SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 25, 1996
------------------------------
Power Control Technologies Inc.
- -----------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-13780 02-0423416
- -----------------------------------------------------------------------------
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
35 East 62nd Street, New York, New York 10021
- -----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 572-8600
---------------------------
Not Applicable
- -----------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 25, 1996, Mafco Consolidated Group, Inc., a Delaware
corporation ("Mafco"), and Power Control Technologies Inc., a Delaware
corporation ("PCT"), consummated the transactions contemplated by a Stock and
VSR Purchase Agreement (the "Purchase Agreement"), dated as of October 23,
1996, by and among Mafco, PCT and PCT International Holdings Inc., a Delaware
corporation and wholly owned subsidiary of PCT ("Purchaser"). Pursuant to the
Purchase Agreement, Purchaser acquired from Mafco (the "Flavors Acquisition"),
all the issued and outstanding shares (the "Shares") of capital stock of
Flavors Holdings Inc., a Delaware corporation and wholly owned subsidiary of
Mafco ("Flavors"), and 23,156,502 Value Support Rights (each a "VSR" and
collectively, the "VSRs") issued pursuant to a Value Support Rights Agreement
(the "VSR Agreement"), dated November 25, 1996 between Mafco and American Stock
Transfer & Trust Company, as trustee. Flavors, through its wholly owned
subsidiary Mafco Worldwide Corporation ("Mafco Worldwide"), a Delaware
corporation, operates a licorice extract and other flavoring agents
manufacturing and distributing business.
In consideration for the Shares and VSRs, Purchaser paid Mafco cash in the
amount of $180 million. In addition, Purchaser will pay Mafco deferred cash
payments of $3.7 million on June 30, 1997 and $3.5 million on December 31,
1997. The source of funds for such payments was, and is anticipated to be,
available cash.
It is anticipated that the VSRs will be distributed to all holders of PCT
Common Stock and Mafco, as the sole holder of the PCT Preferred Stock, promptly
following the effectiveness of a registration statement filed by Mafco with the
Securities and Exchange Commission. Each VSR, subject to certain limitations,
entitles its holder to receive a payment, if any, of up to $3.25 per VSR if the
30-Day Average Market Price (as defined in the VSR Agreement) of PCT Common
Stock is below $11.00 per share on January 1, 1999; provided, however, Mafco
has an optional right to call the VSRs each April 1, July 1, October 1 and
January 1 from and including April 1, 1997 to and including October 1, 1998
(each, an "Optional Call Date"). If Mafco calls the VSRs on or before January
1, 1998, holders will be entitled to receive a payment of at least $0.50 and up
to $3.25 per VSR if the 30-Day Average Market Price is below $10.25 per share
as of such Optional Call Date. If Mafco calls the VSRs after January 1, 1998,
each VSR will entitle its holder to a payment, if any, of up to $3.25 per VSR
if the 30-Day Average Market Price is below $11.00 per share on such Optional
Call Date.
Pursuant to the Purchase Agreement, Mafco has agreed to indemnify
Purchaser, its subsidiaries and affiliates and certain other persons against
damages resulting from or arising out of any breach of any representation or
warranty or failure to perform any covenant or agreement made by Mafco under
the Purchase Agreement. Similarly, PCT and Purchaser, jointly and severally,
have agreed to indemnify Mafco, its subsidiaries and affiliates and certain
other persons against damages resulting from or arising out of any breach of
any representation or warranty or failure to perform any covenant or agreement
made by or on behalf of PCT or Purchaser under the Purchase Agreement or any
documents delivered by PCT or Purchaser in connection therewith.
Notwithstanding the foregoing, neither Mafco nor PCT and Purchaser will be
required to indemnify the other unless the cumulative total of all such damages
exceeds $2,000,000 and then only to the extent the cumulative total of such
damages exceeds $2,000,000; provided, however, that the maximum amount that
Mafco or PCT and Purchaser will be liable for under the Purchase Agreement is
$100,000,000. The limitations on liability described in the preceding sentence
do not apply to liability for taxes.
2
<PAGE>
The terms of the Purchase Agreement and the VSR Agreement were the result
of arm's-length negotiations between Mafco and PCT. Each of the Purchase
Agreement and VSR Agreement were unanimously approved by the Boards of
Directors of Mafco and PCT and, in the case of PCT, by a Special Committee of
independent directors formed for the purpose of considering the transaction.
Mafco and certain of its affiliates beneficially own 36.4% of the outstanding
shares of PCT common stock on a fully diluted basis and officers of Mafco and
certain of its affiliates constitute five of the eight members of PCT's Board
of Directors.
Immediately following the Flavors Acquisition, Purchaser contributed all
outstanding shares of common stock of Pneumo Abex Corporation, a Delaware
corporation ("Pneumo Abex"), to Flavors and Flavors contributed such shares to
Mafco Worldwide, which resulted in Pneumo Abex becoming a wholly owned
subsidiary of Mafco Worldwide. On November 25, 1996, Mafco Worldwide merged
with and into Pneumo Abex with Pneumo Abex being the surviving corporation, the
directors of Mafco Worldwide becoming the directors of Pneumo Abex and Pneumo
Abex becoming a wholly owned subsidiary of Flavors.
A copy of each of the Purchase Agreement and the VSR Agreement is filed
herewith as Exhibits 2.1 and 4.1, respectively, and each is incorporated herein
by reference. The foregoing summary of each of the Purchase Agreement and the
VSR Agreement does not purport to be complete and is qualified in its entirety
by reference to the provisions of such agreements.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On November 25, 1996, the Registrant engaged Ernst & Young LLP ("E&Y"), to
replace Arthur Andersen LLP ("AA") as its independent auditors. This change of
auditors was approved by the Registrant's Board of Directors based upon the
recommendation of its Audit Committee.
On November 25, 1996, the Registrant consummated the Flavors Acquisition.
E&Y has been the independent auditors for Flavors since 1987.
Prior to the Flavors Acquisition, the Registrant had no operating assets.
Its primary assets were short term marketable securities. Substantially all of
these securities were used to acquire Flavors. Accordingly, the capital stock
of Flavors is currently the Registrant's primary asset. E&Y is also the auditor
for Mafco.
In connection with the audits of the Registrant's financial statements for
each of the years in the two year period ended December 31, 1995 and subsequent
interim period, there have been no disagreements with AA on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope and procedures.
The reports of AA on the Registrant's financial statements for each of the
years in the two year period ended December 31, 1995 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
The Registrant has requested AA to furnish it a letter addressed to the
Commission stating whether it agrees with the statements in the two preceding
paragraphs. A copy of that letter, dated November 26, 1996 is filed herewith as
Exhibit 16.1.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The following financial statements of Mafco Worldwide Corporation are
incorporated herein by reference from Exhibit 99.1 filed herewith:
1. Consolidated Balance Sheets as of December 31, 1995 and 1994.
2. Consolidated Statements of Earnings for the years ended December
31, 1995, 1994 and 1993.
3. Consolidated Statements of Stockholder's Deficit for the years
ended December 31, 1995, 1994 and 1993.
4. Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
5. Notes to Consolidated Financial Statements.
6. Report of Ernst & Young LLP, independent accountants, on the
consolidated financial statements of Mafco Worldwide Corporation as
of December 31, 1995 and 1994 for each of the three years in the
period ended December 31, 1995.
The financial statements of Flavors Holdings Inc. have not been included
herein because the consolidated net earnings, total assets, stockholder's
deficit and cash flows of Flavors Holdings Inc. and Mafco Worldwide
Corporation are equivalent for all periods for which historical financial
statements are presented.
(b) Pro Forma Financial Information
The unaudited pro forma condensed statements of operations for the year
ended December 31, 1995 and the nine month period ended September 30,
1996 give pro forma effect to the Flavors Acquisition, the dividend by
Flavors of $5.4 million to Mafco prior to the Flavors Acquisition and the
distribution of the VSRs to PCT's shareholders (collectively the
"Transactions"), assuming that the Transactions had been consummated on
January 1, 1995, and the unaudited pro forma condensed balance sheet as
of September 30, 1996, gives pro forma effect to the Transactions,
assuming that the Transactions had been consummated on September 30,
1996. The pro forma adjustments are based upon available information and
certain assumptions that the management of PCT believes are reasonable.
The unaudited pro forma condensed financial statements use the purchase
method of accounting for the Flavors Acquisition based upon preliminary
purchase price allocations. The pro forma financial data do not purport
to represent the results of operations or the financial position of PCT
that actually would have occurred had the Transactions been consummated
on the aforesaid dates, or project the results of operations or financial
position of PCT and its subsidiaries for any future date or period.
4
<PAGE>
Power Control Technologies Inc.
Pro Forma Condensed Balance Sheet
September 30, 1996
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Historical
Historical Mafco Pro Forma Pro Forma
PCT Worldwide Adjustments PCT
------------ ------------ ------------- -----------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and marketable securities $ 199.9 $ 9.9 $ (183.0)(1) $ 21.4
(5.4)(2)
Accounts receivable, net 12.1 12.1
Inventories 43.9 1.0 (3a) 44.9
Prepaid expenses and other 0.7 1.3 2.0
------------ ------------ ------------- -----------
Total current assets 200.6 67.2 (187.4) 80.4
Property, plant & equipment, net 10.5 10.0 (3b) 20.5
Deferred debt costs 3.6 (3.6)(3c) -
Value support rights 34.8 (3d) -
(34.8)(4)
Other assets 13.8 0.8 42.3 (3e) 56.9
Intangibles 1.5 163.2 (3f) 164.7
------------ ------------ ------------- -----------
$ 214.4 $ 83.6 $ 24.5 $ 322.5
============ ============ ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion LTD and short term borrowings $ 11.2 $ 3.7 (1) $ 14.9
Accrued expenses and other $ 4.0 13.5 17.5
------------ ------------ ------------- -----------
Total current liabilities 4.0 24.7 3.7 32.4
Long term debt 99.9 8.0 (3g) 111.4
3.5 (1)
Other liabilities 4.4 3.1 7.5
Convertible preferred stock 20.0 20.0
Stockholders' equity 186.0 (44.1) 49.5 (5) 151.2
(5.4)(2)
(34.8)(4)
------------ ------------ ------------- -----------
$ 214.4 $ 83.6 $ 24.5 $ 322.5
============ ============ ============= ===========
</TABLE>
See notes to pro forma condensed balance sheet
5
<PAGE>
Power Control Technologies Inc.
Pro Forma Condensed Statement of Operations
September 30, 1996
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Historical
Historical Mafco Pro Forma Pro Forma
PCT Worldwide Adjustments PCT
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Net sales $ 77.7 $ 77.7
Cost of sales 43.6 $ 0.9 (1) 44.5
------------ ------------ -----------
Gross profit 34.1 33.2
Selling, general and administrative expenses $ 1.2 6.5 3.2 (2) 10.9
------------ ------------ -----------
Operating income (1.2) 27.6 22.3
Non-operating expenses (income):
Interest expense 9.1 (2.2)(3) 6.9
Amortization of deferred charges 0.9 (0.9)(4) -
Other, net (7.9) (0.1) 5.5 (5) (2.5)
------------ ------------ -----------
Income from continuing operations before income taxes 6.7 17.7 17.9
Provision for income taxes 6.9 (4.9)(6) 2.0
------------ ------------ -----------
Income from continuing operations 6.7 10.8 15.9
Preferred stock dividend 1.2 1.2
------------ ------------ -----------
Income from continuing operations available to
common shareholders $ 5.5 $ 10.8 $ 14.7
============ ============ ===========
Pro forma primary earnings per share from
continuing operations (7) $ 0.71
Pro forma fully diluted earnings per share from
continuing operations (7) $ 0.68
</TABLE>
See notes to pro forma condensed statement of operations
6
<PAGE>
Power Control Technologies Inc.
Pro Forma Condensed Statement of Operations
December 31, 1995
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Historical
Historical Mafco Pro Forma Pro Forma
PCT Worldwide Adjustments PCT
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Net sales $ 103.2 $ 103.2
Cost of sales 60.0 2.2 (1) 62.2
------------ ------------ -----------
Gross profit 43.2 41.0
Selling, general and administrative expenses $ 12.2 9.2 4.3 (2) 25.7
------------ ------------ -----------
Operating income (12.2) 34.0 15.3
Non-operating expenses (income):
Interest expense 0.4 13.5 (2.9)(3) 11.0
Amortization of deferred charges and bank fees 0.9 (0.9)(4) -
Other, net (8.5) (0.2) (8.7)
------------ ------------ -----------
Income from continuing operations before income taxes (4.1) 19.8 13.0
Provision for income taxes 7.7 (5.5)(6) 2.2
------------ ------------ -----------
Income from continuing operations (4.1) 12.1 10.8
Preferred stock dividend 0.9 0.9
------------ ------------ -----------
Income from continuing operations available to
common shareholders $ (5.0) $ 12.1 $ 9.9
============ ============ ===========
Pro forma primary earnings per share from
continuing operations (7) $ 0.48
Pro forma fully diluted earnings per share from
continuing operations (7) $ 0.49
</TABLE>
See notes to pro forma condensed statement of operations
7
<PAGE>
NOTES TO PRO FORMA CONDENSED BALANCE SHEET (DOLLARS IN MILLIONS)
1) Purchase price for the Flavors Acquisition of $183 in cash (including
estimated transaction costs of $3.0) and deferred cash payments of $7.2.
2) Dividend declared by Flavors to Mafco prior to the Flavors Acquisition.
3) Preliminary allocation of purchase price in connection with the Flavors
Acquisition:
a) inventory adjustment of $1.0
b) property, plant and equipment adjustment of $10.0
c) elimination of historical deferred charges of Flavors of $3.6.
d) 23,156,502 VSRs valued at $1.50 per VSR, the estimated fair value of
the VSRs on the date of issuance.
e) other assets adjustment of $42.3 reflects recognition of net
operating loss carryforwards.
f) goodwill and intangibles adjustment of $163.2.
g) long term debt adjustment of $8 reflects discounting of $85.0 face
amount of Mafco Worldwide notes at credit agreement borrowing rate of
approximately 8% based on Mafco's intention to refinance such notes
with credit agreement borrowings on 11/15/97, the first call date.
4) Distribution of VSRs to the PCT shareholders.
5) Elimination of historical stockholder's deficit of Flavors (including
dividend of $5.4 declared by Flavors to Mafco immediately prior to the
Flavors Acquisition).
8
<PAGE>
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS (DOLLARS IN MILLIONS)
1) Depreciation expense related to the pro forma balance sheet adjustment to
property, plant and equipment over a weighted average life of 9 years and
for the year ended December 31, 1995 amortization of pro forma balance
sheet adjustment to inventory of $1.0.
2) Amortization expense related to the pro forma balance sheet adjustment
to goodwill and other intangibles over a period of 35- 40 years.
3) Reduction in interest expense reflects discounting of $85.0 face amount
of Mafco Worldwide notes at credit agreement borrowing rate of
approximately 8% based on Mafco's intention to refinance such notes with
credit agreement borrowings on 11/15/97, the first call date.
4) Elimination of historical amortization of deferred charges.
5) Elimination of interest income on cash at PCT for period 4/15-9/30/96,
reflecting cash used for the Flavors Acquisition. On 4/15/96, PCT's
aerospace operations were sold. Accordingly, the historical financial
statements for the year ended December 31, 1995 and the nine months ended
September 30, 1996 reflect such operations as discontinued operations.
6) Tax effect of the pro forma adjustments.
7) Pro Forma primary earnings per share from continuing operations is based
on 20.7 million shares outstanding. Pro forma fully diluted earnings per
share from continuing operations reflects the conversion of PCT preferred
stock into 2.5 million common shares from June 15, 1995, the date of its
issuance.
9
<PAGE>
(c) Exhibits
2.1 Stock and VSR Purchase Agreement, dated as of October 23, 1996, by
and between Mafco Consolidated Group Inc., Power Control
Technologies Inc. and PCT International Holdings Inc. (incorporated
by reference from Exhibit 7 of the Mafco Consolidated Group Inc.'s
Schedule 13D, dated October 25, 1996, filed with respect to Power
Control Technologies Inc.).
4.1 Value Support Rights Agreement dated November 25, 1996 between
Mafco Consolidated Group Inc. and American Stock Transfer & Trust
Company, as the trustee (incorporated by reference from Exhibit
4.1 of Form 8-K of Mafco Consolidated Group Inc. filed on
November 27, 1996).
16.1 Letter on change in certifying accountant.
99.1 Consolidated Financial Statements of Mafco Worldwide Corporation
and Report of Ernst & Young LLP.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 27, 1996
POWER CONTROL TECHNOLOGIES INC.
By: /s/Laurence Winoker
-----------------------------
Name: Laurence Winoker
Title: Vice President and Controller
11
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
No. Page
- ------- ----
2.1 Stock and VSR Purchase Agreement, dated as of October 23, 1996,
by and between Mafco Consolidated Group Inc., Power Control
Technologies Inc. and PCT International Holdings Inc.
(incorporated by reference to Exhibit 7 of the Mafco Consolidated
Group Inc.'s Schedule 13D, dated October 25, 1996, filed with
respect to Power Control Technologies Inc.).
4.1 Value Support Rights Agreement dated November 25, 1996 between
Mafco Consolidated Group Inc. and American Stock Transfer & Trust
Company, as the trustee (incorporated by reference from Exhibit
4.1 of Form 8-K of Mafco Consolidated Group Inc. filed on
November 27, 1996).
16.1 Letter on change in certifying accountant.
99.1 Consolidated Financial Statements of Mafco Worldwide Corporation
and Report of Ernst & Young LLP.
12
Exhibit 16.1
[ARTHUR ANDERSEN LLP LETTERHEAD]
November 26, 1996
Office of the Chief Accountant
SECPS Letter File
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir:
We have read the last three paragraphs in Item 4 included in the attached Form
8-K dated November 25, 1996 of Power Control Technologies Inc. to be filed with
the Securities and Exchange Commission and are in agreement with the statements
contained therein.
Very truly yours,
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
<PAGE>
MAFCO WORLDWIDE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
As of December 31, 1995 and 1994 and for the years ended December 31, 1995,
1994 and 1993.
Report of Independent Auditors............................................F-2
Consolidated Balance Sheets...............................................F-3
Consolidated Statements of Income.........................................F-4
Consolidated Statements of Stockholder's Deficit..........................F-5
Consolidated Statements of Cash Flows.....................................F-6
Notes to Consolidated Financial Statements................................F-7
Schedule II - Valuation and Qualifying Accounts...........................F-16
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Mafco Worldwide Corporation
We have audited the accompanying consolidated balance sheets of Mafco Worldwide
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholder's deficit and cash flows for
each of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)(1
and 2). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mafco
Worldwide Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
material set forth therein.
Ernst & Young LLP
New York, New York
February 9, 1996
F-2
<PAGE>
MAFCO WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 8,542 $ 7,623
Trade accounts receivable, net................................................... 10,403 8,787
Inventories ..................................................................... 45,472 47,582
Deferred income taxes............................................................ 1,722 2,156
Other current assets............................................................. 1,729 1,214
-------- --------
Total current assets......................................................... 67,868 67,362
Property, Plant and Equipment, Net................................................... 10,619 9,958
Deferred Debt Issuance Costs......................................................... 4,236 5,098
Deferred Income Taxes................................................................ 1,026 1,283
Goodwill and Other Assets............................................................ 1,554 2,241
-------- --------
TOTAL ASSETS......................................................................... $ 85,303 $ 85,942
======== ========
LIABILITIES & STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt................................................ $ 10,232 $ 8,134
Foreign borrowings............................................................... 728
Trade accounts payable........................................................... 5,625 5,867
Accrued liabilities.............................................................. 4,838 4,929
-------- --------
Total current liabilities.................................................... 21,423 18,930
Long-Term Debt....................................................................... 108,078 115,857
Pension Plan Liabilities............................................................. 1,929 1,554
Deferred Income Taxes and Other Liabilities.......................................... 1,215 959
-------- --------
TOTAL LIABILITIES.................................................................... 132,645 137,300
STOCKHOLDER'S DEFICIT:
Common stock, par value $1.00 per share, 1,000 shares authorized,
issued and outstanding......................................................... 1 1
Paid-in-capital.................................................................. 133
Accumulated deficit.............................................................. (49,220) (52,418)
Currency translation adjustment.................................................. 1,877 926
-------- --------
TOTAL STOCKHOLDER'S DEFICIT.......................................................... (47,342) (51,358)
-------- --------
TOTAL LIABILITIES & STOCKHOLDER'S DEFICIT............................................ $ 85,303 $ 85,942
======== ========
</TABLE>
F-3
<PAGE>
MAFCO WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
NET SALES.............................................. $103,248 $ 95,653 $ 92,394
Cost of Sales.......................................... 59,963 57,415 55,278
-------- -------- --------
GROSS PROFIT........................................... 43,285 38,238 37,116
Selling, General & Administrative Expenses............. 9,226 8,493 8,977
-------- -------- --------
OPERATING INCOME....................................... 34,059 29,745 28,139
Non Operating Charges (Income):
Interest income.................................... (479) (233) (51)
Interest expense................................... 13,548 14,700 15,565
Amortization of debt issuance costs................ 862 955 1,062
Other, net......................................... 337 178 222
-------- -------- --------
14,268 15,600 16,798
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS...... 19,791 14,145 11,341
Income Taxes........................................... 7,726 5,489 4,256
--------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS....................... 12,065 8,656 7,085
Extraordinary Loss on Refinancing of Debt,
net of a tax benefit of $1,698....................... 2,667
-------- -------- --------
NET INCOME............................................. $ 12,065 $ 5,989 $ 7,085
======== ======== ========
</TABLE>
F-4
<PAGE>
MAFCO WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK.............................................. $ 1 $ 1 $ 1
-------- -------- --------
PAID-IN-CAPITAL
Balance at beginning of year.......................... 133 133 133
Dividend paid......................................... (133)
-------- -------- --------
Balance at end of year................................ - 133 133
-------- -------- --------
ACCUMULATED DEFICIT
Balance at beginning of year.......................... (52,418) (58,407) (65,492)
Net income............................................ 12,065 5,989 7,085
Dividend paid......................................... (8,867)
-------- -------- --------
Balance at end of year................................ (49,220) (52,418) (58,407)
-------- -------- --------
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Balance at beginning of year.......................... 926 (34) 582
Translation adjustments............................... 951 960 (616)
-------- -------- --------
Balance at end of year................................ 1,877 926 (34)
-------- -------- --------
TOTAL STOCKHOLDER'S DEFICIT............................... $(47,342) $(51,358) $(58,307)
======== ======== ========
</TABLE>
F-5
<PAGE>
MAFCO WORLDWIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income. ................................................. $ 12,065 $ 5,989 $ 7,085
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Extraordinary loss.......................................... 4,365
Depreciation and amortization............................... 2,781 2,794 2,754
Income of affiliates (higher) lower than distributions...... 694 (260) 266
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable........... (1,458) (100) 2,187
(Increase) decrease in inventories......................... 2,597 6,472 (9,711)
Increase (decrease) in accounts payable.................... (386) 1,233 (2,437)
Increase (decrease) in income taxes payable to parent...... 287 (3,240) 3,624
Other, net................................................. 505 1,304 (348)
-------- -------- --------
Cash from operating activities........................... 17,085 18,557 3,420
-------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital expenditures........................................ (2,269) (1,898) (1,392)
Proceeds from sale of joint venture......................... 20 400
Other, net.................................................. 28
-------- -------- --------
Cash used in investing activities........................ (2,249) (1,498) (1,364)
-------- -------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES
Foreign borrowings.......................................... 728
Dividend paid............................................... (9,000)
Repayment of borrowings..................................... (5,725) (57,439) (5,055)
Proceeds from long-term debt................................ 50,000 1,900
Refinancing costs........................................... (3,944) (53)
-------- -------- --------
Cash used in financing activities........................ (13,997) (11,383) (3,208)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH......................... 80 64 (35)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ 919 5,740 (1,187)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................. 7,623 1,883 3,070
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................ $ 8,542 $ 7,623 $ 1,883
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest ................................................... $ 14,220 $ 14,207 15,666
Income taxes, net of refunds................................ 6,584 6,287 723
</TABLE>
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BACKGROUND AND BASIS OF PRESENTATION
Mafco Worldwide Corporation (the "Company"), a Delaware corporation, was
formed in 1991. Prior to June 15, 1995 the Company was an indirect wholly
owned subsidiary of Mafco Holdings Inc. ("Holdings"). On June 15, 1995,
Holdings and Mafco Consolidated Group Inc. ("Mafco") formerly known as Abex
Inc., consummated an agreement and plan of merger (the "Mafco Merger
Agreement") which was entered into on January 6, 1995. The Mafco Merger
Agreement provided for, among other things, the merger of Mafco and C & F
Merger Inc., a subsidiary of Holdings and the indirect parent of the Company
and Consolidated Cigar Corporation ("Cigar"). As a result of the merger, the
Company became an indirect wholly owned subsidiary of Mafco. Immediately prior
to the merger the Company paid a $9,000 dividend to Holdings.
The Company produces a variety of licorice products from licorice root,
licorice extract produced by others and certain other flavor ingredients at
its facilities in Camden, New Jersey and Gardanne, France. Approximately 72%
of the Company's licorice sales are to the worldwide tobacco industry for use
as flavoring and moistening agents in the manufacture of American blend
cigarettes as well as other tobacco products (moist snuff, chewing tobacco and
pipe tobacco). While licorice extract represents a small percentage of the
total cost of manufacturing American blend cigarettes and other tobacco
products, the particular formulation and quantity used by each brand is an
important element in the brands flavor. The Company also sells licorice
extract to worldwide confectioners, food processors and pharmaceutical
manufacturers for use as flavoring or masking agents. In addition, the Company
sells licorice root residue as a garden mulch under the name Right Dress. The
Company manufactures and sells other non- licorice products which include
natural flavors, spices and botanicals that are used as flavoring ingredients
in food and tobacco products.
Certain financial statement items and financial disclosures for the year
ended December 31, 1994 have been reclassified to be comparable with the year
ended December 31, 1995 presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all material intercompany accounts
and transactions. The Company accounts for its investments in affiliates on
the equity method.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION:
Sales are recorded as products are shipped to customers.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
CASH AND CASH EQUIVALENTS:
Cash equivalents with maturities of 90 days or less (primarily short term
money market funds) are carried at cost which approximates market.
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
determined principally by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of such assets ranging
from 4 to 10 years. Leasehold improvements are amortized over their estimated
useful lives or the terms of the leases, whichever is shorter. Repairs and
maintenance are charged to operations as incurred, and expenditures for
additions and improvements are capitalized.
GOODWILL:
Goodwill is being amortized on a straight-line basis over 40 years.
Accumulated amortization aggregated $422 and $377 at December 31, 1995 and
1994, respectively.
INCOME TAXES:
The Company is included in the consolidated federal income tax return and,
in some cases, the state income tax returns of Mafco who in turn is included
in the consolidated income tax return of Holdings and its subsidiaries. For
all periods presented, federal and state income taxes are provided as if the
Company filed its own income tax returns.
The Company records income taxes using a liability approach for financial
accounting and reporting. This method results in the recognition and
measurement of deferred tax assets based on the likelihood of realization of
tax benefits in future years.
PENSION PLANS:
The Company has pension plans which cover substantially all domestic
employees who meet eligibility requirements. Benefits are based on years of
service and, in some cases, the employee's compensation. The Company's policy
is to contribute annually the minimum amount required pursuant to the Employee
Retirement Income Security Act. Plan assets are principally invested in mutual
investment funds which invest in U.S. Government and agency securities, cash
flow funds and corporate debt and equity securities. The Company also
maintains a 401(k) plan for its non-union employees. Subsidiaries outside the
United States have retirement plans under which funds are deposited with
trustees.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against earnings for the years ended December 31, 1995, 1994
and 1993 were $262, $259, and $283, respectively.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are translated into U.S.
dollars at the rates of exchange in effect at the balance sheet date. Income
and expense items are generally translated at the average exchange rates
prevailing during the period presented. Gains and losses resulting from
foreign currency transactions are included in the results of operations and
those resulting from translation of financial statements are recorded as a
component of stockholder's deficit.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121).
SFAS 121 requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. SFAS 121 is effective for financial
statements for fiscal years beginning after December 15, 1995, and therefore
the Company will adopt SFAS 121 in the first quarter of 1996. Based on current
circumstances, the Company does not believe the effect of the adoption will be
material.
3. INVENTORIES
Inventories consist of the following: DECEMBER 31,
----------------------
1995 1994
-------- --------
Raw materials and supplies................... $ 32,820 $ 31,969
Work-in-process.............................. 296 208
Finished goods............................... 12,356 15,405
-------- --------
$ 45,472 $ 47,582
======== ========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
DECEMBER 31,
----------------------
1995 1994
-------- --------
Land ........................................ $ 455 $ 428
Buildings.................................... 6,560 5,778
Machinery and equipment...................... 19,266 17,908
Furniture and fixtures....................... 594 519
Construction-in-progress..................... 640 250
-------- --------
27,515 24,883
Accumulated depreciation..................... (16,896) (14,925)
-------- --------
$ 10,619 $ 9,958
======== ========
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. INCOME TAXES
Information pertaining to the Company's income before income taxes and the
applicable provision for income taxes, excluding amounts related to the 1994
extraordinary loss, is as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- -------- --------
Income before income taxes:
Domestic ..................... $ 17,897 $ 11,297 $ 9,435
Foreign....................... 1,894 2,848 1,906
-------- -------- --------
$ 19,791 $ 14,145 $ 11,341
======== ======== ========
Provision for income taxes:
Current:
Federal.................... $ 5,373 $ 3,211 $ 3,624
State and Local............ 1,019 587 661
Foreign.................... 649 542 557
-------- -------- --------
7,041 4,340 4,842
Deferred:
Federal.................... 590 963 (605)
State and Local............ 108 174 (92)
Foreign.................... (13) 12 111
-------- -------- --------
$ 7,726 $ 5,489 $ 4,256
======== ======== ========
The effective tax rate on earnings before income taxes varies from the
current statutory federal income tax rate as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- -------- --------
Statutory rate................ 35.0% 35.0% 35.0%
State and local taxes, net.... 3.7 3.3 3.3
Other, net.................... 0.3 0.5 (0.8)
-------- -------- --------
39.0% 38.8% 37.5%
======== ======== ========
The Company has recorded deferred tax assets and liabilities relating to
future tax deductions as follows:
DECEMBER 31,
----------------------
1995 1994
-------- --------
Deferred tax assets:
Accounts receivable............. $ 641 $ 668
Inventory....................... 466 931
Property, plant and equipment... 933 1,237
Pension......................... 607 608
Other ......................... 701 461
-------- --------
Total........................ 3,348 3,905
-------- --------
Deferred tax liabilities:
Unremitted foreign earnings..... 600 561
Other ......................... 294 205
-------- --------
Total........................ 894 766
-------- --------
Net deferred tax assets............. $ 2,454 $ 3,139
======== ========
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Effective in 1995, the Company and Mafco entered into a revised tax sharing
agreement which requires the Company to pay to Mafco an amount equal to the
federal and certain state income taxes that the Company would pay as if the
Company had filed its own federal and state income tax returns. In 1993 and
1994, the Company and Holdings were party to a tax sharing agreement which
required the Company to pay to Holdings an amount equal to federal and certain
state income taxes that the Company would pay as if the Company had filed its
own federal and state income tax returns.
The Company has not provided for taxes on undistributed foreign earnings of
approximately $7,653 and $6,616 at December 31, 1995 and 1994, respectively, as
the Company intends to permanently reinvest these earnings in the future growth
of the business. Determination of the amount of the unrecognized deferred U.S.
income tax liability is not practical because of the complexities associated
with its hypothetical calculation.
6. PENSION PLANS
The following table reconciles the funded status of the Company's
significant pension plans as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation includes vested benefits of
$8,791 and $9,002............................................. $ 8,857 $ 9,071
======== ========
Projected benefit obligation for service rendered to date............ $ 10,526 $ 10,800
Less: plan assets at fair value................................. 9,389 8,237
-------- --------
Projected benefit obligation in excess of plan assets............ 1,137 2,563
Unrecognized transition obligation............................... (249) (282)
Unrecognized prior service cost.................................. 174 461
Unrecognized net (loss) gain..................................... 692 (1,188)
-------- --------
Net pension liability............................................ $ 1,754 $ 1,554
======== ========
</TABLE>
The Company has an unfunded supplemental benefit plan to provide salaried
employees with retirement benefits which were limited by the enactment of OBRA
93. The accumulated benefit obligation, which is totally vested, was $143 at
December 31, 1995. The projected benefit obligation was $516 and after
adjusting for prior service costs and unrecognized actuarial gains and losses,
the amount which is included in Pension Plan Liabilities at December 31, 1995
was $175.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5% and 7% as of
December 31, 1995 and 1994, respectively. The rate of increase in future
compensation levels reflected in the determination of the Company's salaried
plans was 5% as of December 31, 1995 and 1994. The expected long-term rate of
return on assets was 8% and 7% for the salaried plan for 1995 and 1994,
respectively and 8% for the union pension plan for both 1995 and 1994.
Unrecognized items are being amortized over the estimated remaining service
lives of active employees. Certain employees of the Company are covered under a
union pension plan which provides for a benefit accrual based upon a flat
dollar amount for each year of credited service.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Pension expense includes the following components:
Service cost-benefits earned during the period................ $ 310 $ 278 $ 212
Interest cost on projected benefit obligation................. 779 688 677
Actual (gain) loss on plan assets............................. (1,756) 115 (1,437)
Net amortization and deferrals................................ 1,200 (727) 875
-------- -------- --------
Net pension expense........................................ $ 533 $ 354 $ 327
======== ======== ========
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Senior Credit:
Tranche A Term Loans.................................................... $ 14,000 $ 19,500
Tranche B Term Loans.................................................... 19,800 20,000
11 7/8% Senior Subordinated Notes due 2002................................. 84,510 84,466
Other...................................................................... 25
-------- --------
118,310 123,991
Less: current portion...................................................... 10,232 8,134
-------- --------
$108,078 $115,857
======== ========
</TABLE>
The Senior Credit was entered into in June 1994 between the Company and a
group of lenders. It was originally comprised of $30,000 in Tranche A Loans,
$20,000 in Tranche B Loans, and $25,000 in Revolving Credit Loan commitments
(the "Revolving Credit Loans"). The Tranche A Loans are repayable in 20
quarterly installments which started on September 30, 1994. The Tranche B Loans
are repayable in seven annual installments; (a) five installments of $200 each
with the first due on June 30, 1995, and (b) two installments of $9,500 each
due on June 30, 2000 and 2001. The Revolving Credit Loans are payable in full
by June 30, 1999. At December 31, 1995 no amounts were borrowed under the
Revolving Credit Loans and $2,461 was reserved for lender guarantees on
outstanding letters of credit. The Senior Credit requires an additional annual
payment based upon the Company's excess cash flow as defined in the agreement.
At December 31, 1995, this amount equaled $4,032 and is payable on March 31,
1996. The Senior Credit permits the Company to choose between various interest
rate options and to specify the interest rate period to which the interest rate
options are to apply, subject to certain parameters. The interest rate options
available are (i) the Base Rate Loans (as defined) plus a borrowing margin of
1.25% for the Tranche A Loans and Revolving Credit Loans and 1.75% for the
Tranche B Loans and (ii) Eurodollar Loans (as defined) plus a borrowing margin
of 2.5% for the Tranche A Loans and Revolving Credit Loans and 3% for the
Tranche B Loans. Upon achievement of specified financial ratios, the borrowing
margins are reduced. At December 31, 1995, the margin on the Tranche A loan was
reduced to 1.0% on Base Rate Loans and to 2.25% on Eurodollar loans. At
December 31, 1995 the interest rate was 7.94% on the Tranche A Loans and 8.69%
on the Tranche B Loans. The Senior Credit also provides for a commitment fee of
one half of one percent per annum on the unused Revolving Credit Loans.
Obligations under the Senior Credit are secured by pledges of substantially all
of the Company's domestic assets and two thirds of the capital stock of the
Company's wholly owned foreign subsidiaries. The Senior Credit contains various
restrictive covenants which include, among other things, limitations on
indebtedness and liens, minimum interest coverage and fixed charge coverage
ratios, operating cash flow maintenance and capital expenditure limits and
restrictions on dividends.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
In November 1992, the Company completed a public offering in which it sold
$85,000 aggregate principal amount of 11 7/8% Senior Subordinated Notes due
2002 (the "Senior Subordinated Notes") at a price of 99.28% of face value. The
Senior Subordinated Notes mature on November 15, 2002, and are not subject to
redemption through the operation of a sinking fund. The Senior Subordinated
Notes are subject to redemption at any time after November 15, 1997, at the
option of the Company, in whole or in part, at redemption prices (expressed as
percentages of the principal amount) for the 12 month period beginning each
November 15: 1997-105.95%; 1998-103.96%; 1999-101.98% and 100% thereafter.
Interest is payable semiannually in May and November. The Indenture relating
to the Senior Subordinated Notes contains various restrictive covenants, which
include restrictions on the incurrence of additional debt, payments of
dividends and transactions with affiliates. In addition, upon the occurrence
of a change in control whereby any person (as defined in the Indenture)
acquires directly or indirectly more than 35% of the total voting power of all
classes of the voting stock of the Company, each holder of the Senior
Subordinated Notes has the right to require the Company subject to certain
restrictions in the Senior Credit, to repurchase the Senior Subordinated Notes
at 101% of face value. The Senior Subordinated Notes are subordinate in right
of payment to the existing Senior Credit and all future senior indebtedness of
the Company.
The Company's French subsidiary has an agreement renewable annually with a
local bank whereby it may borrow up to six million french francs
(approximately $1,225) for working capital purposes. At December 31, 1995,
$728 had been borrowed at a rate of 5.25%.
The aggregate scheduled amounts of long-term debt maturities in the years
1997 through 2000 are $6,200, $547, $200 and $9,500, respectively.
8. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of trade accounts receivable. The
Company's customers are geographically dispersed, but are concentrated in the
tobacco industry. Even though eight of the Company's ten largest customers are
in the tobacco industry and account for approximately 57% of the Company's
sales, the Company historically has had no material losses on its trade
receivables from customers in the tobacco industry. Probable bad debt losses
have been provided for in the allowance for doubtful accounts.
The Company enters into forward exchange contracts to hedge certain
receivables and firm sales commitments denominated in foreign currencies. The
effects of movements in currency exchange rates on these instruments are
recognized when the related operating revenue is recognized. Realized gains
and losses on foreign currency contracts are included in the underlying asset
or liability being hedged and recognized in earnings when the future sales
occur. At December 31, 1995 and 1994, the Company had forward exchange
contracts, all having maturities of less than one year, in the amount of $418
and $306, respectively.
The fair values of the Company's foreign currency contracts approximate
the carrying amounts at December 31, 1995 and December 31, 1994.
The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities and foreign borrowings approximate fair
value because of the short maturity of these instruments. The fair value of
the Company's long term debt which had a carrying value of $118,310
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
was approximately $122,200 at December 31, 1995. The fair value of long term
debt, including current portions, is estimated based upon current quoted market
prices for the same issues at current rates offered to the Company for debt of
the same remaining maturities. Because considerable judgement is required in
interpreting market data to develop estimates of fair value, the estimates are
not necessarily indicative of the amounts that could be realized or would be
paid in current market exchange.
9. RELATED PARTY TRANSACTIONS
Included in the consolidated statements of earnings are sales to Cigar of
$288, $284 and $221 for the years ended December 31, 1995, 1994 and 1993,
respectively.
10. COMMITMENTS AND CONTINGENCIES
Rental expense, which includes rent for facilities, equipment and
automobiles under operating leases expiring through 2001, amounted to $529,
$568 and $634 for the years ended December 31, 1995, 1994 and 1993,
respectively. Future minimum rental commitments for operating leases with
noncancelable terms in excess of one year from December 31, 1995 are as
follows:
1996..................................... $ 554
1997..................................... 537
1998..................................... 264
1999..................................... 176
2000 and thereafter...................... 311
------
$1,842
======
The Company had outstanding letters of credit totalling $2,461 and $4,860
at December 31, 1995 and 1994, respectively.
At December 31, 1995, the Company had obligations to purchase
approximately $12,460 of raw materials.
The Company is not a party to any litigation which is material to its
financial condition or its results of operations.
11. SIGNIFICANT CUSTOMER
The Company has a significant customer in the tobacco industry who
accounted for approximately 25%, 26% and 24% of net sales in 1995, 1994 and
1993, respectively.
12. GEOGRAPHIC SEGMENTS
The Company is one business segment. Information related to the Company's
geographic segments are presented below with the following definitions:
Operating profit, as indicated below, represents net sales less operating
expenses, foreign currency transaction income (loss) and other income
(expense).
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Identifiable assets are those used by each geographic segment. Goodwill
pertains to foreign operations and have been included in foreign identifiable
assets. Corporate assets are principally domestic cash and deferred charges.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net Sales (a):
Domestic - U.S....................................... $ 62,678 $ 59,717 $ 58,682
- Export.................................... 25,424 24,940 23,401
Foreign.............................................. 15,146 10,996 10,311
-------- -------- --------
$103,248 $ 95,653 $ 92,394
======== ======== ========
Operating profit:
Domestic............................................. $ 30,633 $ 26,866 $ 26,148
Foreign (b).......................................... 2,969 2,853 1,779
Equity in unconsolidated subsidiaries................ 352 109 247
-------- -------- --------
33,954 29,828 28,174
Net interest expense and financing charges.............. (14,163) (15,683) (16,833)
-------- -------- --------
Income before income taxes and extraordinary loss....... $ 19,791 $ 14,145 $ 11,341
======== ======== ========
Identifiable assets:
Domestic (c)......................................... $ 55,020 $ 58,682 $ 65,432
Foreign.............................................. 17,505 15,744 15,129
Corporate............................................ 12,778 11,516 7,177
-------- -------- --------
$ 85,303 $ 85,942 $ 87,738
======== ======== ========
</TABLE>
(a) The Company had no intercompany sales from its U.S. business to its
foreign businesses in 1995 and 1994, while in 1993 it had sales of $84.
Sales from its foreign businesses to its U.S. business were $1,967,
$2,698 and $4,621 for the years ended December 31, 1995, 1994 and 1993,
respectively. Such amounts are excluded from the above table.
(b) Includes foreign currency transaction loss of $99, $15 and $20 in 1995,
1994 and 1993, respectively.
(c) Includes assets located in foreign countries of $1,827, $4,325 and $5,307
at December 31, 1995, 1994 and 1993, respectively.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO OTHER(1) BALANCE AT
BEGINNING COSTS AND OTHER (DEDUCTIONS) END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS ADDITIONS OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Deducted from asset accounts:
Sales allowances................... $619 - - ($619) -
Allowance for doubtful accounts.... 362 $823 - (72) $1,113
------ ------ ------ ------ ------
Totals ......................... $981 $823 - ($691) $1,113
====== ====== ====== ====== ======
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts.... $1,113 ($55) - $25 $1,083
------ ------ ------ ------ ------
Totals ......................... $1,113 ($55) - $25 $1,083
====== ====== ====== ====== ======
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts.... $1,083 $56 - ($110) $1,029
------ ------ ------ ------ ------
Totals ......................... $1,083 $56 - ($110) $1,029
====== ====== ====== ====== ======
</TABLE>
Note:
(1) Doubtful accounts written off, less recoveries, reclassifications and
foreign translation adjustment.
F-16
