-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OVllXtxlKIHyz66kMsN2JiwgDfmF4P8Znyqc1jy5MLqNCUr7AK+DXthIoMTKUWsk loAM/2m2M19RythbRe9A9g== 0000950123-96-000971.txt : 19960304 0000950123-96-000971.hdr.sgml : 19960304 ACCESSION NUMBER: 0000950123-96-000971 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951202 FILED AS OF DATE: 19960301 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CULBRO CORP CENTRAL INDEX KEY: 0000026093 STANDARD INDUSTRIAL CLASSIFICATION: TOBACCO PRODUCTS [2100] IRS NUMBER: 130762310 STATE OF INCORPORATION: NY FISCAL YEAR END: 1128 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-01210 FILM NUMBER: 96530202 BUSINESS ADDRESS: STREET 1: 387 PARK AVE S CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2125618700 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL CIGAR CO INC DATE OF NAME CHANGE: 19760726 10-K405 1 ANNUAL REPORT 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 2, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-1210 CULBRO CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 13-0762310 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 387 PARK AVENUE SOUTH, NEW YORK, NEW YORK 10016-8899 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (212) 561-8700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC. 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 [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] STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING: $128,000,000 APPROXIMATELY, BASED ON THE CLOSING SALES PRICE ON THE NEW YORK STOCK EXCHANGE ON FEBRUARY 20, 1996. INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: COMMON STOCK: 4,431,005 SHARES AS OF FEBRUARY 20, 1996. THE FOLLOWING DOCUMENTS, OR PORTIONS THEREOF AS INDICATED IN THE FOLLOWING REPORT, ARE INCORPORATED BY REFERENCE IN THE PARTS OF FORM 10-K INDICATED: PART DOCUMENT ---- -------- I ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 2, 1995 II ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 2, 1995 III PROXY STATEMENT IN CONNECTION WITH THE 1996 ANNUAL MEETING OF SHAREHOLDERS IV ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 2, 1995 (SUCH ANNUAL REPORT IS REFERRED TO HEREINAFTER AS THE "ANNUAL REPORT") ================================================================================ 2 FORM 10-K 1995 CULBRO CORPORATION PART I ITEM 1 - BUSINESS Culbro Corporation and its subsidiaries (the "Corporation") comprise a diversified consumer and industrial products company. The Corporation engages in four principal lines of business: (1) Consumer Products, comprised of the manufacturing and marketing of cigars and the growing, processing and selling of cigar wrapper tobacco; (2) Nursery Products, growing for sale container and field grown nursery products principally to nursery mass merchandisers, and owning and operating wholesale sales and service centers; (3) Industrial Products, which consists of the manufacturing and marketing of packaging and labeling systems which include plastic shrink film labels and tamper-evident seals and the production of packaging and labeling machinery to apply them; and (4) Real Estate, owning, building and managing commercial and industrial properties and developing residential subdivisions on real estate owned by the Corporation in Connecticut and Massachusetts, and owning and managing its headquarters building at 387 Park Avenue South in New York City. The approximate net sales and other revenue, operating profit and identifiable assets attributable to each reportable segment of the Corporation in each of the last three fiscal periods are set forth in Note 2 to the Consolidated Financial Statements. On February 1, 1996 the Corporation announced its intention to sell its Industrial Products unit. EQUITY INVESTMENTS On April 25, 1994, The Eli Witt Company ("Eli Witt") acquired the net assets of the six Southern distribution facilities of NCC L.P. in exchange for 595,000 newly issued common shares of Eli Witt. The six facilities, designated as NCC South, comprised a portion of the overall distribution business of NCC L.P. Prior to this acquisition, the Corporation owned 85% of the outstanding common stock of Eli Witt and the former shareholders of Certified Grocers of Florida, Inc. ("Certified Grocers") held 15% which they received in connection with Eli Witt's acquisition of Certified Grocers in 1993. In a transaction executed simultaneously with Eli Witt's acquisition of the net assets of NCC South, the Corporation sold 400,000 shares of its Eli Witt common stock to MS Distribution, Inc. ("MSD"), a former limited partner of NCC and an affiliate of the Morgan Stanley Leveraged Equity Fund II L.P., and issued a $15 million subordinated note to MSD. The Corporation received proceeds of $12 million and entered into an agreement with MSD to exchange, in 1998, the subordinated note for the $15 million face value Eli Witt Series B Preferred Stock held by the Corporation. As a result of these transactions, MSD owns shares totalling approximately 38% of the outstanding common stock of Eli Witt. As a result of Eli Witt's issuance of additional common stock in connection with the acquisition and the concurrent sale by the Corporation of certain of its Eli Witt common stock holdings in the transaction, the Corporation's ownership of Eli Witt's outstanding common stock was reduced from 85% to 50.1%. In connection with these transactions, the Corporation entered into a Shareholders Agreement with MSD. This Agreement contains certain governance provisions which require prior approval by MSD for substantially all major transactions by Eli Witt, including (but not limited to) incurrence of debt, acquisitions, material contracts, the sale of assets, stock issuance and repurchase, changes in Eli Witt's charter and by-laws, and capital expenditures. Due to the shareholder rights granted to MSD, the Corporation no longer has unilateral control over Eli Witt. Therefore, the Corporation deconsolidated Eli Witt as of April 25, 1994 and is accounting for its remaining investment in Eli Witt under the equity method in its 1995 financial statements. See Notes 1 and 8 to the Consolidated Financial Statements. -2- 3 FORM 10-K 1995 CULBRO CORPORATION The Corporation owns approximately 25% of the stock of Centaur Communications Limited, a privately-held publisher of business magazines in the United Kingdom. CONSUMER PRODUCTS The Consumer Products segment is comprised of the Cigar Business. CIGAR BUSINESS The cigar business is comprised principally of (a) the manufacture and sale, by General Cigar Co., Inc. ("General Cigar"), of domestic and imported cigars in all major price categories under numerous trademarks, including the premium cigar brands of Macanudo, Partagas, Temple Hall, Ramon Allones, Cohiba and Canaria D'Oro and the domestic cigar brands of Garcia y Vega, White Owl, Tiparillo, Robt. Burns, Wm. Penn and Tijuana Smalls and (b) the growing, processing and sale of cigar wrapper tobacco by the Culbro Tobacco Division of General Cigar. Cigars are produced with three tobacco components: filler, binder and wrapper. Filler tobacco is purchased from a large number of growers and suppliers in many areas of the world. The binder is principally natural binder leaf or a homogenized tobacco binder. General Cigar's premium brands and its Garcia y Vega brand are wrapped with natural cigar wrapper tobacco. Its other domestic cigars are primarily wrapped with homogenized tobacco wrappers. Some of the natural leaf wrapper tobacco used for General Cigar's cigars is grown by General Cigar on farms it leases from the Corporation in the Connecticut River Valley. The remainder of General Cigar's requirements for natural leaf wrapper tobacco is purchased from a number of foreign growers and suppliers. A portion of the wrapper tobacco grown by General Cigar is sold to others, including export sales principally in Europe. General Cigar annually adjusts acreage grown to reflect changing market demands anticipated from export customers and for its own use. General Cigar maintains inventories of wrapper and filler tobacco for cigars sufficient to meet its estimated requirements for more than one year. Most of its inventories are stored in warehouses in the United States and the Dominican Republic. General Cigar believes that its inventories are adequately insured. The markets for General Cigar's cigars are highly competitive. The industry, through 1993, had experienced a long continuing decline in cigar consumption and substantial consolidation. The most recent cigar statistics reflect a significant reversal of this trend with unit sales turning positive in 1994 and accelerating in 1995. Dollar sales have increased as a result of price increases and a substantial increase in the demand for all classifications of cigars, including high priced premium, natural-leaf cigars, and homogenized wrapper cigars. As a result of increasing demand, backorders for General Cigar cigars increased substantially during 1995. General Cigar intends to increase capital spending to provide additional facilities and equipment to increase production capacity. In order to maintain its position in its markets, General Cigar advertises and employs a variety of promotional activities. General Cigar believes that it is among the industry leaders in the manufacture and sale of cigars in the United States, with particular strength in the higher priced, premium and super premium segments. -3- 4 FORM 10-K 1995 CULBRO CORPORATION General Cigar's products are distributed in the United States through approximately 1,300 wholesale distributors and direct retail and chain store accounts. The cigar business carried on by General Cigar in Jamaica and the Dominican Republic, where the Corporation produces its highest priced, handmade cigars, and warehouses certain of its inventories, and some of the sources of tobacco purchased by General Cigar, are subject to the risks associated with foreign operations. General Cigar's handmade cigars include Macanudo, Macanudo Vintage Cabinet, Partagas, Partagas Limited Reserve, Temple Hall, Cohiba, Ramon Allones and Canaria D'Oro. General Cigar cannot predict the effect on its cigar business of a reopening of trade with Cuba, if that should occur, except that such trade may adversely affect its handmade cigar manufacturing business. In 1993 General Cigar reappointed its independent sales agent in Europe to take advantage of increased opportunities resulting from the eradication of trade barriers among Common Market countries. In 1994 and 1995 direct contacts were made with distributors in Eastern European and Far Eastern Countries to explore possible sales opportunities in these emerging markets. Cigar export sales, revenues from royalties and other revenues from foreign operations are not material. General Cigar imports for sale in the United States on an exclusive basis the Djeep lighter - a disposable butane gas lighter made in France. In recent years, one customer has comprised up to 75% of General Cigar's Djeep lighter sales. In 1994 Djeep and the disposable lighter industry introduced a child resistant lighter in accordance with regulations promulgated by the U.S. Consumer Products Safety Commission. In 1995, General Cigar introduced a line of Macanudo and Partagas branded clothing. The line consists of baseball caps, t-shirts, sweat-shirts and leather bomber jackets. General Cigar sub-contracted out the embroidering work and sells the clothing through retail tobacconists. Revenues from these products are not material. * * * While the substantial adverse publicity resulting from the 1964 Report of the Surgeon General and subsequent reports with respect to studies linking the use of tobacco with human disease have not been principally directed at cigars, General Cigar believes such publicity and the health concerns it has provoked contributed to the long decline of sales in the cigar industry. The reported health effects upon non-smokers of so-called "passive" or "environmental tobacco smoke" have caused the U.S. Surgeon General and others to support restrictive legislation. Federal and state regulations designating certain areas as non-smoking areas and the prohibition of smoking cigars in certain areas have adversely affected the sales of cigar products. Various legislative initiatives affecting tobacco, including warnings of carcinogenic chemical contents, advertising bans and nondeductibility of advertising expenses have been implemented or proposed. Tobacco products, including cigars, may also face increased federal excise taxes and potential litigation to fund various health care costs and legislative initiatives. The cigars made by General Cigar are not subject to the regulations recently proposed by the U.S. Food and Drug Administration. See also Item 3(a)(ii). NURSERY PRODUCTS BUSINESS Imperial Nurseries, Inc. ("Imperial"), which previously operated as a division of the Corporation, became in 1993 a wholly-owned subsidiary of the Corporation. Imperial is a grower, distributor and broker of wholesale nursery stock. The nursery industry is extremely fragmented, with the industry leader having less than 1% of total market share. Imperial believes that its volume places it among the ten largest nursery companies in the country. -4- 5 FORM 10-K 1995 CULBRO CORPORATION Imperial's growing operations are located on property owned by the Corporation and leased to Imperial in Connecticut (1,000 acres) and in northern Florida (350 acres). Such operations mainly serve landscapers, retail chain store garden departments, retail nurseries and garden centers, and wholesale nurseries and distributors. Imperial-grown products are also distributed through the company's own wholesale horticultural sales and service centers. Imperial's major markets service the Northeast, Mid-Atlantic, Southeast and Mid-West. Nursery sales are seasonal, peaking in spring, and are affected by commercial and residential building activity as well as weather conditions. Imperial operates eight wholesale sales and service centers which sell a wide range of plant material and horticultural tools and products to the trade. The centers owned by the Corporation and leased to Imperial, are located in Windsor, Connecticut; Aston, Pennsylvania; Pittsburgh, Pennsylvania; Columbus and Cincinnati, Ohio; White March, Maryland; and Manassas, Virginia. In 1995, Imperial continued to diversify its customer base in order to reduce its dependence on a few large customers. Much of this growth continues to be in independent retail garden centers and landscape contractors. Approximately 30% of the nursery stock sold by Imperial is purchased from other growers. Imperial plans to reduce its current investment in field grown plant inventories and limit future investments in this segment of the nursery products business. Growing and shipping capacity has been increased to meet the potential volume and quality needs of Imperial's customers and to capitalize on any growth in the Mid-Atlantic and Midwest markets. INDUSTRIAL PRODUCTS BUSINESS Industrial Products consists of CMS Gilbreth Packaging Systems, Inc. ("CMS Gilbreth") which manufactures high quality plastic labels and a variety of application equipment. These markets are both highly specialized and fragmented. CMS Gilbreth believes it is a leader in the several markets in which it participates. CMS Gilbreth has manufacturing plants in Bensalem and Bristol, Pennsylvania (labeling materials), Turlock, California (application machinery), and its headquarters is located in Trevose, Pennsylvania. It also has regional sales offices located in Chicago, Illinois and Brussels, Belgium. CMS Gilbreth has established strategic business groups to develop new markets for the company's product line. The company continued to commit to its philosophy of continuous improvement by achieving ISO (International Organization for Standardization) 9001 certification for its manufacturing facilities. This comprehensive standard covers the quality policies and procedures that CMS Gilbreth uses to design, manufacture, install and service the product line. -5- 6 FORM 10-K 1995 CULBRO CORPORATION Operating profit at CMS Gilbreth increased in 1995. Higher operating profit in the packaging machinery portion of this business was due to higher sales and cost reduction benefits from closing a facility in 1994, partially offset by higher spending on research and development and establishing a Technology Center in Allentown, Pennsylvania to concentrate such research and development in one location. The higher sales were due principally to the introduction of new machines. Lower operating profit in the packaging materials of CMS Gilbreth reflected a sales volume decline due to CMS Gilbreth's largest customer changing its label technology, therefore reducing the quantity of labels purchased from CMS Gilbreth. This change was phased in during 1995, and is expected to be fully implemented in 1996. Certain of CMS Gilbreth's shrink label printing business is dependent upon its ability to source raw material of print quality film. Such film is available only from a limited number of suppliers, but CMS Gilbreth believes its sources to be adequate. The machine manufacturing operations of Trine Manufacturing Company, Inc. ("Trine"), a subsidiary of the Corporation and a separate legal entity whose operations are integrated with CMS Gilbreth, are dependent on the validity and enforceability of various patents issued to it or others by the United States Patent and Trademark Office and internationally. Sales of its machines may be affected by patents issued to others and the commercial exploitation of technological advances in the design and production of labeling machinery may be limited by such patents. The patent litigation which has involved Trine for many years has been settled in a manner which should preclude indemnity actions against it in the U.S. as a result of patents held by its major competitor. The settlement did not limit foreign actions against Trine by its foreign customers but none such are pending. Due to the nature of Trine's business, purchases of its machines are often on a onetime basis. The major continuing business is for parts and service. Trine's sales are principally in the food and beverage industry, including substantial sales to soft drink bottlers. Approximately 35% of its sales are to foreign customers. Trine sales in the domestic market are principally to companies in the food and dairy industry, although other outlets for its machinery are being developed. On February 1, 1996, the Corporation announced its intention to sell CMS Gilbreth. REAL ESTATE The Corporation's Real Estate segment is comprised of Culbro Land Resources, Inc. and 387 Park Avenue South, the New York City building which the Corporation owns and operates. CULBRO LAND RESOURCES The Corporation is engaged in the real estate development business on portions of its land in Connecticut through Culbro Land Resources, Inc. ("Resources"), headquartered in Windsor, Connecticut. Resources develops portions of the Corporation's properties for office, residential and commercial use. Resources' most substantial development is Griffin Center in Windsor, Connecticut and Griffin Center South in Bloomfield, Connecticut. Together these master planned developments comprise approximately 600 acres, half of which have been developed with nearly 2,000,000 square feet of office and industrial space. Griffin Center currently includes nine Class A corporate office buildings built by Resources. Prior to 1983, Resources sold 70% interests in five of the buildings to a bank-managed real estate investment fund, which is currently seeking a purchaser for these properties. In 1984, Resources sold one office building and a 70% interest in a second to an insurance company; and, in 1986, Resources sold a 70% interest in a building to the same insurance company. Resources manages these properties for its investor-partners. -6- 7 FORM 10-K 1995 CULBRO CORPORATION At year end, approximately 80% of the rentable space in Griffin Center was rented. Conditions in the commercial real estate market in the greater Hartford area continue to hamper development activities. Although leasing activities were strong in 1995, lower lease rates reflect the soft commercial market. To attract and retain tenants, Resources continues to provide a variety of amenities to maintain Griffin Center as a highly competitive, prime office park offering quality services to tenants. Griffin Center South, a 130-acre tract, comprises fifteen buildings of industrial and research/development space. Nine of these buildings have been retained by Resources for rental and are 78% rented. The other buildings have been built on land sold by Resources to commercial users who occupy the space. Resources has a master plan state traffic certificate which allows for the development of an additional 500,000 square feet of space. Resources owns a 600-acre tract of land near Bradley International Airport and Interstate 91 now known as New England Tradeport. To date, 140,000 square feet of warehouse and light manufacturing space have been developed and are 100% occupied. A state traffic certificate for the future development of 1.3 million square feet has been obtained for the Tradeport. Two additional Resources' parcels available for development include 33 acres in the Day Hill Technology Center in Windsor, and 100 acres in the South Windsor Technology Center. State traffic certificates have been obtained for 500,000 square feet and 750,000 square feet of development, respectively. In 1988, Culbro Homes, Inc. ("Culbro Homes"), a subsidiary of Resources, began infrastructure work at Walden Woods, a 153- acre site in Windsor, Connecticut which is planned to contain more than 400 residential units. Prior to 1992 Culbro Homes had built and sold 45 homes before discontinuing the home building part of developing Walden Woods. Since then, Culbro Homes has concluded agreements with two third-party home builders which would ultimately transfer the building rights to a total of 110 units at Walden Woods. A second section of Walden Woods was opened for development in 1993, and another 64 homes have been constructed since then. The development of Resources' land in Simsbury, Connecticut commenced in 1994 with the sale of an approved 14-lot residential subdivision to a local builder. Resources has several other tracts in the Greater Hartford area suitable for residential development but cannot predict when, or if, development will begin due to the continuing slowdown in the residential market throughout the region. 387 PARK AVENUE SOUTH In 1983 the Corporation acquired all of the outstanding stock of a corporation whose principal asset was an office building in New York City. The building is 12 stories and contains approximately 210,000 square feet of rental space. The purchase price was approximately $15 million. The Corporation has advanced substantial amounts for building improvements. On April 21, 1995, the Corporation entered into a $5 million mortgage on the building. Approximately 11% of the space in the building has been leased to the Corporation for use as its offices and the remaining space is being leased or is available for lease as commercial rental property. Currently approximately 16% of rentable space is available for lease in this building. Results in 1995 increased slightly due to higher rental income from temporary leases. -7- 8 FORM 10-K 1995 CULBRO CORPORATION SUBSIDIARIES In 1987 the Corporation established several wholly-owned subsidiaries and transferred to them the assets and liabilities of formerly unincorporated divisions. The Corporation serves as the parent company of separate subsidiaries operating its cigar, nursery, machine and labeling systems and land development operations. Imperial Nurseries, Inc., formerly a Division of the Corporation, was incorporated as a separate company in February 1993. See Exhibit 21 hereto. In connection with the loan agreements entered into by the Corporation in February 1993 (see Note 3 to the Consolidated Financial Statements), the Corporation pledged the stock of all of its active subsidiaries as collateral for such loans. EMPLOYEES The Corporation employs approximately 2,910 persons (excluding seasonal help employed in wrapper tobacco and nursery operations). NOTE: The brand names mentioned in this Report are trademarks owned by or licensed to the Corporation or its subsidiaries. All rights with respect thereto are reserved. ITEM 2 - PROPERTIES LAND HOLDINGS The Corporation is a major landholder in the State of Connecticut and owns some land in the State of Massachusetts, with holdings of approximately 5,600 acres, located principally in the Connecticut River Valley. In addition, the Corporation owns approximately 1,100 acres in Florida, a portion of which is used for Imperial Nurseries' growing operations, and owns sites for Imperial Nurseries' seven sales and service centers. Each such center typically has a warehouse/office facility and 10-15 acres of nursery stock. The book value of undeveloped land holdings, which includes land currently needed for tobacco and nursery operations, owned by the Corporation and Resources in the Connecticut River Valley is approximately $5,000,000. The Corporation believes the fair market value is very substantially in excess of such book value. The Corporation is developing certain of these holdings. (See the description of Culbro Land Resources, Inc. under "Real Estate"). Such development activities have increased the value of the Corporation's adjoining properties. Of the Corporation's land not currently needed for tobacco or nursery operations, only a portion is currently suitable for development. -8- 9 FORM 10-K 1995 CULBRO CORPORATION FACILITIES The table below sets forth the general character and location of certain of the principal facilities of the Corporation and its subsidiaries. It does not include the facilities of Culbro Land Resources, Inc. (See discussion of Real Estate under Item 1 Business).
OWNED APPROXIMATE OR FLOOR SPACE LOCATION LEASED NATURE OF OPERATION (SQUARE FEET) -------- ------ ------------------- ------------- New York, New York Owned Executive Offices -Corporate Operations 25,000 Bensalem, Pennsylvania Owned Labeling Systems Operations 63,000 Bristol Township, Pennsylvania Owned Labeling Systems Operations 101,000 Turlock, California Owned Production Machinery 32,000 Trevose, Pennsylvania Leased Executive Offices -Labeling Systems Operations 9,000 Kingston, Jamaica, W.I. Owned Cigar Manufacturing 117,000 Dothan, Alabama Leased (1) Cigar Manufacturing & Warehousing 166,000 Hatfield, Massachusetts Owned Tobacco Warehousing & Processing 94,000 Santiago, Dominican Republic Leased Tobacco Processing & Cigar Mfg. 171,000 Granby, Connecticut Owned Executive Offices -Nursery Operations 8,000 Bloomfield, Connecticut Owned Executive Offices -Cigar Operations 11,000
(1) Industrial Revenue Bond financing lease In addition to the above, the Corporation owns a 48,000 square foot warehouse in Alabama that is leased out. The Corporation and its General Cigar Co., Inc. subsidiary lease approximately 80 acres of land for growing tobacco in the Dominican Republic. In addition, the Corporation leases approximately four other facilities for production support and related office locations which have an aggregate of approximately 54,206 square feet of floor space. In May 1994 a building used by General Cigar Co., Inc. for farm administration and tobacco warehousing in Windsor, Connecticut was totally destroyed by fire. The Corporation is currently negotiating a settlement for this loss with its insurance carrier. The Corporation's subsidiary, Club Macanudo, Inc. ("Club Macanudo"), has entered into a 10 year lease for commercial space at 26 East 63rd Street in New York City. Club Macanudo will operate a cigar bar at the location. The Corporation is a guarantor of the lease payments of Club Macanudo. -9- 10 FORM 10-K 1995 CULBRO CORPORATION ITEM 3 - LEGAL PROCEEDINGS The Corporation is involved in various legal actions including the following: (a) LITIGATION (i) TOWN OF WEST SPRINGFIELD V. CULBRO CORPORATION In 1986 the State of Massachusetts closed certain public and private wells in the West Springfield, Massachusetts area, where the Corporation has farmed tobacco, because of contamination by ethylene dibromide (EDB) and other pesticides. Subsequently the Corporation's farms were identified as a probable source of the EDB contamination. In 1987 the Town of West Springfield, Massachusetts filed suit in Hampden County Superior Court against the Corporation, another tobacco farmer and nine chemical manufacturers. In November 1995 the parties agreed to settle this litigation. The Corporation agreed to pay $50,000 toward such settlement, all of which will be paid, or reimbursed to it, by its insurance carriers. (ii) TOBACCO LITIGATION In 1995 and early 1996 the Corporation's General Cigar Co., Inc. subsidiary ("General Cigar") and/or the Corporation were named as defendants, together with a variety of numerous other tobacco product manufacturers and retailers, in six Florida state circuit court actions alleging adverse health effects from the use by the plaintiffs of such tobacco products. The Corporation and/or General Cigar were subsequently dismissed from two of these actions in October and November of 1995. General Cigar understands that these actions were filed by several law firms which, according to press reports, coordinate their filings, make substantially identical allegations and are considering many such lawsuits against numerous tobacco product manufacturers. These are individual actions for products liability and are not class actions. They are based on traditional tort law and include fraud claims and are not based on recent legislation passed in Florida and certain other states relating to reimbursement of health care costs. These lawsuits are in the very preliminary stages and in certain of them the Corporation and General Cigar have not been served with process. (iii) FRAUD LITIGATION - DRUG INVESTIGATION - WRONGFUL DISCHARGE LITIGATION In the spring of 1995 General Cigar learned that packages of marijuana were passing through its Dothan, Alabama plant. The drugs were apparently being secreted by persons currently unknown in cigar shipping cartons originating from General Cigar's Kingston, Jamaica plant. General Cigar immediately notified and has since fully cooperated with Customs and other federal and state officials throughout their investigation of this alleged drug trafficking. A federal Grand Jury in Birmingham, Alabama has the matter under investigation. As a result of the investigation, two former General Cigar non-management employees have been indicted and are awaiting trial on drug-related charges. -10- 11 FORM 10-K 1995 CULBRO CORPORATION The investigation described above led in the summer of 1995 to the discovery of almost $1,000,000 of fraudulent trucking invoices submitted to General Cigar's Dothan facility by an Alabama trucking concern. As a result of this discovery General Cigar suspended and subsequently terminated one of its senior management employees because of his involvement in the processing of the trucking invoices, which were processed in a way which was an unacceptable deviation from the company's business practices. General Cigar has reason to believe this former employee and the principals of the trucking concern are expected to be indicted by the Alabama Grand Jury as a result of an investigation by the U.S. Attorney in Alabama. In September 1995 General Cigar filed in Alabama federal court a civil suit under the RICO statute against the trucking concern. The former employee and the principals of the trucking concern were later added as defendants in that action. In late October 1995 the former employee filed suit in the Judicial District of Hartford - New Britain (a Connecticut state court) against General Cigar and its president, alleging wrongful constructive termination and a variety of other claims of illegal activities by General Cigar, including payments to officials of foreign governments, pricing practices and election campaign contribution violations. The alleged improper campaign contributions aggregating $11,000 have been refunded by such campaigns and the Corporation is seeking a conciliation agreement with respect thereto with the Federal Election Commission. Subsequently General Cigar was served with a Grand Jury subpoena in Connecticut through which an Assistant U.S. Attorney is seeking any documents relevant to many of the charges contained in the lawsuit filed by the former employee. (b) INVESTIGATION In May 1995 the U.S. Securities and Exchange Commission ("SEC") began an investigation into trading in Culbro shares in the period prior to the Corporation's announcement of an agreement in principle to sell a 51% interest in its General Cigar subsidiary to Tabacalera, S.A. The New York Stock Exchange subsequently initiated a similar inquiry. The transaction with Tabacalera, S.A. was subsequently terminated. The SEC staff was provided with numerous documents they requested and they interviewed several officers of the Corporation and General Cigar. The Corporation also supplied the SEC with numerous reports in various financial media and the general press about the resurgence in interest in cigars and the substantial interest in Culbro and General Cigar in early 1995. The Corporation does not know the status of these investigations except that they are apparently still pending. * * * Management does not believe that the above described actions will have a material adverse effect upon the financial condition of the Corporation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None -11- 12 FORM 10-K 1995 CULBRO CORPORATION PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS On February 15, 1996 the approximate number of record holders of Common Stock of the Corporation was approximately 900 which does not include beneficial owners whose shares are held of record in the names of brokers or nominees. The closing market price as quoted on the New York Stock Exchange on such date was $60.00 per share. The information appearing (i) under Quarterly Data on Common Shares the Annual Report, (ii) in Note 4 to the Consolidated Financial Statements and (iii) in Note 10 to the Consolidated Financial Statements are hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA The Consolidated Statement of Operations and the Selected Financial Data appearing in the Annual Report are hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Management's Discussion and Analysis in the Annual Report is hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements together with the Report of Independent Accountants are hereby incorporated by reference. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION In accordance with General Instruction G-3 to Form 10-K, the information called for in this Item 10 with respect to directors is not presented here since such information is included in the definitive proxy statement which involves the election of directors which will be filed pursuant to Regulation 14A not later than 120 days after the close of the fiscal year, and such information is hereby incorporated by reference from such proxy statement. -12- 13 FORM 10-K 1995 CULBRO CORPORATION The following table sets forth the information called for in this Item 10 with respect to executive officers of the Corporation.
NAME OF EXECUTIVE OTHER PRESENT YEAR OTHER POSITIONS OFFICER AND POSITIONS AND SERVICE OR OTHER BUSINESS PRESENT PRINCIPAL OFFICES (2) AS EXECUTIVE EXPERIENCE DURING POSITION (1) (BEGINNING OFFICER PAST FIVE (BEGINNING YEAR) AGE YEAR) BEGAN YEARS (YEARS) - ------------------ --- -------------- ------------ ----------------- EDGAR M. CULLMAN 78 Director 1963 None Chairman of the Board (1961) (1975) EDGAR M. CULLMAN, JR. 50 Director 1983 None President (1984) (1982) JOSEPH C. AIRD 50 None 1987 None Senior Vice President- Controller (1987) JAY M. GREEN 48 Treasurer 1988 None Executive Vice (1988) President Finance & Administration (1988) DAVID M. DANZIGER 30 None 1996 Director of Operational Projects - The Eli Witt Vice President Company (7/95-1/96); Harvard Business School Corporate Development (MBA) (9/92-6/94); Deputy Director Budget (1996) and Analysis - NYC Department of Transportation (8/90-7/92) ANTHONY J. GALICI 38 None 1995 None Vice President-Assistant Controller (1995) JANET A. KRAJEWSKI 41 None 1993 None Vice President-Taxes (1993) MARY L. RAFFANIELLO 42 None 1995 None Vice President- Human Resources (1995) A. ROSS WOLLEN 52 Senior Vice 1977 None General Counsel President (1983) (1980) & Secretary (1987)
-13- 14 FORM 10-K 1995 CULBRO CORPORATION (1) All of the Corporation's executive officers are subject to annual reelection. There were and are no understandings or arrangements between any of the Corporation's executive officers and any other person (except directors and officers acting solely in their capacities as such) pursuant to which any executive officer was selected as an officer. Mr. Green has an employment agreement terminating in 1999. See page 17 of the Corporation's Proxy Statement for the 1994 Annual Meeting. (See Item 14, Exhibit 10(E)). Positions not otherwise identified are with the Corporation. (2) Some of the Corporation's executive officers also serve as officers and directors of The Eli Witt Company. Eli Witt became a public company on February 19, 1993 although it is not currently registered under the Securities and Exchange Act of 1934. The Corporation owns 50.1% of Eli Witt's common stock. See Note 8 to the Consolidated Financial Statements. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements (annexed hereto): There are filed as part of this Report on Form 10-K: the Consent and Report of Independent Accountants; and the Consolidated Financial Statements (including Notes) of the Corporation. See Index To Financial Statements and Additional Financial Data. (a)(2) Schedules (annexed hereto): Financial Statement Schedules required by Item 8 of Form 10-K for the fiscal years ended 1995, 1994 and 1993. See Index To Financial Statements and Additional Financial Data. (a)(3) Exhibits. (Enumeration corresponds to the Exhibit Table, Item 601, Regulation S-K. Items not enumerated are not applicable). (3) THE ARTICLES OF INCORPORATION AND BY-LAWS OF THE CORPORATION. (A) The Articles of Incorporation, as amended to date (Incorporated by reference to Exhibits to Form 10- K of the Corporation filed for the fiscal year 1984 - (Exhibit 3(A)) and to the definitive proxy statement of Registrant, dated April 11, 1988, for its Annual Meeting of Shareholders held on May 12, 1988). (B) The By-Laws, as amended to date (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1984 - (Exhibit 3(B)) and to the definitive proxy statement of Registrant, dated April 11, 1988, for its Annual Meeting of Shareholders held on May 12, 1988). (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES. (A) Note Purchase Agreement, dated July 15, 1988, respecting 9.87% Series C Senior Notes due 1998 and 9.93% Series D Senior Notes due 1998 (Incorporated by reference to Exhibits to Form 10-Q of the Corporation filed for the thirteen weeks ended July 2, 1988 - (Exhibit (a)(2)). (B) Credit Agreement, dated May 24, 1990 with several banks and Manufacturers Hanover Trust Company, as Agent. (Incorporated by reference to Exhibits to Form 10-Q of the Corporation filed for the thirteen weeks ended June 30, 1990 - (Exhibit (a)). -14- 15 FORM 10-K 1995 CULBRO CORPORATION (C) Amended and Restated Note Purchase Agreement among the Corporation and six institutional investors relating to the private placement of $35,000,000 of Senior Notes, dated July 15, 1988 amended and restated as of February 19, 1993, including Exhibits (which have been omitted but will be furnished to the Commission upon request). (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1992). (D) Amended and Restated Credit Agreement, dated February 19, 1993 with several banks and Chemical Bank, as Agent, including Exhibits (which have been omitted but will be furnished to the Commission upon request). (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1992). (E) Credit Agreement among The Eli Witt Company, The Several Lenders from Time to Time Parties Hereto and Chemical Bank, as Agent, Dated as of February 19, 1993. (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1992). Certain other documents evidencing indebtedness of the Corporation are not filed herewith in reliance upon the exemption provided by Item 601(b)(4)(iii)(A); the Registrant hereby undertakes to furnish a copy of such documents to the Commission upon request. (10) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS. (A) 1992 Stock Plan of Registrant, dated December 10, 1993 (Incorporated by reference to the definitive proxy statement of Registrant, dated March 3, 1993, for its Annual Meeting of Shareholders held on April 8, 1993). (B) Stock Option Plan for Non-employee Directors of Registrant, dated December 10, 1993 (Incorporated by reference to the definitive proxy statement of Registrant, dated March 3, 1993, for its Annual Meeting of Shareholders held on April 8, 1993). (C) 1991 Employees Incentive Stock Option Plan of Registrant (Incorporated by reference to the definitive proxy statement of Registrant, dated April 9, 1991, for its 1991 Annual Meeting of Shareholders held on May 9, 1991). (D) 1983 Employees Incentive Stock Option Plan of Registrant, as amended (Incorporated by reference to the definitive proxy statement of Registrant, dated April 6, 1983, for its Annual Meeting of Shareholders held on May 12, 1983 and to the Appendix filed pursuant to Rule 424(c) under the Securities Act of 1933, as amended, dated March 3, 1987). (E) Employment Contract between the Registrant and Jay M. Green (Incorporated by reference to the definitive proxy statement of Registrant, dated March 14, 1994, for its Annual Meeting of Shareholders held April 7, 1994). (F) Shareholders Agreement dated as of April 25, 1994 among Culbro Corporation, MS Distribution, Inc. and The Eli Witt Company (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for fiscal year 1994). (G) Culbro Corporation 10% Exchangeable Note Due 1998 in the amount of $15,000,000, issued April 25, 1994 to MS Distribution, Inc. (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for fiscal year 1994). -15- 16 FORM 10-K 1995 CULBRO CORPORATION (11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE. See Index to Financial Statements and Additional Financial Data. (13) ANNUAL REPORT TO SECURITY HOLDERS. The Corporation's Annual Report to Shareholders for 1995 (annexed hereto). Such Annual Report, except for those portions which are expressly incorporated by reference, is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" or incorporated by reference as part of this Form 10-K. (21) SUBSIDIARIES. List of Subsidiaries. See Index to Financial Statements and Additional Financial Data. (23) REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES AND CONSENT OF INDEPENDENT ACCOUNTANTS. See Index to Financial Statements and Additional Financial Data. (27) FINANCIAL DATA SCHEDULE. See Index to Financial Statements and Additional Financial Data. (28) UNDERTAKING. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference to registrant's Registration Statement on Form S-8 (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1984 - (Exhibit 28)) and subsequent Form S-8's: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The Corporation filed a report on Form 8-K on October 3, 1995 stating that it had ended its previously announced negotiations for Tabacalera, S.A. to acquire a 51% interest in General Cigar Co., Inc. (c) See (a)(3) above. (d) See Index to Financial Statements and Additional Financial Data. -16- 17 FORM 10-K 1995 CULBRO CORPORATION SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. CULBRO CORPORATION By /s/ JAY M. GREEN --------------------------------------------------- Jay M. Green Executive Vice President-Finance and Administration Dated: February 29, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed by the following persons on behalf of the Corporation and in the capacities indicated as of February 29, 1996. SIGNATURES TITLE ---------- ----- /s/ BRUCE A. BARNET Director - ---------------------------- (Bruce A. Barnet) /s/ JOHN L. BERNBACH Director - ---------------------------- (John L. Bernbach) /s/ EDGAR M. CULLMAN Chairman of the Board, Director and - ---------------------------- (Edgar M. Cullman) Principal Executive Officer /s/ EDGAR M. CULLMAN, JR. President, Director and - ---------------------------- (Edgar M. Cullman, Jr.) Principal Operating Officer /s/ FREDERICK M. DANZIGER Director - ---------------------------- (Frederick M. Danziger) /s/ JOHN L. ERNST Director - ---------------------------- (John L. Ernst) /s/ JAY M. GREEN Executive Vice President and - ---------------------------- (Jay M. Green) Principal Financial Officer /s/ THOMAS C. ISRAEL Director - ---------------------------- (Thomas C. Israel) /s/ DAN W. LUFKIN Director - ---------------------------- (Dan W. Lufkin) /s/ GRAHAM V. SHERREN Director - ---------------------------- (Graham V. Sherren) /s/ PETER J. SOLOMON Director - ---------------------------- (Peter J. Solomon) /s/ FRANCIS T. VINCENT, JR. Director - ---------------------------- (Francis T. Vincent, Jr.) /s/ JOSEPH C. AIRD Senior Vice President - ---------------------------- (Joseph C. Aird) and Controller -17- 18 CULBRO CORPORATION AND SUBSIDIARY COMPANIES INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA The financial statements together with the report thereon of Price Waterhouse LLP dated February 2, 1996, appearing in the accompanying 1995 Annual Report to Shareholders, are incorporated by reference in this Form 10-K Annual Report. With the exception of the aforementioned information and such other information specifically incorporated by reference herein, the 1995 Annual Report to Shareholders is not to be deemed filed or incorporated by reference as part of this report. The following exhibits and additional financial data should be read in conjunction with the financial statements in such 1995 Annual Report to Shareholders. Schedules not included with this additional financial data have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
PAGE ---- Consent of Independent Accountants and Financial Statements of Equity Investee - The Eli Witt Company F-1 Schedules: VIII Valuation and Qualifying Accounts and Reserves S-1 XI Real Estate and Accumulated Depreciation S-2/S-3 Exhibit 11 - Statement Re: Computation of Earnings Per Share E-1 Exhibit 21 - List of Subsidiaries E-2 Exhibit 23 - Report of Independent Accountants on Financial Statement Schedules and Consent of Independent Accountants E-3 Exhibit 27 - Financial Data Schedule E-4
19 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 2 - 94202) of Culbro Corporation of our report dated February 23, 1996 appearing in this Form 10-K. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Tampa, Florida February 23, 1996 F-1 20 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of The Eli Witt Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and changes in stockholders' equity present fairly, in all material respects, the financial position of The Eli Witt Company and its subsidiaries at December 2, 1995 and December 3, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 2, 1995, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The Eli Witt Company is a subsidiary of Culbro Corporation and, as disclosed in the Notes accompanying the consolidated financial statements, has had extensive transactions and relationships with Culbro Corporation. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions amoung wholly unrelated parties. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Tampa, Florida February 23, 1996 21 The Eli Witt Company CONSOLIDATED BALANCE SHEET (dollars in thousands) - --------------------------------------------------------------------------------
DECEMBER 2, December 3, ASSETS 1995 1994 Cash $ 8,769 $ 9,216 Trade receivables, less allowance of $1,093 (1994 - $2,336) 55,424 64,576 Inventories 43,288 54,576 Other current assets 1,310 1,860 --------- --------- Total current assets 108,791 130,228 Property and equipment, net 37,651 43,353 Other assets 7,664 15,535 --------- --------- Total assets $ 154,106 $ 189,116 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 59,143 $ 69,058 Current portion of long-term debt 9,316 8,151 --------- --------- Total current liabilities 68,459 77,209 Long-term debt 90,811 97,248 Other noncurrent liabilities 11,660 10,141 Commitments and contingencies (Notes 2 and 9) Mandatorily redeemable Series B preferred stock 19,150 17,650 Series C preferred stock 1,744 1,464 Series A preferred stock 12,011 10,080 Common stock 23 23 Class C common stock 3 3 Capital in excess of par value 994 994 Retained earnings (dividends in excess of) (50,749) (25,696) --------- --------- Total liabilities and shareholders' equity $ 154,106 $ 189,116 ========= =========
See Notes to Consolidated Financial Statements. 22 The Eli Witt Company CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands except per share data) - --------------------------------------------------------------------------------
1995 1994 1993 NET SALES AND OTHER REVENUE $ 1,506,612 $ 1,521,796 $1,197,346 COSTS AND EXPENSES Cost of goods sold 1,406,946 1,422,446 1,112,264 Selling, general and administrative expenses 104,986 106,003 75,048 Write-down of impaired assets 3,645 -- -- Restructuring charges -- 3,696 -- ----------- ----------- ---------- OPERATING PROFIT (LOSS) (8,965) (10,349) 10,034 Interest expense, net 8,296 7,298 6,998 ----------- ----------- ---------- (Loss) income before income taxes (17,261) (17,647) 3,036 Income tax (benefit) provision 4,081 (3,236) 702 ----------- ----------- ---------- Net (loss) income $ (21,342) $ (14,411) $ 2,334 =========== =========== ========== NET (LOSS) INCOME PER COMMON SHARE $ (9.65) $ (7.40) $ .25 =========== =========== ========== AVERAGE COMMON SHARES OUTSTANDING 2,595,000 2,359,245 1,930,769 =========== =========== ==========
See Notes to Consolidated Financial Statements. 23 The Eli Witt Company CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands) - --------------------------------------------------------------------------------
1995 1994 1993 OPERATING ACTIVITIES: Net (loss) income $(21,342) $(14,411) $ 2,334 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,021 7,332 4,553 Gain on sale of distribution centers (1,400) -- -- Write-down of impaired assets 3,645 -- -- Non-cash interest expense 765 231 -- Restructuring charge -- 3,696 -- Deferred income taxes 4,081 (3,236) 428 Negative goodwill amortization -- -- (623) Changes in assets and liabilities which increase (decrease) cash, net of effects from acquisitions: Trade receivables 5,914 6,950 (10,758) Intercompany receivable -- -- 19,473 Inventories 8,321 19,876 61,838 Other current assets 482 2,467 1,300 Accounts payable and accrued expenses (9,910) (5,025) (8,358) Increases in other non-current liabilities 1,519 237 (769) -------- -------- -------- Net cash provided by operating activities 96 18,117 69,418 -------- -------- -------- INVESTING ACTIVITIES: Proceeds from sale of distribution centers 8,410 -- -- Additions to property and equipment (2,801) (2,629) (3,413) Dispositions of property and equipment 999 1,099 1,268 Payments in connection with acquisitions, net of cash acquired -- (2,289) (2,762) Other, net 690 (273) (366) -------- -------- -------- Net cash provided by (used in) investing activities 7,298 (4,092) (5,273) -------- -------- -------- FINANCING ACTIVITIES: (Repayments) borrowings under bank financing, net (9,625) 9,775 69,376 Proceeds from issuance of convertible subordinated notes 5,000 3,000 -- Principal payments on other debt (3,216) (1,520) (3,100) Proceeds from mortgages -- 8,000 10,000 Repayment of bank indebtedness assumed in acquisition -- (23,904) (24,339) Repayment on mortgage -- (8,000) -- Cash dividend to parent -- -- (41,529) (Decrease) increase in intercompany debt, net -- -- (67,817) -------- -------- -------- Net cash used in financing activities (7,841) (12,649) (57,409) -------- -------- -------- Net change in cash (447) 1,376 6,736 Cash at beginning of period 9,216 7,840 1,104 -------- -------- -------- Cash at end of period $ 8,769 $ 9,216 $ 7,840 ======== ======== ========
See Notes to Consolidated Financial Statements. 24 The Eli Witt Company CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (dollars in thousands) - --------------------------------------------------------------------------------
RETAINED SERIES C SERIES A CAPITAL EARNINGS PREFERRED PREFERRED COMMON CLASS C IN EXCESS (DIVIDENDS IN STOCK STOCK STOCK COMMON STOCK PAR VALUE EXCESS OF) --------- --------- ------ ------------ --------- ------------- Balance November 28, 1992 $ -- $ -- $17 $- $ 4,438 $ 40,369 Net income -- -- -- - -- 2,334 Dividend to parent company -- -- -- - (7,435) (49,094) Issuance of Class C common stock -- -- -- 3 2,997 -- Issuance of Series A preferred stock -- 9,300 -- - -- -- Accretion of Series A preferred stock -- 705 -- - -- (705) Dividends accrued on Series B preferred stock -- -- -- - -- (1,150) ------ -------- --- -- ------- -------- Balance November 27, 1993 -- 10,005 17 3 -- (8,246) Net loss -- -- -- - -- (14,411) Issuance of Series C preferred stock 1,321 (1,321) -- - -- -- Accretion of Series A preferred stock -- 1,396 -- - -- (1,396) Dividends accrued on Series B preferred stock -- -- -- - -- (1,500) Accretion of Series C preferred stock 143 -- -- - -- (143) Issuance of common stock -- -- 6 - 994 -- ------ -------- --- -- ------- -------- Balance December 3, 1994 1,464 10,080 23 3 994 (25,696) Net loss -- -- -- - -- (21,342) Accretion of Series A preferred stock -- 1,931 -- - -- (1,931) Dividends accrued on Series B preferred stock -- -- -- - -- (1,500) Accretion of Series C preferred stock 280 -- -- - -- (280) ------ -------- --- -- ------- -------- Balance December 2, 1995 $1,744 $ 12,011 $23 $3 $ 994 $(50,749) ====== ======== === == ======= ========
See Notes to Consolidated Financial Statements. 25 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements reflect the accounts of The Eli Witt Company (the "Company") and its wholly-owned subsidiaries. Prior to February 19, 1993, the Company and Flaks, Inc. ("Flaks") were wholly-owned subsidiaries of Culbro Corporation ("Culbro"), but were operated as a single company. On February 19, 1993, in conjunction with the acquisition of Certified Grocers of Florida, Inc. described in Note 3, Flaks became a direct subsidiary of the Company in a transaction among related parties which has been accounted for in a manner similar to a pooling of interests. Accordingly, the accompanying consolidated financial statements reflect the consolidated financial position, consolidated results of operations and consolidated cash flows of the Company and Flaks after elimination of intercompany accounts and transactions. BUSINESS SEGMENT The Company is a wholesale distributor of cigarettes, tobacco products, candy, food, health and beauty aids and general merchandise and at December 2, 1995 was primarily concentrated in the southeastern United States. Cigarette sales represent a significant percentage of the Company's total net sales and other revenue. FISCAL YEAR The Company's fiscal year ends on the Saturday nearest November 30. Fiscal 1995, 1994, and 1993 ended December 2, 1995, December 3, 1994, and November 27, 1993, respectively. The 1995 and 1993 fiscal years included 52 weeks, the 1994 fiscal year included 53 weeks. INVENTORIES The Company's inventories are stated at the lower of cost or market using the last-in, first-out ("LIFO") method. The inventories of Flaks (which were liquidated in 1995) of $3,948 (1994) were stated on the first-in, first-out ("FIFO") method. Inventories consist mainly of cigarettes, tobacco, candy, food, health and beauty aids and general merchandise. LONG-LIVED ASSETS During fiscal 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The statement establishes standards for measurement of recoverability of long-lived assets, certain identifiable intangibles, and goodwill based on changed circumstances identified to determine whether impairment of such assets exists. 1 26 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- In accordance with the application of SFAS No. 121, the Company has reviewed the recoverability of goodwill and certain computer software development costs and has determined that the carrying amount of goodwill and software development costs should be adjusted by $1,645 and $2,000, respectively to their estimated recoverable costs. Accordingly, a total of $3,645 has been recognized as a loss in the accompanying Statement of Operations. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation is determined on a straight-line basis over the estimated useful asset lives for financial reporting purposes and principally on accelerated methods for tax purposes. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation are removed from the accounts and the difference between book value and any proceeds realized on sale is charged or credited to income. Expenditures for maintenance and repairs are charged to income as incurred; renewals and improvements are capitalized. POSTRETIREMENT BENEFITS Effective at the beginning of the 1993 fiscal year, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires the Company to recognize postretirement benefits on the accrual basis. The Company elected to amortize its accumulated liability for postretirement benefits over twenty years. REVENUE RECOGNITION Sales are recognized when product is delivered and accepted by the customer. Sales incentives are granted to customers based upon the volume of purchases. These sales incentives are recorded at the time of sale as a reduction of gross sales. PROMOTIONAL AND INCENTIVE PROGRAMS The Company records amounts relating to incentive programs for cigarette purchases on an accrual basis. Other promotional and incentive program amounts based on purchases are recognized as received. Prior to fiscal 1994, the Company recorded amounts relating to incentive programs for cigarette purchases on a cash basis. Had the Company recorded such amounts on an accrual basis, the resulting reduction in cost of goods sold would have been approximately $1.1 million for fiscal 1993. INTANGIBLES Included in other assets are the excess of the costs of businesses acquired over the fair value of their net tangible assets of $1,866 and $3,622, at December 2, 1995 and December 3, 1994, which are being amortized on a straight-line basis over 25 years and 2 27 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- $3 million related to Supply Agreements which are being amortized over ten years. Accumulated amortization of intangible assets resulting from business acquisitions was $328 and $294, at December 2, 1995 and December 3, 1994, respectively. INCOME TAXES The Company uses the liability method of accounting for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Prior to April 25, 1994, the Company joined with Culbro in filing consolidated federal income tax returns. In connection with the acquisition of the southern divisions of NCC L.P. on April 25, 1994, described in Note 3, the Company was disaffiliated as of that date from Culbro for purposes of filing federal income tax returns. In subsequent periods, the Company files a separate consolidated federal income tax return. EARNINGS (LOSS) PER SHARE Earnings (loss) per share of common stock are based on the weighted average number of shares of common stock outstanding during the year. Net income (loss), applicable to earnings (loss) per common share, consists of reported net income (loss) and dividend requirements and accretion on preferred stock. FAIR VALUE OF FINANCIAL INSTRUMENTS The amounts included in the financial statements for trade receivables, accounts payable and accrued expenses reflect their fair values because of the short-term maturity of these instruments. The fair values of the Company's other financial instruments are discussed in Notes 5 and 8. 2. RESTRUCTURING 1995 On April 10, 1995, the Company sold the assets of its Denver and Albuquerque divisions for $8,510 and assumption of capital lease obligations of $269. Operating lease commitments with annual rental payments of $458 were also assumed by the buyer. The buyer obtained a non-compete agreement for the area serviced by these divisions for a period of three years. The Company recognized a gain on sale after all transaction costs of $1.4 million, which is included in other revenues in the consolidated statement of operations. During November 1995, the Company entered into a memorandum of understanding to sell the assets of its Baltimore and Richmond Divisions. The sale is contingent upon the 3 28 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- negotiation of a definitive agreement. If the sale is consummated as proposed, the Company expects no significant gain or loss from the sale. 1994 Restructuring charges in 1994 principally relate to the closing of certain Eli Witt facilities and a corporate reorganization necessitated by the acquisition of NCC as described in Note 3. 3. ACQUISITIONS ACQUISITION OF SOUTHERN DIVISIONS OF NCC L.P. On April 25, 1994, the Company purchased the net assets of the southern divisions of NCC L.P. ("NCC"), a limited partnership engaged in the wholesale distribution business for 595,000 shares of common stock of the Company. Concurrent with this acquisition, a partner of NCC purchased from Culbro, for proceeds of $12 million, a 10% exchangeable note of Culbro with a face value of $15 million and 400,000 shares of the Company's common stock held by Culbro. The Culbro note is exchangeable into the Series B Preferred Stock of the Company. The NCC partner also purchased for $3 million, a newly issued $5 million convertible subordinated note of the Company discounted to yield 12.5%. The note is convertible into Series D preferred stock of the Company. In addition, the Company amended the terms of the Series A preferred stock, provided for the issuance of the Series C preferred stock and split the Series A preferred stock into Series A and Series C preferred stock. The acquisition was accounted for as a purchase. The accompanying financial statements reflect the fair value of the assets and liabilities acquired. Prior to this acquisition, Culbro owned 85% of the outstanding common stock of the Company and former shareholders of Certified Grocers of Florida, Inc. ("Certified Grocers") held 15% of the outstanding common stock of the Company, which they received in connection with the acquisition of Certified Grocers in 1993. In connection with the NCC acquisition, NCC and one of its partners received a total of 995,000 shares, described above, representing approximately 38% of the outstanding common stock of the Company. Culbro retained a 50.1% ownership in the common stock of the Company and the former shareholders of Certified Grocers now hold approximately 12% of the outstanding common stock of the Company. 4 29 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- Unaudited pro forma condensed consolidated financial information, assuming the acquisition of NCC had taken place at the beginning of 1994 and 1993 fiscal years and the acquisition of Certified Grocers (as described below) had taken place at the beginning of 1993, are as follows:
1994 1993 Net sales and other revenue $ 1,739,000 $1,929,000 Net loss (21,000) (10,000) Net loss per common share (9.39) (4.90)
The unaudited pro forma condensed financial information is presented for comparative purposes and does not necessarily reflect the results of operations which would have occurred had the acquisitions been completed at the beginning of the years presented. ACQUISITION OF CERTIFIED GROCERS OF FLORIDA, INC. On February 19, 1993, pursuant to an Agreement and Plan of Merger (the "Agreement") dated November 3, 1992 the Company acquired Certified Grocers of Florida, Inc., a full-service grocery wholesale distribution company for approximately $12.9 million consisting of $9.3 million of Series A preferred stock and the direct costs of the acquisition. Pursuant to the Agreement, each share of Certified Grocers' common stock (except dissenters' shares) was converted to one share of newly issued Eli Witt Series A preferred stock and the shareholders of Certified Grocers who entered into three-year Supply Agreements received newly issued Eli Witt Class C common stock (300,000 shares of $0.01 par value Class C Common). The holders of the Certified Grocers' preferred stock and dissenting common shareholders had their shares redeemed at their respective liquidation values, which was approximately $600 in the aggregate. Culbro retained an 85% common equity interest in the Company after issuance of the Class C common stock. In addition, as part of the financing required to consummate the transaction, Culbro was issued $15 million of newly issued Eli Witt 10% Series B preferred stock which is mandatorily redeemable in five and one half years from the date of issuance. The acquisition was accounted for as a purchase and accordingly, the assets and liabilities of Certified Grocers were recorded at their estimated fair values and the accompanying financial statements include all activities subsequent to the acquisition date. Goodwill of approximately $1.9 million, reflecting the excess of the fair value of the Series A preferred stock and other costs and expenses related to the acquisition over the fair value of the net assets acquired, is being amortized over twenty-five years. In connection with the merger, the Company paid Culbro a Special Dividend, calculated based on the net book value (on a FIFO basis, as defined) less $25 million and other adjustments, and certain non-operating facilities of the Company with a net book value of $.4 million were transferred to Culbro. The Company's intercompany indebtedness to 5 30 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- Culbro and Certified Grocers' indebtedness that was assumed by the Company were repaid from the $125 million of bank financing. Unaudited pro forma condensed consolidated financial information, assuming the acquisition of Certified Grocers had taken place at the beginning of the 1993 fiscal year, is as follows:
1993 Net sales and other revenue $ 1,262,000 Net income 532 Net loss per common share (.95)
The unaudited pro forma condensed financial information is presented for comparative purposes and does not necessarily reflect the results of operations which would have occurred had the acquisition been completed at the beginning of the years presented. ACQUISITION OF TRINITY DISTRIBUTORS In June 1993, the Company acquired certain assets and liabilities of Trinity Distributors, Inc. ("Trinity") for approximately $4 million. Trinity was a wholesale distributor of tobacco, candy, and other products servicing Texas and Louisiana. The effect of the acquisition was not significant, the transaction was financed through cash and notes payable and was accounted for as a purchase. 4. RELATED PARTY TRANSACTIONS INTERCOMPANY DEBT AND INTEREST Prior to the acquisition of Certified Grocers and separate financing of the Company, the Company was financed under long-term debt and revolving credit facilities maintained by Culbro on behalf of all of its subsidiaries. Culbro charged the Company a 10% rate on the average monthly balance of the intercompany debt. Intercompany interest expense charges were $1,787 in 1993 prior to the Company obtaining its separate financing. Such intercompany interest expense charges may not be indicative of the level of interest charges the Company would have incurred if it were separately financed. Long-term debt includes indebtedness to Culbro consisting of a $2 million mortgage, and a $5.3 million subordinated note. See Note 5. INVENTORY PURCHASES AND EXPENSE ALLOCATIONS FROM RELATED PARTIES In connection with the establishment of its separate financing arrangement, the Company and Culbro executed a Management Services Agreement. This arrangement at December 2, 1995 under Culbro continues to provide the Company with certain 6 31 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- administrative services primarily legal and tax. Prior to the execution of the Management Services Agreement, Culbro provided these and other services to the Company and the Company's results for the fiscal periods prior to the Management Services Agreement reflect the estimated costs of such services. The Company purchases certain tobacco products from a subsidiary of Culbro. A summary of these related party purchases and charges is as follows:
1995 1994 1993 COSTS OF GOODS SOLD Tobacco products purchased $2,872 $3,336 $2,334 ====== ====== ====== SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Culbro general and administrative service cost allocation $ 350 $ 410 $ 462 Insurance - workers' compensation and property/liability -- -- 72 Third-party administrative services -- -- 82 ------ ------ ------ $ 350 $ 410 $ 616 ====== ====== ======
Such intercompany charges for selling, general and administrative expenses may not be indicative of the level of charges the Company would have incurred if the goods or services were obtained from an unrelated third party. 7 32 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- 5. LONG-TERM DEBT Long-term debt includes:
Amount Outstanding Loan DECEMBER 2, December 3, Commitment 1995 1994 Credit agreement: Revolving credit agreement $ 83,000 $ 65,500 $ 57,000 Term loan, payable in 1996 5,500 5,500 23,625 ---------- ---------- ---------- $ 88,500 71,000 80,625 Mortgages payable, primarily at 10%, secured by warehouses 11,679 11,819 Subordinated notes payable to shareholders, due in 1998 8,942 3,231 Other indebtedness 2,268 2,309 Capital leases 6,238 7,415 ---------- ---------- 100,127 105,399 Less amount due within one year 9,316 8,151 ---------- ---------- Long-term $ 90,811 $ 97,248 ========== ==========
At December 2, 1995, the Company was operating under a waiver of certain covenants of its 1993 Credit Agreement. On January 31, 1996 the Agreement was amended. In accordance with the terms of the amendment interest rates are at LIBOR plus 3-1/4% and prime plus 1-1/2%, and the commitment will be reduced to $72.5 million in connection with the anticipated receipt of proceeds from the transaction described in Note 2. An amendment fee ranging from $500 to $1,000 will be eliminated if the amounts outstanding under the Agreement are repaid during 1996. The amendment established a revised termination date of February 1, 1997, eliminated covenants relating to the maintenance of minimum earnings to fixed charges and working capital, and established or modified covenants to maintain minimum net worth and EBIT, as defined. Unamortized deferred financing costs of $2.4 million at December 2, 1995 related to the Credit Agreement are included in other assets and are being amortized over the life of the Credit Agreement. The Credit Agreement has a commitment fee of .5% for unused lines. Annual payment requirements excluding the revolving facilities of the Credit Agreement and capital leases for the years 1997 through 1999 are $450, $13,033, and $7,520. The Credit Agreement is secured by accounts receivable, inventories and certain property and equipment, and places certain restrictions on the Company, including 8 33 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- prohibition of dividends, limitation on capital expenditures, lease commitments, ownership changes, and assets sales. On April 21, 1995, Culbro purchased from the Company a 10% subordinated note in the amount of $5 million. The note matures in 1998. Proceeds of the note were used for general working capital purposes. At December 2, 1995, the Company held interest rate swap agreements with major banks as a hedge against interest rate exposure on variable rate debt. The agreements which expire in March 1996, effectively convert $30 million of variable rate debt under the Credit Agreement to fixed rate debt at an average rate of 8.0%. The difference to be paid or received on the interest rate swap agreements is charged or credited to interest expense over the life of the swap agreements. The effect of the swap agreements, including certain agreements which expired in 1995, was to decrease interest expense in 1995 by $524 and to increase interest expense in 1994 and 1993 by $200 and $558, respectively, when interest rates varied from the swap rates. The Company considers the fixed rate and variable rate financial instruments, excluding the related party mortgage, to be representative of current market interest rates and, accordingly, the recorded amounts approximate their present fair market value. 9 34 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- 6. INCOME TAXES The provision (benefit) for income taxes charged (credited) to operations was as follows:
1995 1994 1993 Current: Federal $ -- $ -- $204 State -- -- 70 Deferred, principally federal 4,081 (3,236) 428 ------ ------- ---- Total provision (benefit) $4,081 $(3,236) $702 ====== ======= ====
Deferred tax liabilities (assets) are comprised of the following at December 2, 1995 and December 3, 1994:
1995 1994 LIFO inventory $ 5,984 $ 6,955 Depreciation 5,135 5,251 Other 2,402 928 ---------- ----------- Gross deferred tax liabilities 13,521 13,134 ---------- ---------- Tax net operating loss carryforward (17,300) (9,646) Pension liability (3,617) (3,355) Restructuring reserves (2,707) (3,211) Insurance and compensation reserves (1,959) (2,288) Other (1,928) (2,470) ----------- ---------- Gross deferred tax assets (27,511) (20,970) ----------- ---------- Valuation allowance 13,990 3,755 ----------- ----------- Net deferred tax asset $ - $ (4,081) =========== ===========
10 35 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations as a result of the following differences:
1995 1994 1993 Federal tax (benefit) expense at statutory rate $ (5,869) $ (5,993) $ 1,032 Increase in valuation allowance 10,235 3,358 - State and local income tax (benefit) (684) (698) 66 Negative goodwill - - (212) Other 399 97 (184) ----------- ---------- ----------- $ 4,081 $ (3,236) $ 702 =========== ========== ===========
The Company has net operating loss carryforwards of $45,500 including $7,800 related to Certified Grocers. The Internal Revenue code limits utilization of the Certified Grocers' net operating loss carryforwards to $624 per year. Net operating loss carryforwards expire substantially between 2006 and 2010. Net operating losses are recognized to the extent of deferred tax liabilities that will reverse in the carryforward period and certain tax planning strategies identified by management. The valuation allowance has been increased to fully reserve for the net deferred tax asset that more than likely will not be realized, resulting in an increase in the valuation allowance for deferred tax assets of $10,235 during fiscal year 1995. 7. EMPLOYEE RETIREMENT BENEFITS The Company maintains a noncontributory defined benefit pension plan which formerly provided for benefits to employees until 1992 when benefits were curtailed. The Plan provided benefits based on employees' years of service and compensation. Contributions to the Plan are made in accordance with the provisions of the Employee Retirement Income Security Act of 1974. Pension expense included in the consolidated statement of operations was as follows:
1995 1994 1993 Administrative costs $ 163 $ 161 $ 162 Interest on projected benefit obligations 1,157 1,123 1,114 Actual return on plan assets (1,637) (312) (955) Net amortization and deferral of gains (losses) 1,001 (411) 271 ------------ ------------ ------------ Net pension expense $ 684 $ 561 $ 592 ============ ============ ============
11 36 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- At December 2, 1995 and December 3, 1994, the funded status of the Plan was as follows:
1995 1994 Plan assets as fair value, primarily equities and fixed income instruments $ 8,171 $ 7,621 Present value of benefits earned by participants, including vested benefit of $15,432 and $13,567 at December 2, 1995 and December 3, 1994, respectively 15,579 13,835 ------- ------- Present value of benefit obligations in excess of plan assets 7,408 6,214 Unrecognized net gain 381 1,218 ------- ------- Net pension liability included in consolidated balance sheet $ 7,789 $ 7,432 ======= =======
Discount rates of 7.5% and 8.5% were used to compute the present value of pension benefits at December 2, 1995 and December 3, 1994, respectively. The expected rate of return on pension plan assets in 1995, 1994, and 1993 was estimated at 9% representing the average long-term rate expected from investment of the Plan's assets. The Company also maintains The Eli Witt Company Savings Plan which formerly provided employer matching contributions at the rate of 60% of employees' contributions. During fiscal 1994, the rate of employer matching was reduced to 30%, and matching contributions were discontinued in November 1994. Such contributions when made are limited to 5% of such employee's eligible compensation. The Company's matching contribution in 1994 was $499 and 1993 was $384. The Company also provides other postretirement benefits, principally health and life insurance benefits, to certain of its retired employees. Effective at the beginning of the 1993 fiscal year, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement required the Company to recognize postretirement benefits other than pensions on the accrual basis and record a liability for the present value of its unfunded accumulated postretirement benefit obligation. Previously, the Company expensed the cost of postretirement benefits when paid. The Company has elected to recognize the cumulative effect of the change in accounting for other postretirement benefits by amortizing the accumulated obligation 12 37 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- over 20 years. The components of periodic expense for other postretirement benefits were as follows:
1995 1994 1993 Service cost - benefits earned during year $ 41 $ 53 $ 58 Interest cost on accumulated postretirement benefit obligation 365 389 349 Amortization of unrecognized (gain)/loss (5) 14 -- Amortization of accumulated postretirement benefit obligation 246 246 246 ----- ---- ---- Total expense $ 647 $702 $653 ===== ==== ====
At December 2, 1995 and December 3, 1994, the actuarial present value of the Company's future liability for these postretirement benefits, was as follows:
1995 1994 Retirees $ 3,755 $ 4,136 Active plan participants 1,006 822 --------- -------- 4,761 4,958 Less: Unrecognized transition obligation (4,180) (4,426) Unrecognized experience (gain)/loss 37 (104) --------- -------- Net liability included in consolidated balance sheet $ 618 $ 428 ========= ========
The accumulated postretirement benefit obligation was determined using a discount rate of 7.5% and 8.5% at December 2, 1995 and December 3, 1994, respectively. Because the Company's obligation for retirees' medical benefits is fixed, any increase in the medical cost trend would have no effect on the accumulated postretirement benefit obligation, service cost or interest cost. In connection with the Certified Grocers' acquisition, the Company assumed postretirement benefits for current and former management personnel. The remaining obligation of $807 is included in the accompanying consolidated balance sheet. During 1995, the Company's Board of Directors approved the 1995 Long Term Incentive Unit Plan which provides for grant of up to 250,000 stock units. The Plan provides for payment subsequent to an initial public offering or a change of control of the Company. Each unit granted is to be paid equivalent to the value of one share of common stock, as defined, in cash or common stock, if approved by the Board of Directors. At December 2, 1995, 90,930 units were outstanding to officers and directors which will vest in June, 1996. 13 38 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- 8. CAPITAL ACCOUNTS The consolidated capital accounts as of December 2, 1995 are comprised of the following: SERIES A PREFERRED STOCK Dividends on the Series A preferred commence accruing February 19, 1996. Dividends are cumulative and will be accrued at a rate of 8% through February 28, 1997, and thereafter the dividend rate will be adjusted quarterly with a ceiling of 12% and a floor of 7%. Dividend payments will be prohibited by the terms of the credit agreement and the priority of Series B and Series C preferred stock. The Series A preferred stock is redeemable at the Company's option at the stated value, plus all accrued dividends. An aggregate of $8 million of Series A and Series C preferred stock is subject to mandatory redemption if there is a change in control, as defined, or sale of 50% or more of the common stock of the Company, as defined. Holders of the Series A preferred stock do not have voting rights, however, they can appoint two non-voting representatives to the Company's Board of Directors. Also, the holders of Series A preferred stock may appoint a majority number of representatives to the Company's Board of Directors if certain events occur. The face value of the Series A preferred stock was discounted to its fair value at the date of issuance. The difference between the fair value of the Series A preferred stock and its stated value is being accreted using the interest method. This stock has a $.005 par value per share, and there are 788,199 shares authorized and outstanding. SERIES B PREFERRED STOCK Dividends on the Series B preferred are cumulative and accrue at 10%. Dividend payments are restricted under the Credit Agreement. The Series B preferred stock has liquidation preferences prior to all other classes or series of preferred and common stock, except the Series C preferred stock. The holder of the Series B preferred stock does not have voting rights. This Series B stock including accrued dividends is mandatorily redeemable in 1998 subject to loan covenant restrictions. As of December 2, 1995, no dividends on the Series B preferred stock had been declared or paid. Dividends aggregating $4,150 have been accrued and included in the preferred stock balance. The $19,150 recorded value approximates the redemption value of the Series B preferred stock. This stock has a $.01 par value per share, and there are 15,000 shares authorized and outstanding. SERIES C PREFERRED STOCK Dividends are cumulative and commence accruing February 19, 1996. The dividend rate will be 8% through February 28, 1997 and thereafter the dividend rate will be adjusted quarterly with a ceiling of 12% and a floor of 7%. Dividend payments and liquidation preferences of the Series C preferred stock have priority to all other classes or series of 14 39 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- preferred and common stock. The Series C preferred stock is redeemable at the Company's option at the stated value plus all accrued dividends. Holders of Series C preferred stock do not have voting rights. The face value of the Series C preferred stock of $2,000 was discounted to its pro-rata fair value prior to being split from the Series A preferred. The difference between the fair value of the Series C preferred stock and its stated value is being accreted using the interest method. This stock has a $.005 par value per share, and there are 788,199 shares authorized and outstanding. COMMON STOCK There are 5,000,000 shares of common stock authorized and 2,295,000 shares issued and outstanding at December 2, 1995 and December 3, 1994. CLASS C COMMON STOCK In connection with the acquisition of Certified Grocers, the Company issued 300,000 shares of $.01 par value Class C common stock in exchange for three-year Supply Agreements. Holders of the Class C common stock may elect two voting members of the Board of Directors of the Company. The Class C common stock is convertible into ordinary common stock at any time at the election of the holders, has anti-dilution protection, stock sale participation rights, and piggy-back registration rights. There are 300,000 shares authorized, issued, and outstanding. 9. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company has noncancelable leases relating principally to transportation equipment, data processing, and warehouse and office facilities. 15 40 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- CAPITAL LEASES Future minimum lease payments under capital leases and the present value of such payments as of December 2, 1995 were: 1996 $ 2,379 1997 2,180 1998 1,409 1999 921 2000 355 Later years 133 -------- Total minimum lease payments 7,377 Less: Amounts representing interest 1,139 -------- Present value of minimum lease payments (a) $ 6,238 ========
(a) Includes current portion of $1,929 at December 2, 1995. At December 2, 1995, machinery and equipment included capital leases amounting to $4,777 (1994 - $6,672), which is net of accumulated depreciation of $6,446 (1994 - $6,533). Depreciation expense relating to capital leases was $1,514 in 1995 (1994 - $1,099; 1993 - $824). OPERATING LEASES Future minimum rental payments under noncancellable leases as of December 2, 1995 were: 1996 $ 5,973 1997 4,459 1998 4,159 1999 2,884 2000 1,961 Later years 8,196 -------- Total minimum lease payments $ 27,632 ========
Total rental expense for all operating leases in 1995 was $8,226 (1994 - $7,687; 1993 - $3,375). LITIGATION The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the ultimate resolution with respect to these actions will not have a material adverse effect upon the consolidated financial position of the Company. 16 41 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- 10. SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT INFORMATION NET SALES AND OTHER REVENUE Excise taxes paid on cigarette sales in 1995 were $180,000 (1994 - $180,000; 1993 - $130,000) and are included in net sales and other revenue and cost of goods sold. Negative goodwill amortization in 1993 which related to the acquisition of the Company by Culbro was $623 and is included in net sales and other revenue. INVENTORIES The cost of the Company's inventories at LIFO was $43,288 and $50,628 at December 2, 1995 and December 3, 1994, respectively. On a FIFO basis, the cost of the inventories would have been $58,983 and $64,803, respectively. Cost of sales on a FIFO basis would have been lower by $1,520 and $875 in 1995 and 1994, respectively, and higher by $2,090 in 1993. The Company believes that the LIFO method generally results in a better matching of costs and revenues. This supplemental information is presented for comparative purposes. PROPERTY AND EQUIPMENT Property and equipment, net, consist of:
DEPRECIABLE DEC. 2 DEC. 3 LIVES 1995 1994 Land $ 2,606 $ 2,606 Buildings 30 23,515 23,952 Machinery and equipment 4-10 27,367 32,789 ----------- ----------- 53,488 59,347 Accumulated depreciation (15,837) (15,994) ----------- ----------- $ 37,651 $ 43,353 =========== ===========
ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses include trade payables of $47,432 (1994 - $52,697) and various accrued expenses totaling $11,711 (1994 - $16,361). OTHER NONCURRENT LIABILITIES Other noncurrent liabilities include pension liability of $7,471 (1994 - $7,432). 17 42 The Eli Witt Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) - -------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION
1995 1994 1993 Cash paid during the year for: Interest - third party: Bank debt $ 5,990 $ 5,670 $ 4,086 Other indebtedness 1,628 1,539 940 ------------ ---------- ----------- $ 7,618 $ 7,209 $ 5,026 ============ ============= =============
In addition, the Company had the following non-cash investing and financing activities:
1995 1994 1993 Capital lease assets and obligations $2,071 $ 5,838 $ 388 ------ -------- -------- Dividend of Series B preferred stock to parent $ -- $ -- $ 15,000 ------ -------- -------- Dividend accrued on Series B preferred stock $1,500 $ 1,500 $ 1,150 ------ -------- -------- Class C common stock issued in exchange for supply contracts $ -- $ -- $ 3,000 ------ -------- -------- Fair value of assets acquired, including goodwill $ -- $ 50,770 $ 64,295 Liabilities assumed -- (47,437) (48,990) Series A preferred stock issued -- -- (9,300) Long term debt issued -- -- (2,467) Common stock issued -- (1,000) -- ------ -------- -------- Payments in connection with acquisitions -- 2,333 3,538 Cash acquired -- (44) (776) ------ -------- -------- Payments in connection with acquisitions, net of cash acquired $ -- $ 2,289 $ 2,762 ====== ======== ========
18 43 CULBRO CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (dollars in thousands)
Balance at Charged to Charged to Deductions Balance at beginning costs and other from end Description of year expenses accounts reserves of year - ----------- ---------- ---------- --------- ---------- ---------- FOR THE FISCAL YEAR ENDED DECEMBER 2, 1995 ------------------------------------------ Reserves: Uncollectible accounts - Trade $1,426 $ 545 $ 20 $ 832 (1) $1,159 ====== ====== ==== ====== ====== Inventories $1,479 $1,374 $ 65 $1,470 (2) $1,448 ====== ====== ==== ====== ====== FOR THE FISCAL YEAR ENDED DECEMBER 3, 1994 ------------------------------------------ Reserves: 1,220 (3) Uncollectible accounts - Trade $2,364 $ 764 $ 39 $ 521 (1) $1,426 ====== ====== ==== ====== ====== Inventories $ 832 $1,422 $ 90 $ 865 (2) $1,479 ====== ====== ==== ====== ====== FOR THE FISCAL YEAR ENDED NOVEMBER 27, 1993 ------------------------------------------ Reserves: Uncollectible accounts - Trade $2,650 $1,332 $617 $2,235 (1) $2,364 ====== ====== ==== ====== ====== Inventories $1,247 $ 534 $ - $ 949 (2) $ 832 ====== ====== ==== ====== ======
NOTES: (1) Accounts receivable written-off. (2) Inventories disposed. (3) Deconsolidation of Eli Witt. S-1 44 CULBRO CORPORATION SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (dollars in thousands)
Cost Capitalized Subsequent Gross Amount Initial Cost to Acquisition At December 2, 1995 --------------- ---------------- ------------------------ Encum- Bldg & Carrying Bldg & Accum Date of Date of Depr Description brances Land Impr. Impr Costs Land Impr Total Depr Constr Acq Life - ----------- ------- ---- ------- ------- -------- ---- ------- ----- ------- ------- ------- ----- Land - CT $ - $2,925 $ - $ 6,981 $ 80 $3,005 $ 6,981 $9,986 ($288) Restaurant Bloomfield, CT - 1 - 1,266 - 1 1,266 1,267 (458) 1983 40 yrs Rsdntl Develpmt Windsor, CT - 78 - 1,764 2,156 78 3,920 3,998 Comm. Office Bldg Bloomfield, CT 736 47 - 2,190 - 47 2,190 2,237 (1,069) 1977 40 yrs Comm. Office Bldg Bloomfield CT - 3 - 1,815 - 3 1,815 1,818 (503) 1985 40 yrs Comm. Office Bldg Bloomfield, CT - 1 - 1,542 24 1 1,566 1,567 (263) 1988 40 yrs Comm. Office Bldg (288) Bloomfield CT - 1 - 1,452 23 1 1,475 1,476 1988 40 yrs Comm. Office Bldg Bloomfield, CT - 1 - 666 - 1 666 667 (140) 1988 40 yrs Comm. Office Bldg Bloomfield CT - 5 - 3,288 40 5 3,328 3,333 (386) 1991 40 yrs Comm. Office Bldg E. Granby, CT 1,972 74 - 3,148 - 74 3,148 3,222 (1,530) 1978 40 yrs Comm. Office Bldg E. Granby, CT - 32 1,723 179 - 32 1,902 1,934 (441) 1989 40 yrs Comm. Office Bldg Windsor, CT 3,817 69 --- 4,415 149 68 4,565 4,633 (813) 1989 40 yrs ------ ------ ------ ------- ------ ------ ------- ------- ------- - $6,525 $3,237 $1,723 $28,706 $2,472 $3,316 $32,822 $36,138 ($6,179) ====== ====== ====== ======= ====== ====== ======= ======= ========
S-2 45 CULBRO CORPORATION SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (dollars in thousands)
FISCAL YEAR ENDED DECEMBER 2, 1995 - ---------------------------------- Cost Reserve ------- -------- Balance at beginning of period $36,491 ($5,118) Changes during the period: Improvements 802 Additions to reserve charged to costs and expenses (814) Reclassification (247) Cost of sales (1,155) ------- ------- Balance at end of period $36,138 ($6,179) ======= ======== FISCAL YEAR ENDED DECEMBER 3, 1994 - ---------------------------------- Cost Reserve ------- ------- Balance at beginning of period $39,676 ($4,338) Changes during the period: Improvements 1,624 Additions to reserve charged to costs and expenses (780) Cost of sales (including writeoffs) (4,809) ------- ------- Balance at end of period $36,491 ($5,118) ======= ======== FISCAL YEAR ENDED NOVEMBER 27, 1993 - ----------------------------------- Cost Reserve ------- ------- Balance at beginning of period $39,328 ($3,664) Changes during the period: Improvements 1,352 Additions to reserve charged to costs and expenses (748) Cost of sales (1,004) 74 ------- ------- Balance at end of period $39,676 ($4,338) ======= =======
S-3 46 EXHIBIT INDEX Exhibit No. Description ----------- ----------- (3) THE ARTICLES OF INCORPORATION AND BY-LAWS OF THE CORPORATION. (A) The Articles of Incorporation, as amended to date (Incorporated by reference to Exhibits to Form 10- K of the Corporation filed for the fiscal year 1984 - (Exhibit 3(A)) and to the definitive proxy statement of Registrant, dated April 11, 1988, for its Annual Meeting of Shareholders held on May 12, 1988). (B) The By-Laws, as amended to date (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1984 - (Exhibit 3(B)) and to the definitive proxy statement of Registrant, dated April 11, 1988, for its Annual Meeting of Shareholders held on May 12, 1988). (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES. (A) Note Purchase Agreement, dated July 15, 1988, respecting 9.87% Series C Senior Notes due 1998 and 9.93% Series D Senior Notes due 1998 (Incorporated by reference to Exhibits to Form 10-Q of the Corporation filed for the thirteen weeks ended July 2, 1988 - (Exhibit (a)(2)). (B) Credit Agreement, dated May 24, 1990 with several banks and Manufacturers Hanover Trust Company, as Agent. (Incorporated by reference to Exhibits to Form 10-Q of the Corporation filed for the thirteen weeks ended June 30, 1990 - (Exhibit (a)). (C) Amended and Restated Note Purchase Agreement among the Corporation and six institutional investors relating to the private placement of $35,000,000 of Senior Notes, dated July 15, 1988 amended and restated as of February 19, 1993, including Exhibits (which have been omitted but will be furnished to the Commission upon request). (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1992). (D) Amended and Restated Credit Agreement, dated February 19, 1993 with several banks and Chemical Bank, as Agent, including Exhibits (which have been omitted but will be furnished to the Commission upon request). (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1992). (E) Credit Agreement among The Eli Witt Company, The Several Lenders from Time to Time Parties Hereto and Chemical Bank, as Agent, Dated as of February 19, 1993. (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1992). Certain other documents evidencing indebtedness of the Corporation are not filed herewith in reliance upon the exemption provided by Item 601(b)(4)(iii)(A); the Registrant hereby undertakes to furnish a copy of such documents to the Commission upon request. (10) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS. (A) 1992 Stock Plan of Registrant, dated December 10, 1993 (Incorporated by reference to the definitive proxy statement of Registrant, dated March 3, 1993, for its Annual Meeting of Shareholders held on April 8, 1993). (B) Stock Option Plan for Non-employee Directors of Registrant, dated December 10, 1993 (Incorporated by reference to the definitive proxy statement of Registrant, dated March 3, 1993, for its Annual Meeting of Shareholders held on April 8, 1993). (C) 1991 Employees Incentive Stock Option Plan of Registrant (Incorporated by reference to the definitive proxy statement of Registrant, dated April 9, 1991, for its 1991 Annual Meeting of Shareholders held on May 9, 1991). (D) 1983 Employees Incentive Stock Option Plan of Registrant, as amended (Incorporated by reference to the definitive proxy statement of Registrant, dated April 6, 1983, for its Annual Meeting of Shareholders held on May 12, 1983 and to the Appendix filed pursuant to Rule 424(c) under the Securities Act of 1933, as amended, dated March 3, 1987). (E) Employment Contract between the Registrant and Jay M. Green (Incorporated by reference to the definitive proxy statement of Registrant, dated March 14, 1994, for its Annual Meeting of Shareholders held April 7, 1994). (F) Shareholders Agreement dated as of April 25, 1994 among Culbro Corporation, MS Distribution, Inc. and The Eli Witt Company (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for fiscal year 1994). (G) Culbro Corporation 10% Exchangeable Note Due 1998 in the amount of $15,000,000, issued April 25, 1994 to MS Distribution, Inc. (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for fiscal year 1994). (11) STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE. See Index to Financial Statements and Additional Financial Data. (13) ANNUAL REPORT TO SECURITY HOLDERS. The Corporation's Annual Report to Shareholders for 1995 (annexed hereto). Such Annual Report, except for those portions which are expressly incorporated by reference, is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" or incorporated by reference as part of this Form 10-K. (21) SUBSIDIARIES. List of Subsidiaries. See Index to Financial Statements and Additional Financial Data. (23) REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES AND CONSENT OF INDEPENDENT ACCOUNTANTS. See Index to Financial Statements and Additional Financial Data. (27) FINANCIAL DATA SCHEDULE. See Index to Financial Statements and Additional Financial Data. (28) UNDERTAKING. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference to registrant's Registration Statement on Form S-8 (Incorporated by reference to Exhibits to Form 10-K of the Corporation filed for the fiscal year 1984 - (Exhibit 28)) and subsequent Form S-8's: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. EX-11 2 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (dollars in thousands, except per share data)
FISCAL YEAR ENDED -------------------------------------------- Dec. 2, Dec. 3, Nov. 27, PRIMARY 1995 1994 1993 - ------- ------------ ------------ ------------ Net income (loss) $ 11,189 $ 1,152 ($ 7,452) Accretion of Series A preferred stock of Eli Witt -- -- (705) ------------ ------------ ------------ Net income (loss) to common shareholders $ 11,189 $ 1,152 ($ 8,157) ============ ============ ============ Weighted average common shares outstanding in the 4th quarter 4,385,000 4,308,000 4,308,000 Net effect of dilutive stock options based on the treasury stock method using average market price 215,000 -- -- ------------ ------------ ------------ Weighted average common shares and equivalents outstanding: 4th quarter 4,600,000 4,308,000 4,308,000 3rd quarter 4,538,000 4,308,000 4,308,000 2nd quarter 4,312,000 4,308,000 4,308,000 1st quarter 4,308,000 4,308,000 4,308,000 ------------ ------------ ------------ 17,758,000 17,232,000 17,232,000 Divided by 4 4 4 ------------ ------------ ------------ Total 4,440,000 4,308,000 4,308,000 ============ ============ ============ Net income (loss) per common share $ 2.52 $ 0.27 ($l.89) ============ ============ ============ FULLY DILUTED - ------------- Net income (loss) $ 11,189 $ 1,152 ($ 7,452) Accretion of Series A preferred stock of Eli Witt -- -- (705) ------------ ------------ ------------ Net income (loss) applicable to common shareholders $ 11,189 $ 1,152 ($ 8,157) ============ ============ ============ Weighted average common shares outstanding in the 4th quarter 4,385,000 4,308,000 4,308,000 Net effect of dilutive stock options based on the treasury stock method using ending market price 228,000 -- -- ------------ ------------ ------------ Weighted average common shares and equivalents outstanding: 4th quarter 4,613,000 4,308,000 4,308,000 3rd quarter 4,559,000 4,308,000 4,308,000 2nd quarter 4,312,000 4,308,000 4,308,000 1st quarter 4,308,000 4,308,000 4,308,000 ------------ ------------ ------------ 17,792,000 17,232,000 17,232,000 Divided by 4 4 4 ------------ ------------ ------------ Total 4,448,000 4,308,000 4,308,000 ============ ============ ============ Net income (loss) per common share $ 2.52 $ 0.27 ($ 1.89) ============ ============ ============
E-1 EX-13 3 ANNUAL REPORT 1 CONSUMER PRODUCTS GENERAL CIGAR CO., INC. Manufacturing and marketing cigars, growing wrapper tobacco and distributing disposable lighters. INDUSTRIAL PRODUCTS CMS GILBRETH PACKAGING SYSTEMS, INC. Manufacturing and marketing of packaging and labeling systems, including plastic shrink film labels and tamper-evident seals, and packaging machinery to apply them. NURSERY PRODUCTS IMPERIAL NURSERIES, INC. Growing plants which are sold principally to garden centers, wholesalers, and mass merchandisers and operating sales and service centers which sell principally to landscapers. REAL ESTATE CULBRO LAND RESOURCES, INC. Building and managing commercial and industrial properties and developing residential subdivisions on real estate owned by the Corporation in Connecticut and Massachusetts. 387 PAS CORP. Owning and managing a commercial office building in New York City. EQUITY INVESTMENTS THE ELI WITT COMPANY Wholesaling tobacco products, candy, groceries, food, health and beauty aids and general merchandise. CENTAUR COMMUNICATIONS LIMITED Publishing business specialty magazines in the United Kingdom and producing and distributing audio language tapes. 2 Corporate Data....................................... QUARTERLY DATA ON COMMON SHARES Following are the high and low prices of the common shares of Culbro Corporation (the "Corporation") in 1995 and 1994 as traded on the New York Stock Exchange.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter - ------------------------------------------------------------------------------------------------------------------------ High Low High Low High Low High Low ------------------------------------------------------------------------------- 1995 14 7/8 11 3/4 29 1/2 14 7/8 36 1/4 26 51 3/4 33 1994 18 15 1/8 16 1/8 12 7/8 17 1/2 13 1/2 16 3/4 13 3/4 There were no cash dividends declared in 1995 or 1994. - ------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(dollars in thousands except per share data) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ Net sales and other revenue $ 220,044 $ 185,415 $ 1,364,576 $1,148,722 $1,104,272 Operating profit 24,942 8,779 18,779 15,863 24,184 Income before cumulative effect of accounting change 11,189 1,152 1,725 1,868 3,176 Income per common share before cumulative effect of accounting change 2.52 0.27 0.24 0.43 0.74 Net income (loss) 11,189 1,152 (7,452) 1,868 3,176 Net income (loss) per common share 2.52 0.27 (1.89) 0.43 0.74 Dividends per common share -- -- -- 0.60 0.80 Working capital 73,495 78,372 131,126 111,691 92,124 Property and equipment, net 75,206 76,873 114,898 99,509 99,498 Total assets 283,110 273,237 423,659 403,648 343,023 Long-term debt 84,365 98,976 175,405 145,678 132,885 Shareholders' equity 124,975 112,037 110,882 119,035 119,750 Book value per common share at end of period 28.47 26.01 25.74 27.63 27.80 Weighted average common shares and equivalents outstanding 4,440,000 4,308,000 4,308,000 4,308,000 4,307,000 ---------------------------------------------------------------- The 1995 and 1994 information presented above reflects the deconsolidation of Eli Witt (see Note 8). Years prior to 1994 have not been restated.
- -------------------------------------------------------------------------------- 3 MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES In 1995, the Corporation's liquidity improved as overall debt decreased by approximately $10 million while the Corporation's borrowing capacity was greater at year end 1995 than the previous year. Cash generated from operating activities increased in 1995 due to substantially higher net income. Higher accounts payable and accrued liabilities, reflecting the timing of payments at General Cigar Co., Inc. ("General Cigar"), and various Corporate accruals, were partially offset by higher accounts receivable and inventories at year end 1995. The increase in accounts receivable was due to substantially higher fourth quarter sales at General Cigar. Cash used in investing activities in 1995 reflected an investment of $5 million in The Eli Witt Company ("Eli Witt") and normal capital expenditures of approximately $5.1 million, principally in the cigar and industrial products businesses. Investing activities in 1995 also included proceeds from settlement of a portion of the insurance claims related to a fire at a General Cigar facility in 1994. Financing activities in 1995 reflected cash used to reduce debt, partially offset by cash received from placement of a mortgage and the exercise of stock options. The debt payments reflected principally a scheduled payment on the Senior Notes and a reduction of the amount outstanding under the Credit Agreement. The Corporation placed a $5 million mortgage on its New York City office building concurrent with the Corporation's investment of $5 million in Eli Witt. The mortgage bears interest at LIBOR plus 2%, and requires payment of only interest until maturity in March 1999. In the 1995 second quarter, the Corporation signed a letter of intent to sell a 51% interest in General Cigar to Tabacalera, S.A. ("Tabacalera"). Negotiations on this transaction were subsequently terminated. The Corporation awaited the outcome of the Tabacalera transaction before initiating negotiations with its banks to replace its current Credit Agreement, which was scheduled to terminate in June 1996. The Credit Agreement has been extended through December 31, 1996 and the Corporation intends to negotiate a new agreement with its banks in the first half of 1996. In 1996, the Corporation plans to increase capital expenditures by approximately $5 million over its 1995 capital spending principally to increase production capacity at General Cigar to meet the growing demand for cigars. Additionally, the higher capital spending planned for 1996 includes leasehold improvements and other equipment purchases related to the Corporation's opening of an upscale cigar bar in New York City this Spring. The Corporation recently announced that it will offer for sale its industrial products business, CMS Gilbreth Packaging Systems, Inc. ("CMS Gilbreth") because that business is inconsistent with the Corporation's strategic direction, which is to increase its focus on its cigar business and related affluent 4 market segments. Proceeds from a sale of CMS Gilbreth will most likely be used to reduce debt. Management believes that the Corporation's liquidity and cash flow from operations will be sufficient to meet its planned capital expenditure requirements and its maturing debt obligations. RESULTS OF OPERATIONS 1995 COMPARED TO 1994 Net income of $11.2 million ($2.52 per share) in 1995 reflected a substantial increase over 1994 net income of $1.1 million ($0.27 per share), due principally to higher operating profit from the Corporation's businesses, primarily General Cigar. 1995 operating profit at General Cigar increased almost 100% over the previous year. Cigar sales increased substantially, due to higher volume and, to a lesser extent, price increases. Volume increased in General Cigar's premium brands approximately 40%, while its other cigar products had a 15% volume increase. The popularity of cigar smoking and the resurgence in the cigar industry, particularly in the premium market segment, that started in 1994 continued to grow in 1995. As a result of increasing demand, backorders for cigars increased substantially during the year. Management intends to increase capital spending to provide additional facilities and equipment to increase production capacity. Operating profit at CMS Gilbreth increased in 1995. Higher operating profit in the packaging machinery division of this business was due to higher sales and cost reduction benefits from closing a facility in 1994, partially offset by higher spending on research and development. The higher sales were due principally to the introduction of new machines. Lower operating profit in the packaging materials division of CMS Gilbreth reflected a sales volume decline due to CMS Gilbreth's largest customer changing its label technology, therefore reducing the quantity of labels purchased from CMS Gilbreth. This change was phased in during 1995, and is expected to be fully implemented in 1996. Operating results in the Corporation's nursery products business, Imperial Nurseries, Inc. ("Imperial") increased in 1995. Improved pricing and lower costs, partially offset by the effect of lower volume, increased Imperial's operating profit. Imperial's 1995 results included a charge of $1 million to reserve for potentially excess field grown plant inventories due to current and projected market conditions. Imperial plans to reduce its current investment in field grown plant inventories and limit future investments in this segment of the nursery products business. In the Corporation's real estate segment, operating results at Culbro Land Resources ("CLR"), the Corporation's Connecticut real estate business, increased as compared to last year, reflecting the effect of the $3.6 million charge recorded in 1994 to write off previously capitalized costs on certain projects that were not being continued as originally planned. Excluding the effect of this one-time charge in 1994, CLR's operating profit was substantially unchanged. Conditions in the commercial and residential real estate markets in the greater Hartford area continue to hamper development activities. 5 Although leasing activities were strong in 1995, lower lease rates reflected the soft commercial market. Results in the Corporation's commercial office building in New York City improved slightly due to higher rental income from temporary leases. General Corporate expense increased in 1995 due principally to accruals for management incentive compensation under annual and long-term plans, related to the increased earnings in 1995. Results from the Corporation's equity investments in 1995 reflected a loss at Centaur Communications Ltd. ("Centaur") as compared to income last year. Centaur's lower results reflected a softening in the British economy. The Corporation's 1994 results from equity investments included a loss at Eli Witt prior to the deconsolidation of that company in April 1994 (see Note 8). In 1995, the Corporation's results included several nonoperating items, both income and expense, which substantially offset each other. A gain of approximately $2.6 million on an insurance settlement reflected the proceeds received from two of the claims related to a General Cigar office and warehouse facility destroyed by fire in May 1994. Additional claims related to this incident remain outstanding. Included in other nonoperating income, net, are approximately $2.2 million of expenses reflecting the Corporation's support of its investment in Eli Witt and expenses related to the terminated transaction with Tabacalera. Interest expense increased in 1995 because of a full year of interest accrued on the 10% exchangeable subordinated note, as compared to a partial year in 1994. The proceeds from the subordinated note were used in 1994 to reduce lower rate debt. The subordinated note and all of the accrued interest will, most likely, be satisfied at the note's maturity by the exchange of the Corporation's Series B preferred stock of Eli Witt. The accrued dividend income and accretion on the Eli Witt Series B preferred, included in other nonoperating income, net, is equal to the accrued interest expense on the subordinated note. The Corporation's 1995 effective tax rate was lower than 1994 because the prior year's pretax income included Eli Witt's losses, net of tax benefits. In addition, the lower pretax income in 1994 increased the effect of state income taxes on the overall 1994 effective tax rate. 1994 COMPARED TO 1993 In 1994, the Corporation deconsolidated Eli Witt from its consolidated financial statements as a result of the reduction of the Corporation's ownership and control over Eli Witt. The Corporation is accounting for its remaining investment in Eli Witt under the equity method of accounting. The deconsolidation was effective in April 1994, but the equity method was retroactively applied as of the beginning of the fiscal year. Financial statements prior to 1994 were not restated. The comparisons reflected in the following discussion pertain to the 1993 results as if Eli Witt were accounted for under the equity method of accounting in that year. The Corporation's income before the cumulative effect of an accounting change was substantially unchanged from 1993. A $4.0 million pretax charge, primarily for 6 the write-off of certain unrecoverable costs in the Corporation's Connecticut real estate business, and a $2.1 million equity loss from Eli Witt's operations (compared to a profit of $1.6 million in 1993) were substantially offset by higher operating profit in both the cigar business and the industrial products business, and a pretax gain of $2.7 million on the sale of 400,000 shares of Eli Witt common stock to MS Distribution, Inc. ("MSD") in connection with a subordinated note issued to MSD. Operating profit at General Cigar increased due to higher volume in cigar sales and price increases on substantially all cigar categories. The increase in cigar sales reflected the resurgence of the cigar market, particularly the premium segment, due to renewed interest in and acceptance of cigar smoking. Operating profit at CMS Gilbreth increased due to higher sales volume in both packaging machinery and packaging materials, and improved margins on sales. The improved margins reflected continuing benefits from manufacturing efficiencies. CMS Gilbreth's largest customer of packaging materials, comprising approximately 20% of CMS Gilbreth's annual revenue, informed management that it will change label technology and therefore substantially reduce the quantity of labels purchased from CMS Gilbreth, beginning with the 1995 second quarter, at the earliest. This development did not affect the 1994 results. Operating results at CLR were lower than the prior year's due to the $3.6 million charge described below and lower profit from residential lot sales. The slow and uneven recovery of the Connecticut real estate market continued to adversely affect commercial lease rates and residential development activity in 1994. During 1994, due to the continuing adverse real estate market conditions in Connecticut, CLR's management undertook a review of projects under development. As a result of this review, management decided not to proceed with certain projects as initially planned, and approximately $3.6 million of capitalized development costs that were deemed to have no continuing value were written off. Results at Imperial Nurseries were lower in 1994 due to higher costs and expenses, principally for reserves recorded for potentially unsaleable inventories and accrued severance costs. Imperial's business continued to be negatively affected by competitive pricing. However, prices in the fall of 1994 were much improved compared to the same period in the prior year. The Corporation's results from its equity investments included the operations of the Eli Witt wholesale distribution business through the April 1994 deconsolidation, and Centaur's publishing business. The Corporation did not recognize its share of Eli Witt's results subsequent to the April deconsolidation because of Eli Witt's common deficit position, and will not recognize any future results of Eli Witt until its common deficit is recouped. The Corporation's overall results from equity investments reflected a loss of $2.1 million from Eli Witt's operations and a profit of $0.4 million from the Centaur business compared to a loss in the prior year. The loss in the Eli 7 Witt business, compared to a profit in 1993, was due to lower profit from cigarette sales, lower manufacturers' purchase incentive programs, and higher expenses. Centaur's results reflect higher revenue from its magazine publications. The gain of approximately $2.7 million was realized from the sale of 400,000 shares of Eli Witt common stock to MSD. Other nonoperating income of approximately $1.4 million represents accretion of $0.9 million and accrued dividends of $0.5 million from the date of the deconsolidation through the end of the fiscal year on the Series B mandatorily redeemable preferred stock of Eli Witt held by the Corporation. These amounts were equal to the amortization of original issue discount and interest expense on the subordinated note. The reduction of interest expense reflects the effect of the equity accounting for Eli Witt. Excluding this effect, interest expense increased, reflecting the interest and amortization of the discount on the subordinated note, partially offset by the effect of the overall reduction in the Corporation's debt. The rate on the subordinated note is higher than the rate on the debt repaid with the subordinated note proceeds. There were no fees on sales of accounts receivable in 1994 because the accounts receivable sales program was terminated in 1993 in connection with the separate financing of Eli Witt. 8 CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(dollars in thousands except per share data) 1995 1994 1993 - ------------------------------------------------------------------------------------------ NET SALES AND OTHER REVENUE $220,044 $185,415 $ 1,364,576 COSTS AND EXPENSES Cost of goods sold 131,269 117,193 1,219,742 Selling, general and administrative expenses 63,833 55,443 126,055 Other expense -- 4,000 -- --------------------------------- OPERATING PROFIT 24,942 8,779 18,779 Gain on insurance settlement 2,586 -- -- Gain on sale of Eli Witt common stock -- 2,691 -- Loss from equity investments, net 153 1,728 290 Other nonoperating income, net 116 1,446 -- Interest expense, net 9,275 8,614 14,411 Fees on sales of accounts receivable -- -- 476 --------------------------------- Income before income taxes 18,216 2,574 3,602 Income tax provision 7,027 1,422 1,877 --------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 11,189 1,152 1,725 Cumulative effect of accounting change for postretirement benefits, net of tax -- -- (9,177) --------------------------------- NET INCOME (LOSS) 11,189 1,152 (7,452) Accretion of Series A preferred stock of Eli Witt -- -- 705 --------------------------------- NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS 11,189 1,152 (8,157) Retained earnings - beginning of year 99,497 98,345 106,502 --------------------------------- Retained earnings - end of year $110,686 $ 99,497 $ 98,345 ================================= Income per common share before cumulative effect of accounting change $ 2.52 $ 0.27 $ 0.24 Cumulative effect of accounting change per common share -- -- (2.13) --------------------------------- Net income (loss) per common share $ 2.52 $ 0.27 $ (1.89) =================================
9 Weighted average common shares and equivalents outstanding 4,440,000 4,308,000 4,308,000 =================================
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK AND CAPITAL IN EXCESS OF PAR VALUE
CAPITAL IN COMMON COMMON EXCESS OF STOCK IN (dollars in thousands) STOCK PAR VALUE TREASURY - --------------------------------------------------------------------------------------------- Balance November 28, 1992 $ 4,549 $ 13,296 $(5,312) Issuance of treasury stock (226 shares) -- -- 4 ------------------------------- Balance November 27, 1993 4,549 13,296 (5,308) Issuance of treasury stock (226 shares) -- -- 3 ------------------------------- Balance December 3, 1994 4,549 13, 296 (5,305) Issuance of treasury stock (225 shares) -- -- 5 Exercise of stock options (81,632 shares) -- (20) 1,764 ------------------------------- Balance December 2, 1995 $ 4,549 $ 13,276 $(3,536) ===============================
See Notes to Consolidated Financial Statements. 10 CONSOLIDATED BALANCE SHEET (dollars in thousands except per share data)
ASSETS DEC. 2, 1995 Dec. 3, 1994 - ----------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 5,876 $ 6,682 Receivables, less allowance of $1,159 (1994-$1,426) 35,863 25,084 Inventories 70,269 68,189 Other current assets 5,389 5,759 -------------------------- TOTAL CURRENT ASSETS 117,397 105,714 Property and equipment, net 75,206 76,873 Real estate held for sale or lease, net 29,959 31,373 Investment in Series B preferred stock of Eli Witt 15,122 12,773 Investment in real estate joint ventures 7,964 7,864 Other, including investment in Centaur of $14,392 (1994-$14,545) 19,191 19,643 Intangible assets, net 18,271 18,997 -------------------------- TOTAL ASSETS $283,110 $273,237 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 32,272 $ 22,885 Long-term debt due within one year 9,020 4,158 Income taxes 2,610 299 -------------------------- TOTAL CURRENT LIABILITIES 43,902 27,342 Long-term debt 84,365 98,976 Accrued retirement benefits 16,148 15,227 Deferred income taxes 5,622 4,765 Other noncurrent liabilities and deferred credits 8,098 14,890 -------------------------- Total liabilities 158,135 161,200 -------------------------- SHAREHOLDERS' EQUITY Common stock, par value $1 per share Authorized - 10,000,000 shares Issued - 4,549,190 shares 4,549 4,549 Capital in excess of par value 13,276 13,296
11 Retained earnings 110,686 99,497 ----------------------------- 128,511 117,342 Less - Common stock in Treasury, at cost, 159,045 shares (1994 - 240,902) (3,536) (5,305) ----------------------------- Total shareholders' equity 124,975 112,037 ----------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 283,110 $ 273,237 =============================
See Notes to Consolidated Financial Statements. 12
CONSOLIDATED STATEMENT OF CASH FLOWS - --------------------------------------------------------------------------------------------------------------------- (dollars in thousands) 1995 1994 1993 OPERATING ACTIVITIES: Net income (loss) $ 11,189 $ 1,152 $ (7,452) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of accounting change, net of tax -- -- 9,177 Depreciation and amortization 8,083 7,381 12,620 Gain on insurance settlement (2,586) -- -- Gain on sale of Eli Witt common stock -- (2,691) -- Loss from equity investments, net 153 1,728 290 Discount and interest on subordinated note 2,349 1,446 -- Accretion and dividend income on Series B preferred stock of Eli Witt (2,349) (1,446) -- Provision for bad debts 545 764 1,332 Changes in assets and liabilities net of effects from the deconsolidation of Eli Witt in 1994 and the acquisition of Certified Grocers by Eli Witt in 1993: Decrease in real estate held for sale or lease, net 1,414 3,965 326 (Increase) decrease in inventories (2,080) 2,098 60,828 (Increase) decrease in accounts receivable (11,324) (763) 5,815 Decrease in sales of accounts receivable -- -- (26,000) Increase (decrease) in accounts payable and accrued liablities 9,387 304 (7,821) Increase (decrease) in income taxes payable 2,311 35 (90) Increase (decrease) in deferred income taxes 857 (2,714) 1,106 Other, net (1,607) 2,251 (304) ---------------------------------- Net cash provided by operating activities 16,342 13,510 49,827 ---------------------------------- INVESTING ACTIVITIES: Additions to property and equipment (5,138) (4,826) (8,275) Investment in Eli Witt subordinated note (5,000) -- -- Proceeds from insurance settlement 2,225 500 -- Proceeds from Eli Witt's repayment of a mortgage loan to the Corporation -- 8,000 -- Proceeds from the sale of Eli Witt common stock -- 672 -- Proceeds from Take-out Agreement with Moll PlastiCrafters -- -- 4,953 Acquisition of Certified Grocers by Eli Witt, net of cash acquired -- -- (2,762) ---------------------------------- Net cash (used in) provided by investing activities (7,913) 4,346 (6,084) ---------------------------------- FINANCING ACTIVITIES: Payments of long-term debt, including debt refinanced by Eli Witt in its 1993 acquisition of Certified Grocers (15,598) (28,718) (55,338) Increases in long-term debt, including debt assumed by Eli Witt in its 1993 acquisition of Certified Grocers 5,000 16,669 61,612 Proceeds from exercise of stock options 1,363 -- --
13 Net decrease in notes payable -- -- (43,200) --------------------------------- Net cash used in financing activities (9,235) (12,049) (36,926) --------------------------------- Net (decrease) increase in cash and cash equivalents (806) 5,807 6,817 Cash and cash equivalents at beginning of year (excluding Eli Witt cash of $7,840 at the beginning of 1994) 6,682 875 1,898 --------------------------------- Cash and cash equivalents at end of year $ 5,876 $ 6,682 $ 8,715 =================================
See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands except per share data) NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements of the Corporation include the accounts of all wholly owned subsidiaries. Eli Witt, which prior to 1994 was a consolidated subsidiary, was deconsolidated and accounted for on the equity method of accounting as of the beginning of the 1994 fiscal year (see Note 8). Financial statements prior to 1994 were not restated. The Corporation accounts for its approximately 25% investment in Centaur on the equity method. Approximately $6,550, representing the excess of the cost of the Corporation's investment over the book value of its equity in Centaur, is being amortized on a straight-line basis over 40 years. The Corporation accounts for its investment in real estate joint ventures on the equity method. FISCAL YEAR The Corporation's fiscal year ends on the Saturday nearest November 30. Fiscal 1995 and 1993 ended on December 2, 1995 and November 27, 1993, respectively, and contained 52 weeks. Fiscal 1994 ended on December 3, 1994 and contained 53 weeks. RECLASSIFICATION Certain amounts in the prior years financial statements have been reclassified to conform to the current presentation. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on deposit and bank commercial paper which matures within 90 days of purchase. INVENTORIES Inventories are stated at the lower of cost or market using the first-in, first-out ("FIFO") or average cost method. Raw materials include tobacco in the process of aging and landscape nursery stock, a substantial amount of which will not be used or sold within one year. It is the practice in these industries to include such inventories in current assets. Raw materials also include tobacco in bond which is subject to customs duties payable upon withdrawal from bond. Following industry practice, the Corporation does not include such duties in inventories until paid. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is determined on a straight-line basis over the estimated useful asset lives for financial reporting purposes and principally on accelerated methods for tax purposes. INTANGIBLE ASSETS Intangible assets include principally the excess of the costs of businesses acquired over the fair value of their net tangible assets and are amortized on a straight-line basis principally over 40 years. REVENUE AND GAIN RECOGNITION In the consumer products, industrial products, and nursery products businesses, sales and the related costs of sales are recognized primarily upon shipment of products. In the real estate business, gains on real estate sales are recognized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 66, "Accounting for Sales of Real Estate." ADVERTISING AND PROMOTION EXPENSE Production costs of future media advertising are deferred until the advertising occurs. All other advertising and promotion costs are expensed when incurred. EARNINGS PER SHARE Earnings per share of common stock are based on the weighted average number of shares of common stock outstanding considering the dilutive effect of outstanding stock options. In 1993, earnings per share amounts were computed after an accretion charge on the Series A preferred stock of Eli Witt. FAIR VALUE OF FINANCIAL INSTRUMENTS The amounts included in the financial statements for accounts receivable, accounts payable and accrued liabilities reflect their fair values because of the short-term 14 maturity of these instruments. The fair values of the Corporation's other financial instruments are discussed in Note 3. 15 NOTE 2 - INDUSTRY SEGMENT INFORMATION The Corporation's businesses operate in four industry segments, consumer products, industrial products, real estate and nursery products. Descriptions of the businesses comprising these segments are on the inside front cover and are an integral part of these financial statements. Revenue, operating profit and assets of operations outside the United States, and export sales are not material. Capital expenditures and depreciation and amortization shown below include amounts related to capital leases. In 1993, the consumer products segment included Eli Witt, which was a consolidated subsidiary of the Corporation in that year. Subsequent to 1993, Eli Witt is accounted for by the Corporation as an equity investment (see Note 8).
- -------------------------------------------------------------------------------- 1995 1994 1993 NET SALES AND OTHER REVENUE Consumer Products $ 124,033 $ 88,304 $ 1,271,837 Industrial Products 51,048 51,080 46,896 Real Estate 10,456 11,103 11,669 Nursery Products 34,507 34,928 34,174 --------------------------------------- $ 220,044 $ 185,415 $ 1,364,576 ======================================= OPERATING PROFIT (a) Consumer Products $ 26,405 $ 13,532 $ 18,555 Industrial Products 6,298 5,626 4,931 Real Estate 1,719 (1,983) 2,092 Nursery Products 1,732 (604) 348 --------------------------------------- Industry segment totals 36,154 16,571 25,926 Gain on insurance settlement 2,586 -- -- Gain on sale of Eli Witt common stock -- 2,691 -- Loss from equity investments, net 153 1,728 290 Other nonoperating income, net 116 1,446 -- General corporate expense 11,212 7,792 7,147 Interest expense, net 9,275 8,614 14,411 Fees on sales of accounts receivable -- -- 476 --------------------------------------- Income before income taxes $ 18,216 $ 2,574 $ 3,602 ======================================= IDENTIFIABLE ASSETS Consumer Products $ 76,933 $ 64,126 $ 229,400 Industrial Products 47,400 49,008 50,017 Real Estate 69,272 71,215 75,682 Nursery Products 42,881 40,636 41,474 --------------------------------------- Industry segment totals 236,486 224,985 396,573 General corporate 46,624 48,252 27,086 --------------------------------------- $ 283,110 $ 273,237 $ 423,659 =======================================
CAPITAL EXPENDITURES DEPRECIATION AND AMORTIZATION 1995 1994 1993 1995 1994 1993 - ------------------------------------------------------------------------------------------- Consumer Products $2,499 $1,455 $5,698 $2,037 $ 1,815 $ 6,994 Industrial Products 1,450 2,317 1,127 2,926 2,749 2,745 Real Estate 248 402 591 1,161 1,045 1,082 Nursery Products 789 594 822 1,132 912 949 --------------------------------------------------------------- Industry segment totals 4,986 4,768 8,238 7,256 6,521 11,770 General corporate 152 58 37 827 860 850 --------------------------------------------------------------- $5,138 $4,826 $8,275 $8,083 $ 7,381 $12,620 ===============================================================
(a) Operating profit in 1994 includes $3.6 million for the writeoff of development costs expended in earlier years in the real estate segment and a $0.4 million charge to close a facility in the industrial products segment. 16 NOTE 3 - LONG-TERM DEBT Long-term debt includes:
DEC. 2, Dec. 3, 1995 1994 - ---------------------------------------------------------- Credit Agreement $ 40,000 $ 52,000 Senior Notes, 9.9%, due serially through 1998 21,000 23,855 Exchangeable Subordinated Note, 10% (face value $15,000) 12,700 11,850 Obligations under capital leases 3,385 3,682 Other, principally mortgages 16,300 11,747 --------------------- 93,385 103,134 Less: due within one year 9,020 4,158 --------------------- Total long-term debt $ 84,365 $ 98,976 =====================
As of December 2, 1995, the annual payment requirements under the terms of all the above loans, excluding the Credit Agreement, the exchangeable subordinated note and capital leases, for the years 1996 through 2000 are $8,178, $7,480, $7,526, $5,562 and $4,076, respectively. The Credit Agreement, which originally was scheduled to terminate in June 1996, was extended through December 31, 1996. In accordance with the terms of the existing Credit Agreement, the commitment, which was $73 million at December 3, 1994, was reduced to $65 million in September 1995. The Credit Agreement has an interest rate of LIBOR plus a margin of 1 1/2%, and in lieu of compensating balance requirements, the Corporation pays a commitment fee of 1/2 of 1% per annum on the unused available balance. The Senior Notes and the Credit Agreement are collateralized by the stock of the Corporation's operating subsidiaries and include limitations on indebtedness, capital expenditures, investments and other significant transactions, as defined. Proceeds from significant asset sales not in the ordinary course of business are required to be used to reduce commitments under the Credit Agreement and amounts outstanding under the Senior Notes. The Senior Notes and Credit Agreement permit dividends to be paid, provided the Corporation's results exceed certain requirements, as defined. As described in Note 8, in 1994 the Corporation issued a $15 million 10% subordinated note due August 1998. No interest payments are required on the note until maturity, at which time the principal and all accrued interest may be exchanged, at the Corporation's option, for the Series B preferred stock of Eli Witt held by the Corporation. Interest expense in 1995 and 1994 includes $850 and $522 for amortization of the original issue discount on the subordinated note. On April 21, 1995, the Corporation entered into a $5 million mortgage on its New York City office building. The mortgage, which bears interest at LIBOR plus 2%, matures March 31, 1999 and requires periodic payments of only interest until maturity. The proceeds were used by the Corporation to purchase the Eli Witt subordinated note (see Note 8). In January 1994, the Corporation obtained a $5 million equipment loan and used the proceeds to reduce the amount outstanding under the Credit Agreement. The loan bears interest at 7.25% per annum and has a term of ten years, with a balloon payment of $1.2 million due at maturity. In 1993, the Corporation entered into two interest rate swap agreements with major banks as a hedge against interest rate exposure on its variable rate debt under the Credit Agreement. An agreement to fix the LIBOR rate at 4.74% on $30 million of variable rate debt will expire in March 1996. A similar interest rate swap agreement that fixed the LIBOR rate at 4.89% on an additional $20 million of variable rate debt expired in September 1995. The effect of the swap agreements was to decrease 1995 interest expense by $572 reflecting payments received from the banks on these agreements. Interest expense in 1994 was increased by $370 under these agreements, reflecting the excess of payments made to the banks over payments received . Management believes that because the interest rates on the Credit Agreement adjust to current market rates, this debt, as stated on the December 2, 1995 balance sheet, approximates its fair market value. Management also believes that the amounts reflected on the balance sheet for its Senior Notes and other debt facilities reflect their current market values based on market interest rates for comparable risks, maturities and collateral. The estimated fair market value of the remaining interest rate swap agreement, based on its estimated termination value, was $101 as of December 2, 1995. NOTE 4 - SHAREHOLDERS' EQUITY EMPLOYEES STOCK OPTION PLANS The 1992 Stock Plan (the "1992 Plan") and the 1991 Employees Incentive Stock Option Plan (the "1991 Plan") for officers and key employees, made available 300,000 and 210,000 shares of common stock, respectively, for purchase at prices equal to the fair market value at date of grant. A 17 portion of the options outstanding under these plans may be exercised as Incentive Stock Options, which under current tax laws do not provide any tax deductions to the Corporation. Options are not exercisable until three years from the date of grant and may be exercised over a period ending not later than eight years from the date of grant. The exercise period for each grant is determined by the Corporation's Compensation Committee. At December 2, 1995, a total of 74,700 shares under the 1992 Plan were available for future grant. There are no shares available for future grant under the 1991 Plan. None of the options outstanding at December 2, 1995 may be exercised as stock appreciation rights. Transactions under the 1992 and 1991 Plans are summarized as follows:
NUMBER OF SHARES - -------------------------------------------------------------------------- Options outstanding at Nov. 28, 1992 230,008 Granted during 1993 79,900 Expired and canceled (29,208) -------- Options outstanding at Nov. 27, 1993 280,700 Granted during 1994 88,300 Expired, canceled and exercised (33,400) -------- Options outstanding at Dec. 3, 1994 335,600 Granted during 1995 68,000 Expired, canceled and exercised (92,200) -------- Options outstanding at Dec. 2, 1995 311,400 ======== Options prices range between: $ 12.25 and $ 27.00 Options exercisable: November 27, 1993 30,700 December 3, 1994 109,000 December 2, 1995 86,100 Expiration date of the 1991 Plan 2001 Expiration date of the 1992 Plan 2002 Number of option holders at Dec. 2, 1995 11
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN The 1992 Stock Option Plan for Nonemployee Directors made available 45,000 shares of common stock for purchase at prices equal to the fair market value at date of grant. Options canceled become available for future grant. Options are not exercisable until three years from the date of grant and may be exercised over a period ending not later than eight years from the date of grant. At December 2, 1995, none of the options granted under the plan were exercisable, and 3,000 options remained available for future grant. None of the options outstanding at December 2, 1995 may be exercised as stock appreciation rights. Transactions under the 1992 Plan for Nonemployee Directors are as follows:
NUMBER OF SHARES Options outstanding at Nov. 28, 1992 -- Granted during 1993 14,000 ------ Options outstanding at Nov. 27, 1993 14,000 Granted during 1994 14,000 ------ Options outstanding at Dec. 3, 1994 28,000 Granted during 1995 14,000 ------ Options outstanding at Dec. 2, 1995
18 42,000 ====== Option prices range between $14.38 and $19.50 Number of option holders at Dec. 2, 1995 7
EMPLOYMENT AGREEMENT The Corporation entered into a five-year employment agreement in 1994 with a corporate officer which included the issuance of 125,000 stock options. The options are exercisable at a rate of 25,000 per year from 1995 through 1999 at an option price of $4.00 per share. At the time the options were granted, the quoted market price of the Corporation's common stock was $14.69 per share. The difference between this market price and the option price is being reflected as compensation expense over the term of the agreement. Compensation expense was $267 and $170 in 1995 and 1994, respectively. PREFERRED STOCK The Corporation has 1,000,000 authorized but unissued shares of preferred stock, par value $1. NOTE 5 - RETIREMENT BENEFITS PENSION PLAN The Corporation has a noncontributory defined benefit pension plan covering certain employees. The plan provides benefits based on employees' years of service and compensation. Contributions to the plan are made in accordance with the provisions of the Employee Retirement Income Security Act. Pension expense included in the consolidated results of operations, including the expense in 1993 related to the separate Eli Witt pension plan, was as follows:
1995 1994 1993 - ----------------------------------------------------------------------------- Service costs - benefits earned during the year $ 962 $ 1,089 $ 1,182 Interest on projected benefit obligations 4,086 3,928 5,029 ---------------------------------- Total benefit expense 5,048 5,017 6,211 ---------------------------------- Actual return on pension plan's assets (12,886) (786) (9,603) Difference from expected long-term return 8,439 (3,499) 4,915 ---------------------------------- Net expected return (4,447) (4,285) (4,688) ---------------------------------- Amortization of net pension obligation at adoption of SFAS No. 87 51 51 50 Other 21 21 30 ---------------------------------- Net pension expense (1993 pro forma excluding Eli Witt - $ 1,011) $ 673 $ 804 $ 1,603 ==================================
The status of the Culbro Corporation Pension Plan at December 2, 1995 and December 3, 1994 was as follows:
1995 1994 - ----------------------------------------------------------------- Present value of benefits earned by participants, including vested benefits of $53,730 and $45,614 at Dec. 2, 1995 and Dec. 3, 1994, respectively $ 54,274 $ 46,072 ====================== Plan assets at fair value, primarily equities 64,639 56,373 Present value of projected benefit obligations 56,882 48,307 ---------------------- Plan assets in excess of projected benefit obligations 7,757 8,066 Amount included on balance sheet 5,993 5,320 ---------------------- Unrecognized net asset $ 13,750 $ 13,386 ====================== Unrecognized net asset includes: Net gain from experience differences and assumption changes $ 14,190 $ 13,899 Changes due to plan amendments $ (203) $ (225) Net pension obligation at adoption of SFAS No. 87 $ (237) $ (288) ======================
Discount rates of 7.5% and 8.5% were used to compute the present value of pension benefits at December 2, 1995 and December 3, 1994, respectively. A 5% rate of increase in future compensation levels was used to estimate the projected pension obligations at both December 2, 1995 and December 3, 1994. The expected rate of return on pension plan assets in 1995, 1994 and 1993 was estimated at 9% representing the average long-term rate expected from the investment of plan assets. During 1994, the Culbro Corporation pension plan 19 assumed the obligation for $1,068 of life insurance benefits for retirees covered under the pension plan. This transaction resulted in an increase in the Corporation's accrued pension liability reflected in "Amount included on balance sheet" above, and a corresponding reduction in the accrued liability for other postretirement benefits (see below). OTHER POSTRETIREMENT BENEFITS The Corporation provides health and life insurance benefits to certain retired employees. The components of other postretirement benefits expense included in the consolidated statement of operations, including amounts related to Eli Witt in 1993, were as follows:
1995 1994 1993 ------------------------ Service cost - benefits earned during the year $105 $110 $ 196 Interest on accumulated postretirement benefit obligation 636 693 1,067 Total expense (1993 pro forma ------------------------ excluding Eli Witt - $839) $741 $803 $1,263 ========================
The liabilities recorded for the actuarial present value of accumulated postretirement benefits, none of which have been funded, for the Corporation at December 2, 1995 and December 3, 1994 were as follows:
1995 1994 ----------------- Retirees $4,954 $4,954 Fully eligible active plan participants 1,890 1,655 Other active participants 853 694 Unrecognized net gain from experience differences and assumption changes 483 933 ----------------- Liability for other postretirement benefits $8,180 $8,236 =================
Discount rates of 7.5% and 8.5% were used to compute the accumulated postretirement benefit obligations at December 2, 1995 and December 3, 1994, respectively. Because the Corporation's obligation for retiree medical benefits is fixed, any increase in the medical cost trend would have no effect on the accumulated postretirement benefit obligation, service cost or interest cost. The adoption of SFAS No. 106 in 1993 has not had an adverse effect on the Corporation's cash flow because the Corporation continues to fund the cost of postretirement benefits as incurred. NOTE 6 - LEASES The Corporation and its subsidiaries have noncancellable leases relating principally to a manufacturing facility and vehicles. CAPITAL LEASES Future minimum lease payments under capital leases and the present value of such payments as of December 2, 1995 were: 1996 $1,133 1997 976 1998 767 1999 483 2000 335 Later years 279 ------ Total minimum lease payments 3,973 Less: Amounts representing interest 588 ------ Present value of minimum lease payments (a) $3,385 ======
(a) Included on the consolidated balance sheet as current liabilities are $846 (1994 - $854) and as long-term debt $2,539 (1994 - $2,828). At December 2, 1995, property and equipment financed with capital leases amounted to $4,464 (1994 - $4,652), net of accumulated depreciation of $4,840 (1994-$4,489). Consolidated depreciation expense relating to capital leases was $935 in 1995 (1994-$1,019; 1993-$1,906). OPERATING LEASES Future minimum rental payments under noncancellable leases as of December 2, 1995 were: 1996 $ 829 1997 571 1998 434 1999 409 2000 308
20 Later years 1,327 ------- Total minimum lease payments $ 3,878 =======
Total rental expenses for all operating leases in 1995 were $611 (1994 - $478; 1993 - $4,042). As lessor, the Corporation's activities consist of the leasing of office and industrial space in Connecticut and New York. Future minimum rentals to be received under noncancellable leases as of December 2, 1995 were: 1996 $ 3,637 1997 3,461 1998 3,092 1999 2,648 2000 1,938 Later years 1,760 -------- Total minimum rental revenue $ 16,536 ========
Total rental revenue from all leases in 1995 were $5,765 (1994 - $5,596; 1993 - $5,275). NOTE 7 - INCOME TAXES The provision for income taxes is summarized as follows:
1995 1994 1993 - ----------------------------------------------------------- Current: Federal $5,135 $ 1,296 $ 54 State and local 1,035 840 715 Deferred, principally federal 857 (714) 1,108 ------------------------------ $7,027 $ 1,422 $1,877 ==============================
Income before income taxes in 1995, 1994 and 1993 was substantially from domestic U.S. operations. The reasons for the differences between the United States statutory income tax rate and the effective rates are shown in the following table:
1995 1994 1993 - -------------------------------------------------------------------------- Tax expense at statutory rates $ 6,372 $ 875 $ 1,225 State and local income taxes 655 402 670 Refund of prior years' income taxes and liability adjustments (374) (467) (300) Foreign subsidiaries 54 (119) 184 Subsidiary loss accounted for under the equity method -- 706 -- Other 320 25 98 --------------------------------- $ 7,027 $ 1,422 $ 1,877 =================================
The significant components of the net deferred tax liabilities are as follows:
1995 1994 - ------------------------------------------------------------- Depreciation and amortization $ 9,929 $ 10,300 Deferred income attributable to deconsolidated subsidiary 1,483 555 Postretirement benefit obligations (3,651) (3,692) Pension liabilities (2,601) (2,372) Other 462 (26) --------------------- $ 5,622 $ 4,765 =====================
NOTE 8 - INVESTMENT IN ELI WITT The Corporation owns 50.1% of the outstanding common stock of Eli Witt, a wholesale distribution company. Prior to 1994, Eli Witt was a consolidated subsidiary of the Corporation. In April 1994, as a result of transactions related to an acquisition by Eli Witt (see below), the Corporation's ownership percentage of Eli Witt decreased to its present level and the Corporation no longer has unilateral control of Eli Witt. Consequently, the Corporation deconsolidated Eli Witt and is accounting for its investment in the common stock of Eli Witt under the equity method of accounting. The 1994 financial statements reflect the application of the equity method retroactive to the beginning of that year. The Corporation's financial statements prior to 1994 were not restated. At the time of the deconsolidation and through December 2, 1995, Eli Witt was in a common 21 deficit position, and as such, the Corporation has a negative basis in its common equity investment in Eli Witt. Accordingly, the Corporation will not recognize the results of Eli Witt subsequent to its deconsolidation in April 1994 until the Corporation's negative basis in the common equity of Eli Witt is eliminated. In 1995, the Corporation invested an additional $5 million in Eli Witt in the form of a subordinated note due August 1, 1998. The Corporation applied this additional investment to reduce the negative basis in its common equity investment in Eli Witt from approximately $6.5 million to approximately $1.5 million, which is reflected as a deferred credit on the Corporation's balance sheet. The Corporation also has an investment in the mandatorily redeemable Series B preferred stock of Eli Witt, which is reflected at approximately $15.1 million on the Corporation's balance sheet, including accrued and unpaid dividends. The valuation of the preferred stock at the time of the deconsolidation reflected the fair value of a related exchangeable subordinated note issued by the Corporation concurrent with the acquisition by Eli Witt last year. The Corporation's subordinated note payable may be satisfied at maturity by exchanging its Series B preferred stock of Eli Witt (see Note 3). Other nonoperating income in the Corporation's consolidated statement of operations includes accretion and accrued dividends on the Eli Witt preferred stock totaling $2,349 and $1,446 in 1995 and 1994, respectively, which equal the amount of discount amortization and interest on the Corporation's subordinated note included in consolidated interest expense. Eli Witt purchased tobacco products from General Cigar of approximately $2.9 million and $3.3 million in 1995 and 1994, respectively. Included in the Corporation's December 2, 1995 balance sheet was approximately $400 due from Eli Witt. General Cigar's transactions with Eli Witt are conducted on an arm's length basis. Eli Witt's summarized financial information is as follows: SUMMARIZED STATEMENT OF OPERATIONS OF ELI WITT:
1995 1994 1993 - ------------------------------------------------------------------------ Net sales and other revenue $ 1,506,612 $ 1,521,796 $1,197,346 Operating (loss) profit $ (8,965) $ (10,349) $ 10,034 Net (loss) income $ (21,342) $ (14,411) $ 2,334 Dividends/accretion related to preferred stock $ (3,711) $ ( 3,039) $ (1,855) Net (loss) income available to common shareholders $ (25,053) $ (17,450) $ 479
SUMMARIZED BALANCE SHEET OF ELI WITT
DEC. 2, Dec. 3, 1995 1994 - ----------------------------------------------------------------- Trade receivables, net $ 55,424 $ 64,576 Inventories 43,288 54,576 Property and equipment 37,651 43,353 All other assets 17,743 26,611 ------------------------ Total assets $ 154,106 $ 189,116 ======================== Accounts payable and accrued expenses $ 59,143 $ 69,058 Total debt 100,127 105,399 All other liabilities 11,660 10,141 ------------------------ Total liabilities 170,930 184,598 ------------------------ Mandatorily redeemable Series B preferred stock 19,150 17,650 ------------------------ Shareholders' deficit: Preferred stock 13,755 11,544 Common stock and accumulated deficit (49,729) (24,676) ------------------------ Total shareholders' deficit (35,974) (13,132) ------------------------ Total liabilities, redeemable preferred stock and shareholders' deficit $ 154,106 $ 189,116 ========================
NCC SOUTH ACQUISITION In April 1994, Eli Witt acquired the net assets of the six Southern distribution facilities of NCC L.P. ("NCC"), a limited partnership engaged in the wholesale distribution business. The six facilities, designated as NCC South, comprised a portion of the overall distribution business conducted by NCC through nine warehouses in total . Prior to that acquisition, the Corporation owned 85% of the outstanding common stock of Eli Witt and the former shareholders of Certified Grocers of Florida, Inc. ("Certified Grocers") held 15%, which they received in connection with 22 Eli Witt's acquisition of Certified Grocers in 1993. In connection with the acquisition of NCC South, Eli Witt issued to NCC 595,000 shares of common stock, representing approximately 23% of its outstanding common stock after the acquisition. In a transaction executed simultaneously, the Corporation sold 400,000 shares of its Eli Witt common stock to MS Distribution, Inc. ("MSD"), a former limited partner of NCC and an affiliate of the Morgan Stanley Leveraged Equity Fund II L.P., and issued a $15 million subordinated note to MSD. In return, the Corporation received proceeds of $12 million and the right to exchange in 1998, at the Corporation's option, the subordinated note for the $15 million face value Eli Witt Series B preferred stock held by the Corporation. The $12 million proceeds received from MSD was allocated to the subordinated note ($11,328) and to the Eli Witt common stock sold ($672) based on their fair values. A pretax gain of $2,691 was recognized on the 400,000 shares sold to MSD, comprising the proceeds of $672 and the Corporation's negative basis of $2,019 in the shares sold. In connection with these transactions, the Corporation entered into a Shareholders Agreement with MSD, which now owns approximately 38% of the outstanding common stock of Eli Witt. This agreement contains certain governance provisions which require the prior approval of MSD for all major transactions by Eli Witt, including (but not limited to), incurrence of debt, acquisitions, material contracts, the sale of assets, changes in Eli Witt's charter and by-laws, and capital expenditures. Due to the shareholder rights granted to MSD, the Corporation no longer has unilateral control over Eli Witt. Also in 1994, Eli Witt refinanced the mortgage on a Florida distribution facility through a financial institution, and used the proceeds to repay $8 million of the $10 million mortgage the Corporation held on the facility. The Corporation retains a $2 million second mortgage, which is included in other assets on the Corporation's December 2, 1995 consolidated balance sheet. NOTE 9- SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION NET SALES AND OTHER REVENUE Excise taxes are included in net sales and other revenue and cost of goods sold in the consolidated statement of operations. Excise taxes paid on cigars in 1995, 1994 and 1993 were $7,035 , $5,555, and $5,028, respectively. Excise taxes on Eli Witt cigarette sales in 1993 were approximately $130,000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Included in selling, general and administrative expenses in 1995 were taxes, other than payroll and income taxes, of $2,144 (1994-$2,360; 1993-$2,405), maintenance and repair expenses of $2,673 (1994-$2,179; 1993-$2,236) and advertising expenses of $3,287 (1994-$1,518; 1993-$1,700). OTHER EXPENSE The other expense of $4,000 in the 1994 consolidated statement of operations reflects a $3,600 charge in the Connecticut real estate business to write off development costs expended in earlier years for certain discontinued projects which management decided not to proceed with as originally planned, and a $400 charge to close a facility in the industrial products business. LOSS FROM EQUITY INVESTMENTS, NET In 1995 and 1993, the Corporation's loss from equity investments reflected the results of Centaur. The Corporation's loss from equity investment in 1994 included a net loss of $2,078 from Eli Witt's operations through the April deconsolidation date, and $350 of equity in earnings of Centaur. OTHER NONOPERATING INCOME, NET Included in other nonoperating income, net, is the accrual of dividend and accretion income on the Eli Witt Series B Preferred Stock held by the Corporation. Substantially offsetting this were expenses related to the Corporation's support of the refinancing of Eli Witt and expenses relating to a proposed sale of a 51% interest in General Cigar. This transaction was not completed because a definitive agreement could not be reached. INVENTORIES Inventories consist of:
DEC. 2, Dec. 3, 1995 1994 - ------------------------------------------------------------ Raw materials and supplies $32,839 $32,645 Work-in-process 16,485 18,490 Finished goods 20,945 17,054 ------------------- $70,269 $68,189 ===================
PROPERTY AND EQUIPMENT Property and equipment consist of: 23
DEC. 2, Dec. 3, 1995 1994 - ------------------------------------------------------------------- Land $ 11,200 $ 11,303 Buildings 64,167 62,366 Machinery and equipment 60,884 58,592 Accumulated depreciation (61,045) (55,388) ---------------------------- $ 75,206 $ 76,873 ============================
Depreciation expense on property and equipment in 1995 was $6,892 (1994 - $6,330, 1993 - $10,890). Pro forma depreciation expense in 1993, excluding Eli Witt, was $6,496. INTANGIBLE ASSETS Included in intangible assets as of December 2, 1995 is $16,540, net of accumulated amortization of $3,796, reflecting the excess of the costs over the fair value of net assets acquired in the industrial products business segment. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities include trade payables of $7,446 (1994 - $4,230), accrued salaries, wages and incentive compensation of $7,494 (1994 - $2,503) and other accrued liabilities of $17,332 (1994 - $16,152). SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for:
1995 1994 1993 - -------------------------------------------------------------------------------- Interest, net of amounts capitalized $7,004 $7,893 $14,067 =================================== Income taxes, net $4,110 $3,642 $ 1,647 ===================================
Cash paid for interest during 1993, excluding Eli Witt, was $7,284. 24 NOTE 10 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Summarized quarterly financial data are presented below.
1995 Quarters 1st 2nd 3rd 4th Total - -------------------------------------------------------------------------------- Net sales and other revenue $41,991 $63,058 $55,287 $59,708 $220,044 Gross profit 16,099 23,637 22,970 26,069 88,775 Net income 550 4,962 3,045 2,632 11,189 Net income per common share 0.13 1.15 0.67 0.57 2.52 ================================================
1994 Quarters 1st 2nd 3rd 4th Total - -------------------------------------------------------------------------------- Net sales and other revenue $33,360 $54,499 $46,760 $50,796 $185,415 Gross profit 13,010 18,771 17,392 19,049 68,222 Net income (loss) (1,049) 2,236 (1,146) 1,111 1,152 Net income (loss) per common share (0.24) 0.52 (0.27) 0.26 0.27 ================================================
The 1995 fourth quarter includes a charge of $1.0 million to reserve for potentially unsaleable inventories in the nursery products business. The 1994 fourth quarter includes expenses totaling $1.1 million, including $0.4 million to settle a litigation matter in the industrial products business and $0.7 million for inventory losses and employee severance in the nursery products business. NOTE 11- COMMITMENTS AND CONTINGENCIES In connection with the sale of Moll Tool & Plastics Corp. ("Moll Tool") in 1991, the Corporation remains liable on a machinery lease obligation of approximately $3.4 million assumed by the purchaser of Moll Tool. A portion of the insurance claims related to the loss of an administration and warehouse facility owned and operated by General Cigar was settled in 1995, but certain claims remain outstanding. General Cigar expects to settle the outstanding claims in excess of the book values of the assets destroyed. NOTE 12 - RECENTLY ISSUED ACCOUNTING STANDARDS In October 1995 the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation." This statement establishes revised financial accounting and reporting standards for stock based employee compensation plans. The statement permits the Corporation to continue to measure stock based employee compensation costs under the present method as prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees" or the Corporation may elect to adopt the measurement methods as prescribed under SFAS No. 123. If the Corporation elects to continue to use its present measurement methods, pro forma disclosures of the effect of charges for stock compensation, based on the SFAS No. 123 method, are required. The Corporation is currently evaluating the application of SFAS No. 123 and is required to adopt this statement no later than fiscal 1997. In March 1995 the Financial Accounting Standards Board issued SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles be reviewed by management whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Corporation continually reviews its long-lived assets and intangible assets, considering future performance of those assets in assessing the need for adjustments to their carrying values. The Corporation will perform such reviews in the future in accordance with the methods prescribed by SFAS No. 121. 25 REPORT OF MANAGEMENT Management is responsible for the accompanying consolidated financial statements, which are prepared in accordance with generally accepted accounting principles. In management's opinion, the consolidated financial statements present fairly the Corporation's financial position, results of operations and cash flows. The Corporation maintains a system of internal accounting procedures and controls intended to provide reasonable assurance, at appropriate cost, that transactions are executed in accordance with proper authorization, are properly recorded and reported in the financial statements, and that assets are adequately safeguarded. The Corporation's internal audit department continually evaluates the adequacy and effectiveness of this system of controls. The Audit Committee of the Board of Directors is comprised solely of outside directors and is responsible for overseeing and monitoring the quality of the Corporation's accounting and auditing practices. The Audit Committee meets regularly with management, the internal audit department and independent accountants to discuss audit activities, internal controls and financial reporting matters. The internal audit department and the independent accountants have full and free access to the Audit Committee. To foster the conduct of its business in accordance with the highest ethical standards, the Corporation annually disseminates ethical guidelines, the Corporation's compliance with which is monitored by senior management and the Audit Committee. The appointment of Price Waterhouse LLP as the Corporation's independent accountants was recommended and approved by the Audit Committee and the Board of Directors, and was approved by the shareholders. Price Waterhouse's Report is based on an examination conducted in accordance with generally accepted auditing standards, including a review of internal accounting controls and tests of accounting procedures and records. /s/ Edgar M. Cullman Edgar M. Cullman Chairman and Chief Executive Officer /s/ Jay M. Green Jay M. Green Executive Vice President - Chief Financial Officer and Treasurer 26 REPORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE LLP To the Shareholders and Directors of Culbro Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and retained earnings, of cash flows and of changes in common stock and capital in excess of par value present fairly, in all material respects, the financial position of Culbro Corporation and its subsidiaries at December 2, 1995 and December 3, 1994 and the results of their operations and their cash flows for the fiscal years ended December 2, 1995, December 3, 1994 and November 27, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the management of Culbro Corporation; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 5 to the consolidated financial statements, the Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1993. /s/ Price Waterhouse LLP New York, New York February 2, 1996 27 CORPORATE DIRECTORS BRUCE A. BARNET (2, 3, 6) President and Chief Executive Officer Cowles Magazines, publishing JOHN L. BERNBACH (2, 6) Private investor EDGAR M. CULLMAN (1, 3, 4, 5,) Chairman of the Board and Chief Executive Officer EDGAR M. CULLMAN, JR. (1, 4, 6) President and Chief Operating Officer FREDERICK M. DANZIGER (1, 4) Of counsel to Latham & Watkins, attorneys JOHN L. ERNST (1, 3, 5) Chairman of the Board and President of Bloomingdale Properties, Inc., investments and real estate. Chairman of the Compensation and the Nominating Committees of the Corporation THOMAS C. ISRAEL (2, 6) Chairman of A.C. Israel Enterprises, Inc., investments. Chairman of the Audit Committee of the Corporation DAN W. LUFKIN (1, 2, 3, 4, 5) Private investor. Co-Chairman of the Finance Committee of the Corporation GRAHAM V. SHERREN (6) Chief Executive Officer of Centaur Communications Limited, publisher of business magazines PETER J. SOLOMON (3, 4) Chairman of Peter J. Solomon Company Limited, investment bankers. Co-Chairman of the Finance Committee of the Corporation FRANCIS T. VINCENT, JR. (2, 3, 6) Private investor DIRECTORS EMERITUS BASIL B. BARWELL BERNARD L. KOHN JUDD L. POLLOCK JOSEPH E. WHITWELL (1) Executive Committee (2) Audit Committee (3) Compensation Committee (4) Finance Committee (5) Nominating Committee (6) Strategic Planning Committee CORPORATE OFFICERS EDGAR M. CULLMAN Chairman of the Board and Chief Executive Officer EDGAR M. CULLMAN, JR. President and Chief Operating Officer JAY M. GREEN Executive Vice President - Chief Financial Officer and Treasurer JOSEPH C. AIRD Senior Vice President - Controller A. ROSS WOLLEN Senior Vice President, General Counsel and Secretary DAVID M. DANZIGER Vice President - Corporate Development 28 ANTHONY J. GALICI Vice President - Assistant Controller JANET A. KRAJEWSKI Vice President - Taxes MARY L. RAFFANIELLO Vice President - Human Resources CORPORATE DATA THE COMPANIES OF CULBRO CORPORATION CONSUMER PRODUCTS GENERAL CIGAR CO., INC. President - Austin T. McNamara 320 West Newberry Road Bloomfield, Connecticut 06002 INDUSTRIAL PRODUCTS CMS GILBRETH PACKAGING SYSTEMS, INC. President - Edward B. Polite 8 Neshaminy Interplex Trevose, Pennsylvania 19053 NURSERY PRODUCTS IMPERIAL NURSERIES, INC. President - Richard L. Wyckoff 90 Salmon Brook Street Granby, Connecticut 06035 REAL ESTATE CULBRO LAND RESOURCES, INC. President - Edgar M. Cullman, Jr. 8 Griffin Road North Windsor, Connecticut 06095 CORPORATE DIRECTORY EXECUTIVE OFFICES Culbro Corporation 387 Park Avenue South New York, New York 10016-8899 Tel: (212) 561-8700 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 1177 Avenue of the Americas New York, New York 10036 SPECIAL COUNSEL Latham & Watkins 885 Third Avenue New York, New York 10022 REGISTRAR AND TRANSFER AGENT Chemical Mellon Shareholder Services, LLC 450 West 33rd Street New York, New York 10001 STOCK LISTING New York Stock Exchange Symbol CUC ANNUAL MEETING The Annual Meeting of Shareholders of Culbro Corporation will be held on April 11, 1996 at 2 p.m. in the Auditorium on the 3rd floor of the Corporate Headquarters of Chemical Banking Corporation, 270 Park Avenue, New York, N.Y. 29 SHAREHOLDERS' INFORMATION The Corporation's Annual Report filed with the Securities and Exchange Commission on Form 10-K is available upon written request to: Culbro Corporation 387 Park Avenue South New York, New York 10016-8899 Attn: Corporate Secretary NOTE: The brand names of products mentioned in this Report are trademarks owned by Culbro Corporation and its subsidiaries. All rights thereto are reserved. EX-21 4 LIST OF SUBSIDIARIES 1 EXHIBIT 21 CULBRO CORPORATION State/Jurisdiction Subsidiaries (1) of Incorporation General Cigar Co., Inc. (2) Delaware Culbro Machine Systems, Inc. Delaware Culbro Land Resources, Inc. (3) Delaware 387 PAS Corporation New York CMS Gilbreth Packaging Systems, Inc. (4) Pennsylvania Trine Manufacturing Company Delaware Imperial Nurseries, Inc. Delaware Club Macanudo, Inc. New York (1) The Corporation also has approximately 7 inactive subsidiaries which considered in the aggregate as a single subsidiary would not constitute a significant subsidiary. The Consolidated Financial Statements of the Corporation include the accounts of all subsidiaries of the Corporation. (2) Includes approximately 8 subsidiaries and 4 operating divisions within which it carries on its cigar manufacturing and distribution business, and approximately 12 assumed names in which it does business. (3) Includes approximately 5 subsidiaries utilized to carry on certain aspects of its real estate development business. (4) Includes Gilbreth International Corporation, a wholly-owned subsidiary, which carries on its plastic shrink film and labeling systems business. E-2 EX-23 5 REPORT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 - REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES TO THE BOARD OF DIRECTORS OF CULBRO CORPORATION Our audits of the consolidated financial statements referred to in our report dated February 2, 1996 appearing in the 1995 Annual Report to Shareholders of Culbro Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP New York, New York February 2, 1996 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 2 - 94202) of Culbro Corporation of our report dated February 2, 1996 appearing in the 1995 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules which appears above. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP New York, New York February 28, 1996 E - 3 EX-27 6 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-2-1995 DEC-2-1995 5,876 0 37,022 (1,159) 70,269 117,397 136,251 (61,045) 283,110 43,902 84,365 0 0 4,549 120,426 283,110 220,044 220,044 131,269 195,102 0 545 9,275 18,216 7,027 11,189 0 0 0 11,189 2.52 2.52
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