<PAGE>
<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________________ TO ______________________
COMMISSION FILE NUMBER 33-68992
------------------------
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 13-3438814
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
9 WEST 57TH STREET, NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-756-8900
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of May 6, 1997 the
registrant had 9,138,465 shares of common stock outstanding.
________________________________________________________________________________
<PAGE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I -- Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1997 (unaudited) and December 31, 1996....................... 3
Consolidated Statements of Income for the three-month periods ended March 31, 1997 and 1996
(unaudited).......................................................................................... 4
Consolidated Statements of Cash Flows for the three-month periods ended March 31, 1997 and 1996
(unaudited).......................................................................................... 5
Notes to Consolidated Financial Statements............................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 9
Part II -- Other Information
Item 1. Legal Proceedings.................................................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders................................................ 14
Item 6. Exhibits and Reports on Form 8-K................................................................... 14
Signatures................................................................................................. 15
</TABLE>
2
<PAGE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 84,454 $ 95,784
Receivables, net................................................................ 157,015 150,817
Inventories, net................................................................ 116,030 117,461
Other current assets............................................................ 16,780 11,036
----------- ------------
Total current assets....................................................... 374,279 375,098
Property, plant and equipment, net................................................... 245,621 263,859
Goodwill, net of accumulated amortization of $21,070 and $23,539 at March 31, 1997
and December 31, 1996, respectively................................................ 82,530 90,509
Other noncurrent assets.............................................................. 58,370 52,238
----------- ------------
Total assets............................................................... $ 760,800 $781,704
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt........................... $ 53,600 $ 34,095
Accounts payable................................................................ 222,510 226,827
Taxes currently payable......................................................... 20,243 18,563
Accrued expenses................................................................ 45,146 58,174
----------- ------------
Total current liabilities.................................................. 341,499 337,659
Long-term debt....................................................................... 227,473 229,492
Deferred income taxes................................................................ 3,865 7,409
Minority interests................................................................... 70,595 77,447
Other noncurrent liabilities......................................................... 30,630 23,487
----------- ------------
Total liabilities.......................................................... 674,062 675,494
----------- ------------
Commitments and contingencies........................................................ -- --
Stockholders' equity:
Preferred stock, $.01 par value; authorized 2,500,000 shares; none
outstanding.................................................................... -- --
Common stock, $.01 par value; authorized 11,000,000 shares; issued 9,750,000
shares......................................................................... 97 97
Additional paid-in capital...................................................... 9,653 9,653
Treasury stock (611,535 shares)................................................. (23,200) (23,200)
Retained earnings............................................................... 156,476 157,148
Cumulative foreign currency translation adjustment.............................. (56,288) (37,488)
----------- ------------
Total stockholders' equity................................................. 86,738 106,210
----------- ------------
Total liabilities and stockholders' equity................................. $ 760,800 $781,704
----------- ------------
----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales........................................................................... $ 513,737 $ 530,390
----------- -----------
Operating expenses:
Cost of sales.................................................................. 424,244 442,204
Selling, general and administrative expenses................................... 72,940 73,440
Amortization of intangible assets.............................................. 1,034 731
----------- -----------
Total operating expenses.................................................. 498,218 516,375
----------- -----------
Operating income.................................................................... 15,519 14,015
----------- -----------
Other income (expense):
Interest income................................................................ 1,339 1,992
Interest expense............................................................... (6,897) (8,733)
Other income................................................................... 272 157
----------- -----------
Total other income (expense).............................................. (5,286) (6,584)
----------- -----------
Income from operations before income taxes and minority interests in earnings....... 10,233 7,431
Income taxes........................................................................ (4,179) (2,071)
Minority interests in earnings...................................................... (4,716) (4,120)
----------- -----------
Net income.......................................................................... $ 1,338 $ 1,240
----------- -----------
----------- -----------
Net income per common share......................................................... $.15 $.14
----------- -----------
----------- -----------
Weighted average number of common shares outstanding................................ 9,138 9,138
----------- -----------
----------- -----------
Cash dividends per common share..................................................... $ .22 $ .11
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 1,338 $ 1,240
Items not affecting cash:
Depreciation and amortization of intangible assets................................ 10,306 8,930
Minority interests in earnings, net............................................... (5,809) 4,120
Deferred income taxes and other items, net........................................ (4,286) (5,914)
Changes in working capital:
Receivables....................................................................... (18,300) (20,227)
Inventories....................................................................... (8,105) 656
Accounts payable and accrued expenses............................................. 3,829 (14,353)
Taxes payable..................................................................... 3,301 3,322
Other current assets.............................................................. (6,768) (2,192)
----------- -----------
Net cash used in operating activities........................................ (24,494) (24,418)
----------- -----------
Cash flows from investing activities:
Expenditures for property, plant and equipment.................................... (13,125) (17,918)
Proceeds from disposal of assets.................................................. 6,801 1,147
Other investments................................................................. (376) (468)
----------- -----------
Net cash used in investing activities........................................ (6,700) (17,239)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......................................... 7,973 3,931
Repayment of long-term bank borrowings............................................ (4,915) (3,190)
Net proceeds from short-term debt................................................. 21,523 3,983
Common stock dividends............................................................ (2,010) (1,005)
----------- -----------
Net cash provided by financing activities.................................... 22,571 3,719
----------- -----------
Foreign exchange effects on cash and cash equivalents.................................. (2,707) 214
----------- -----------
Net decrease in cash and cash equivalents.............................................. (11,330) (37,724)
Cash and cash equivalents at beginning of the period................................... 95,784 120,279
----------- -----------
Cash and cash equivalents at end of the period......................................... $ 84,454 $ 82,555
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................................................... $ 12,241 $ 3,126
----------- -----------
----------- -----------
Income taxes...................................................................... $ 12,765 $ 3,625
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
1. BUSINESS DESCRIPTION
As of March 31, 1997, TLC Beatrice International Holdings, Inc. ('TLC
Beatrice' and together with its subsidiaries, the 'Company') and its
subsidiaries was comprised of 11 operating entities and their subsidiaries
located principally in western Europe. The Company's operating entities are
engaged in the wholesale and retail distribution of food, groceries, household
products and beverages, and the manufacture and marketing of ice cream and
desserts, snacks, and beverages. Sales of these products are made to customers
principally in western Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements as of March 31, 1997 and for
the three-month periods ended March 31, 1997 and 1996 have not been audited;
however, in the opinion of management, all adjustments, which consist of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for such interim periods, are included. The results of
operations for an interim period are not necessarily indicative of results for
an entire year. The Company's Food Distribution segment shows relatively even
sales and operating income throughout the year. The Grocery Products segment
shows greater seasonality, with the majority of sales and operating income
earned during the second and third quarters of the year. For further information
refer to the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
Net income per common share is computed by dividing the net income
applicable to common stockholders by the weighted average number of common
shares outstanding during the period. The weighted average number of shares
outstanding was 9,138,465 for the three-month periods ended March 31, 1997 and
1996.
3. INVENTORIES
Inventories consisted of the following components:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................................................. $ 11,895 $ 10,428
Work in process............................................................ 110 78
Finished goods............................................................. 104,707 107,648
----------- ------------
116,712 118,154
Less inventory reserves.................................................... (682) (693)
----------- ------------
Total................................................................. $ 116,030 $117,461
----------- ------------
----------- ------------
</TABLE>
4. ACCUMULATED DEPRECIATION
At March 31, 1997 and December 31, 1996, accumulated depreciation on
property, plant and equipment amounted to $187,436,000 and $189,536,000,
respectively.
5. INCOME TAXES
Income tax expense is comprised primarily of foreign taxes on income. The
effective tax rate therefore differs from the U.S. Federal statutory rate as a
result of differences among U.S. and foreign rates, losses of certain companies
having no current tax benefits, credits allowable against foreign taxes and
nondeductible expenses such as goodwill amortization.
6. LITIGATION
On May 20, 1994, Carlton Investments ('Carlton') filed a complaint against
TLC Beatrice and the executrices of the Estate of Reginald F. Lewis ('Lewis
Estate') in the Supreme Court of the State of New York, County of New York,
titled Carlton Investments v. TLC Beatrice International Holdings, Inc., et al.
Carlton alleges that TLC Beatrice breached the Stockholders' Agreement by paying
a $22.1
6
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<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
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 controlled by or affiliated with
him between 1987 and 1993. Named as defendants are the executrices of the Lewis
Estate, several entities allegedly controlled by the late Mr. Lewis, together
with a number of current and former directors and a former officer of TLC
Beatrice. The derivative complaint also names TLC Beatrice and three of its
subsidiaries as nominal defendants.
TLC Beatrice and the other defendants 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 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 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
7
<PAGE>
<PAGE>
TLC BEATRICE INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
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. It is currently under
consideration by the Chancery Court in the State of Delaware.
TLC Beatrice's outside litigation counsel has advised TLC Beatrice that at
this time the extent of TLC Beatrice's liability or obligations, if any, as a
result of this 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. No provision for
any liability or obligation that may result from these matters has been made in
the consolidated financial statements.
8
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is qualified by reference to and
should be read in conjunction with the Company's Unaudited Consolidated
Financial Statements, including the Notes thereto, included elsewhere in this
Report. The Company's net sales and results of operations during the periods
presented have not been significantly affected by inflation. Operating results
for the three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997 or any other
period.
The Company's net sales, costs, assets and liabilities are for the most
part denominated in local currencies. Therefore, results of operations, as
stated in local currencies, and the Company's business practices and plans with
respect to a particular country, are not significantly affected by exchange rate
fluctuations. However, such results of operations as reported in U.S. dollars
may be significantly affected by fluctuations in the value of the local
currencies in which the Company transacts business in relation to the U.S.
dollar. Results of operations of the Company's subsidiaries are translated into
U.S. dollars on the basis of average exchange rates throughout the period.
Assets and liabilities are translated into U.S. dollars on the basis of rates of
exchange as of the balance sheet dates. Notwithstanding the fact that
substantially all of the Company's cash flow is denominated in foreign
currencies, such currencies have in the past generally fluctuated within a
relatively well-defined range in relation to the U.S. dollar. Accordingly,
although the Company has closely monitored its currency exposure in the past and
will continue to do so, the Company believes that it is not necessary to hedge
its overall foreign currency position at this time.
Operations of the Company's Food Distribution segment are concentrated in
France, and net sales, costs, assets and liabilities of these operations are
therefore denominated almost exclusively in French francs. Operations of the
Company's Grocery Products segment, however, are located in several European
countries, including Spain, Ireland, Belgium, the Netherlands and France. Unless
otherwise indicated, all percentage changes in segment operating results set
forth below have been calculated based on local currency amounts.
RESULTS OF OPERATIONS
The following table provides information concerning the Company's net sales
and operating income, by segment, for the three months ended March 31, 1997 and
1996. The approximate percentage changes in net sales and operating income
attributable to operations on a local currency basis and to changes in exchange
rates for such periods are shown in the table on page 10.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net Sales:
Food Distribution.................................................................... $449,773 $458,645
Grocery Products..................................................................... 63,964 71,745
-------- --------
Total Net Sales................................................................. $513,737 $530,390
-------- --------
-------- --------
Operating Income:
Food Distribution.................................................................... $ 14,872 $ 13,953
Grocery Products..................................................................... 2,664 3,634
Corporate Expenses................................................................... (1,233) (2,841)
Amortization of Intangibles.......................................................... (784) (731)
-------- --------
Total Operating Income.......................................................... $ 15,519 $ 14,015
-------- --------
-------- --------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1996
Net sales were approximately $514 million for the three-month period ended
March 31, 1997, a decrease of 3% compared to the corresponding period in 1996,
or a 7% increase on a local currency basis.
9
<PAGE>
<PAGE>
The Food Distribution segment had net sales for the three-month period
ended March 31, 1997 of $450 million, a decrease of 2%, or a 8% increase on a
local currency basis, over the comparable period in 1996. Wholesale sales
relating to the Franprix network remained essentially flat with 1996, as an
increase in the number of stores served (415 at March 31, 1997 versus 401 at
March 31, 1996) was offset by a 4% decline in sales to comparative Franprix
stores in the first quarter 1997 compared to the same period in 1996. Retail
sales of owned Franprix stores were down 7% primarily due to low levels of
consumer spending at the beginning of the period. Net sales of the Leader Price
network increased by 19% reflecting additional volume created by the opening of
30 stores between March 31, 1997 and March 31, 1996.
The Grocery Products segment had net sales in the first three months of
1997 of $64 million, a decrease of 11%, or 2% on a local currency basis, over
the comparable period in 1996. A 15% decline in Beverage operation net sales was
primarily responsible for the decline. Frisdranken Industrie Winters B.V.
('Winters'), the Company's producer of soft drinks in the Netherlands
experienced the heaviest decline due loss of clients in northern Europe
resulting from overcapacity which has created intense price competition.
Slightly offsetting the sales decline from Beverage operations, the Company's
ice cream operations reported a 10% increase in net sales due to favorable March
weather conditions, strong sales from new product introductions and the addition
of seven new distributors.
Operating income of the Food Distribution segment increased by 7%, or 18%
on a local currency basis, in the first three months of 1997 compared to the
same period in 1996. The 55% increase in Leader Price operating income,
reflecting a 14% increase in the number of stores opened March 31, 1997 versus
March 31, 1996 and strong wholesale margins was partially offset by a reduction
in Franprix's operating income. The Franprix wholesale operation was responsible
for the decline reflecting lower gross margins due to price reductions initiated
in the second quarter of 1996 taken to counter competition in the Paris area.
Operating income of the Grocery Products segment declined by $1 million to
$2.7 million, in the first quarter of 1997 versus the same period in 1996. A
decrease in beverage operating income, reflecting a 15% decline in first quarter
1997 sales was partially offset by increased operating performance at the
Company's ice cream operations located in Spain. Interglas S.A. ('Interglas'),
an ice cream and yogurt manufacturer in the Canary Islands, increased operating
income due to increased sales and production efficiencies achieved in 1997 due
to new equipment installed in the first quarter of 1996. Helados La Menorquina
S.A. ('La Menorquina'), an ice cream manufacturer in mainland Spain, increased
operating income due to a 6% increase in sales.
The following table details the approximate percentage changes in net sales
and operating income attributable to operations on a local currency basis and to
changes in exchange rates for the three month period ended March 31, 1997 as
compared to the three month period ended March 31, 1996.
<TABLE>
<CAPTION>
NET SALES OPERATING INCOME
--------------------------------- ---------------------------------
PERCENT CHANGE PERCENT CHANGE
ATTRIBUTABLE TO ATTRIBUTABLE TO
---------------------- TOTAL ---------------------- TOTAL
EXCHANGE PERCENT EXCHANGE PERCENT
OPERATIONS RATES CHANGES OPERATIONS RATES CHANGES
---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Segment
Food distribution....................... 8% (10)% (2)% 18% (11)% 7%
Grocery products........................ (2) (9) (11) (30) 3 (27)
Total.............................. 7 (10) (3) 8 (8) --
</TABLE>
Net income for the three months ended March 31, 1997 increased by
approximately $100,000 to $1.3 million from $1.2 million due to higher operating
income of $1.5 million and lower net interest expense of $1.2 million offset by
higher taxes and minority interests in earnings of $2.1 million and $600,000
respectively primarily due to higher pre-tax income. In addition, 1996 tax
expense reflected the recognition of certain deferred tax benefit adjustments
not repeated in 1997.
10
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company's current level of indebtedness,
amounting to approximately $281 million at March 31, 1997, of which $227 million
represents long-term debt and $54 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 March 31, 1997, TLC Beatrice's subsidiaries had
lines of credit denominated in local currencies totalling $98 million, of which
$61 million remained unused. The Company believes that cash flow from operations
combined with local credit facilities are sufficient, in the aggregate, to meet
anticipated working capital and capital spending requirements, as well as the
Company's debt service requirements for the foreseeable future, including
interest payments.
At March 31, 1997, the Company had working capital of $32.8 million,
compared to working capital of $37.4 million at December 31, 1996.
On October 2, 1995, TLC Beatrice sold $175 million aggregate principal
amount of 11.5% Senior Secured Notes due October 1, 2005 (the 'Notes'). Interest
on the Notes is payable on April 1 and October 1 of each year, commencing April
1, 1996. The Notes rank pari passu in right of payment with all unsubordinated
borrowings of TLC Beatrice and are secured by a security interest in a portion
of the capital stock of certain of TLC Beatrice's subsidiaries and certain
intercompany indebtedness. The Indenture relating to the Notes (the 'Indenture')
permits TLC Beatrice's subsidiaries to incur additional indebtedness under
certain circumstances, including up to $25 million for general corporate
purposes under a Facility Agreement (the 'Credit Agreement'), described below,
among Banque Paribas, Smurfit Paribas Bank Limited and TLC Beatrice
International (Irish) Holdings Limited ('Irish Holdings') which is guaranteed by
TLC Beatrice.
The Notes are redeemable, at the option of TLC Beatrice, in whole or in
part, at any time on or after October 1, 2000, at the redemption prices set
forth in the Indenture plus accrued interest to the redemption date. In
addition, upon one or more Public Equity Offerings (as defined in the Indenture)
consummated prior to October 1, 1998, TLC Beatrice may at its option redeem up
to $52.5 million aggregate principal amount of Notes from the proceeds thereof
at 110% of the principal amount thereof plus accrued interest to the date of
redemption.
TLC Beatrice is required to offer to repurchase all outstanding Notes at
101% of principal amount plus accrued interest promptly after the occurrence of
a Change of Control (as defined in the Indenture) with respect to TLC Beatrice.
A Change of Control will generally be deemed to occur if (i) the Permitted
Holders (as defined in the Indenture) shall beneficially own in the aggregate
less than 20% of the aggregate voting power of all classes of Voting Stock (as
defined in the Indenture) of TLC Beatrice; or (ii) any person or entity (other
than a Permitted Holder) shall beneficially own either more than 50% of the
aggregate voting power of all classes of Voting Stock of TLC Beatrice or shares
of Voting Stock of TLC Beatrice representing aggregate voting power greater than
that represented by the aggregate shares of Voting Stock then beneficially owned
by the Permitted Holders; or (iii) any such person or entity shall elect a
majority of the Board of Directors of TLC Beatrice. There can be no assurance
that TLC Beatrice will have sufficient funds to repay the Notes should a Change
of Control occur.
The Indenture restricts, among other things, the ability of TLC Beatrice
and its Restricted Subsidiaries (as defined in the Indenture) to incur
indebtedness, incur liens, enter into sale and leaseback transactions, make
restricted payments, enter into asset dispositions and engage in transactions
with affiliates. The Indenture also limits the ability of TLC Beatrice and its
Restricted Subsidiaries to enter into agreements that restrict the payment of
dividends and other payments by any Restricted Subsidiary to the Company. In
addition, the Indenture restricts the ability of TLC Beatrice to merge or
consolidate with or transfer all or substantially all of its assets to another
entity.
On October 6, 1995, Irish Holdings entered into the Credit Agreement
pursuant to which Irish Holdings can initially borrow up to the lower of (a) 16
million Irish Punts (approximately $25.9 million
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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 $15.1 million at the March 31, 1997 foreign exchange
rate) from February 1, 1999 through January 31, 2000 and (ii) 3.2 million Irish
Punts (approximately $5.0 million at the March 31, 1997 foreign exchange rate)
from February 1, 2000 through January 31, 2001, at which time all amounts
outstanding must be repaid. Interest on borrowings in Irish Punts is payable at
the rate of the Dublin Interbank Offering Rate ('DIBOR') plus 1.65%. The Credit
Agreement also provides for an alternative currency option pursuant to which
Irish Holdings can borrow in certain other currencies at an interest rate equal
to LIBOR plus 1.65%. The Credit Agreement contains restrictions on certain
activities of Irish Holdings and Tayto, including, among other things, the
incurrence of indebtedness or encumbrances, entering into agreements other than
in the ordinary course of business, the making of certain capital expenditures
and the acquisition or sale of assets outside the ordinary course of business.
In addition, Irish Holdings and Tayto are required to maintain certain financial
ratios. The Credit Agreement is guaranteed by TLC Beatrice and secured by a
pledge of the common stock of Tayto owned by Irish Holdings. As of March 31,
1997, approximately $15.0 million (at the then-prevailing foreign exchange
rate), was borrowed under the Credit Agreement.
In the three months ended March 31, 1997, cash used in operating activities
was $24.5 million.
In the three months ended March 31, 1997, cash provided by financing
activities was $22.6 million, primarily reflecting approximately $21.5 million
in net proceeds from the issuance of short-term debt.
In the three months ended March 31, 1997, cash used in investing activities
was $6.7 million, primarily reflecting capital expenditures. The Company
estimates its 1997 net capital expenditures will be approximately $40 million.
The Company anticipates that such expenditures will be applied to the costs of
new Leader Price store openings and further expansion of the Company's ice cream
sales in Spain.
Pursuant to certain agreements entered into in 1992, 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
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years. If such companies' earnings were to continue to increase during the two
fiscal years prior to the exercise of such option, as to which no assurance can
be given, the purchase price payable upon exercise of the Put Right and and Call
Right would increase materially.
In addition to the foregoing, the Company, including in certain
circumstances TLC Beatrice, is a party to separate stockholder agreements with
the Other Baud Stockholders and certain other minority stockholders. Certain of
these agreements and the by-laws of certain subsidiaries restrict the sale of
the minority stockholders' interest or require the Company or the minority
stockholders, as the case may be, to offer to sell their shares to the other
stockholders prior to selling such shares to a third party and/or require the
Company to purchase these interests under certain circumstances. These local
minority stockholders have the option to require the Company to purchase their
interests in whole or in part at any time. If all of such options were exercised
in full, the Company's aggregate purchase obligation is estimated to be
approximately $35 million as of December 31, 1996.
If any or all of such minority stockholders require the Company to purchase
their interest in certain subsidiaries of the Company pursuant to the put rights
described above, the Company believes cash flows from operations, together with
the Company's potential financing sources, will be sufficient to meet any
purchase obligation that may result. No assurance can be given, however, that
the Company will be able to satisfy its purchase obligations from these sources.
The Spanish and Canary Islands provincial governments instituted a set of
tax incentives beginning in 1994 which Interglas has opted to take advantage of
for its 1994 and 1995 tax years. Interglas is required to make qualifying
investments in productive machinery and equipment and/or local government
interest-bearing bonds in the amount of $14.8 million in 1997, $14.7 million in
1998 and $400,000 in 1999 in order to qualify for these tax incentives. The
Company has provided for deferred taxes on these requirements equal to the 35%
tax rate on $29.9 million, or approximately, $10.5 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 by TLC Beatrice and
waste of corporate assets and breaches of fiduciary duties against the Lewis
Estate and current and former directors of TLC Beatrice. 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.
13
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in the Company's Form 10-K for the year ended
December 31, 1996, the Company is a defendant in certain legal proceedings in
Delaware and New York, brought by Carlton Investments. See Item 3 to the
Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1996
and Note 6 to the Consolidated Financial Statements included herein under Part
I.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27. Financial Data Schedule.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March
31, 1997.
14
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TLC BEATRICE INTERNATIONAL
HOLDINGS, INC.
<TABLE>
<S> <C>
Date: May 6, 1997 By /s/ Loida N. Lewis
........................................................
LOIDA N. LEWIS
CHAIRMAN
Date: May 6, 1997 By /s/ Peter Offermann
........................................................
PETER OFFERMANN
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 84,454 95,784
<SECURITIES> 0 0
<RECEIVABLES> 157,015 150,817
<ALLOWANCES> (5,438) (5,807)
<INVENTORY> 116,030 117,461
<CURRENT-ASSETS> 16,780 11,036
<PP&E> 245,621 263,859
<DEPRECIATION> (187,436) (189,536)
<TOTAL-ASSETS> 760,800 781,704
<CURRENT-LIABILITIES> 341,499 337,659
<BONDS> 227,473 229,492
<COMMON> 97 97
0 0
0 0
<OTHER-SE> 86,641 106,113
<TOTAL-LIABILITY-AND-EQUITY> 760,800 781,704
<SALES> 513,737 2,225,313
<TOTAL-REVENUES> 513,737 2,225,313
<CGS> 424,244 1,831,006
<TOTAL-COSTS> 498,218 2,138,783
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,897 30,778
<INCOME-PRETAX> 10,233 64,508
<INCOME-TAX> 4,179 17,496
<INCOME-CONTINUING> 1,338 19,601
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,338 19,601
<EPS-PRIMARY> .15 2.14
<EPS-DILUTED> 0 0
</TABLE>
