Document Y993v50rYrM698K8pboMJ8oYn

MAFCO CONSOLIDATED GROUP INC (Form 10-K, Received- 03/28/1997 00 00.00) Page 7 of 116 cigars, there can be no assurance that the Company will be able to meet any future level of demand for its premium cigars. There can be no assurance, however, that demand for the Company's premium cigars will continue to grow m the future 5 The Company's ability to manufacture premium and mass market cigars may also be constrained by the ability of tobacco growers and suppliers to meet the Company's demands for its raw materials in a timely manner. Tobacco, as a crop that is harvested annually, restricts the ability of tobacco growers to adjust acreage grown in any given year to meet changes in market demands In addition, increases in acreage of tobacco grown requires significant capital, which growers may be unable or unwilling to invest. If the rate of escalation in consumption of cigars and other tobacco products continues, but the supply of tobacco remains constant or increases at a lower rate than demand, the Company's ability to mcrease its production of cigars, and thereby reduce its backorders, could be inhibited. SALES AND MARKETING The Company sells its cigar and pipe tobacco products throughout the Umted States to over 2,500 customers, consistmg of wholesale distributors, direct buying chams, including drug store chams and mass market retailers, and tobacconists The Company employs a full-time in-house sales organization to develop and service its sales to wholesalers, distributors, direct buying chains and tobacconists The Company's sales force is orgamzed into two sales umts a mass market division and a premium division The Company believes that the organization of its sales force mto two divisions positions it to maintain a high degree of focus on each of its principal product categories The mass market sales force calls on distributors and retail and chain store accounts, including Kmart, Wal-Mart, Eckerd Drug Stores, CVS stores and Thrifty Drug Stores, across the United States Approximately 88% of the Company's mass market cigar products are sold through wholesale distributors while approximately 12% are sold to direct buying chams or independent retailers that warehouse for themselves The premium cigar sales force calls directly on tobacconists and distributors. The Company's sales force operates regionally and locally from home and car, maintaining close familiarity with local customers. Most salespeople maintain a small stock of inventory which is used primarily to replace local distributors' old or damaged products and to display new product introductions or promotions The Company supplies cigar merchandising fixtures to retailers at no cost and believes that it is the primary supplier of such fixtures to the Umted States retail trade These fixtures help to maintain an attractive product display and to mcrease shelf space available for the Company's products. For the year ended December 31,1996, the Company had more than 2,500 customers, the top five of which accounted for approximately 22% of annual sales with the largest customer accounting for approximately 6% The Company believes that the loss of any one customer would not be material to the Company's busmess The Company maintains no long-term contracts for the sale of its merchandise The Company advertises its mass market cigar products primarily through coupons and other promotions distributed at point of sale and through direct mail The Company advertises its premium cigar products in magazines, such as Cigar Aficionado, Playboy and The New York Times Sunday Magazine, as well as in newspapers and on radio In order to strengthen and broaden further the brand recognition of its premium cigars and to maximize the busmess opportunities created by the resurgence m popularity of and mcreased demand for premium cigars, the Company has increased its marketing and advertising expenditures in connection with its existing premium cigar brands The mcreased advertising and marketing expenditures are being used to support new product introductions and mcrease awareness and recognition of the Company's premium brands http://www edgarpro.com/EFX_dll/EDGARpro.dlUFetchFilingHTMLl?ID=969943&Ses.. 10/19/2003