMPENSATION OF DIRECTORS
Directors who are employees of TLC Beatrice do not receive any special
compensation for their services as directors. During 1996 each outside director
of TLC Beatrice was paid an annual fee of $20,000 and a fee of $1,200 plus
travel-related expenses for each meeting of the Board of Directors or committee
of the Board of Directors attended.
In July 1996, the Special Litigation Committee was formed to investigate
allegations made by Carlton. See Part I, Item 3. 'Legal Proceedings.' Mr.
Webster and Mr. Alexander were appointed to that committee and, each received
compensation of (i) $50,000 to oversee the committee and (ii) $1,200 for each
meeting of the Special Litigation Committee attended.
38
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 28, 1997, certain
information with respect to the beneficial ownership of shares of Common Stock
of TLC Beatrice of all persons known by TLC Beatrice to own beneficially 5% or
more of the outstanding shares of Common Stock. Except as noted below, each of
the persons listed has sole investment and voting power with respect to the
shares indicated. All information was determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended, based on information
furnished by the persons listed or otherwise known to TLC Beatrice.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
- ---------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Estate of Reginald F. Lewis .......................................... 4,378,260(2) 47.91%
c/o TLC Beatrice International Holdings, Inc.
9 West 57th Street
New York, NY 10019
Loida Nicolas Lewis .................................................. 4,478,260(2)(3) 49.00%
c/o TLC Beatrice International Holdings, Inc.
9 West 57th Street
New York, NY 10019
Leslie N. Lewis ...................................................... 4,378,260(2)(4) 47.91%
c/o TLC Beatrice International Holdings, Inc.
9 West 57th Street
New York, NY 10019
Carlton Investments .................................................. 2,018,891(5) 22.09%
c/o CS Manager Corporation
844 Moraga Drive
Los Angeles, CA 90049
MAC & Company ........................................................ 1,432,092(6) 15.67%
P.O. Box 360796M
Pittsburgh, PA 15251
Cede & Co. ........................................................... --(7) --
Box 20
Bowling Green Station
New York, New York 10004
Baupost Entities ..................................................... 496,035(8) 5.43%
44 Brattle Street
Cambridge, Massachusetts 02238
</TABLE>
- ------------
(1) At February 28, 1997, there were 9,138,465 shares of Common Stock
outstanding.
(2) Loida Nicolas Lewis, the wife of the late Reginald F. Lewis, and Leslie N.
Lewis are the co-executrices of the Lewis Estate. Joint voting and
dispositive power with respect to the shares held by the Lewis Estate are
held by Loida Nicolas Lewis and Leslie N. Lewis. Accordingly, Loida Nicolas
Lewis and Leslie N. Lewis may be deemed to have shared power to vote and
shared investment power with respect to the 4,378,260 shares owned by the
Lewis Estate. Loida Nicolas Lewis, her two children, Leslie N. Lewis and
Christina S.N. Lewis, and The Reginald F. Lewis Foundation, Inc. are among
the beneficiaries of the Lewis Estate.
In addition, Loida Nicolas Lewis owns directly 100,000 shares of Common
Stock of TLC Beatrice.
Not included in the figures in the table are (i) an additional 100,000
shares of Common Stock of TLC Beatrice owned directly by a trust for the
benefit of Leslie N. Lewis, of which Carolyn E. Fugett, her grandmother, is
trustee, with sole power to vote and sole investment power with respect to
such shares and (ii) an additional 100,000 shares of Common Stock of TLC
Beatrice owned directly by a
(footnotes continued on next page)
39
<PAGE>
(footnotes continued from previous page)
trust for the benefit of Christina S.N. Lewis, of which Carolyn E. Fugett,
her grandmother, is trustee, with sole power to vote and sole investment
power with respect to such shares.
(3) Includes (i) 100,000 shares owned directly by Loida Nicolas Lewis and (ii)
4,378,260 shares owned by the Lewis Estate, as to all of which shares Loida
Nicolas Lewis may be deemed to be a beneficial owner. See Note (2).
(4) Includes shares of Common Stock owned by the Lewis Estate, as to all of
which shares Leslie N. Lewis may be deemed to be a beneficial owner. See
Note (2).
(5) Includes (i) 593,799 shares owned directly by Carlton and (ii) 1,425,092
shares held of record by MAC & Company, of which Carlton claims to be the
beneficial owner. TLC Beatrice has been advised that the general partner of
Carlton is CS Manager Corporation, and that the board of directors of CS
Manager Corporation is responsible for voting the shares of TLC Beatrice's
Common Stock owned directly by Carlton and the shares held of record by MAC
& Company.
(6) Includes 1,425,092 shares, of which Carlton claims to be the beneficial
owner, that are held of record by MAC & Company. See Note (5).
(7) Cede & Co. is the record holder of 1,046,505 shares, or 11.45%, of the
outstanding Common Stock, including 496,035 shares which are believed to be
beneficially owned by the Baupost Entities. See Note (8). The remaining
shares of Common Stock owned of record by Cede & Co. are believed to be held
by Cede & Co. as a nominee for various beneficial owners of Common Stock,
none of which are believed to own and/or control more than 5% of TLC
Beatrice's Common Stock.
(8) The Baupost Entities include Baupost Partners, a general partnership
('Baupost Partners'), The Baupost Group, Inc. ('Baupost Group') and certain
affiliated persons and entities. TLC Beatrice has been advised that Baupost
Partners is the managing general partner of two limited partnerships (the
'Baupost Partnerships') which together own 327,935 shares of Common Stock of
TLC Beatrice. Baupost Group is a managing general partner of Baupost
Partners and also an investment adviser to an investment company registered
under the Investment Company Act of 1940 (the 'Baupost Fund') which owns
168,000 shares of Common Stock of TLC Beatrice. Seth A. Klarman is a
managing general partner of Baupost Partners and the president and majority
shareholder of Baupost Group. By virtue of their voting and/or dispositive
power with respect to the shares of Common Stock held by the Baupost
Partnerships and the Baupost Fund, Baupost Group and Seth A. Klarman may
each be deemed to be the beneficial owner of the 496,035 shares of Common
Stock held by the Baupost Entities.
40
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of February 28, 1997, certain
information with respect to the beneficial ownership of shares of Common Stock
of TLC Beatrice by the Named Executives, each director individually who
beneficially owns shares of Common Stock, and all directors and executive
officers of TLC Beatrice as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
- ------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Loida Nicolas Lewis................................................ 4,478,260(2)(3) 49.00%
Dennis P. Jones.................................................... -- --
Peter Offermann.................................................... -- --
Reynaldo P. Glover................................................. -- --
Vincent P. O'Sullivan.............................................. -- --
Leslie N. Lewis.................................................... 4,378,260(2)(4) 47.91%
All Directors and Executive Officers as a Group.................... 4,485,670(5) 49.09%
</TABLE>
- ------------
(1) At February 28, 1997, there were 9,138,465 shares of Common Stock
outstanding.
(2) See Note (2) to the table under Part III, Item 12. 'Security Ownership of
Certain Beneficial Owners and Management -- Principal Stockholders.'
(3) Includes 4,378,260 shares owned by the Lewis Estate, as to all of which
shares Loida Nicolas Lewis may be deemed the beneficial owner, and 100,000
shares owned directly by Loida Nicolas Lewis. See Note (2) to the table
under Part III, Item 12. 'Security Ownership of Certain Beneficial Owners
and Management -- Principal Stockholders.'
(4) Includes shares of Common Stock owned by the Lewis Estate, as to all of
which shares Leslie N. Lewis may be deemed the beneficial owner. See Note
(2) to the table under Part III, Item 12. 'Security Ownership of Certain
Beneficial Owners and Management -- Principal Stockholders.'
(5) The total for all directors and executive officers as a group represents the
4,478,260 shares as to which Loida Nicolas Lewis may be deemed the
beneficial owner and includes the 4,378,260 shares of which Leslie N. Lewis
may be deemed the beneficial owner, and 7,410 shares owned by Carl Brody,
the former Senior Vice President, Director of Taxes of the Company. See Note
(2) to the table under Part III, Item 12. 'Security Ownership of Certain
Beneficial Owners and Management -- Principal Stockholders' and Notes (2)
and (4) above. Other than Leslie N. Lewis and Loida Nicolas Lewis, no
director owns any shares of the Common Stock of TLC Beatrice.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 19, 1996 TLC Holdings, which was 100% owned by the Lewis Estate
and directly owned 4,300,000 shares of Common Stock formerly held by TLC
Partners, which was dissolved on such date, and an additional 34,000 shares of
Common Stock, was merged with TLCB Acquisition Corp. ('TLCB'), a newly formed
wholly owned subsidiary of TLC Beatrice, with TLC Holdings being the surviving
corporation. Subsequent to the merger of TLC Holdings with TLCB, TLC Holdings
was merged into TLC Beatrice with TLC Beatrice being the surviving corporation.
As a result of these transactions, the shares of Common Stock formerly held by
TLC Holdings have been cancelled and an equal number of shares were issued
directly to the Lewis Estate.
Carlton was the sole limited partner of TLC Partners and with the
dissolution of TLC Partners on January 19, 1996 owned directly 1,000,000 shares
of Common Stock formerly held by TLC Partners. Carlton has since transferred
406,201 shares of Common Stock and currently claims to own 593,799 shares of
Common Stock. In addition, Carlton, through a nominee, claims to own or control
an additional 1,425,092 shares of Common Stock that were acquired for $1,425,092
in 1987. See Part III, Item 12. 'Security Ownership of Certain Beneficial Owners
and Management.'
Reynaldo P. Glover, Executive Vice President, General Counsel, Assistant
Secretary and a director of TLC Beatrice, is of counsel to the law firm of
Rudnick & Wolfe, a law firm which has been and
41
<PAGE>
continues to be retained by TLC Beatrice to perform legal services on behalf of
TLC Beatrice on specific matters. The fees paid to Rudnick & Wolfe for legal
services during 1996 were approximately $521,000.
William H. Webster is a partner with the law firm of Milbank, Tweed, Hadley
& McCloy. The fees paid by TLC Beatrice to Mr. Webster's firm, Milbank, Tweed,
Hadley & McCloy during the year ended December 31, 1996 were approximately
$635,000 and $917,000, for the period January 1, 1997 through February 28, 1997.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report:
1. The financial statements listed on page F-1 are filed as part of
this Report.
2. The following financial statement schedules are filed as part of
this Report:
All schedules are omitted because they are not applicable, not
required or the information is included elsewhere in the Consolidated
Financial Statements or Notes thereto.
3. List of Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<S> <C> <C>
*3 (a) -- Restated Certificate of Incorporation of TLC Beatrice
**3 (b) -- By-Laws of TLC Beatrice
**4 -- Form of Certificate for Common Stock
**10 (a) -- Beatrice International Pension Plan
**10 (b) -- Beatrice International Savings Plan
**10 (c) -- Beatrice International Supplemental Pension Plan
**10 (d) -- Management Incentive Plan
**10 (e) -- Beatrice International Severance Policy
**10 (f) -- Loan Agreement dated as of October 21, 1994 among TLC Beatrice International Holdings
France S.A., Banque Paribas and a syndicate of Banks, with Banque Paribas as agent thereof
**10 (g) -- Debenture Issue Contract dated October 21, 1994 between TLC Beatrice International
Holdings France S.A. and First Britannia Mezzanine Capital B.V.
**10 (h) -- Facility Agreement dated March 31, 1994 between TLC Beatrice International (Irish)
Holdings Limited and Banque Paribas
**10 (j) -- Employment Agreements between TLC Beatrice and Vincent P. O'Sullivan and Tayto, Ltd. and
Vincent P. O'Sullivan
**10 (k) -- Employment Agreement between TLC Beatrice and Reynaldo P. Glover
*10 (m) -- Employment Agreement between TLC Beatrice and Daniel Jux
**10 (n) -- Stockholders' Agreement dated as of November 30, 1987, as amended, by and among the
Registrant, TLC Beatrice International Partners L.P. and certain other purchasers of Common
Stock
**10 (o) -- 1992 Stock Incentive Plan of TLC Beatrice
**10 (p) -- Common Stock Subscription Agreement dated as of November 30, 1987 among TLC Beatrice and
certain purchasers of its Common Stock
**10 (q) -- Termination Agreement dated as of October 3, 1994 between TLC Beatrice and Jean S. Fugett,
Jr.
**10 (r) -- Termination Agreement dated as of January 8, 1993 between TLC Beatrice and Albert M.
Fenster
**10 (s) -- Termination Agreement dated as of June 30, 1994 between TLC Beatrice and David A. Guarino
**10 (t) -- Termination Agreement dated as of June 30, 1994 between TLC Beatrice and W. Kevin Wright
***10 (u) -- Indenture dated as of October 2, 1995, between TLC Beatrice and The Bank of New York, as
Trustee
***10 (v) -- Facility Agreement among Banque Paribas, Smurfit Paribas Bank Limited and TLC Beatrice
International (Irish) Holdings Limited
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<C> <S> <C>
***10 (w) -- Pledge and Security Agreement dated as of October 2, 1995, among TLC Beatrice
International Holdings, Inc., TLC Beatrice International Finance, Inc. and The Bank of New
York, as collateral trustee and as indenture trustee
***10 (x) -- Pledge Agreement dated as of October 2, 1995, between TLC Beatrice International Holdings
France S.A. and TLC Beatrice International Finance, Inc.
***10 (y) -- Pledge Agreement dated October 2, 1995, among TLC Beatrice International Holdings, Inc.,
TLC Beatrice International Netherlands Holdings, B.V. and The Bank of New York, as
collateral trustee
****10(z) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and
Mr. Jean Ernest Desire Baud and Mr. Robert Henri Jean Baud.
****10(aa) -- Put Option dated June 8, 1995 between TLC Beatrice International Holdings France S.A. and
The Estate of Mr. Andre Albert Jacques Baud.
****10(bb) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Genevieve
Baud Fiat.
****10(cc) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Robert
Baud.
****10(dd) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Bernard
Baud.
****10(ee) -- Letter Agreement dated July 26, 1989 among TLC Beatrice International Holdings, Inc. and
Genevieve Fiat Baud, Robert Baud and Bernard Baud
****10(ff) -- Letter Agreement dated June 8, 1995 among TLC Beatrice International Holdings, Inc.
Genevieve Fiat Baud, Robert Baud and Bernard Baud.
****10(gg) -- Put Option dated December 23, 1992 among TLC Beatrice International Holdings France S.A.
and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, Mr. Andre Albert Jacques Baud and
Mr. Robert Henri Jean Baud.
****10(hh) -- Put Option dated December 23, 1992 among TLC Beatrice International Holdings France S.A.
and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, Mr. Andre Albert Jacques Baud and
Mr. Robert Henri Jean Baud.
****10(ii) -- Amending Agreement dated June 8, 1995 among TLC Beatrice International Holdings France
S.A. and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, The Estate of Mr. Andre
Albert Jacques Baud and Mr. Robert Henri Jean Baud.
****10(jj) -- Put Option dated December 23, 1992 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(kk) -- Put Option dated December 23, 1992 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(ll) -- Amending Agreement dated June 8, 1995 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(mm) -- Put Option dated June 8, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
****10(nn) -- Put Option dated June 8, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
****10(oo) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and
Sibel, The Estate of Mr. Andre Albert Jacques Baud and Mr. Francois Louis Leon Fiat.
****10(pp) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and
Sibel, The Estate of Mr. Andre Albert Jacques Baud and Mr. Francois Louis Leon Fiat.
***10 (qq) -- Amending Agreement dated September 5, 1995 among TLC Beatrice International Holdings
France S.A. and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, The Estate of Mr.
Andre Albert Jacques Baud and Mr. Robert Henri Jean Baud.
***10 (rr) -- Amending Agreement dated September 5, 1995 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------------------
<C> <S> <C>
***10 (ss) -- Amending Agreement dated September 5, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
10 (tt) -- TLC Beatrice International Holdings, Inc. 1996 Annual Incentive Plan
*10 (uu) -- TLC Beatrice International Holdings, Inc. 1996 Long Term Incentive Stock Option Plan
*10 (vv) -- Termination Agreement dated as of November 30, 1995 between TLC Beatrice and Carl Brody
10 (ww) -- Employment Agreement between TLC Beatrice and Peter Offermann
21 -- Subsidiaries of TLC Beatrice
**99 (a) -- Complaint filed by Carlton Investments and Answer filed in response thereto by TLC
Beatrice International Holdings, Inc. in litigation titled Carlton Investments v. TLC
Beatrice International Holdings, Inc. et al., Supreme Court of the State of New York,
County of New York
**99 (b) -- Complaint filed by Carlton Investments in litigation titled Carlton Investments v. TLC
Beatrice International Holdings, Inc. et al., Chancery Court of the State of Delaware, New
Castle County
**99 (c) -- First Amended Complaint filed by Carlton Investments in litigation titled Carlton
Investments v. TLC Beatrice International Holdings, Inc. et al., Chancery Court of the
State of Delaware, New Castle County
*99 (d) -- Second Amended Complaint filed by Carlton Investments in litigation titled Carlton
Investments v. TLC Beatrice International Holdings, Inc. et al., Chancery Court of the
State of Delaware, New Castle County
</TABLE>
- ------------
* Filed with Registration Statement No. 33-80445 and incorporated herein by
reference.
** Filed with Registration Statement No. 33-88602 and incorporated herein by
reference.
*** Filed with Registration Statement No. 33-95922 and incorporated herein by
reference.
**** Confidential treatment requested for a portion of this exhibit previously
filed with Registration Statement No. 33-95922 and incorporated herein by
reference.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K with the Securities
and Exchange Commission during the fourth quarter 1996.
(c) Exhibits:
See (a)3. above for a listing of Exhibits filed as a part of this
Report.
(d) Additional Financial Statement Schedules:
None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
Neither an annual report covering the Company's last fiscal year nor proxy
materials with respect to any annual or other meeting of security holders have
been sent to security holders.
The Company currently anticipates that it will send to security holders an
annual report covering the year ended December 31, 1996, at a future date.
45
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets -- December 31, 1996 and 1995.................................................. F-3
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994..................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994................. F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and
1994..................................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.:
We have audited the accompanying consolidated balance sheets of TLC
Beatrice International Holdings, Inc. and subsidiaries (the 'Company') as of
December 31, 1996 and 1995 and the related consolidated statements of income,
cash flows, and changes in stockholders' equity for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of TLC Beatrice
International Holdings, Inc. and subsidiaries at December 31, 1996 and 1995 and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 20 to the consolidated financial statements, the
Company is a defendant in various lawsuits, alleging breach of the Stockholders'
Agreement and breach of fiduciary duty by the directors and claiming damages and
attorney fees.
DELOITTE & TOUCHE LLP
New York, New York
February 28, 1997
F-2
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 95,784 $120,279
Receivables, net................................................................ 150,817 165,989
Inventories, net................................................................ 117,461 129,848
Other current assets............................................................ 11,036 13,356
-------- --------
Total current assets....................................................... 375,098 429,472
Property, plant and equipment, net................................................... 263,859 237,174
Goodwill, net of accumulated amortization of $23,539 and $21,519 at December 31, 1996
and 1995, respectively............................................................. 90,509 95,887
Other noncurrent assets.............................................................. 52,238 53,042
-------- --------
Total assets............................................................... $781,704 $815,575
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt........................... $ 34,095 $ 64,647
Accounts payable................................................................ 226,827 256,466
Taxes currently payable......................................................... 18,563 8,996
Accrued expenses................................................................ 58,174 57,080
-------- --------
Total current liabilities.................................................. 337,659 387,189
Long-term debt....................................................................... 229,492 223,308
Deferred income taxes................................................................ 7,409 18,180
Minority interests................................................................... 77,447 58,065
Other noncurrent liabilities......................................................... 23,487 31,786
-------- --------
Total liabilities.......................................................... 675,494 718,528
-------- --------
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............................................................... 157,148 138,552
Cumulative foreign currency translation adjustment.............................. (37,488) (28,055)
-------- --------
Total stockholders' equity................................................. 106,210 97,047
-------- --------
Total liabilities and stockholders' equity................................. $781,704 $815,575
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
Net sales........................................................... $ 2,225,313 $2,072,613 $1,821,670
------------- ---------- ----------
Operating expenses:
Cost of sales.................................................. 1,831,006 1,693,288 1,435,143
Selling, general and administrative expenses................... 304,098 297,273 311,720
Amortization of intangible assets.............................. 3,679 2,740 3,228
------------- ---------- ----------
Total operating expenses.................................. 2,138,783 1,993,301 1,750,091
------------- ---------- ----------
Operating income.................................................... 86,530 79,312 71,579
------------- ---------- ----------
Other income (expense):
Interest income................................................ 8,140 9,372 8,601
Interest expense............................................... (30,778) (32,974) (32,715)
Other income................................................... 616 7,182 13,729
------------- ---------- ----------
Total other expense....................................... (22,022) (16,420) (10,385)
------------- ---------- ----------
Income from operations before income taxes and minority interests in
earnings.......................................................... 64,508 62,892 61,194
Income taxes........................................................ (17,496) (20,470) (35,999)
Minority interests in earnings...................................... (27,411) (23,966) (13,882)
------------- ---------- ----------
Income before extraordinary item.................................... 19,601 18,456 11,313
Extraordinary item, net of tax...................................... -- (3,092) --
------------- ---------- ----------
Net income.......................................................... $ 19,601 $ 15,364 $ 11,313
------------- ---------- ----------
------------- ---------- ----------
Net income (loss) per common share:
Income before extraordinary item............................... $2.14 $2.01 $1.23
Extraordinary item............................................. -- (.33) --
------------- ---------- ----------
Net income per common share.................................... $2.14 $1.68 $1.23
------------- ---------- ----------
------------- ---------- ----------
Weighted average number of common shares outstanding................ 9,138 9,167 9,181
------------- ---------- ----------
------------- ---------- ----------
Cash dividends per common share..................................... $.11 -- --
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................................ $ 19,601 $ 15,364 $ 11,313
Items not affecting cash:
Depreciation and amortization of intangible assets..................................... 39,966 36,261 36,791
Minority interests in earnings, net.................................................... 21,786 21,235 11,226
Loss (gain) on sale of assets.......................................................... 1,365 (10,322) (13,729)
Deferred income taxes and other items, net............................................. (18,847) (5,063) 758
Extraordinary item, net of tax......................................................... -- 3,092 --
Changes in working capital:
Receivables, net....................................................................... 6,573 (15,295) (9,396)
Inventories, net....................................................................... 5,554 (1,781) (15,908)
Accounts payable and accrued expenses.................................................. (12,729) 42,986 31,221
Taxes currently payable................................................................ 10,106 (9,572) (3,317)
Other current assets................................................................... 1,193 (1,096) (665)
-------- -------- --------
Net cash provided by operating activities......................................... 74,568 75,809 48,294
-------- -------- --------
Cash flows from investing activities:
Proceeds from divestitures............................................................. -- (3,439) 87,436
Expenditures for property, plant and equipment......................................... (78,486) (65,080) (58,444)
Proceeds from disposal of assets....................................................... 4,445 4,157 17,972
Purchases of bond investments.......................................................... -- (10,435) (5,988)
Redemption of bond investments......................................................... -- -- 11,178
Other investments...................................................................... (2,824) (9,022) (3,545)
-------- -------- --------
Net cash (used in) provided by investing activities............................... (76,865) (83,819) 48,609
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of 11.5% Senior Secured Notes............................... -- 169,474 --
Proceeds from issuance of long-term bank debt.......................................... 33,144 23,116 141,627
Repayment of long-term bank borrowings................................................. (14,697) (136,422) (176,350)
Net repayments of short-term debt...................................................... (37,615) (6,354) (41,206)
Repurchase of common stock............................................................. (1,170) (488) --
Common stock dividends................................................................. (1,005) -- --
Minority interest loans................................................................ -- -- (3,519)
-------- -------- --------
Net cash (used in) provided by financing activities............................... (21,343) 49,326 (79,448)
-------- -------- --------
Foreign exchange effects on cash and cash equivalents....................................... (855) 4,177 6,114
-------- -------- --------
Net (decrease) increase in cash and cash equivalents........................................ (24,495) 45,493 23,569
Cash and cash equivalents at beginning of the year.......................................... 120,279 74,786 51,217
-------- -------- --------
Cash and cash equivalents at end of the year................................................ $ 95,784 $120,279 $ 74,786
-------- -------- --------
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................................................... $ 30,442 $ 27,741 $ 32,452
-------- -------- --------
-------- -------- --------
Income taxes........................................................................... $ 20,675 $ 33,833 $ 27,815
-------- -------- --------
-------- -------- --------
Supplemental schedule of non-cash investing and financing activities:
Conversion of loans to minority shareholders to dividends................................. $ -- $ 47,517
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNFUNDED
ACCUMULATED
PENSION
BENEFITS IN
COMMON STOCK TREASURY STOCK CUMULATIVE EXCESS OF
--------------- ----------------- FOREIGN UNRECOGNIZED
NUMBER ADDITIONAL NUMBER CURRENCY PRIOR
OF PAID-IN OF RETAINED TRANSLATION SERVICE
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS ADJUSTMENT COST
------ ------ ---------- ------ -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994........ 9,750 $ 97 $9,653 569 $(21,542) $111,875 $(33,413) $ (1,312)
Net income.................. 11,313
Cumulative translation loss
realized on sale of
foreign subsidiaries...... 11,871
Unfunded accumulated pension
benefits in excess of
unrecognized prior service
cost...................... 138
Translation adjustment...... 4,542
------ ------ ---------- ------ -------- ------------ ---------- ------------
Balance, December 31, 1994.. 9,750 97 9,653 569 (21,542) 123,188 (17,000) (1,174)
Year Ended December 31, 1995
Net income.................. 15,364
Purchase of treasury
stock..................... 43 (1,658)
Unfunded accumulated pension
benefits in excess of
unrecognized prior service
cost...................... 1,174
Translation adjustment...... (11,055)
------ ------ ---------- ------ -------- ------------ ---------- ------------
Balance, December 31, 1995.. 9,750 97 9,653 612 (23,200) 138,552 (28,055) --
Year Ended December 31, 1996
Net income.................. 19,601
Common stock dividends...... (1,005)
Translation adjustment...... (9,433)
------ ------ ---------- ------ -------- ------------ ---------- ------------
Balance, December 31, 1996.. 9,750 $ 97 $9,653 612 $(23,200) $157,148 $(37,488) $ --
------ ------ ---------- ------ -------- ------------ ---------- ------------
------ ------ ---------- ------ -------- ------------ ---------- ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1994........ $ 65,358
Net income.................. 11,313
Cumulative translation loss
realized on sale of
foreign subsidiaries...... 11,871
Unfunded accumulated pension
benefits in excess of
unrecognized prior service
cost...................... 138
Translation adjustment...... 4,542
-------------
Balance, December 31, 1994.. 93,222
Year Ended December 31, 1995
Net income.................. 15,364
Purchase of treasury
stock..................... (1,658)
Unfunded accumulated pension
benefits in excess of
unrecognized prior service
cost...................... 1,174
Translation adjustment...... (11,055)
-------------
Balance, December 31, 1995.. 97,047
Year Ended December 31, 1996
Net income.................. 19,601
Common stock dividends...... (1,005)
Translation adjustment...... (9,433)
-------------
Balance, December 31, 1996.. $ 106,210
-------------
-------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. BUSINESS DESCRIPTION
As of December 31, 1996, TLC Beatrice International Holdings, Inc. ('TLC
Beatrice,' and together with its subsidiaries, the 'Company') and its
subsidiaries is comprised of 11 operating entities and their subsidiaries
located principally in western Europe, having disposed of eight operating
entities since December 31, 1994 (see Note 3). 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
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TLC Beatrice
and its majority-owned subsidiaries. All significant intercompany transactions,
balances and profits have been eliminated. For accounting efficiencies, certain
of TLC Beatrice's French subsidiaries report results on a one to three month lag
basis. All of TLC Beatrice's other subsidiaries' year-ends are December 31. For
each of the periods presented there have been no events during the intervening
periods which would materially affect the consolidated financial position or
results of operations of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign entities have been translated using the
exchange rates in effect at the balance sheet dates. Results of operations of
foreign entities are translated using the average exchange rates prevailing
throughout the period. Local currencies are considered the functional currencies
of the Company's foreign operating entities. Translation effects are accumulated
as part of the cumulative foreign currency translation adjustment in equity.
Gains and losses from foreign currency transactions are included in net income
for the period. During the year ended December 31, 1996, the Company recorded a
net gain from foreign exchange transactions of approximately $3.7 million, which
has been included in Selling, general and administrative expenses. During the
year ended December 31, 1995, the Company recorded a net loss from foreign
exchange transactions of approximately $4.8 million, which has been included in
other income (see Note 3). The Company did not report foreign exchange gains or
losses in the year ended December 31, 1994.
FOREIGN CURRENCY SWAPS THAT QUALIFY AS HEDGES
Changes in the value of foreign currency swap contracts related to existing
assets and liabilities are recognized in income currently, offsetting foreign
exchange gains and losses from the hedged asset/liability. Changes in the value
of foreign currency swap contracts that qualify as hedges of firm commitments
are deferred and are recognized in income as adjustments to carrying amounts
when the hedged transaction occurs.
F-7
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of
substantially all inventories is determined by the first-in, first-out method.
REVENUE RECOGNITION
Sales and related cost of sales are recognized primarily upon shipment of
products. Volume discounts offered by the Company are accrued on a
month-to-month basis based on customer sales to date. Retail sales are
recognized at the time when goods are sold to the customer.
INVESTMENT IN MARKETABLE DEBT SECURITIES
In accordance with the Company's investment intentions, the Company has
classified its investment in marketable debt securities as held to maturity, and
has recorded such marketable debt securities at their amortized cost. The
Company's held to maturity marketable debt securities at December 31, 1996 are
included in other noncurrent assets in the accompanying consolidated balance
sheets. The accompanying consolidated statements of cash flows reflect the
Company's redemption of approximately $11,178,000 of bond investments that had
reached their maturity in 1994.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is generally provided on the straight-line method for
financial reporting purposes over the estimated useful lives of the underlying
assets. Machinery and equipment are depreciated over a period ranging from 3 to
12 years and buildings are amortized from 20 to 50 years. Leasehold improvements
are amortized using the straight-line method over the term of the lease or the
estimated useful life of the improvements, whichever is shorter.
GOODWILL
Goodwill is amortized using the straight-line method over various periods
not exceeding 40 years. The Company assesses the recoverability of its goodwill
quarterly during the preparation of the Company's operating plans and
consolidated financial statements, which includes estimates of future operating
unit earnings. In connection with this review, the Company also considers past
trends and other current factors that may impact the value of the Company's
investment in the individual operating units.
EVALUATION OF LONG-LIVED ASSETS
Long-lived assets are assessed for recoverability on an on-going basis. In
evaluating the value and future benefits of long-lived assets, their carrying
value would be reduced by the excess, if any, of the long-lived asset over
management's estimate of the anticipated undiscounted future net cash flows of
the related long-lived asset. There were no adjustments to the carrying amount
of long-lived assets in fiscal years 1996, 1995 and 1994 resulting from the
Company's evaluations.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
'Accounting for Income Taxes.' SFAS No. 109 requires an asset and liability
approach for financial reporting for income taxes. It also requires the Company
to adjust its deferred tax balances in the period of enactment for the effect of
enacted changes in tax rates and to provide a valuation allowance against such
deferred tax assets that are not, more likely than not, to be realized.
F-8
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Certain of TLC Beatrice's foreign subsidiaries file consolidated income tax
returns in the jurisdiction of their operations. TLC Beatrice's U.S.
subsidiaries file a consolidated U.S. income tax return.
NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing the net income by the
weighted average number of common shares outstanding during the year.
CASH EQUIVALENTS
Highly liquid investments with original maturities of three months or less
are considered cash equivalents.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
STOCK OPTIONS AND WARRANTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock-Based Compensation,' which is effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply Accounting Principles Board ('APB') Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company accounts for stock based compensation awards to employees under APB
No. 25.
3. OTHER INCOME
During the year ended December 31, 1996, the Company recorded equity in
earnings from minority-owned Leader Price stores of approximately $616,000.
During the year ended December 31, 1995, the Company sold three
subsidiaries: Artigel GmbH & Co. Kg, a 70% owned ice cream manufacturer in
Germany, and two wholly owned ice cream distributors: Artic S.A. in Belgium and
Artic France S.A.R.L. in France. Additionally, the Company ceased operations of
its subsidiary, Dairyworld S.A., a Swiss trader of bulk dairy products. The
Company recorded pre-tax gains on such sales and dispositions of approximately
$10.5 million, which have been included in other income.
The Company also recorded charges relating to non-cash exchange losses
recorded in compliance with SFAS No. 52, 'Foreign Currency Translation,' in the
amount of approximately $4.8 million. During 1995, the Company determined that
advances from foreign subsidiaries were no longer of a long-term investment
nature. Additionally, certain advances were either forgiven in connection with
the sale of certain subsidiaries, converted into dividends or settled through
other non-cash transactions. Accordingly, the translation adjustments related to
these advances, previously included in cumulative translation adjustment, have
been included in other income for the year ended December 31, 1995. Also during
1995, the Company sold other investments for approximately $467,000, recorded
equity in earnings from minority-owned Leader Price stores of approximately
$331,000, and received additional proceeds of $703,000 from the 1994 sale of
Choky, S.A. which have been included in other income.
F-9
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
During the year ended December 31, 1994 the Company sold four wholly-owned
subsidiaries: Premier Is A/S, an ice cream manufacturer in Denmark, Choky S.A.,
a distributor of powdered drink products in France, Sodialim S.A. an
institutional food distributor in France and Gelati Sanson S.p.A., an ice cream
manufacturer in Italy. The Company recorded pre-tax gains on such sales of
approximately $12.1 million in 1994 which have been included in other income.
The Company recorded after-tax gains on such sales of approximately $3.9
million. Also during 1994, the Company sold other investments for a pre-tax gain
of approximately $1.6 million which has also been included in other income.
4. EXTRAORDINARY ITEM
During the year ended December 31, 1995 the Company wrote off $4.6 million,
$3.1 million net of tax benefit, of certain deferred debt issuance costs and
other costs incurred relating to long-term debt repaid prior to maturity.
5. RELATED PARTY TRANSACTIONS
TLC Beatrice was founded by Mr. Reginald F. Lewis, its former Chairman and
Chief Executive Officer. Mr. Lewis died on January 19, 1993. TLC Group, L.P.
('TLC Group'), a New York limited partnership owned and controlled by the estate
of Mr. Lewis, provided certain administrative services to TLC Beatrice. During
1995 and 1994, TLC Beatrice paid TLC Group, as assignee from TLC Holdings Corp.,
a Delaware corporation ('TLC Holdings'), a monitoring fee in the amount of $1
million per year. Commencing January 1, 1996, Mrs. Lewis was compensated as an
employee of TLC Beatrice and the monitoring fee was no longer paid. Until
January 19, 1996, TLC Holdings owned directly 4,334,000 shares of Common Stock.
Leslie N. Lewis was Chairman of TLC Holdings. TLC Holdings was 100% owned by the
Estate of Reginald F. Lewis, deceased (the 'Lewis Estate').
On January 19, 1996, TLC Holdings was merged with TLCB Acquisition Corp.
('TLCB'), a newly formed wholly-owned subsidiary of TLC Beatrice, with TLC
Holdings being the surviving corporation. Subsequent to the merger of TLC
Holdings with TLCB, TLC Holdings was merged into TLC Beatrice with TLC Beatrice
being the surviving corporation. As a result of these transactions, the shares
of Common Stock formerly held by TLC Holdings have been cancelled and an equal
number of shares were issued directly to the Lewis Estate.
Certain of TLC Beatrice's operating subsidiaries have local minority
stockholders whose equity interests in these subsidiaries range from 2.6% to
49%. The subsidiaries that have the largest equity interests owned by local
stockholders include Distribution Leader Price S.A. ('Distribution Leader
Price')(49%), the Retail Leader Price Group ('Retail Leader Price') (49%),
Interglas S.A. ('Interglas') (35%), Helados La Menorquina S.A. ('La Menorquina')
(35%) and the Minimarche Group ('Minimarche') (26%). In most cases, the local
stockholders are responsible for the management of these subsidiaries.
The minority stockholders of Distribution Leader Price and Retail Leader
Price, directly or indirectly, are various members of the Baud family and a
corporate entity controlled by the Baud family (collectively, the 'Baud Minority
Stockholders'). Pursuant to certain agreements entered into in 1992, the Company
is obligated under certain circumstances to purchase the Baud Minority
Stockholders' ownership interests in Distribution Leader Price and Retail Leader
Price. The agreements provide that prior to June 30, 1997, if certain members of
the Baud family cease to hold their management positions with the applicable
company and the Company fails to propose and vote in favor of one of certain
members of the Baud family as a replacement, the Baud Minority Stockholders have
the right to require TLC France to purchase all of the Baud Minority
Stockholders' shares of Distribution Leader Price and Retail Leader Price (the
'Put Right'), and TLC France has the right to purchase all of the Baud Minority
Stockholders' shares of Distribution Leader Price in the event that the Baud
Minority
F-10
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Stockholders exercise their put option with respect to the shares of Retail
Leader Price. In addition, at any time on or after July 1, 1997 and prior to
June 30, 2027, the Baud Minority Stockholders can exercise the Put Right, and
TLC France has the right to purchase all of the Baud Minority Stockholders'
shares of 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, with a
guaranteed minimum return on the Baud Minority Stockholders' aggregate
investment if an option is exercised prior to July 1, 1997. If the Put Right is
exercised after July 1, 1997, and as long as the TLC Beatrice's 11.5% Senior
Secured Notes due October 1, 2005 (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 (as defined
in Note 11). 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 the 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
certain other local minority stockholders of Etablissements Baud S.A., Sedipro,
S.A. and Minimarche (collectively, 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.
The Company assesses the fair value of the underlying minority interests to
determine that such value continues to equal or exceed the amount that the
Company would have to pay to the minority stockholders should they exercise the
puts. As a part of its strategic planning process the Company is in regular
communication with a number of investment banks and financial institutions which
provide it with information from which it can determine the approximate market
value of its businesses. Based in part on such information, it is the Company's
current assessment that the underlying fair value of the minority interests
exceeds any obligation that would result from the exercise of the puts.
The Company has made loans to a minority interest partner totaling
$38,147,000 and $47,517,000 at December 31, 1996 and 1995, respectively. The
maturity dates of the loans range from January 1997 to October 1997. At December
31, 1996, the interest rate on such loans was 6.85 percent. Loans by certain of
TLC Beatrice's subsidiaries to minority interests represent a tax-efficient
method of distributing earnings to stockholders. Such loans are also made to the
Company as majority stockholder on a pro rata basis. In 1995, the Company netted
these loans to a minority interest partner (previously recorded in noncurrent
assets) against the respective minority interests. The loans were repaid through
the application of a dividend payment in January 1997.
F-11
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. RECEIVABLES
Receivables included in current assets are stated net of allowances for
doubtful accounts amounting to approximately $6 million and $7 million at
December 31, 1996 and 1995, respectively. The Company recorded $3 million, $1
million and $3 million for bad debts for the years ended December 31, 1996, 1995
and 1994, respectively.
7. INVENTORIES
Inventories consisted of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................................................... $ 10,428 $ 10,860
Work in process............................................................... 78 76
Finished goods................................................................ 107,648 120,189
-------- --------
118,154 131,125
Less inventory reserves....................................................... (693) (1,277)
-------- --------
Total.................................................................... $117,461 $129,848
-------- --------
-------- --------
</TABLE>
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land and buildings.......................................................... $ 125,797 $ 106,720
Machinery and equipment..................................................... 327,598 295,251
--------- ---------
453,395 401,971
Less accumulated depreciation............................................... (189,536) (164,797)
--------- ---------
Property, plant and equipment -- net................................... $ 263,859 $ 237,174
--------- ---------
--------- ---------
</TABLE>
Depreciation expense amounted to approximately $36 million, $33 million and
$34 million for the years ended December 31, 1996, 1995 and 1994, respectively.
9. LEASES
Property leased under capital leases and included in property, plant and
equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- -----
(IN THOUSANDS)
<S> <C> <C>
Buildings......................................................................... $ 8,712 $--
Machinery and equipment........................................................... 2,093 370
-------- -----
10,805 370
Less accumulated depreciation..................................................... (1,941) (227)
-------- -----
Property held under capital leases -- net.................................... $ 8,864 $ 143
-------- -----
-------- -----
</TABLE>
The Company leases office facilities, manufacturing facilities, retail
facilities, distribution facilities and equipment under various noncancelable
operating lease agreements expiring through 2037.
F-12
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Future minimum lease payments under noncancelable capital and operating leases
at December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997............................................................................ $ 1,394 $17,498
1998............................................................................ 1,164 11,284
1999............................................................................ 954 5,936
2000............................................................................ 867 2,408
2001............................................................................ 851 2,486
Later years..................................................................... 6,279 41,612
------- ---------
Total minimum lease payments.................................................... 11,509 $81,224
---------
---------
Less amount representing interest............................................... (2,529)
-------
Present value of net minimum lease payments..................................... $ 8,980
-------
-------
</TABLE>
Total rent expense for all operating leases amounted to approximately $25
million, $25 million and $18 million for the years ended December 31, 1996, 1995
and 1994, respectively.
10. SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
Short-term debt and current portion of long-term debt at December 31, 1996
and 1995 consisted of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt............................................... $17,440 $13,872
Short-term debt................................................................. 16,655 50,775
------- -------
Total...................................................................... $34,095 $64,647
------- -------
------- -------
</TABLE>
The weighted average interest rate of short-term debt outstanding at
December 31, 1996 and December 31, 1995 was 6.77% and 8.66%, respectively.
At December 31, 1996, the Company had approximately $74 million of unused
lines of credit available for short-term financing.
On October 6, 1995, TLC Beatrice International Irish Holdings Ltd. ('Irish
Holdings') entered into a Facility Agreement with Banque Paribas and Smurfit
Paribas Bank Limited (the 'Credit Agreement'), 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) or
(b) an amount calculated as follows: 28 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 $15.9 million at the
December 31, 1996 foreign exchange rate) from February 1, 1999 through January
31, 2000 and (ii) 3.2 million Irish Punts (approximately $5.3 million at the
December 31, 1996 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
F-13
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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 December 31,
1996, no indebtedness was outstanding under the Credit Agreement.
The Company is a party to certain loan and credit agreements with various
banks to finance its working capital and other requirements.
11. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
11.5% Senior Secured Notes due October 1, 2005.......................................... $175,000 $175,000
PIBOR Plus .6% Note due 1999(1)......................................................... 6,937 9,787
PIBOR Plus .6% Notes due 2002(1)........................................................ 5,684 3,806
PIBOR Plus .8% Notes due 2001(1)........................................................ 2,451 1,202
PIBOR Plus .6% Note due 1999(1)......................................................... 2,153 --
7.10% Note due 1999..................................................................... 1,419 2,210
PIBOR Plus .8% Note due 2002(1)......................................................... 1,107 --
PIBOR Plus .8% Note due 1996(1)......................................................... -- 2,203
Miscellaneous, individually less than $1,000,000 in 1996 and 1995 due various dates
through the year 2005 (5.35%*)........................................................ 43,201 42,972
Capitalized lease obligations (7.47%*).................................................. 8,980 --
-------- --------
246,932 237,180
Less current portion.................................................................... (17,440) (13,872)
-------- --------
Total long-term debt............................................................... $229,492 $223,308
-------- --------
-------- --------
</TABLE>
- ------------
(1) Paris Interbank Offering Rate ('PIBOR') at December 31, 1996 equaled 3.43%.
(*) Weighted average interest rates at December 31, 1996.
On October 2, 1995, TLC Beatrice sold $175 million aggregate principal
amount of 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 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 the Credit Agreement.
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
F-14
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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.
The PIBOR plus .6% Note due 1999 of approximately $6.9 million is an
indebtedness secured by a mortgage on the Company's distribution warehouse in
France.
The 7.1% Note due 1999 is secured by a mortgage on the Company's bottling
factory in Belgium.
The remaining notes are indebtedness secured by mortgages on the Company's
retail and discount supermarkets in France.
The net book value of property and equipment encumbered under long-term
debt agreements was $112 million at December 31, 1996.
The scheduled annual maturities of long-term debt, as of December 31, 1996,
are approximately $16 million in 1998, $14 million in 1999, $9 million in 2000,
$7 million in 2001, and $184 million in later years.
12. ACCRUED EXPENSES
Included in other accrued expenses at December 31, 1996 and 1995 are
liabilities as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Employee compensation................................................. $23,943 $20,949
Other................................................................. 34,231 36,131
------- -------
$58,174 $57,080
------- -------
------- -------
</TABLE>
13. COMMON STOCK
In 1995, TLC Beatrice repurchased 42,500 shares of Common Stock for
approximately $1.7 million.
On February 5, 1997, the Company paid a dividend of $.22 per share to
stockholders of record as of January 28, 1997.
On February 15, 1996, the Company paid a dividend of $.11 per share to
stockholders of record as of February 5, 1996.
No Common Stock dividends were paid in 1995 and 1994.
F-15
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
14. PENSION AND POSTRETIREMENT PLANS
TLC Beatrice maintains a noncontributory defined benefit plan covering
employees of TLC Beatrice and its participating subsidiaries and divisions who
are in executive, managerial, office, technical, professional, administrative,
clerical or sales positions and have completed one year of service.
Plan benefits are calculated according to a benefit formula based on total
years and months of credited service and average compensation in the highest 5
years of the last 15 years of employment, or the highest 60 consecutive months
of the last 120 months of employment. A majority of the plan assets are invested
in short-term fixed income instruments and various equity portfolios. The plan
does not have significant liabilities other than benefit obligations. TLC
Beatrice's funding policy is to contribute amounts equal to the minimum funding
requirements of the Employee Retirement Income Security Act of 1974.
Certain of TLC Beatrice's non-U.S. operating companies also sponsor defined
benefit plans for their employees.
Pension expense for the years ended December 31, 1996, 1995 and 1994
includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.......................................................... $ 577 $ 569 $ 589
Interest cost......................................................... 1,102 1,076 1,030
Actual return on plan assets.......................................... (1,514) (1,115) 299
Net amortization and deferral......................................... 610 357 (1,011)
------- ------- -------
Total pension expense....................................... $ 775 $ 887 $ 907
------- ------- -------
------- ------- -------
</TABLE>
The reconciliation of the funded status of TLC Beatrice's plans at December
31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
ASSETS EXCEED
ACCUMULATED BENEFITS
--------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation........................................... $12,716 $ 9,732
Nonvested benefit obligation........................................ 76 131
----------- -----------
Accumulated benefit obligation...................................... 12,792 9,863
Value of future pay increases....................................... 2,627 4,662
----------- -----------
Projected benefit obligation........................................ 15,419 14,525
Plan assets at fair value........................................... 14,555 11,996
----------- -----------
Underfunded projected benefit obligation............................ (864) (2,529)
Unrecognized net loss............................................... 1,078 2,114
----------- -----------
Net pension asset/(liability) recognized in the accompanying
consolidated balance sheets....................................... $ 214 $ (415)
----------- -----------
----------- -----------
</TABLE>
The assumptions used in determining the pension expense and pension
liability for the years ended December 31, 1996 and 1995, respectively, were:
Discount rate -- 7.5-8% and 7.5-8%; Rate of salary progression -- 5% and 5-6%;
Long-term rate of return on assets -- 8-8.5% and 8-8.5%.
TLC Beatrice sponsors an employee savings plan designed to qualify under
Sections 401(a) and 401(k) of the Internal Revenue Code as a profit-sharing
plan. TLC Beatrice makes matching
F-16
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
contributions of 50% of the amount of salary deferral and after-tax
contributions (up to 6% of compensation) elected by a participant. The amount of
TLC Beatrice's contributions to this plan that were charged to income were
$57,000, $37,000 and $37,000 for the years ended 1996, 1995 and 1994,
respectively.
15. STOCK OPTION AND BONUS PLANS
ANNUAL INCENTIVE PLAN AND 1996 LONG TERM INCENTIVE STOCK OPTION PLAN
On January 19, 1996, the Board of Directors of TLC Beatrice established the
TLC Beatrice 1996 Annual Incentive Plan (the 'Annual Incentive Plan') for the
purpose of promoting the long-term financial performance of the Company by
providing incentive compensation opportunities to officers, managers and other
key employees of TLC Beatrice. Each participant's award under the Annual
Incentive Plan for any fiscal year is based on the Company's financial
performance as well as, where appropriate, the participant's own individual
performance. The Annual Incentive Plan is administered by the Compensation
Committee of the Board of Directors (the 'Compensation Committee').
Participants in the Annual Incentive Plan are chosen by the Compensation
Committee, upon the recommendation of the Chief Executive Officer of TLC
Beatrice. At the beginning of each fiscal year, an individual target award (an
'Individual Target Award') is established for each participant based on a
percentage of such participant's base salary. The Annual Incentive Plan
contemplates that the applicable percentage will vary by Company position and
range from 10% to 75% of base salary, as determined by the Compensation
Committee. Actual awards under the Annual Incentive Plan are based on the
following factors: (i) the Company's actual earnings from operations ('Actual
Earnings') as compared to targeted earnings ('Target Earnings') established at
the beginning of each fiscal year; (ii) the Company's achievement of any other
special, strategic or other performance factors; and (iii) the individual
performance of each participant.
The maximum amount of funds made available by the Company for the purpose
of making awards under the Annual Incentive Plan in any fiscal year (the
'Maximum Available Awards Fund') is the aggregate amount of all Individual
Target Awards established at the commencement of the fiscal year (the 'Incentive
Award Pool') multiplied by a percentage based on the Company's Actual Earnings
as compared to Target Earnings for such fiscal year. Depending on Actual
Earnings, the Maximum Available Awards Fund in any fiscal year may equal from 0%
to 150% of the Incentive Award Pool. In years in which the Company's Actual
Earnings meet or exceed 80% of the Target Earnings, the Chief Executive Officer
and the Compensation Committee also have discretion to make available to the
Chief Executive Officer an additional discretionary bonus pool of an amount
equal to up to 25% of the Incentive Award Pool, which amount is payable at the
discretion of the Chief Executive Officer to any one or more employees as an
additional bonus to any bonus otherwise payable under the Annual Incentive Plan,
based on other performance measures that are deemed appropriate. The amount of
the award paid to each participant is equal to such participant's proportionate
share (based on his or her Individual Target Award) of the Maximum Available
Awards Fund, subject to adjustment by the Compensation Committee.
On January 19, 1996, TLC Beatrice established (subject to shareholder
approval) the TLC Beatrice 1996 Long Term Incentive Stock Option Plan (the '1996
Stock Option Plan') to promote the long-term financial performance of TLC
Beatrice by attracting, retaining and motivating Key Employees (as defined in
the 1996 Stock Option Plan) and Consultants (as defined in the 1996 Stock Option
Plan). The Board of Directors administers the 1996 Stock Option Plan, which
provides for the grant of options with respect to a maximum of 750,000 shares of
Common Stock. Each Key Employee and Consultant may receive options to purchase a
maximum of 100,000 shares of Common Stock under the 1996 Stock Option Plan in
any calendar year, as determined by the Board of Directors. The exercise price
for an option granted pursuant to the 1996 Stock Option Plan which is intended
to meet
F-17
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
the requirements of Section 422(b) of the Code (an 'ISO'), which may be granted
only to a Key Employee, cannot be less than 100% (or 110% in certain cases) of
the fair market value (as calculated in accordance with the 1996 Stock Option
Plan) of a share of Common Stock on the date the ISO is granted. The exercise
price for each non-ISO option granted pursuant to the 1996 Stock Option Plan (a
'NQSO'), which may be granted to either a Key Employee or a Consultant, shall be
determined by the Board of Directors on the date that the NQSO is granted. Each
option granted under the 1996 Stock Option Plan shall be evidenced by a stock
option agreement between the Key Employee or Consultant, as the case may be, and
TLC Beatrice, which agreement may contain additional terms not inconsistent with
the 1996 Stock Option Plan.
Each option granted under the 1996 Stock Option Plan shall become
exercisable, in full or in part, as the Board of Directors determines, provided
that no option may become exercisable prior to the later of the listing of the
Common Stock on any national securities exchange or interdealer quotation system
or thirty months from the grant of such option. The Board of Directors may
postpone the exercise of an option in order to (i) effect or maintain
registration or qualification of the 1996 Stock Option Plan, or Common Stock
issuable thereunder, under any applicable securities law, (ii) take any action
required to comply with restrictions incident to the listing on any securities
exchange of, or the maintenance of a public market for, the Common Stock or
(iii) determine that the actions described in (i) or (ii) need not be taken. No
postponement of the exercise of an option granted under the 1996 Stock Option
Plan will extend the termination or expiration date of such option. In the event
of a Change of Control (as defined in the 1996 Stock Option Plan) of TLC
Beatrice, any unvested options shall become fully vested and immediately
exercisable.
Each option granted under the 1996 Stock Option Plan shall terminate as
determined by the Board of Directors, but not later than the earliest of (i) ten
years (or five years in the case of certain ISOs) from the date of grant, (ii)
ninety days after the grantee's employment or relationship with TLC Beatrice
terminates other than 'for cause' (as defined in the 1996 Stock Option Plan),
(iii) two years after the grantee's employment or relationship with TLC Beatrice
terminates other than 'for cause' if such termination occurs within two years
following a Change of Control of TLC Beatrice and (iv) immediately upon the
termination of the grantee's employment or relationship with TLC Beatrice 'for
cause.' The 1996 Stock Option Plan will terminate on December 31, 2000, unless
terminated earlier by the Board of Directors.
Provisions of the 1996 Stock Option Plan relating to extension of its
termination date, the amount of Common Stock for which options may be granted,
the eligibility standards for participants and the period during which options
may be exercised may only be amended with shareholder approval. Amendment or
termination of the 1996 Stock Option Plan shall not affect the validity or terms
of any option previously granted thereunder in a manner adverse to the grantee
without the consent of such grantee.
On January 19, 1996, the Board of Directors of TLC Beatrice granted
non-qualified options with respect to 563,000 shares of Common Stock to
seventeen Key Employees under the 1996 Stock Option Plan. Pursuant to the stock
option agreements related to these grants, these options will become exercisable
in accordance with the 1996 Stock Option Plan at an exercise price of $25 per
share, provided that such options may not be exercised until the option holders
have completed seven years of employment with the Company from the date of such
grants. These stock option agreements also provide that notwithstanding a Key
Employee's length of employment (i) options held for thirty months from the date
of grant become exercisable immediately for up to 50% or 100% of the underlying
shares if the five-day public market average closing price of the Common Stock
exceeds $40 or $50, respectively. In addition, if there is not a public market
for the Common Stock as of February 1, 2000, then (a) option holders will be
entitled to buy out rights with respect to 50% or 100% of the underlying shares
if the fair market value of the Common Stock is at least $40 or $50,
respectively, at a purchase price per share equal to the excess of the fair
market value over the
F-18
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
exercise price, not to exceed $25, (b) the Company will be entitled to purchase
100% of the underlying shares at a purchase price per share of $1 if the fair
market value of the Common Stock is less than $40 and (c) the Company will be
entitled to terminate such agreements if the fair market value of the Common
Stock is less than the exercise price.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation.' Accordingly, no compensation cost has been recognized for options
granted under the 1996 Stock Option Plan. Had compensation cost for the options
awarded under the 1996 Stock Option Plan (no options were granted in 1995) been
determined based on the fair value at the grant date for awards in 1996
consistent with the provisions of SFAS No. 123, the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Net income -- as reported (in thousands)....................... $19,601
-----------------
-----------------
Net income -- pro forma (in thousands)......................... $18,995
-----------------
-----------------
Net income per share -- as reported............................ $ 2.14
-----------------
-----------------
Net income per share -- pro forma.............................. $ 2.08
-----------------
-----------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: dividend yield of 0.88%; expected
volatility of 0%; risk-free interest rate of 6.5%; and expected lives of 7
years.
1992 STOCK INCENTIVE PLAN
In December 1992, TLC Beatrice established a Stock Incentive Plan (the
'1992 Plan') to reward officers, key employees and directors for service to the
Company and to provide incentives for future service and enhancement of
shareholder value. The Compensation Committee administers the 1992 Plan. The
1992 Plan provided for awards of up to 500,000 stock appreciation rights
('SARs') to directors and key employees and up to 100,000 shares of phantom
stock to officers and members of TLC Beatrice's management, each as determined
by the Compensation Committee. With the adoption of the 1996 Stock Option Plan,
no further awards of SARs or phantom stock will be made under the 1992 Plan.
Upon a Change in Control (as defined in the 1992 Plan) or, at TLC
Beatrice's option, when a plan participant leaves the Company, TLC Beatrice will
pay to the participant in cash the fair market value of the aggregate number of
SARs and phantom stock awarded to such participant less the Exercise Price (as
defined in the 1992 Plan) of each SAR or share of phantom stock. Under the 1992
Plan, in the event that the common stock of TLC Beatrice is not traded in the
public market, the determination of fair market value, both for purposes of SARs
and phantom stock rights, is determined solely at the discretion of the
Compensation Committee. The 1992 Plan does not provide any parameters limiting
the Compensation Committee in this regard, and there are a variety of
permissible methods for determining fair market value.
Five thousand (5,000) SARs were awarded to each member of the Board of
Directors as of December 1, 1992 and to several key employees, for a total of
55,000 SARs. In 1993, 25,000 shares of phantom stock were awarded to certain
members of TLC Beatrice's management.
In 1994, 200,000 SARs were awarded to certain members of TLC Beatrice's
management. Vesting will occur in 25% intervals in each year beginning in 1994.
Also during 1994, the rights to 20,000 shares of phantom stock and 10,000 SARs
were waived pursuant to certain severance agreements of
F-19
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
key management personnel. In January 1995, 75,000 of the 200,000 SARs awarded in
1994 were forfeited in connection with the termination of certain employment
agreements. In January 1996, 50,000 SARs were cancelled with the adoption of the
1996 Stock Option Plan. As of December 31, 1996, approximately $1.1 million has
been provided for current and noncurrent obligations under the 1992 Plan.
16. INCOME TAXES
The income tax provisions are comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States:
Current.................................................................. $ -- $ -- $ --
Deferred................................................................. -- -- --
Foreign:
Current(a)............................................................... 25,601 28,147 26,959
Deferred(b).............................................................. (8,105) (7,677) 9,040
------- ------- -------
Total............................................................... $17,496 $20,470 $35,999
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(a) 1995 Foreign Current income tax excludes $201,000 of tax benefit related to
the retirement of debt which reduced the extraordinary loss.
(b) 1995 Foreign Deferred income tax excludes $1,297,000 of tax benefit related
to the retirement of debt which reduced the extraordinary loss in 1995.
Income (loss) from operations before income taxes and minority interests in
earnings were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States............................................................... $(24,422) $ (20,927) $(33,584)
Foreign..................................................................... 88,930 83,819 94,778
-------- --------- --------
Total............................................................. $ 64,508 $ 62,892 $ 61,194
-------- --------- --------
-------- --------- --------
</TABLE>
F-20
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
The provision for income taxes varied from the U.S. Federal statutory
income tax rate due to the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Statutory Rate........................................................... 35% 35% 35%
------- --------- -------
------- --------- -------
Income taxes computed at U.S. statutory rates................................. $22,578 $ 22,012 $21,418
Goodwill amortization......................................................... 1,288 1,139 1,130
U.S. losses without tax benefit............................................... 8,548 6,364 11,754
Foreign losses without tax benefit............................................ 2,110 1,712 1,737
Foreign withholding taxes without benefit..................................... 401 853 --
Foreign investment tax credit................................................. (1,863) -- --
Reversal of a portion of SFAS 109 valuation allowance......................... (3,670) -- --
Rate differentials and tax incentive jurisdictions............................ (4,597) (2,758) (2,616)
Reversal of foreign tax contingency reserves.................................. (5,683) (10,872) (1,600)
Other......................................................................... (1,616) 2,020 4,176
------- --------- -------
Total tax provision................................................. $17,496 $ 20,470 $35,999
------- --------- -------
------- --------- -------
</TABLE>
TLC Beatrice has not provided deferred taxes on $274 million of the
undistributed earnings of its non-U.S. subsidiaries which are not considered to
be permanently invested, since TLC Beatrice has and is anticipated to have
sufficient U.S. operating losses to substantially reduce any U.S. Federal income
tax due upon distribution of such earnings.
TLC Beatrice has U.S. net operating loss carryforwards of approximately $20
million as of December 31, 1996 which expire between 2008 and 2011.
At the end of 1996, TLC Beatrice recorded a deferred tax liability in the
amount of $11.9 million with respect to the timing difference related to tax
incentive reserves that have been set up by its Canary Islands' subsidiary,
Interglas (see note 18). If Interglas makes the necessary investments required
for the reserves it has set up, TLC Beatrice will recognize a reduction in
income tax expense of $5.9 million in 1997, $5.9 million in 1998 and $154,000 in
1999. During 1995, Interglas favorably concluded a tax audit with respect to an
investment reserve it set up in 1991 and qualified investments made between 1992
and 1995 related to this reserve which resulted in a reduction in income tax
expense of $10.9 million.
During 1996, the Company recognized the tax benefit related to the startup
losses of its Leader Price operations previously not recognized under SFAS 109
in the amount of $3.7 million. In addition, the Company recognized a tax benefit
due to a settlement of a tax audit at its French holding company, TLC France,
and the tax benefit from the qualified investments made at its Canary Islands'
subsidiary, Interglas, in the amounts of $2.9 million and $2.8 million,
respectively.
At December 31, 1996, deferred income taxes reflect the net tax effects of
(a) temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
and (b) the value of operating loss and tax credit
F-21
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
carryforwards. The tax effects of significant items comprising TLC Beatrice's
net deferred tax liability as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property....... $ (5,071) $ (2,242)
Differences in recognition of foreign reinvestment
reserves............................................... (11,915) (16,013)
Inventory valuation differences.......................... (1,107) (1,645)
Other.................................................... (1,264) (2,535)
------------ ------------
(19,357) (22,435)
------------ ------------
Deferred tax assets:
Reserves not currently deductible........................ 3,095 2,925
U.S. and foreign operating loss carryforwards............ 17,963 15,708
------------ ------------
21,058 18,633
Valuation allowance...................................... (9,110) (14,378)
------------ ------------
11,948 4,255
------------ ------------
Net deferred tax liability.......................... $ (7,409) $(18,180)
------------ ------------
------------ ------------
</TABLE>
17. BUSINESS SEGMENT AND GEOGRAPHIC DATA
The Company's operations are composed of two segments, Grocery Products and
Food Distribution. Financial data for each of the segments are shown in the
tables below (in thousands of dollars):
<TABLE>
<CAPTION>
NET SALES
--------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Food Distribution................................................... $1,867,568 $1,640,994 $1,356,532
Grocery Products.................................................... 357,745 431,619 465,138
---------- ---------- ----------
$2,225,313 $2,072,613 $1,821,670
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME
--------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Food Distribution................................................... $ 59,476 $ 49,995 $ 51,653
Amortization of intangible assets................................... (2,781) (2,141) (2,199)
---------- ---------- ----------
Net Food Distribution............................................... 56,695 47,854 49,454
---------- ---------- ----------
Grocery Products.................................................... 43,877 42,374 43,354
Amortization of intangible assets................................... (898) (599) (889)
---------- ---------- ----------
Net Grocery Products................................................ 42,979 41,775 42,465
---------- ---------- ----------
Total segments............................................ 99,674 89,629 91,919
---------- ---------- ----------
Corporate expenses.................................................. (13,144) (10,317) (20,200)
Amortization of intangible assets................................... -- -- (140)
---------- ---------- ----------
Net Corporate expenses.............................................. (13,144) (10,317) (20,340)
---------- ---------- ----------
$ 86,530 $ 79,312 $ 71,579
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-22
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
IDENTIFIABLE CAPITAL
ASSETS DEPRECIATION SPENDING
------------ ------------ --------
<S> <C> <C> <C>
1996
Food Distribution.................................................... $463,239 $ 24,185 $33,900
Grocery Products..................................................... 243,868 11,984 44,586
------------ ------------ --------
Total segments.................................................. 707,107 36,169 78,486
Corporate and other.................................................. 74,597 118 --
------------ ------------ --------
$781,704 $ 36,287 $78,486
------------ ------------ --------
------------ ------------ --------
1995
Food Distribution.................................................... $484,232 $ 21,013 $44,867
Grocery Products..................................................... 249,119 11,876 19,622
------------ ------------ --------
Total segments.................................................. 733,351 32,889 64,489
Corporate and other.................................................. 82,224 118 591
------------ ------------ --------
$815,575 $ 33,007 $65,080
------------ ------------ --------
------------ ------------ --------
1994
Food Distribution.................................................... $385,621 $ 16,195 $36,664
Grocery Products..................................................... 276,738 17,327 21,637
------------ ------------ --------
Total segments.................................................. 662,359 33,522 58,301
Corporate and other.................................................. 73,144 41 143
------------ ------------ --------
$735,503 $ 33,563 $58,444
------------ ------------ --------
------------ ------------ --------
</TABLE>
The following table provides certain geographic data on the Company's
operations (in thousands of dollars):
<TABLE>
<CAPTION>
OPERATING IDENTIFIABLE
NET SALES INCOME ASSETS
---------- --------- ------------
<S> <C> <C> <C>
1996
France.............................................................. $1,871,305 $ 57,294 $480,872
Southern Europe*.................................................... 180,272 23,207 136,590
Other countries..................................................... 173,736 19,173 89,645
Corporate and other................................................. -- (13,144) 74,597
---------- --------- ------------
$2,225,313 $ 86,530 $781,704
---------- --------- ------------
---------- --------- ------------
1995
France.............................................................. $1,654,432 $ 47,132 $483,277
Southern Europe*.................................................... 176,674 24,533 154,131
Other countries..................................................... 241,507 17,964 95,943
Corporate and other................................................. -- (10,317) 82,224
---------- --------- ------------
$2,072,613 $ 79,312 $815,575
---------- --------- ------------
---------- --------- ------------
1994
France.............................................................. $1,369,605 $ 48,282 $384,951
Southern Europe*.................................................... 199,309 29,328 154,194
Other countries..................................................... 252,756 14,309 123,214
Corporate and other................................................. -- (20,340) 73,144
---------- --------- ------------
$1,821,670 $ 71,579 $735,503
---------- --------- ------------
---------- --------- ------------
</TABLE>
- ------------
* Southern Europe is comprised of Spain, Portugal and, prior to 1995, Italy.
Intersegment and intergeographic sales are not significant to the net sales
of any business segment or geographic location. Sales to any single customer are
not material. There are no export sales from the United States. Corporate and
other assets consist principally of cash and cash equivalents, and goodwill.
F-23
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
18. COMMITMENTS AND OTHER CONTINGENT LIABILITIES
As a consequence of the termination of certain long-standing income tax
incentives in the Canary Islands as of December 31, 1991, transition rules were
promulgated by the Spanish and Canary Island provincial governments. To preserve
the tax advantages granted under these prior incentives, the transition rules
required investments by TLC Beatrice Canary Islands subsidiary, Interglas, in
certain approved investments over the five-year period from 1992 to 1996. A
variety of investments were eligible, including productive machinery and
equipment and/or local government interest-bearing bonds. Interglas satisfied
the last investment required under the transition rules of approximately $8
million entirely from internal cash flow. The Company recognized an income tax
benefit of $2.8 million in 1996 due to the satisfaction of this investment
requirement.
In addition, the Canary Islands instituted new tax incentives beginning in
1994. Interglas opted to take advantage of these incentives for its 1994 and
1995 tax years and is required to make qualifying investments of $16.8 million
in 1997, $16.8 million in 1998 and $440,000 in 1999. The Company has provided
for deferred income taxes on these requirements equal to the 35% tax rate on $34
million, or approximately, $11.9 million, in the event that the required
investment obligations are not fulfilled. The Company can give 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
requirements, the deferred tax liability may be reversed depending upon the
relevant facts and circumstances existing at the time.
19. OTHER INVESTMENTS
Included in other noncurrent assets at December 31, 1996 and 1995 are
investments as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Noncurrent:
Investment in various Spanish interest-bearing bonds....................... $23,113 $24,624
------- -------
------- -------
</TABLE>
The interest rates of such investments range from 6.95% to 12.35% at
December 31, 1996 and at December 31, 1995. Maturities ranged from September
1998 to December 2002 at December 31, 1996 and at December 31, 1995. These
investments are treated as held to maturity in accordance with SFAS No. 115, and
are carried at amortized cost (see Note 2).
20. LITIGATION
On May 20, 1994, Carlton Investments ('Carlton') filed a complaint against
TLC Beatrice and the executrices of the 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. Carlton alleges that TLC Beatrice
breached the Stockholders' Agreement by paying a $22.1 million compensation
package to Mr. Reginald F. Lewis, former Chairman of the Board and Chief
Executive Officer of TLC Beatrice, and that Mr. Lewis tortiously interfered with
the Stockholders' Agreement by procuring that breach for his personal
enrichment. The tortious interference claim was subsequently dismissed by the
court and is now pending appeal. TLC Beatrice is vigorously defending this
action. Carlton is seeking $11.5 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. In this stockholder
derivative action, which has been amended twice, Carlton seeks to recover for
the benefit of TLC Beatrice millions of dollars of corporate funds allegedly
paid to the late Reginald F. Lewis and entities
F-24
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
controlled by or affiliated with him between 1987 and 1993. Named as defendants
are the executrices of Mr. 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 have filed answers and affirmative
defenses to the derivative complaint denying all material allegations. For
further information concerning the allegations of Carlton in this derivative
lawsuit, reference is made to the derivative complaint, as amended, which have
been filed as an Exhibit to the Registration Statement No. 33-88602 of TLC
Beatrice filed with the Securities and Exchange Commission.
A proposed 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 derivative complaint was in the best interests of TLC Beatrice and its
shareholders and what action TLC Beatrice should take concerning the litigation
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. Subject to the
approval of the Court of Chancery of the State of Delaware, the Stipulation of
Settlement would be a full and final settlement of the derivative action and
would release 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 at the rate of 8% per annum until the Effective Date
(as hereinafter defined) (the 'Settlement Amount'), pursuant to the following
terms: (a) On the Effective Date, $2,000,000 in cash and a secured promissory
note for the unpaid balance of the Settlement Amount, (b) from and after the
Effective Date, interest on the Settlement amount shall be paid at a rate equal
to the U.S. prime rate plus 1/2 of 1 percent compounded daily, (c) $500,000 in
cash on May 1 and November 1 of each year, until payment of the Settlement
Amount in full, and (d) a final payment of the balance of the Settlement Amount
on May 1, 2004 if not paid in full prior thereto. For purposes of the
Stipulation of Settlement, the Effective date shall be the date that the
approval of the Stipulation of Settlement is considered final, which shall be
the latest to occur (i) the expiration of the time for filing or noticing of any
appeal or motion for reargument from the judgment, if any, of the Chancery Court
of the State of Delaware approving the Stipulation of Settlement, (ii) the date
of final affirmance on any appeal or reargument; (iii) the expiration of time
for petitions for writs of certiorari and, if certiorari is granted, the date of
final affirmance following review pursuant to such grant or (iv) the final
dismissal of any appeal or proceedings on ceriorari.
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, the number of shares to
be pledged to be determined as follows: number of shares pledged equals
Settlement Amount divided by $25.00 multiplied by 4.
There can be no assurance that the Stipulation of Settlement will be
approved, or if approved, what its final terms may be.
TLC Beatrice's outside litigation counsel has advised TLC Beatrice that at
this time the extent of TLC Beatrice's liability, if any, is not determinable.
The ultimate outcome that may result from these matters may have a material
effect on TLC Beatrice's consolidated financial condition and/or results of
operations. No provision for any liability that may result from these matters
has been made in the
F-25
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
consolidated financial statements. In addition, under certain circumstances, TLC
Beatrice is obligated to reimburse the directors for their share of any
judgement or settlement.
21. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- -----------------------
CARRYING FAIR MARKET CARRYING FAIR MARKET
VALUE VALUE VALUE VALUE
-------- ----------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents................................... $ 95,784 $ 95,784 $120,279 $ 120,279
Receivables, net............................................ 150,817 150,817 165,989 165,989
Other current assets........................................ 11,036 11,036 13,356 13,356
Other noncurrent assets..................................... 46,690 46,708 53,042 53,053
LIABILITIES:
Short-term debt and current portion of long-term debt....... 34,095 34,095 64,647 64,647
Accounts payable............................................ 226,827 226,827 256,466 256,466
Taxes payable............................................... 18,563 18,563 8,996 8,996
Long-term debt.............................................. 229,492 229,492 223,308 223,308
Deferred income taxes....................................... 7,409 7,409 18,180 18,180
Other noncurrent liabilities................................ 23,487 23,487 29,944 29,944
Foreign currency swaps (receivable) payable................. (5,548) 7,912 1,842 8,942
</TABLE>
Cash and cash equivalents, net receivables, accounts payable, taxes payable,
deferred income taxes and other noncurrent liabilities.
The carrying amounts of these items are a reasonable estimate of their fair
value.
Other current and noncurrent assets.
The fair market value of securities held for investment purposes included in
other current and noncurrent assets is based on quoted market prices.
Short-term and long-term debt.
Interest rates which are currently available to the Company for issuance of debt
with similar terms and remaining maturities are used to estimate fair value for
debt issues that are not quoted on an exchange.
Foreign currency swaps.
The fair value is the estimated amount that the Company would pay to terminate
the contracts at the reporting date. The fair value information has been
obtained from dealer quotations.
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates internationally, giving rise to significant exposure
to market risk from changes in foreign exchange rates. In October 1995, the
Company entered into currency swaps to reduce the risk that the cash inflows
from its foreign subsidiaries will be adversely affected by changes in exchange
rates and affect the Company's ability to meet interest payments on the Notes
(see Note 11). The Company does not hold or issue financial instruments for
trading purposes.
Under the currency swap agreements, the Company agrees with other parties
to exchange, at specified intervals, French francs for U.S. dollars, based on
specified interest rates applied to the notional amount of the contract. At
inception, the Company received approximately 660 million French francs in
exchange for approximately $133 million. The Company receives interest in
dollars at 11.50%
F-26
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
based on the notional U.S. dollar amount and pays interest in French francs at a
weighted average rate of 12.51% based on the notional French franc amount.
Interest payments and receipts occur semi-annually on March 25 and September 25.
The swap agreements expire September 25 and October 1, 2000 and require final
settlement of the notional amounts at those dates.
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to the swap agreements, but it does not expect
any counterparties to fail to meet their obligations given their high credit
ratings. The credit exposure from swap contracts is represented by the value of
contracts with a positive fair value at the reporting date.
24. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the calendar years 1996 and 1995:
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
--------------------- --------------------- --------------------- ---------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $558,168 $526,512 $551,019 $532,950 $585,736 $561,644 $530,390 $451,507
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit......... 90,978 90,265 107,518 104,757 107,625 107,245 88,186 77,058
-------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary
item............... 3,148 3,209 7,606 8,431 7,607 5,775 1,240 1,041
Extraordinary item,
net of taxes....... -- (3,092) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income........... $ 3,148 $ 117 $ 7,606 $ 8,431 $ 7,607 $ 5,775 $ 1,240 $ 1,041
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Net income per common
share.............. $ .34 $ .01 $ .83 $ .92 $ .83 $ .63 $ .14 $ .11
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
Net income per common share for each of the quarters is based on the
weighted average number of shares outstanding for each period, and the sum of
the quarters may not necessarily be equal to the full year's net income per
share.
F-27
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on February 28, 1997.
TLC BEATRICE INTERNATIONAL HOLDINGS,
INC.
By: /S/ LOIDA N. LEWIS
...................................
LOIDA NICOLAS LEWIS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ LOIDA N. LEWIS Chairman of the Board and Chief Executive
......................................... Officer and Director
(LOIDA NICOLAS LEWIS)
/s/ PETER OFFERMANN Executive Vice President and Chief Financial
......................................... Officer
(PETER OFFERMANN)
/s/ TERRI L. PIKE Controller
.........................................
(TERRI L. PIKE)
/s/ CLIFFORD L. ALEXANDER, JR. Director
.........................................
(CLIFFORD L. ALEXANDER, JR.)
/s/ LEE A. ARCHER, JR. Director
.........................................
(LEE A. ARCHER, JR.)
/s/ DORT A. CAMERON III Director
.........................................
(DORT A. CAMERON III)
/s/ ROBERT C. DEJONGH Director
.........................................
(ROBERT C. DEJONGH)
February 28, 1997
/s/ ANTHONY S. FUGETT Director
.........................................
(ANTHONY S. FUGETT)
/s/ REYNALDO P. GLOVER Director
.........................................
(REYNALDO P. GLOVER)
/s/ LESLIE N. LEWIS Director
.........................................
(LESLIE N. LEWIS)
/s/ JAMES E. OBI Director
.........................................
(JAMES E. OBI)
/s/ RICARDO J. OLIVAREZ Director
.........................................
(RICARDO J. OLIVAREZ)
Director
..........................................
(SAMUEL P. PEABODY)
/s/ WILLIAM H. WEBSTER Director
.........................................
(WILLIAM H. WEBSTER)
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------- ----
<C> <S> <C>
*3(a) -- Restated Certificate of Incorporation of TLC Beatrice
**3(b) -- By-Laws of TLC Beatrice
**4 -- Form of Certificate for Common Stock
**10(a) -- Beatrice International Pension Plan
**10(b) -- Beatrice International Savings Plan
**10(c) -- Beatrice International Supplemental Pension Plan
**10(d) -- Management Incentive Plan
**10(e) -- Beatrice International Severance Policy
**10(f) -- Loan Agreement dated as of October 21, 1994 among TLC Beatrice International Holdings
France S.A., Banque Paribas and a syndicate of Banks, with Banque Paribas as agent thereof
**10(g) -- Debenture Issue Contract dated October 21, 1994 between TLC Beatrice International Holdings
France S.A. and First Britannia Mezzanine Capital B.V.
**10(h) -- Facility Agreement dated March 31, 1994 between TLC Beatrice International (Irish) Holdings
Limited and Banque Paribas
**10(j) -- Employment Agreements between TLC Beatrice and Vincent P. O'Sullivan and Tayto, Ltd. and
Vincent P. O'Sullivan
**10(k) -- Employment Agreement between TLC Beatrice and Reynaldo P. Glover
*10(m) -- Employment Agreement between TLC Beatrice and Daniel Jux
**10(n) -- Stockholders' Agreement dated as of November 30, 1987, as amended, by and among the
Registrant, TLC Beatrice International Partners L.P. and certain other purchasers of Common
Stock
**10(o) -- 1992 Stock Incentive Plan of TLC Beatrice
**10(p) -- Common Stock Subscription Agreement dated as of November 30, 1987 among TLC Beatrice and
certain purchasers of its Common Stock
**10(q) -- Termination Agreement dated as of October 3, 1994 between TLC Beatrice and Jean S. Fugett,
Jr.
**10(r) -- Termination Agreement dated as of January 8, 1993 between TLC Beatrice and Albert M.
Fenster
**10(s) -- Termination Agreement dated as of June 30, 1994 between TLC Beatrice and David A. Guarino
**10(t) -- Termination Agreement dated as of June 30, 1994 between TLC Beatrice and W. Kevin Wright
***10(u) -- Indenture dated as of October 2, 1995, between TLC Beatrice and The Bank of New York, as
Trustee
***10(v) -- Facility Agreement among Banque Paribas, Smurfit Paribas Bank Limited and TLC Beatrice
International (Irish) Holdings Limited
***10(w) -- Pledge and Security Agreement dated as of October 2, 1995, among TLC Beatrice International
Holdings, Inc., TLC Beatrice International Finance, Inc. and The Bank of New York, as
collateral trustee and as indenture trustee
***10(x) -- Pledge Agreement dated as of October 2, 1995, between TLC Beatrice International Holdings
France S.A. and TLC Beatrice International Finance, Inc.
***10(y) -- Pledge Agreement dated October 2, 1995, among TLC Beatrice International Holdings, Inc.,
TLC Beatrice International Netherlands Holdings, B.V. and The Bank of New York, as
collateral trustee
****10(z) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and Mr.
Jean Ernest Desire Baud and Mr. Robert Henri Jean Baud.
****10(aa) -- Put Option dated June 8, 1995 between TLC Beatrice International Holdings France S.A. and
The Estate of Mr. Andre Albert Jacques Baud.
****10(bb) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Genevieve
Baud Fiat.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------- ----
<S> <C>
****10(cc) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Robert Baud.
****10(dd) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Bernard
Baud.
****10(ee) -- Letter Agreement dated July 26, 1989 among TLC Beatrice International Holdings, Inc. and
Genevieve Fiat Baud, Robert Baud and Bernard Baud
****10(ff) -- Letter Agreement dated June 8, 1995 among TLC Beatrice International Holdings, Inc.
Genevieve Fiat Baud, Robert Baud and Bernard Baud.
****10(gg) -- Put Option dated December 23, 1992 among TLC Beatrice International Holdings France S.A.
and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, Mr. Andre Albert Jacques Baud and
Mr. Robert Henri Jean Baud.
****10(hh) -- Put Option dated December 23, 1992 among TLC Beatrice International Holdings France S.A.
and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, Mr. Andre Albert Jacques Baud and
Mr. Robert Henri Jean Baud.
****10(ii) -- Amending Agreement dated June 8, 1995 among TLC Beatrice International Holdings France S.A.
and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, The Estate of Mr. Andre Albert
Jacques Baud and Mr. Robert Henri Jean Baud.
****10(jj) -- Put Option dated December 23, 1992 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(kk) -- Put Option dated December 23, 1992 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(ll) -- Amending Agreement dated June 8, 1995 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(mm) -- Put Option dated June 8, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
****10(nn) -- Put Option dated June 8, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
****10(oo) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and
Sibel, The Estate of Mr. Andre Albert Jacques Baud and Mr. Francois Louis Leon Fiat.
****10(pp) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and
Sibel, The Estate of Mr. Andre Albert Jacques Baud and Mr. Francois Louis Leon Fiat.
***10(qq) -- Amending Agreement dated September 5, 1995 among TLC Beatrice International Holdings France
S.A. and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, The Estate of Mr. Andre
Albert Jacques Baud and Mr. Robert Henri Jean Baud.
***10(rr) -- Amending Agreement dated September 5, 1995 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
***10(ss) -- Amending Agreement dated September 5, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
10(tt) -- TLC Beatrice International Holdings, Inc. 1996 Annual Incentive Plan
*10(uu) -- TLC Beatrice International Holdings, Inc. 1996 Long Term Incentive Stock Option Plan
*10(vv) -- Termination Agreement dated as of November 30, 1995 between the Registrant and Carl Brody
10(ww) -- Employment Agreement between TLC Beatrice and Peter Offermann
21 -- Subsidiaries of TLC Beatrice
**99(a) -- Complaint filed by Carlton Investments and Answer filed in response thereto by TLC Beatrice
International Holdings, Inc. in litigation titled Carlton Investments v. TLC Beatrice
International Holdings, Inc. et al., Supreme Court of the State of New York, County of New
York
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------- ----
<S> <C>
**99(b) -- Complaint filed by Carlton Investments in litigation titled Carlton Investments v. TLC
Beatrice International Holdings, Inc. et al., Chancery Court of the State of Delaware, New
Castle County
**99(c) -- First Amended Complaint filed by Carlton Investments in litigation titled Carlton
Investments v. TLC Beatrice International Holdings, Inc. et al., Chancery Court of the State
of Delaware, New Castle County
*99(d) -- Second Amended Complaint filed by Carlton Investments in litigation titled Carlton
Investments v. TLC Beatrice International Holdings, Inc. et al., Chancery Court of the State
of Delaware, New Castle County
</TABLE>
- ------------
* Filed with Registration Statement No. 33-80445 and incorporated herein by
reference.
** Filed with Registration Statement No. 33-88602 and incorporated herein by
reference.
*** Filed with Registration Statement No. 33-95922 and incorporated herein by
reference.
**** Confidential treatment requested for a portion of this exhibit previously
filed with Registration Statement No. 33-95922 and incorporated herein by
reference.
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------- ----
<S> <C> <C>
*3(a) -- Restated Certificate of Incorporation of TLC Beatrice
**3(b) -- By-Laws of TLC Beatrice
**4 -- Form of Certificate for Common Stock
**10(a) -- Beatrice International Pension Plan
**10(b) -- Beatrice International Savings Plan
**10(c) -- Beatrice International Supplemental Pension Plan
**10(d) -- Management Incentive Plan
**10(e) -- Beatrice International Severance Policy
**10(f) -- Loan Agreement dated as of October 21, 1994 among TLC Beatrice International Holdings
France S.A., Banque Paribas and a syndicate of Banks, with Banque Paribas as agent thereof
**10(g) -- Debenture Issue Contract dated October 21, 1994 between TLC Beatrice International Holdings
France S.A. and First Britannia Mezzanine Capital B.V.
**10(h) -- Facility Agreement dated March 31, 1994 between TLC Beatrice International (Irish) Holdings
Limited and Banque Paribas
**10(j) -- Employment Agreements between TLC Beatrice and Vincent P. O'Sullivan and Tayto, Ltd. and
Vincent P. O'Sullivan
**10(k) -- Employment Agreement between TLC Beatrice and Reynaldo P. Glover
*10(m) -- Employment Agreement between TLC Beatrice and Daniel Jux
**10(n) -- Stockholders' Agreement dated as of November 30, 1987, as amended, by and among the
Registrant, TLC Beatrice International Partners L.P. and certain other purchasers of Common
Stock
**10(o) -- 1992 Stock Incentive Plan of TLC Beatrice
**10(p) -- Common Stock Subscription Agreement dated as of November 30, 1987 among TLC Beatrice and
certain purchasers of its Common Stock
**10(q) -- Termination Agreement dated as of October 3, 1994 between TLC Beatrice and Jean S. Fugett,
Jr.
**10(r) -- Termination Agreement dated as of January 8, 1993 between TLC Beatrice and Albert M.
Fenster
**10(s) -- Termination Agreement dated as of June 30, 1994 between TLC Beatrice and David A. Guarino
**10(t) -- Termination Agreement dated as of June 30, 1994 between TLC Beatrice and W. Kevin Wright
***10(u) -- Indenture dated as of October 2, 1995, between TLC Beatrice and The Bank of New York, as
Trustee
***10(v) -- Facility Agreement among Banque Paribas, Smurfit Paribas Bank Limited and TLC Beatrice
International (Irish) Holdings Limited
***10(w) -- Pledge and Security Agreement dated as of October 2, 1995, among TLC Beatrice International
Holdings, Inc., TLC Beatrice International Finance, Inc. and The Bank of New York, as
collateral trustee and as indenture trustee
***10(x) -- Pledge Agreement dated as of October 2, 1995, between TLC Beatrice International Holdings
France S.A. and TLC Beatrice International Finance, Inc.
***10(y) -- Pledge Agreement dated October 2, 1995, among TLC Beatrice International Holdings, Inc.,
TLC Beatrice International Netherlands Holdings, B.V. and The Bank of New York, as
collateral trustee
****10(z) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and Mr.
Jean Ernest Desire Baud and Mr. Robert Henri Jean Baud.
****10(aa) -- Put Option dated June 8, 1995 between TLC Beatrice International Holdings France S.A. and
The Estate of Mr. Andre Albert Jacques Baud.
****10(bb) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Genevieve
Baud Fiat.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------- ----
<C> <S> <C>
****10(cc) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Robert Baud.
****10(dd) -- Retained Stock Agreement dated December 1, 1983 between Beatrice Foods Co. and Bernard
Baud.
****10(ee) -- Letter Agreement dated July 26, 1989 among TLC Beatrice International Holdings, Inc. and
Genevieve Fiat Baud, Robert Baud and Bernard Baud
****10(ff) -- Letter Agreement dated June 8, 1995 among TLC Beatrice International Holdings, Inc.
Genevieve Fiat Baud, Robert Baud and Bernard Baud.
****10(gg) -- Put Option dated December 23, 1992 among TLC Beatrice International Holdings France S.A.
and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, Mr. Andre Albert Jacques Baud and
Mr. Robert Henri Jean Baud.
****10(hh) -- Put Option dated December 23, 1992 among TLC Beatrice International Holdings France S.A.
and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, Mr. Andre Albert Jacques Baud and
Mr. Robert Henri Jean Baud.
****10(ii) -- Amending Agreement dated June 8, 1995 among TLC Beatrice International Holdings France S.A.
and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, The Estate of Mr. Andre Albert
Jacques Baud and Mr. Robert Henri Jean Baud.
****10(jj) -- Put Option dated December 23, 1992 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(kk) -- Put Option dated December 23, 1992 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(ll) -- Amending Agreement dated June 8, 1995 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
****10(mm) -- Put Option dated June 8, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
****10(nn) -- Put Option dated June 8, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
****10(oo) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and
Sibel, The Estate of Mr. Andre Albert Jacques Baud and Mr. Francois Louis Leon Fiat.
****10(pp) -- Put Option dated June 8, 1995 among TLC Beatrice International Holdings France S.A. and
Sibel, The Estate of Mr. Andre Albert Jacques Baud and Mr. Francois Louis Leon Fiat.
***10(qq) -- Amending Agreement dated September 5, 1995 among TLC Beatrice International Holdings France
S.A. and Sibel, Mr. Bernard Baud, Mr. Jean Ernest Desire Baud, The Estate of Mr. Andre
Albert Jacques Baud and Mr. Robert Henri Jean Baud.
***10(rr) -- Amending Agreement dated September 5, 1995 among International Foods (Paris) S.A. and R.B.
Participations, B.B. Participations, and G.B.F. Participations.
***10(ss) -- Amending Agreement dated September 5, 1995 among International Foods (Paris) S.A. and C.B.
Participations and D.B. Participations.
10(tt) -- TLC Beatrice International Holdings, Inc. 1996 Annual Incentive Plan
*10(uu) -- TLC Beatrice International Holdings, Inc. 1996 Long Term Incentive Stock Option Plan
*10(vv) -- Termination Agreement dated as of November 30, 1995 between the Registrant and Carl Brody
10(ww) -- Employment Agreement between TLC Beatrice and Peter Offermann
21 -- Subsidiaries of TLC Beatrice
**99(a) -- Complaint filed by Carlton Investments and Answer filed in response thereto by TLC Beatrice
International Holdings, Inc. in litigation titled Carlton Investments v. TLC Beatrice
International Holdings, Inc. et al., Supreme Court of the State of New York, County of New
York
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ---------------------------------------------------------------------------------------------- ----
<C> <S> <C>
**99(b) -- Complaint filed by Carlton Investments in litigation titled Carlton Investments v. TLC
Beatrice International Holdings, Inc. et al., Chancery Court of the State of Delaware, New
Castle County
**99(c) -- First Amended Complaint filed by Carlton Investments in litigation titled Carlton
Investments v. TLC Beatrice International Holdings, Inc. et al., Chancery Court of the State
of Delaware, New Castle County
*99(d) -- Second Amended Complaint filed by Carlton Investments in litigation titled Carlton
Investments v. TLC Beatrice International Holdings, Inc. et al., Chancery Court of the State
of Delaware, New Castle County
</TABLE>
- ------------
* Filed with Registration Statement No. 33-80445 and incorporated herein by
reference.
** Filed with Registration Statement No. 33-88602 and incorporated herein by
reference.
*** Filed with Registration Statement No. 33-95922 and incorporated herein by
reference.
**** Confidential treatment requested for a portion of this exhibit previously
filed with Registration Statement No. 33-95922 and incorporated herein by
reference.
<PAGE>
<PAGE>
EXHIBIT 10 (tt)
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
1996 ANNUAL INCENTIVE PLAN
(As Adopted Effective as of January 19, 1996)
(Final Plan)
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
1996 ANNUAL INCENTIVE PLAN
(As Adopted Effective as of January 19, 1996)
1. Effective Date and Purpose. TLC BEATRICE INTERNATIONAL HOLDINGS,
INC., a Delaware corporation (the "Company"), has established the TLC Beatrice
International Holdings, Inc. 1996 Annual Incentive Plan (the "Plan"), effective
as of January 19, 1996 (the "Effective Date"). The purpose of the Plan is to
promote the long-term financial performance of the Company by attracting,
retaining, and motivating officers, executives, managers and other key employees
of the Company and its subsidiaries by providing them with incentive
compensation opportunities. Each participant's award will take into account
corporate performance as well as, where appropriate, his or her own individual
performance.
2. Plan Administration. The Plan shall be administered by the
Compensation Committee of Board of Directors of the Company (the "Committee").
In addition to those rights, duties, and powers vested in the Committee by other
provisions of the Plan, the Committee shall have sole authority to:
(a) interpret the provisions of the Plan;
(b) adopt, amend and rescind rules and regulations for the
administration of the Plan; and
(c) make all other determinations deemed by it to be necessary or
desirable for the administration of the Plan.
The Committee shall exercise its authority only by a majority vote at a
meeting or by written consent of a majority without a meeting.
3. Eligibility. Only individuals who are (i) active employees of the
Company, its subsidiaries or affiliates ("Active Employees") and (ii) designated
as participants under the Plan for any Year (as defined below) in accordance
with the terms hereof, may participate in the Plan. Each Year, the Chief
Executive Officer of the Company ("CEO"), or such other persons as the CEO may
designate, shall provide to the Committee a list of those Active Employees
recommended for participation in the Plan for that Year ("Recommended
Employees"). The Committee shall review the list of Recommended Employees and
may make any additions and deletions to the list of Recommended Employees the
Committee deems appropriate. The Active Employees so approved by the Committee
shall become participants under the Plan for that Year ("Participants").
Notwithstanding the foregoing, the Committee may, at any time and from time to
time, add to or
<PAGE>
<PAGE>
delete individuals from the list of Participants in its sole discretion. As soon
as reasonably practicable, each person who is a Participant in the Plan for a
Year will be notified of such participation and his or her Individual Target
Award (as hereinafter defined). As used herein, the term "Year" shall mean the
fiscal year of the Company.
4. Individual Target Awards.
(a) At the beginning of each Year, an individual target award (an
"Individual Target Award") shall be established for each Participant.
Establishment of an Individual Target Award for a Participant for any
Year shall not imply or require that an Individual Target Award be set
for any subsequent Year and the amount of any actual award paid to any
Participant (an "Award") may be greater or less than the Individual
Target Award. The establishment of an Individual Target Award for a
Participant shall not affect the right of the Company, its subsidiaries
or affiliates to terminate, with or without cause, such Participant's
employment at any time.
(b) Individual Target Awards shall be a percentage of the
Participant's base salary reviewed and approved by the Committee in its
sole discretion. It is contemplated that Individual Target Awards will
vary by Company position and responsibility and shall range from ten
percent (10%) to seventy-five percent (75%) of base salary.
5. Basis of Awards. The payment of an Award will be based on the
following factors:
(a) the Company's achievement of targeted earnings from
operations (excluding non-recurring items) established at the beginning
of each Year by the CEO through the annual business planning process and
reviewed by the Committee (the "Target Earnings");
(b) the Company's achievement of any other special,
non-recurring, strategic or other performance factors which the CEO
shall deem appropriate and as approved by the Committee; and
(c) the individual performance of each Participant.
6. Award Determination.
(a) The maximum amount of funds to be made available by the
Company for the purpose of paying Awards (the "Maximum Available Award
Funds") shall be a percentage of the aggregate amount of all Individual
Target Awards established at the commencement of a Year (the "Incentive
Award Pool"), which percentage shall based on the Company's achievement
of the Target Earnings as set forth on the following schedule:
2
<PAGE>
<PAGE>
(i) if the Company's earnings are less than eighty percent
(80%) of the Target Earnings, the Maximum Available Award Funds
shall be zero (0); provided, however, that the CEO may request
approval from the Committee to make available up to thirty
percent (30%) of the Incentive Award Pool for purposes of paying
Awards at the discretion of the CEO;
(ii) if the Company's earnings are between eighty percent
(80%) and one hundred percent (100%) of the Target Earnings, the
Maximum Available Award Funds shall be an amount equal to (A) one
hundred percent (100%) of the Incentive Award Pool minus (B) the
percentage of the Incentive Award Pool determined by multiplying
2.5 by the percent by which the Company's earnings are less than
the Target Earnings;
(iii) if the Company's earnings exceed one hundred percent
(100%) and are less than or equal to one hundred twenty-five
percent (125%) of the Target Earnings, the Maximum Available
Award Funds shall be equal to (A) one hundred percent (100%) of
the Incentive Award Pool plus (B) the percentage of the Incentive
Award Pool determined by multiplying 2 by the percent by which
the Company's earnings exceed the Target Earnings; and
(iv) if the Company's earnings exceed one hundred
twenty-five percent (125%) of the Target Earnings, the Maximum
Available Award Funds shall be equal to one hundred fifty percent
(150%) of the Incentive Award Pool.
Notwithstanding the provisions of Section 6(a)(i)-(iv) above, in
any Year, in the event that the Company's earnings are equal to or
greater than eighty percent (80%) of the Target Earnings, the CEO may
request approval from the Committee and the Committee shall have the
right to make available to the CEO an additional amount of up to
twenty-five percent (25%) of the Incentive Award Pool, which amount
shall be a discretionary bonus pool payable at the discretion of the CEO
to any employee as an additional bonus to any Award otherwise payable
hereunder.
The percentage adjustment to the Incentive Award Pool under
Sections 6(a)(i)-(iv) above when combined with any discretionary
percentage increase to the Incentive Award Pool as provided in this
Section 6(a) is hereinafter referred to as the "Net Percentage
Adjustment."
(b) The amount of the Award to be paid to each Participant, if
any, shall be determined by the Committee as follows:
3
<PAGE>
<PAGE>
(i) first, the amount of each Participant's Individual
Target Award shall be multiplied by the Net Percentage Adjustment
as determined pursuant to Section 6(a);
(ii) second, the amount so determined may be further
increased or decreased, in the sole discretion of the Committee,
based on a Participant's individual performance during the Year;
and
(iii) third, the resulting amount may be further increased
or decreased, in the sole discretion of the Committee, based on
factors such as the Company's cash flow requirements,
restrictions under the Company's debt obligations or any other
factor the Committee deems appropriate.
(c) The combination of the determinations made pursuant to
Section 6(b) may result in a Participant receiving an Award in excess of
or less than such Participant's Individual Target Award or may reduce
such Award to zero; provided, however, that in no event shall the
aggregate of the Awards payable to all Participants in any Year exceed
the Maximum Available Award Funds for that Year. The determination and
approval of all Awards shall be in the sole discretion of the Committee
acting in accordance with the terms hereof.
7. Payment of Awards. Awards paid under this Plan shall be paid from the
general assets of the Company.
8. Employment at Year End. No Award for any given Year shall be made to
any Participant who is not an active employee of the Company or one of its
subsidiaries or affiliates at the end of such Year, except those Participants
whose active employment ended during such Year because of death, disability, or
retirement under one of the Company's retirement plans, or unless otherwise
agreed in writing by the Committee.
9. Assignment. The interest of any Participant under the Plan shall not
be assignable either by voluntary or involuntary assignment or by operation of
law.
10. Amendment. While the Company hopes to continue the Plan
indefinitely, it reserves the right in its Board of Directors to amend, suspend
or terminate the Plan or adopt a new plan at any time; provided, however, that
no such amendment shall retroactively and adversely affect the payment of any
Award previously made. In case any one or more of the provisions contained in
the Plan shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of the Plan, but the Plan shall be construed as if such
invalid, illegal or unenforceable provisions had never been contained herein.
4
<PAGE>
<PAGE>
11. Plan Not Contract of Employment. The Plan does not constitute a
contract of employment. Eligibility to receive, or receipt of, an Award under
the Plan does not give any individual the right to become or remain an employee
of the Company or any of its subsidiaries and does not limit in any way the
right of the Company to change the duties or responsibilities of any employee.
12. Governing Law. The Plan shall be governed by and construed in
accordance with the laws and court decisions of the State of New York.
5
<PAGE>
<PAGE>
EXHIBIT 10 (ww)
EMPLOYMENT AGREEMENT
This Agreement is entered into as of January 1, 1997 by and between TLC
BEATRICE INTERNATIONAL HOLDINGS, INC. (the "Company"), a corporation having its
principal place of business at 9 West 57th Street, New York, New York 10021 and
Peter Offermann ("Executive"), residing at 154 North Mountain Avenue, Montclair,
New Jersey 07042.
The Company and Executive, in consideration of the promises and mutual
agreements hereinafter contained, agree as follows:
1. Term of Employment. Executive shall be employed by the Company for a
term commencing January 1, 1997, and terminating on the third anniversary of
employment under this Agreement on January 1, 2000; provided, that on the first
and each succeeding anniversary of such employment, this Agreement shall be
extended by one (1) year, unless notice of termination has been given by either
party to this Agreement to the other prior to the first or applicable succeeding
anniversary date.
2. Duties of Executive. Executive shall serve as Executive Vice
President and Chief Financial Officer of the Company and shall perform the
duties and render the executive services on behalf of the Company as shall be
determined by the Company's Chairman or Chief Executive Officer. Executive
agrees to perform such duties and tender such services as determined by the
Chairman or Chief Executive Officer, competently, loyally and to the best of his
ability, devoting thereto substantially all his business time, energy and
attention to such duties. Executive's office shall be in New York, New York and
he may not be required without his consent to: (a) relocate or (b) travel in
excess of the amount reasonably required to perform his duties as Executive Vice
President and Chief Financial Officer.
3. Compensation of Executive
(A) As compensation for the services to be performed under this
Agreement, the Company shall pay Executive an annual base salary of Three
Hundred Thousand U.S. Dollars (U.S. $300,000.00) ("Base Salary"), payable in
monthly or semimonthly installments, on the same schedule as other Executives of
the Company.
(B) Executive shall also be paid after the end of each fiscal
year during the term of this Agreement, a bonus in accordance with an annual
incentive plan ("AIP"), targeted at no less than forty percent (40%) of Base
Salary, but subject to upward or downward adjustment in accordance with AIP
according to Executive's individual performance and financial performance
targets set out by the Company.
<PAGE>
<PAGE>
(C) Executive has been granted Stock Options ("Options") on
Eighty Thousand (80,000) shares of Common Stock of the Company. The Company and
Executive agree that the Options shall have a purchase price of Twenty-Five
Dollars ($25.00) per share and shall vest and become exercisable by Executive in
accordance with, and in all other respects be subject to, the terms of the
Company's 1996 Long-Term Incentive Stock Option Plan, and the Stock Option
Agreement between the parties hereto collectively the "Stock Option Plan").
Any and all other grants of Stock Options, Stock Appreciation
Rights , Phantom Stock Rights and any similar option compensation of Executive
shall be deemed null and void upon the execution of this Agreement.
(D) The Company shall pay Executive One Thousand Dollars
($1,000.00) a month during his employment under this Agreement as a car
allowance, or at its option provide Executive with a Cadillac or similarly
priced car for his use.
(E) During his employment under this Agreement, the Company shall
provide Executive such coverage under all fringe benefits programs maintained or
offered by the Company to its senior executives, including, but not limited to
those providing for tax and financial planning, group hospitalization, medical,
health and accident, and disability income insurance. The Company shall also
reimburse Executive for his membership in a Health Club. In addition, Executive
shall be entitled to annual vacations consistent with the Company's vacation
policy, but not less than four (4) weeks per year.
(F) The Company shall review Executive's compensation, including
Base Salary, bonus, stock options and additional perquisites and benefits, not
less frequently than annually on the anniversary of the hiring date of
Executive. Following such review, the Company may, in its discretion, increase
such compensation, but shall not decrease such compensation during the term of
this Agreement.
4. Termination of Employment.
(A) Executive's employment under this Agreement may be terminated
by the Company with or without cause. Such termination shall be effective on
written notice delivered personally to Executive or one (1) business day after
it is sent to him by registered or certified mail.
(B) Termination for Cause. Executive's employment under this
Agreement may be terminated by the Company at any time for cause. Cause shall
include, but not be limited to: (i) conviction of any felony involving moral
turpitude or dishonesty; (ii) conviction of the unlawful sale, trafficking in or
use of controlled drugs or substances, or, regardless of arrest or conviction,
the illegal use or sale of controlled drugs or substances, or being under the
influence thereof while at work; (iii) gross neglect or grossly incompetent
performance of Executive's duties, provided that Executive has been given notice
of such cause and at least sixty (60) days to cure such performance problems;
(iv) Executive's death; (v) Executive's disability rendering him unable for a
continuous period of three (3) consecutive months to perform his duties for the
2
<PAGE>
<PAGE>
Company hereunder; (vi) willful dishonesty in dealings with, or on behalf of the
Company or its customers or suppliers or willful violation of Executive's
obligations to the Company; (vii) Executive's material breach of his
confidentiality obligations under this Agreement; or (viii) the expiration of
the term of Executive's employment under this Agreement.
In the event of a termination of this Agreement by the Company
for any cause specified above, Executive's further compensation hereunder shall
be limited to accrued but unpaid Base Salary, unpaid amounts for reimbursable
expenses; and Executive shall have no other or further rights under this
Agreement.
(C) Termination Without Cause. In the event of the Company's
termination of this Agreement for any reason other than for cause, Executive
shall be entitled to receive in addition to the amounts described in Paragraph
4(B) above (but in lieu of any other compensation under this Agreement): (i)
continuation, on the same periodic payment basis as previously in effect for
Executive, of his Base Salary following the date of Executive's termination for
twenty-four (24) months or through the conclusion of the term of this Agreement,
whichever is longer; (ii) an amount equal to Executive's Target Bonus for the
year in which his termination occurs multiplied by a fraction derived by
dividing (x) the number of days elapsed between January 1 of such year and the
date of Executive's termination, by (y) 365; and (iii) an additional payment on
a date mutually agreeable to the parties to this Agreement, but no later than
eighteen (18) months following the termination of Executive's employment, of an
amount equal to the pro-rated Target Bonus Executive will receive for the year
in which Executive's termination occurs. Payments of the amounts set forth in
this Paragraph 4 (C) shall be made by the Company subject to offset by any
amounts owed by Executive to the Company for prereimbursed expenses, loans,
advances, as well as all lawful withholdings and deductions to which all
payments under this Agreement are subject; and may, at the sole discretion of
the Company, be conditioned upon Executive's executing a written release of the
Company and its affiliates and their employees and owners from any and all
claims arising out of this Agreement and his employment and the termination
thereof, in a form suitable to the Company excluding only: the Company's
continuing obligations under this Agreement; Executive's rights under COBRA; and
his vested rights under any savings or retirement plan subject to ERISA. At the
Company's option it may make a lump sum payment to Executive of any unpaid
portion of the applicable period specified above. Payments made under this
Paragraph 4(C) shall not be matched under the Company's 401(k) Plan. No part of
the continuation period nor any payments made pursuant to this Paragraph 4(c)
shall be treated as employment by the Company or compensation under any
retirement, pension, savings or any other employee benefit plan as defined in
ERISA.
(D) Resignation By Executive. Executive agrees to give the
Company written notice of his resignation. Such notice to be effective shall be
delivered personally to the Chairman at least ninety (90) days in advance of the
last day of Executive's employment. In the event of Executive's resignation, the
Company's sole obligation under this Agreement shall be to continue for the
notice period: (i) to pay Executive Executive's Base Salary (at the rate in
effect at the time notice is given); and (ii) the fringe benefits described in
paragraph 3(E) above.
3
<PAGE>
<PAGE>
(E) Death Benefit. In the event Executive dies during the term of
this Agreement the Company shall continue to pay to Executive's estate his Base
Salary for a period of two (2) months.
5. Confidential Information. Executive acknowledges the importance of
the Company's arrangements with its employees, customers and suppliers and he
further acknowledges that the nature of these arrangements and other information
concerning the business, processes, policies and practices of the Company are
trade secrets and constitute valuable assets of the Company. Executive agrees to
keep secret and retain in the strictest confidence all confidential matters of
the Company, including, without limitation, trade secrets, trade "know-how,
customer lists, internal procedures, forms, records, business plans, financial
information, information relating to corporate opportunities and any other
confidential or proprietary information bearing upon or relating to the business
and affairs of the Company, or its suppliers or customers learned by Executive
during his employment, and not to disclose such information, or documents
containing such information, to anyone outside of the Company either during or
after his employment with the Company, except: as required in the course of
performing his duties hereunder, which duties include in the interest of the
Company discussions with investors, investment bankers and financial
institutions; as required by law; with regard to such information which becomes
generally available to the public other than as a result of the violation of
this Agreement; or with the Company's express written consent. Notwithstanding
the foregoing, the company agrees that the agreements, conditions, and
restrictions contained in this Paragraph 5 shall not apply to Information which
(i) is currently or subsequently becomes available to the public or (ii) is made
known through no fault of Executive or in spite of Executive having exercised
reasonable care to safeguard the same. Executive agrees upon request to deliver
promptly to the Company upon the termination of his employment by the Company,
or at any time the Chairman may so request, all memoranda, notes, records,
reports and other documents and computer storage media (and all copies thereof)
which contain such confidential or proprietary information relating to the
Company's business under his control.
6. Consequences of Termination.
(A) During the one-year period following Executive's employment
under this Agreement, Executive will not solicit or attempt to solicit from the
Company, for the purpose of employment, any person who is then or has within six
(6) months prior thereto, been an officer, manager or employee of the Company,
whether or not such persons would commit a breach of a contract of employment,
by reason of leaving the service of the Company.
(B) During the one-year period following the termination of
Executive's employment under this Agreement, Executive will not, individually,
or on behalf of any other person or entity, in any manner materially adversely
affecting the Company engage in the business of a merchant, factor, trader,
wholesaler or retailer, or solicit the business of, or in any other manner deal
with, any person or entity which is then or has at any time during the preceding
one (1) year been a purchaser from or supplier to the Company.
4
<PAGE>
<PAGE>
(C) During the one-year period following the termination of
Executive's employment under this Agreement, Executive will not be employed by,
work for, advise, consult with, serve or assist (whether as principal, agent,
investor, lender, officer, director, employee, consultant, partner, advisor or
otherwise) any person or entity (i) engaged in the food distribution business in
any geographic area or territory in Europe or Asia in which the Company is then
conducting a trade or business in the same line of business, or (ii) which is
reviewing or proposing to acquire a food distribution business which the Company
or any of its affiliates had, during Executive's employment, reviewed or
considered for acquisition; or take advantage of any then existing corporate
opportunity of the Company; provided, however, that nothing herein contained
shall prevent Executive from purchasing and owning up to one percent (1%) of the
stock of any company or business whose securities are actively traded on any
securities exchange or the acquisition of which was, before or after such
termination, approved by the Chairman. In connection with this subparagraph, it
is acknowledged and understood by Executive that the Company is engaged in
international merchandising and business operations and that the scope of its
business, concerning which Executive is expected to develop intimate familiarity
extends throughout Asia and Europe.
(D) Executive acknowledges and agrees that the damages caused by
Executive's breach of Paragraphs 5 or 6 of this Agreement will be irreparable
and may not be quantifiable. Therefore, Executive agrees that his obligations
pursuant to Paragraphs 5 and 6 of this Agreement shall be specifically
enforceable in, at the Company's option, a court of competent jurisdiction or
before the American Arbitration Association (New York office), as set forth in
Paragraph 8 hereof, and that the Company shall, without being required to post
any bond or security, be entitled to obtain temporary relief and/or an
injunction against Executive's breach or threatened breach of the provisions of
Paragraph 5 or 6 of this Agreement.
(E) Upon the termination of his employment under this Agreement,
Executive shall be deemed to have resigned as a director or officer of the
Company and any subsidiaries or affiliates of the Company in which he holds such
positions.
7. Change of Control.
(A) If there is a "change of control" of the Company Executive
may, at his option, upon thirty (30) days written notice given to the Company
within one hundred eighty (180) days after a "change of control," terminate this
Agreement and receive the amount equal to that which he would have received if
he had been terminated other than for cause. For purposes hereof "change of
control" is hereby defined to mean: (i) the sale, conveyance or other
disposition of all or a major portion of the assets of the Company (or successor
organization); (ii) any transaction or series of transactions (as a result of a
tender offer, merger, consolidation or otherwise) that results in, or that is in
connection with, any person, entity or group acquiring or obtaining the right to
acquire, in one or more transactions, "beneficial ownership" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of
such percentage of the aggregate voting power of any class or common stock of
the company (or successor organization) as shall exceed fifty percent (50%) of
such aggregate voting power; (iii) the Company's Board of Directors elects or
appoints a person to serve as either the Chairman or the
5
<PAGE>
<PAGE>
Chief Executive Officer of the Company who is not presently occupying that
position, except during a disability of the current Chairman or Chief Executive
Officer for a period not exceeding one hundred eighty (180) days.
(B) In the event that Executive would, except for this
subparagraph 7(B), be subject to a tax pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended, (the "Code") or any successor provision that
may be in effect, as a result of "parachute payments" (as that term is defined
in Section 280G(b)(2)(A) and (d)(3) of the Code) made pursuant to this
Agreement, or a deduction would not be allowed to the Company for all or any
part of such payments by reason of Section 280G(a) of the Code, or any successor
provision that may be in effect, such payments shall be reduced, eliminated, or
postponed in such amounts as are required to reduce the aggregate "present
value" (as that term is defined in Section 280G(d)(4) of the Code) of such
payments to one dollar less than an amount equal to three times Executive's
"base amount," (as that term is defined in Section 280G(b)(3)(a) and (d)(1) and
(2) of the Code) to the end that Executive is not subject to tax pursuant to
such Section 4999 and no deduction is disallowed by reason of such Section
280G(a). To achieve such required reduction in aggregate present value,
Executive shall determine what item(s) constituting the parachute payments shall
be reduced, eliminated or postponed, the amount of each such reduction,
elimination or postponement, and the period of each such postponement. To enable
Executive to make such determination, the Company shall be required to provide
Executive with such information as is reasonably necessary for such
determination.
(C) Prior to the making of any payment under paragraph 4(C)
above, either party may request a determination as to whether such payment would
constitute a "parachute payment," and, if so, the amount by which the payment
must be reduced in accordance herewith. If such a determination is requested, it
shall be made promptly, at the Company's expense, by independent tax counsel
selected by the Company and approved by Executive (which approval shall not
unreasonably be withheld), and such determination shall be conclusive and
binding on the parties. The Company shall provide such information as such
counsel may reasonably request, and such counsel may engage accountants or other
experts at the Company's expense to the extent that they deem necessary or
advisable to enable them to reach a determination. The term "independent tax
counsel," as used herein, shall mean a law firm of recognized expertise in
federal income tax matters that has not previously advised or represented either
party. It is hereby agreed that neither the Company nor Executive shall engage
any such firm as counsel for any purpose other than to make the determination
provided for herein and/or to represent or advise such party in connection with
a dispute or audit by the Internal Revenue Service concerning this issue for
three years following such firm's announcement of its determination.
8. Resolution of Disputes. The parties recognize that disputes may arise
concerning this Agreement or with respect to Executive's employment or
termination of employment under this Agreement or any law. The parties agree
that should any such claim, controversy or dispute arise, the parties will use
their best efforts to resolve such dispute informally, between them. In the
event that a claim, controversy or dispute between the Company and Executive
cannot be resolved within thirty (30) days after either party first gives notice
in writing that a dispute exists, either party may then refer the matter to
arbitration before the American Arbitration Association
6
<PAGE>
<PAGE>
(New York office) pursuant to its rules for resolution of employment disputes,
including, but not limited to, its rules allowing for the rendering of awards ex
parte; provided, that nothing contained herein shall require the Company,
pending resolution of any dispute, to continue Executive's employment following
its notice to him of the termination of his employment.
The parties hereby agree that, except for claims by the Company pursuant
to Paragraphs 5 and 6 hereof, referral to arbitration shall be the sole recourse
of either party under this Agreement with respect to any claim, controversy or
dispute between them.
With respect to disputes concerning Paragraphs 5 and/or 6 hereof, the
parties agree that provisional or injunctive relief in connection with disputes
arising under with either Paragraph 5 or 6 may be sought, at the Company's
option, in a court of competent jurisdiction or through arbitration before the
American Arbitration Association. Regardless of whether provisional/injunctive
relief is sought by the Company in a court of competent jurisdiction or through
arbitration, arbitration before the American Arbitration Association (New York
office) pursuant to its rules for resolution of employment disputes shall be the
sole recourse for the ultimate determination of the substantive issues of those
disputes.
The arbitration and/or litigation shall take place in New York City. All
parties concede to personal jurisdiction in New York and hereby waive any
jurisdictional defenses as to New York law and venue.
9. This Agreement constitutes the entire agreement between the parties
and contains all agreements between them, including, but not limited to those
relating to the terms and conditions of Executive's employment and his
compensation. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied in this
Agreement, and that no agreement, statement or promise not contained in this
Agreement shall be valid or binding. This Agreement also supersedes any and all
other agreements and contacts between them whether verbal or in writing.
10. Except as otherwise specifically provided, no amendment or
modification of this Agreement shall be valid or effective, unless it shall have
been reduced to writing and signed by the Chairman and Executive.
11. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect its other provisions, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision had
been omitted.
12. Notice to the Company shall be given to:
TLC Beatrice International Holdings, Inc.
9 West 57th Street
New York, New York 10019;
Attention of Mrs. Loida Lewis
7
<PAGE>
<PAGE>
Notice to Executive shall be given to:
Peter Offermann
154 North Mountain Avenue
Montclair, New Jersey 07042
All notices shall be in writing. Any party may send any notice, claim, demand or
other communication hereunder to the intended recipient at the address set forth
above using personal delivery, courier, messenger service, telecopy, telex,
ordinary mail or electronic mail, but no such notice shall be deemed to have
been duly given until it is received, unless the party intentionally makes
itself unavailable for service. Any party may change the address to which
notices are to be delivered by giving notice in the manner herein set forth.
13. This Agreement shall be construed and enforced according to the
laws of the State of New York.
IN WITNESS WHEREOF, the undersigned parties have duly executed this
Agreement as of the date first above written.
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
By:
----------------------------------------
Title: Chairman
--------------------------------------------
Peter Offermann
8
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR COUNTRY
CORPORATE NAME OF INCORPORATION
--------------- -----------------
<S> <C>
TLC Beatrice International Finance, Inc. Delaware
TLC Beatrice International Acquisition I, Inc. Delaware
BCI Beatrice Worldwide, Inc. Delaware
B.F. Finanziaria S.p.A. (98.4% owned) Italy
Beatrice Worldwide, Inc. (43.88% owned) Delaware
Beatrichol S.A. (43.3% owned) Spain
Bireley's California Orange (Thailand) Co. Ltd. (87.9% owned) Thailand
TLC Franprix, Inc. Delaware
B.F. Finanziaria S.p.A. (1.6% owned) Italy
Helados La Menorquina S.A. (65% owned) Spain
Gelados La Menorquina, Limitada Portugal
Interglas S.A. (65% owned) Spain
Helados Canarios S.A. Spain
Mantecados Payco, Inc. Delaware
Sunco N.V. (60% owned) Belgium
Saint Alban Boissons, S.A. (25% owned) France
WISUCO, N.V. (50% owned) Belgium
BCI Conservia Campofrio, Inc. Delaware
Beatrice Worldwide, Inc. (35.71% owned) Delaware
Beatrice Worldwide, Inc. (20.41% owned) Delaware
Sunco N.V. (20% owned) Belgium
FD International Holdings, Inc. Delaware
Geimex Holdings, Inc. Delaware
TLC Beatrice International Acquisition II, Inc. Delaware
TLC Beatrice International Holdings France S.A. France
Beatrice International Food (France) S.A. France
*Minimarche Group (74% owned) France
Boucheries de France S.A.R.L. (74% owned) France
Boucheries de L'lle de France S.A.R.L. (74% owned) France
Boucheries de la Region Parisienne S.A.R.L. (74% owned) France
Boissons du Monde - H.P. S.A. France
Distribution Leader Price S.A. (51% owned) France
Etablissements Baud S.A. (97% owned) France
International Foods (Paris) S.A. France
*Retail Leader Price Group (51% owned) France
*Leadis Group (51% owned) France
RLP Investissement S.A. (51% owned) France
*RLP Investment Group France
*Distrileader Group France
Sedipro S.A. (97% owned) France
Societe Generale de Logistique S.A. (51% owned) France
</TABLE>
- ----------
*See attached schedule for listing of Minimarche, Retail Leader Price, Leadis,
Distrileader and RLP Investment Group companies.
Note: Ownership is 100% unless otherwise noted.
<PAGE>
<PAGE>
<TABLE>
<S> <C>
TLC Beatrice International Irish Holdings, Ltd. Ireland
Tayto, Ltd. (97.4 % owned) Ireland
Eurosnax International Ltd. Ireland
Eurosnax (U.K.) Ltd. United Kingdom
King Foods Ltd. Ireland
King Foods (Export) Ltd. (97.4% owned) Ireland
King Kandy Ltd. Ireland
King Snacks Ltd. Northern Ireland
Potato Distributors Ltd. Ireland
Sooner Foods (Ireland) Ltd. Ireland
TLC Beatrice International Netherlands Holdings, B.V. Netherlands
Beatrice Nederland B.V. Netherlands
Hannah Beheer B.V. Netherlands
Frisdranken Industrie Winters B.V. Netherlands
Boissons St. Alban, S.A. (75% owned) France
Bronwater Import Kantoor Eindhoven B.V. Netherlands
Atlantik GmbH Germany
WISUCO, N.V. (50% owned) Belgium
Beatrichol S.A. (49.2% owned)
TLC Transport, Inc. Delaware
TLC Transport International, Inc. Delaware
MIMIMARCHE GROUP
Mimimarche Haut de Seine S.A.R.L.
Mimimarche Essonne S.A.R.L.
Societe Parisienne de Supermarches S.A.
Minimarche Marne S.N.C.
Minimarche Paris S.N.C.
Ste. Orteaux S.A.R.L. (51% owned)
Minimarche Seine et Marne S.A.R.L.
Minimarche Seine St. Denis S.A.R.L.
Ste. De Magasins Economiques Houilles Orsay S.A.
Minimarche Val d'Oise S.N.C.
Minimarche Val de Marne, S.A.R.L.
Paris Libre Service S.AR.L.
Minimarche Yvelines S.A.R.L.
Societe de Dist. D'ile de France S.A.R.L.
Societe de Dist. Parisienne S.A.R.L.
Sogicrimee S.A.R.L.
Societe de Gestion De Supermarches S.A.R.L.
Parmentlier Alimentaire S.A.R.L.
Soceite de Supermarches Moulin Chennevieres S.N.C.
Superette Ile de France S.A.R.L.
Superette Paris S.N.C.
Superette Seine et Marne S.A.R.L.
Superette Seine St. Denis S.A.R.L.
Superette Yvelines S.A.R.L.
Gecoma S.N.C.
Republique Alimentaire S.A.R.L.
Versailles Distribution S.A.R.L.
PA Gestion S.A.R.L.
</TABLE>
<PAGE>
<PAGE>
Annessimes S.N.C.
Laurry Distribution S.N.C
RETAIL LEADER PRICE GROUP
Abisko S.A.R.L.
Frais Discount Service S.A.R.L.
Leader Price Alsace-Lorraine S.N.C.
Leader Price Artois S.A.R.L.
Leader Price Bassin Parisienne S.N.C.
Leader Price Brie S.N.C.
Leader Price Champagne S.N.C.
Leader Price Est. S.N.C.
Leader Price Francilienne S.N.C.
Leader Price Grand Est. S.N.C
Leader Price Ile de France S.A.R.L.
Leader Price Lorraine S.A.R.L.
Leader Price Lutece S.N.C.
Leader Price Nord S.N.C.
Leader Price Normandie S.N.C.
Leader Price Ouest S.A.R.L.
Leader Price Paris S.A.R.L.
Leader Price Paris Est. S.N.C.
Leader Price Paris Sud S.N.C.
Leader Price Pays De Loire S.N.C.
Leader Price Picardie S.N.C.
Leader Price Region Parisienne S.A.R.L.
Leader Price Sud S.A.R.L.
Leader Price Val de Loire S.N.C.
Leader Price Val de Seine S.A.R.L.
Suresnes Distribution S.A.
RLP Gestion S.N.C.
LEADIS GROUP
Lecourbe Disribution S.A.R.L.
Leadis Armor S.N.C.
Leadis Bretagne S.N.C.
Leadis Francile Nord S.N.C.
Leadis Normandy S.N.C.
Leadis Ile De France S.N.C.
Leadis Ouest S.N.C.
Leadis Paris Sud S.N.C.
RLP INVESTMENT GROUP
Bas Rhin Distribution S.A.R.L. (26% owned)
Bladis H.D. S.A.R.L. (26% owned)
Blafind S.A.R.L. (26% owned)
Bonneuil Discount S.A.R.L. (51% owned)
Bouscadis H.D. S.A.R.L. (26% owned)
CA Distribution S.A.R.L. (26% owned)
Clignancourt Discount S.A. (51% owned)
Casteleader S.A. (34% owned)
<PAGE>
<PAGE>
Di Dax S.A. (34% owned)
Disfrais S.A.R.L. (26% owned)
Districoq S.A.R.L. (26% owned)
Distrimar S.A. (34% owned)
Epinay Discount S.A.R.L. (51% owned)
Financiere du Cers S.A.R.L.(26% owned)
Franche Comte Distribution S.A.R.L. (26% owned)
Fabas Distribution S.A. (34% owned)
Fleurance Distribution S.A.
Ferlead S.A.R.L. (51% owned)
Fumedis H.D. S.A.R.L. (26% owned)
Jondis H.D. S.A.R.L. (26% owned)
Juan Leader S.A.R.L. (49% owned)
Lattes Discount S.A.R.L. (26% owned)
Leader Price Arcueil S.A.R.L. (51% owned)
Leader Price Charenton S.A.R.L. (51% owned)
Leader Price Choisy S.A.R.L. (51% owned)
Leader Price Mougins S.A.R.L. (49% owned)
Leader Price Super Charonne S.A.R.L. (51% owned)
Leader Distribution Saone S.A.R.L. (26% owned)
Leader Distribution Essonne S.A.R.L. (26% owned)
Ste. Malemortaise de Distribution S.A.R.L. (26% owned)
Millau Discount S.A.R.L. (26% owned)
Montauban Discount S.A.R.L. (26% owned)
Montaub S.A.R.L. (26% owned)
Palaidis S.A. (51% owned)
SCI Palim S.C.I.
Pavidas S.A. (34% owned)
Romainville Discount S.A. (51% owned)
S.D.J. Distribution S.A.R.L. (26% owned)
Sobay H.D. S.A.R.L. (26% owned)
Sobepal H.D. S.A. (34% owned)
Sobo H.D. S.A. (34% owned)
Socar S.A.R.L. (26% owned)
Sodan H.D. S.A.R.L. (26% owned)
Sodanor S.A.R.L. (26% owned)
Sodias S.A. (34% owned)
Sodip S.A.R.L. (26% owned)
Sodipa H.D. S.A. (34% owned)
Sodito S.A.R.L. (26% owned)
Sogir H.D. S.A.R.L.(26% owned)
Solandes H.D. S.A.R.L (26% owned)
Soliac H.D. S.A.R.L. (26% owned)
Solibou H.D. S.A.R.L. (26% owned)
Somedard H.D. S.A.R.L. (26% owned)
Somur H.D. S.A.R.L. (26% owned)
Sopa H.D. S.A. (34% owned)
Sopor H.D. S.A.R.L. (26% owned)
Sorfind S.A.R.L. (26% owned)
Sotarn H.D. S.A.R.L. (26% owned)
Soville H.D. S.A.R.L. (26% owned)
Ste. de Distribution de St. Ouen S.A.R.L. (74% owned)
Ste. de Magasins Eonomiques de Meudon S.A.R.L. (51% owned)
Supermarche Drancy S.A. (51% owned)
<PAGE>
<PAGE>
Villette Discount S.A. (51% owned)
DISTRILEADER GROUP
Bertanne S.A. (51% owned)
Distrileader Allier S.A.R.L. (51% owned)
Distrileader Auvergne S.A.R.L. (51% owned)
Distrileader Centre Est. S.A.R.L (51% owned)
Distrileader Loire S.A.R.L. (51% owned)
Distrileader Nord Centre S.A.R.L. (51% owned)
Distrileader Rhone S.A.R.L. (51% owned)
Distileader Savoie S.A.R.L. (51% owned)
Distrileader Sud S.A.R.L. (51% owned)
Distrileader Sud Est. S.A.R.L. (51% owned)
Distrileader Var S.A.R.L.(51% owned)
HD Avignon S.A.R.L. (51% owned)
Lecogest S.A.R.L. (50.2% owned)
