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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
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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")
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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).
<TABLE>
<CAPTION>
OWNED APPROXIMATE
OR FLOOR SPACE
LOCATION LEASED NATURE OF OPERATION (SQUARE FEET)
-------- ------ ------------------- -------------
<S> <C> <C> <C>
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
</TABLE>
(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.
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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.
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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-
<PAGE> 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-
<PAGE> 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.
<TABLE>
<CAPTION>
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)
- ------------------ --- -------------- ------------ -----------------
<S> <C> <C> <C> <C>
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)
</TABLE>
-13-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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.
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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
</TABLE>
<PAGE> 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
<PAGE> 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
<PAGE> 21
The Eli Witt Company
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 2, December 3,
ASSETS 1995 1994
<S> <C> <C>
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
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 22
The Eli Witt Company
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
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
=========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 23
The Eli Witt Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 24
The Eli Witt Company
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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)
--------- --------- ------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
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)
====== ======== === == ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
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)
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1993
<S> <C>
Net sales and other revenue $ 1,262,000
Net income 532
Net loss per common share (.95)
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Amount Outstanding
Loan DECEMBER 2, December 3,
Commitment 1995 1994
<S> <C> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $204
State -- -- 70
Deferred, principally federal 4,081 (3,236) 428
------ ------- ----
Total provision (benefit) $4,081 $(3,236) $702
====== ======= ====
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 2, 1995 and December 3, 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
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)
=========== ===========
</TABLE>
10
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
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
=========== ========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
11
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
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
======= =======
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
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
===== ==== ====
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
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
========= ========
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<S> <C>
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
========
</TABLE>
(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:
<TABLE>
<S> <C>
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
========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
DEPRECIABLE DEC. 2 DEC. 3
LIVES 1995 1994
<S> <C> <C> <C>
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
=========== ===========
</TABLE>
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
<PAGE> 42
The Eli Witt Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands except per share data)
- --------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
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
============ ============= =============
</TABLE>
In addition, the Company had the following non-cash investing and
financing activities:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
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
====== ======== ========
</TABLE>
18
<PAGE> 43
CULBRO CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Deductions Balance at
beginning costs and other from end
Description of year expenses accounts reserves of year
- ----------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
====== ====== ==== ====== ======
</TABLE>
NOTES:
(1) Accounts receivable written-off.
(2) Inventories disposed.
(3) Deconsolidation of Eli Witt.
S-1
<PAGE> 44
CULBRO CORPORATION
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(dollars in thousands)
<TABLE>
<CAPTION>
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
- ----------- ------- ---- ------- ------- -------- ---- ------- ----- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)
====== ====== ====== ======= ====== ====== ======= ======= ========
</TABLE>
S-2
<PAGE> 45
CULBRO CORPORATION
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 2, 1995
- ----------------------------------
Cost Reserve
------- --------
<S> <C> <C>
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)
======= =======
</TABLE>
S-3
<PAGE> 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.
<PAGE> 1
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
Dec. 2, Dec. 3, Nov. 27,
PRIMARY 1995 1994 1993
- ------- ------------ ------------ ------------
<S> <C> <C> <C>
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)
============ ============ ============
</TABLE>
E-1
<PAGE> 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.
<PAGE> 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.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ------------------------------------------------------------------------------------------------------------------------
High Low High Low High Low High Low
-------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
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.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(dollars in thousands except per share data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 8
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
(dollars in thousands except per share data) 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
=================================
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
Weighted average common shares and equivalents outstanding 4,440,000 4,308,000 4,308,000
=================================
</TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK AND CAPITAL IN EXCESS OF PAR
VALUE
<TABLE>
<CAPTION>
CAPITAL IN COMMON
COMMON EXCESS OF STOCK IN
(dollars in thousands) STOCK PAR VALUE TREASURY
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 10
CONSOLIDATED BALANCE SHEET
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS DEC. 2, 1995 Dec. 3, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C>
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
=============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 12
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
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 -- --
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
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
=================================
</TABLE>
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
<PAGE> 14
maturity of these instruments. The fair values of the Corporation's other
financial instruments are discussed in Note 3.
<PAGE> 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).
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
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
=======================================
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES DEPRECIATION AND AMORTIZATION
1995 1994 1993 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
===============================================================
</TABLE>
(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.
<PAGE> 16
NOTE 3 - LONG-TERM DEBT
Long-term debt includes:
<TABLE>
<CAPTION>
DEC. 2, Dec. 3,
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
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
=====================
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
- --------------------------------------------------------------------------
<S> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
<S> <C>
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
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
42,000
======
Option prices range between $14.38
and
$19.50
Number of option holders at Dec. 2, 1995 7
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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
==================================
</TABLE>
The status of the Culbro Corporation Pension Plan at December 2, 1995 and
December 3, 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
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)
======================
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------
<S> <C> <C> <C>
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
========================
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
-----------------
<S> <C> <C>
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
=================
</TABLE>
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:
<TABLE>
<S> <C>
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
======
</TABLE>
(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:
<TABLE>
<S> <C>
1996 $ 829
1997 571
1998 434
1999 409
2000 308
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
Later years 1,327
-------
Total minimum lease payments $ 3,878
=======
</TABLE>
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:
<TABLE>
<S> <C>
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
========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
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
==============================
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
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
=================================
</TABLE>
The significant components of the net deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------
<S> <C> <C>
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
=====================
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
SUMMARIZED BALANCE SHEET OF ELI WITT
<TABLE>
<CAPTION>
DEC. 2, Dec. 3,
1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
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
========================
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
DEC. 2, Dec. 3,
1995 1994
- ------------------------------------------------------------
<S> <C> <C>
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
===================
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consist of:
<PAGE> 23
<TABLE>
<CAPTION>
DEC. 2, Dec. 3,
1995 1994
- -------------------------------------------------------------------
<S> <C> <C>
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
============================
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest, net of
amounts capitalized $7,004 $7,893 $14,067
===================================
Income taxes, net $4,110 $3,642 $ 1,647
===================================
</TABLE>
Cash paid for interest during 1993, excluding Eli Witt, was $7,284.
<PAGE> 24
NOTE 10 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly financial data are presented below.
<TABLE>
<CAPTION>
1995 Quarters 1st 2nd 3rd 4th Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
================================================
</TABLE>
<TABLE>
<CAPTION>
1994 Quarters 1st 2nd 3rd 4th Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
================================================
</TABLE>
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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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
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