<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the 13 weeks ended May 28, 1994 Commission File No. 1-1210
CULBRO CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-0762310
(state or other jurisdiction of incorporation or (IRS Employer
organization) Identification Number)
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
Former name, former address and former fiscal year, Not Applicable
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----------- -----------
Number of shares of Common Stock outstanding at July 1, 1994 - 4,308,288
Page 1 of 17
<PAGE>
CULBRO CORPORATION AND SUBSIDIARY COMPANIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Consolidated Balance Sheet
May 28, 1994 and November 27, 1993. . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations and
Retained Earnings - thirteen weeks ended
May 28, 1994 and May 29, 1993 . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Operations and
Retained Earnings - twenty-six weeks ended
May 28, 1994 and May 29, 1993 . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows -
twenty-six weeks ended May 28, 1994
and May 29, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . .7-12
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . 13-14
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 15-16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Page 2 of 17
<PAGE>
CULBRO CORPORATION
CONSOLIDATED BALANCE SHEET
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
MAY 28, NOVEMBER 27,
ASSETS 1994 1993
--------- ---------
(unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,437 $ 8,715
Receivables, less allowance of $1,071
(1993 - $3,098) 31,273 75,917
Inventories 69,943 128,216
Other current assets 11,715 5,931
-------- --------
Total current assets 115,368 218,779
Property and equipment, net 78,110 114,898
Real estate held for sale or lease, net 34,902 35,338
Investment in Series B preferred stock of
The Eli Witt Company 15,000 --
Investment in real estate joint ventures 7,969 8,275
Other assets 19,723 24,923
Intangible assets 19,322 21,446
-------- --------
Total assets $290,394 $423,659
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 21,911 $ 76,904
Long-term debt due within one year 9,104 14,519
Income taxes 143 264
-------- --------
Total current liabilities 31,158 91,687
-------- --------
Long-term debt 114,236 175,405
Deferred income taxes 3,213 5,479
Other postretirement benefit obligations 11,975 14,548
Other noncurrent liabilities and deferred credits 17,847 15,653
-------- --------
Total liabilities 178,429 302,772
-------- --------
Minority interest in subsidiary -- 10,005
-------- --------
Shareholders' Equity
Common stock, par value $1
Authorized - 10,000,000 shares
Issued - 4,549,190 shares 4,549 4,549
Capital in excess of par value 13,296 13,296
Retained earnings 99,425 98,345
-------- --------
117,270 116,190
Less - Common stock in Treasury, at cost, 240,902 shares
(1993 - 241,128) (5,305) (5,308)
--------- ---------
Total shareholders' equity 111,965 110,882
-------- --------
Total liabilities, minority interest
and shareholders' equity $290,394 $423,659
-------- --------
-------- --------
</TABLE>
THE 1994 FINANCIAL STATEMENTS REFLECT THE DECONSOLIDATION OF ELI WITT EFFECTIVE
AT THE BEGINNING OF THE CURRENT YEAR. PRIOR PERIODS REFLECT ELI WITT AS A FULLY
CONSOLIDATED SUBSIDIARY. SEE NOTE B.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3 of 17
<PAGE>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(dollars in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------------
MAY 28, MAY 29,
1994 1993
---------- -----------
<S> <C> <C>
Net sales and other revenue $54,499 $389,602
Costs and expenses
Cost of goods sold 35,728 350,353
Selling, general and administrative expenses 13,428 32,368
------- --------
Operating profit 5,343 6,881
Equity in net loss of Eli Witt (1,489) --
Equity in net income (loss) of Centaur Communications 75 (25)
Interest expense, net 2,105 3,829
------- --------
Income before taxes 1,824 3,027
Income tax provision 1,267 1,211
------- --------
Income before minority interest and cumulative
effect of accounting change 557 1,816
Minority interest -- (44)
------- --------
Income before cumulative effect of accounting change 557 1,772
Cumulative effect of accounting change for
post-retirement benefits, net of tax 1,572 --
------- --------
Net income 2,129 1,772
Accretion of Series A preferred stock of Eli Witt -- (221)
------- --------
Net income applicable to common shareholders 2,129 1,551
Retained earnings - beginning of period 97,296 95,670
------- --------
Retained earnings - end of period $99,425 $ 97,221
------- --------
------- --------
Income per common share before cumulative effect
of accounting change $ 0.13 $ 0.36
Cumulative effect of accounting change per
common share 0.36 --
------- --------
Net income per common share $ 0.49 $ 0.36
------- --------
------- --------
</TABLE>
THE 1994 FINANCIAL STATEMENTS REFLECT THE DECONSOLIDATION OF ELI WITT EFFECTIVE
AT THE BEGINNING OF THE CURRENT YEAR. PRIOR PERIODS REFLECT ELI WITT AS A FULLY
CONSOLIDATED SUBSIDIARY. SEE NOTE B.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4 of 17
<PAGE>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(dollars in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
26 WEEKS ENDED
-----------------------
MAY 28, MAY 29,
1994 1993
----------- --------
<S> <C> <C>
Net sales and other revenue $ 87,859 $676,257
Costs and expenses
Cost of goods sold 56,078 608,916
Selling, general and administrative expenses 25,881 59,006
-------- --------
Operating profit 5,900 8,335
Equity in net loss of Eli Witt (2,185) -
Equity in net income (loss) of Centaur Communications 125 (125)
Interest expense, net 3,989 7,466
Fees on sales of accounts receivable -- 476
-------- --------
(Loss) income before taxes (149) 268
Income tax provision 343 107
-------- --------
(Loss) income before minority interest and cumulative
effect of accounting change (492) 161
Minority interest -- (44)
-------- ---------
(Loss) income before cumulative effect of accounting
change (492) 117
Cumulative effect of accounting change for
postretirement benefits, net of tax 1,572 (9,177)
-------- --------
Net income (loss) 1,080 (9,060)
Accretion of Series A preferred stock of Eli Witt -- (221)
-------- --------
Net income (loss) applicable to common shareholders 1,080 (9,281)
Retained earnings - beginning of period 98,345 106,502
-------- --------
Retained earnings - end of period $ 99,425 $ 97,221
-------- --------
-------- --------
Loss per common share before cumulative
effect of accounting change $ (0.11) $ (0.02)
Cumulative effect of accounting change
per common share 0.36 (2.13)
-------- --------
Net income (loss) per common share $ 0.25 $ (2.15)
-------- --------
-------- --------
</TABLE>
THE 1994 FINANCIAL STATEMENTS REFLECT THE DECONSOLIDATION OF ELI WITT EFFECTIVE
AT THE BEGINNING OF THE CURRENT YEAR. PRIOR PERIODS REFLECT ELI WITT AS A FULLY
CONSOLIDATED SUBSIDIARY. SEE NOTE B.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5 of 17
<PAGE>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
26 WEEKS ENDED
-----------------------
MAY 28, MAY 29,
1994 1993
-------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,080 $ (9,060)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:
Cumulative effect of accounting change, net of tax (1,572) 9,177
Depreciation and amortization 3,632 6,071
Equity in net loss of Eli Witt 2,185 --
Equity in net (income) loss of Centaur (125) 125
Provision for bad debts 178 689
Changes in assets and liabilities net of effects from
the deconsolidation of Eli Witt in 1994 and the
acquisition of Certified Grocers in 1993:
Reductions in real estate held for sale or lease, net 436 701
Decrease in inventories 344 46,953
Increase in accounts receivable (6,366) (11,353)
Decrease in sales of accounts receivable -- (26,000)
Decrease in accounts payable and accrued
liabilities (4,704) (239)
Other, net 338 (305)
------- --------
Net cash (used in) provided by operating activities (4,574) 16,759
------- --------
INVESTING ACTIVITIES:
Additions to property and equipment (2,543) (3,786)
Proceeds from Take-out Agreement with
Moll PlastiCrafters -- 4,953
Acquisition of Certified Grocers, net cash acquired -- (2,004)
------- --------
Net cash used in investing activities (2,543) (837)
------- --------
FINANCING ACTIVITIES:
Increase in debt (1993 principally reflects debt assumed in
acquisition of Certified Grocers) 17,000 29,453
Payments of debt (1993 principally reflects refinancing
of debt assumed from acquisition of Certified Grocers) (8,321) (39,467)
------- --------
Net cash provided by (used in) financing activities 8,679 (10,014)
------- --------
Net increase in cash and cash equivalents 1,562 5,908
Cash and cash equivalents at beginning of period (excluding
Eli Witt cash of $7,840 at the beginning of
1994 not available to the Corporation) 875 1,898
------- --------
Cash and cash equivalents at end of period $ 2,437 $ 7,806
------- --------
------- --------
</TABLE>
THE 1994 FINANCIAL STATEMENTS REFLECT THE DECONSOLIDATION OF ELI WITT EFFECTIVE
AT THE BEGINNING OF THE CURRENT YEAR. PRIOR PERIODS REFLECT ELI WITT AS A FULLY
CONSOLIDATED SUBSIDIARY. SEE NOTE B.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 6 of 17
<PAGE>
CULBRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(unaudited)
A. The unaudited financial statements included in this report have been
prepared in conformity with the standards of accounting measurement set
forth in Accounting Principles Board Opinion No. 28 and any amendments
thereto adopted by the Financial Accounting Standards Board. Also, the
financial statements have been prepared in accordance with the accounting
policies stated in the Corporation's 1993 Annual Report to Shareholders
included in Form 10K, except for a change in the basis of consolidation
(as discussed in Note B below) and should be read in conjunction with the
Notes to Consolidated Financial Statements appearing in that report.
All adjustments which are, in the opinion of management, necessary for a
fair presentation of results for the interim periods have been reflected.
The results of operations for the thirteen and twenty-six weeks ended
May 28, 1994 are not necessarily indicative of the results to be
expected for the full year.
B. The consolidated financial statements reflect the accounts of all the
Corporation's wholly-owned subsidiaries. The Corporation's subsidiary in
the wholesale distribution business, The Eli Witt Company ("Eli Witt"),
which previously was included in the Corporation's consolidated financial
statements, has been deconsolidated and is accounted for under the equity
method.
On April 25th, 1994, Eli Witt acquired the Southern Divisions of NCC L.P.
("NCC South", see Note C). 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% of the
outstanding common stock of Eli Witt, which they received in connection with
Eli Witt's acquisition of Certified Grocers in 1993. In connection with the
acquisition of NCC South, Eli Witt issued additional common stock. NCC L.P.
("NCC") and one of its partners, MS Distribution, Inc. ("MSD"), an affiliate
of the Morgan Stanley Leveraged Equity Fund II, L.P., received a
total of approximately 38% of the outstanding common stock of Eli Witt in
exchange for the net assets of NCC South and a $15 million Subordinated
note issued by the Corporation (See Note D). The Corporation retained a
50.1% ownership in the common stock of Eli Witt, and the former shareholders
of Certified Grocers now hold approximately 12% of the outstanding common
stock of Eli Witt. In connection with the issuance of Eli Witt common stock
to MSD, the Corporation entered into a Shareholders Agreement with MSD. This
agreement contains certain provisions ("governance provisions") which state
that all major transactions by Eli Witt, including
amongst others, 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, require prior approval by MSD.
Additionally, the Corporation and the other
holders of Eli Witt's outstanding common stock intend to proceed with a
public offering of the common stock of Eli Witt in due course. Therefore,
due to the shareholders rights granted to MSD, which limit the control of
the Corporation over Eli Witt, and the likelihood that the Corporation's
ownership of 50.1% of Eli Witt's outstanding common stock is temporary,
Eli Witt has been deconsolidated from the Corporation's financial statements
as of April 1994 and accounted for under the equity method. The financial
statements presented for the current period reflect the application
of the equity method of accounting for the Corporation's investment in Eli
Witt retroactively applied to the beginning of the current year. The
financial statements of the prior year continue to reflect Eli Witt as a
fully consolidated subsidiary of the Corporation.
The following condensed pro forma financial statements reflect a
restatement of the prior year to present Eli Witt under the equity method
for comparative purposes.
Page 7 of 17
<PAGE>
CONDENSED BALANCE SHEET OF CULBRO CORPORATION
<TABLE>
<CAPTION>
NOV. 27,
MAY 28, 1993
1994 (RESTATED)
---------- ----------
<S> <C> <C>
Total current assets $ 115,368 $ 100,293
Property and equipment, net 78,110 78,770
Investment in Series B preferred
stock of Eli Witt 15,000 15,000
Other noncurrent assets 62,594 71,859
Intangible assets 19,322 19,646
---------- ----------
Total assets $ 290,394 $ 285,568
---------- ----------
---------- ----------
Long term debt due within one year $ 9,104 $ 9,747
All other current liabilities 22,054 26,879
---------- ----------
Total current liabilities 31,158 36,626
Long term debt 114,236 104,914
Deferred taxes, other noncurrent liabilities
and deferred credits 33,035 33,146
---------- ----------
Total liabilities 178,429 174,686
Shareholders' equity 111,965 110,882
---------- ----------
Total liabilities and shareholders' equity $ 290,394 $ 285,568
---------- ----------
---------- ----------
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS OF CULBRO CORPORATION
<TABLE>
<CAPTION>
13 WEEKS ENDED
-------------------------
MAY 29,
MAY 28, 1993
1994 (RESTATED)
---------- ----------
<S> <C> <C>
Net sales and other revenue $ 54,499 $ 48,822
Cost of goods sold 35,728 31,588
Selling, general and administrative expenses 13,428 12,683
---------- ----------
Operating profit 5,343 4,551
Equity in net (loss) income of Eli Witt (1,489) 47
Equity in net income (loss) of Centaur 75 (25)
Interest expense, net 2,105 1,904
---------- ----------
Income before taxes 1,824 2,669
Income tax provision 1,267 1,118
---------- ----------
Income applicable to common shareholders
before cumulative effect of accounting change $ 557 $ 1,551
---------- ----------
---------- ----------
Income per common share before cumulative
effect of accounting change $ 0.13 $ 0.36
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
26 WEEKS ENDED
-------------------------
MAY 29,
MAY 28, 1993
1994 (RESTATED)
---------- ----------
<S> <C> <C>
Net sales and other revenue $ 87,859 $ 78,525
Cost of goods sold 56,078 51,246
Selling, general and administrative expenses 25,881 25,040
---------- ----------
Operating profit 5,900 2,239
Equity in net (loss) income of Eli Witt (2,185) 1,379
Equity in net income (loss) of Centaur 125 (125)
Interest expense, net 3,989 3,505
Fees on sales of accounts receivable -- 476
---------- ----------
Loss before taxes (149) (488)
Income tax provision (benefit) 343 (384)
---------- ----------
Loss applicable to common shareholders
before cumulative effect of accounting change $ (492) $ (104)
---------- ----------
---------- ----------
Loss per common share before cumulative
effect of accounting change $ (0.11) $ (0.02)
---------- ----------
---------- ----------
</TABLE>
Page 8 of 17
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS OF CULBRO CORPORATION
<TABLE>
<CAPTION>
26 WEEKS ENDED
------------------------
MAY 29,
MAY 28, 1993
1994 (RESTATED)
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,080 $ (9,060)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Cumulative effect of accounting change (1,572) 9,177
Depreciation and amortization 3,632 3,733
Equity in net loss (income) of Eli Witt 2,185 (1,379)
Decrease in sale of accounts receivable -- (6,500)
Changes in assets and liabilities (10,290) (7,628)
Other, net 391 403
---------- ----------
Net cash used in operating activities (4,574) (11,254)
---------- ----------
INVESTING ACTIVITIES:
Additions to property and equipment (2,543) (1,947)
Dividend received from Eli Witt and repayment of
intercompany debt by Eli Witt to the Corporation -- 87,658
Mortgage loan on distribution facility to Eli Witt -- (10,000)
Proceeds from Take-Out Agreement -- 4,953
---------- ----------
Net cash (used in) provided by investing activities (2,543) 80,664
---------- ----------
FINANCING ACTIVITIES:
Payments of long-term debt (8,321) (70,029)
Increases in long-term debt 17,000 --
---------- ----------
Net cash provided by (used in) financing activities 8,679 (70,029)
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,562 (619)
Cash and cash equivalents at beginning of period 875 794
---------- ----------
Cash and cash equivalents at end of period $ 2,437 $ 175
---------- ----------
---------- ----------
</TABLE>
C. The Corporation's investment in Eli Witt as of May 28, 1994 reflects the
mandatorily redeemable Series B preferred stock of Eli Witt held by the
Corporation. At the time of the deconsolidation, Eli Witt was in a common
deficit position, and as such, the Corporation's investment in Eli Witt's
common stock is reflected at zero in the Corporation's consolidated balance
sheet. The Corporation recognized results of Eli Witt through the
deconsolidation date and will not recognize any future
profits or losses of Eli Witt until Eli Witt's common deficit is recouped.
Eli Witt's condensed financial information is as follows:
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF OPERATIONS OF ELI WITT 26 WEEKS ENDED
----------------------
MAY 28, MAY 29,
1994 1993
---------- ----------
<S> <C> <C>
Net sales and other revenues $ 641,447 $ 597,732
Cost of goods sold 599,143 557,670
Operating expenses 44,137 33,741
------- -------
Operating (loss) profit (1,833) 6,321
Interest expense, net 2,437 3,961
------- -------
Pretax (loss) income (4,270) 2,360
Income tax (benefit) provision (1,537) 838
------- -------
Net (loss) income $ (2,733) $ 1,522
------- -------
------- -------
</TABLE>
Page 9 of 17
<PAGE>
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET OF ELI WITT MAY 28, NOVEMBER 27,
1994 1993
------------ ------------
<S> <C> <C>
Assets
Receivables,net $ 76,130 50,832
Inventories 57,159 57,929
Cash and other current assets 8,696 9,725
------- -------
Total current assets 141,985 118,486
Property and equipment, net 42,711 36,128
Other assets 11,080 12,382
------- -------
Total assets $ 195,776 $ 166,996
------- -------
------- -------
Liabilities
Accounts payable and accrued expenses 62,748 $ 49,666
Current portion of long-term debt 6,365 4,772
------- -------
Total current liabilities 69,113 54,438
Long-term debt 98,245 80,491
Other noncurrent liabilities 12,057 11,659
------- -------
Total liabilities 179,415 146,588
------- -------
Mandatorily redeemable preferred stock 16,900 16,150
------- -------
Shareholders' equity:
Series A preferred stock 10,505 10,005
Common deficit (11,044) (5,747)
------- -------
Total shareholders' equity (539) 4,258
------- -------
Total liabilities, preferred stock & shareholders' equity $ 195,776 $ 166,996
------- -------
------- -------
</TABLE>
On April 25th, 1994, Eli Witt acquired the net assets of NCC South, which
comprised a substantial portion of NCC L.P., a limited partnership engaged in
the wholesale distribution business. NCC South operates primarily in the
same region as Eli Witt and has annual revenue of approximately $600 million.
The acquisition was accounted for as a purchase by Eli Witt and the assets
and liabilities acquired were recorded by Eli Witt at their estimated fair
market values of approximately $51.3 million and $41.8 million, respectively.
In exchange for the net assets and $15 million of subordinated debt (see
Note D), NCC and one of its investor partners, MSD, received common stock
of Eli Witt amounting to approximately 38% of Eli Witt's outstanding common
stock. Additionally, Eli Witt issued to MSD, for proceeds of $3 million, a
non-interest bearing convertible subordinated note with a principal amount
of $5 million maturing in August 1998. The effective interest rate on the
note, reflected by the original issue discount of $2 million, is 12.5%.
D. Concurrent with the acquisition described above in Note C, the Corporation
issued subordinated debt to MSD for proceeds of $12 million. The
subordinated debt has a face value of $15 million, is due in August 1998,
accrues interest at 10% per annum, and is exchangeable into the
Series B preferred stock of Eli Witt currently held by the Corporation. No
interest payments are required until maturity at which time the principal and
accrued interest may be exchanged with the Series B preferred stock
of Eli Witt. The Corporation used the proceeds to prepay $3 million of its
9.7% Senior Notes and the balance of the proceeds were used to reduce
amounts outstanding under the Corporation's Credit Agreement.
On January 27th, 1994 the Corporation obtained a $5 million mortgage on
certain equipment. The proceeds were used to reduce the amount outstanding
under the Corporation's Credit Agreement. The mortgage bears interest
at 7.25% per annum and has a term of ten years, with a balloon payment of
$1.2 million due at termination.
E. Effective in the 1993 first quarter, the Corporation adopted Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This statement requires the
Corporation to recognize postretirement benefits on the accrual basis and
record a liability for the present value of its unfunded accumulated
postretirement benefit obligation. The Corporation previously expensed the
cost of postretirement benefits when paid. The
Page 10 of 17
<PAGE>
Corporation elected to immediately record its accumulated liability, measured
as of the beginning of fiscal 1993, with a net charge of $9.2 million ($2.13
per common share) reflecting the cumulative effect of the accrued
postretirement benefit obligation of $14.8 million, net of a deferred tax
benefit of $5.6 million.
Upon adopting SFAS No. 106 in 1993,
the Corporation elected to immediately recognize the cumulative effect of
this accounting change. Eli Witt, in its separate company financial
statements, adopted SFAS No. 106 prospectively and elected to amortize its
initial liability over twenty years. Therefore, the initial liability
recorded upon the Corporation's adoption of SFAS No. 106 included amounts
related to Eli Witt that are no longer required to be included in the
Corporation's accounts. As a result of the deconsolidation of Eli Witt
(see Note B), the Corporation has adjusted the charge for the cumulative
effect of adopting SFAS No. 106 in the 1994 second quarter.
The total initial charge, net of tax, related to Eli
Witt was $3.2 million. The Corporation has reversed 49.9% of the initial
charge (reflecting the percentage of Eli Witt outstanding common stock not
currently held by the Corporation) related to Eli Witt in the current year's
second quarter and will reverse the remaining initial charge related to Eli
Witt as a component of the Corporation's equity in Eli Witt's results over
twenty years, the period that Eli Witt is amortizing its initial liability.
The adoption of SFAS No. 106 did not have an adverse effect on the
Corporation's cash flow because the Corporation plans to continue funding the
cost of postretirement benefits as they are paid to retirees.
F. Supplemental Financial Statement Information
The supplemental financial information shown below, as restated,
reflects the deconsolidation of Eli Witt as of November 27, 1993 and for the
26 weeks ended May 29, 1993 and is presented for comparative purposes.
<TABLE>
<CAPTION>
INVENTORIES
Inventories consist of:
NOV. 27, NOV. 27,
MAY 28, 1993 1993
1994 (AS REPORTED) (RESTATED)
------------ ------------- ----------
<S> <C> <C> <C>
Raw materials
and supplies $ 34,381 $ 34,232 $ 34,232
Work-in-process 16,841 15,213 15,213
Finished goods 18,721 78,771 20,842
-------- --------- --------
$ 69,943 $ 128,216 $ 70,287
-------- --------- --------
-------- --------- --------
<CAPTION>
PROPERTY AND EQUIPMENT
Property and equipment
consist of:
NOV. 27, NOV. 27,
MAY 28, 1993 1993
1994 (AS REPORTED) (RESTATED)
---------- ------------- ----------
<C> <C> <C> <C>
Land $ 11,372 $ 13,453 $ 11,414
Buildings 62,662 84,340 62,072
Machinery and equipment 58,227 81,871 56,865
Accumulated Depreciation (54,151) (64,766) (51,581)
-------- -------- --------
$ 78,110 $ 114,898 $ 78,770
-------- -------- --------
-------- -------- --------
</TABLE>
Page 11 of 17
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION
26 Weeks Ended
--------------------------------------------------
MAY 29, MAY 29,
MAY 28, 1993 1993
1994 (AS REPORTED) (RESTATED)
-------- ------------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest, net of amounts capitalized $ 4,440 $ 6,922 $ 3,507
----- ----- -----
----- ----- -----
Income taxes, net $ 794 $ 1,215 $ 1,172
----- ----- -----
----- ----- -----
</TABLE>
G. The net loss per common share for the thirteen and twenty-six weeks ended
May 28, 1994 is based on the weighted average number of shares of common
stock outstanding during the respective periods plus the common equivalent
shares arising from the issuance of 125,000 stock options on April 7, 1994.
The remaining outstanding stock options were not considered because they are
anti-dilutive. The weighted average number of shares of common stock and
common stock equivalents, computed using the Treasury Stock method, was
4,360,829 and 4,334,518 for the thirteen and twenty-six weeks ended May 28,
1994, respectively. The weighted average common shares outstanding for the
thirteen and twenty-six weeks ended May 29, 1993 was 4,308,062 and 4,308,015,
respectively. Stock options outstanding during these periods were not
considered because they were anti-dilutive.
Page 12 of 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As discussed in Note B, the Corporation's subsidiary in the wholesale
distribution business, The Eli Witt Company ("Eli Witt"), has been
deconsolidated from the Corporation's financial statements. Last year's
statements have not been restated. The deconsolidation did not have an effect
on the Corporation's cash flow because, as previously reported, the cash flows
of Eli Witt have not been available to the Corporation because Eli Witt was
financed separately from the Corporation and its other subsidiaries since
February, 1993. Comparison of changes in cash flow with the prior year are
based on the restated 1993 cash flow information contained in Note B.
Cash flow used in operations in the 1994 year to date period principally
reflects an increase in accounts receivable, consistent with last year, due
to the seasonal nature of the nursery products business and a
reduction in accounts payable, due to the timing of payments. Cash
flow used in operations was lower than the current period because last year
included the termination of the accounts receivable sales agreement.
Excluding the effect of that one time use of cash, cash flow used in operations
was comparable with the prior year's six month period.
Cash flow used in 1994 investing activities reflects capital expenditures,
primarily in the Corporation's industrial products business. Capital
expenditures were higher in the current year due to timing. The prior year's
investing activities reflect cash generated and used in several one time
transactions. The Corporation received proceeds from the intercompany dividend
and repayment of intercompany debt from Eli Witt in connection with Eli Witt
becoming separately financed in 1993, and the Corporation entered into a
mortgage with Eli Witt on a distribution facility. The proceeds from the
dividend and repayment of intercompany debt, partially offset by the mortgage
loan made to Eli Witt, were used by the Corporation to repay debt.
Cash flow provided by financing activities in the current period include the
proceeds from subordinated debt issued to MS Distribution, Inc. ("MSD"), a
partner of NCC L.P. and an equipment mortgage obtained by the Corporation. The
proceeds from these debt offerings were used to prepay $3.0 million of the
Corporation's 9.7% Senior Notes with the balance of the proceeds used to reduce
amounts outstanding under the Corporation's Credit Agreement. The subordinated
debt issued does not require interest or principal payments until maturity, at
which time it is exchangeable with the Series B preferred stock of the
Eli Witt. The prior year's cash flow used in
financing activities reflects the reduction of the Corporation's debt in
connection with the separate financing of Eli Witt in 1993.
During the 1994 second quarter, Eli Witt entered into a commitment with a
financial institution to obtain an $8 million mortgage on the
distribution facility on which the Corporation currently holds the mortgage.
Upon closing of this transaction, Eli Witt will use the mortgage proceeds to
substantially repay its mortgage with the Corporation, which will use the
proceeds to reduce its debt. This transaction is expected to be completed
during the third quarter.
Management believes that the Corporation's cash flow from operations may
need to be supplemented by proceeds generated from other transactions to meet
operating and capital requirements and scheduled debt repayments. Over the
long-term, management will seek to maintain a level of indebtedness which is
commensurate with the Corporation's earnings and cash flow.
Page 13 of 17
<PAGE>
RESULTS OF OPERATIONS
As a result of the deconsolidation of Eli Witt and accounting for this
subsidiary under the equity method of accounting, the current year's
financial statements have been restated to reflect the deconsolidation as of
the beginning of the fiscal year. Prior year's statements are not restated. The
comparisons reflected in the following discussion are related to the
information contained in Note B which presents a restatement of the prior
year's results to reflect the deconsolidation of Eli Witt for
comparative purposes.
The Corporation's second quarter and six month results before the cumulative
effect of the accounting change for postretirement benefits declined from the
comparative periods of last year due principally to lower results at Eli Witt,
partially offset by higher operating profit in the cigar business and the
packaging and labeling systems business. The lower results at Eli Witt reflect
a substantial decline in profit on cigarette inventory price appreciation that
resulted from manufacturers' purchase incentive programs and price increases on
cigarettes in the previous year. Price changes instituted by cigarette
manufacturers in the third quarter last year also negatively affected gross
profit by effectively reducing margins on cigarettes which comprise a
substantial portion of Eli Witt's sales revenue.
Operating profit at General Cigar Co., Inc. ("General Cigar") increased in
the second quarter and six month period due principally to increased revenue
from cigar sales, reflecting higher volume of premium cigar sales and price
increases on all cigar categories. Also, General Cigar's higher operating
profit reflected improved results from sales of shade grown wrapper tobacco in
1994 due to an improved crop as compared to last year's crop.
In the industrial products business, CMS Gilbreth Packaging Systems, Inc.
("CMS Gilbreth") had higher operating profit due principally to increased sales
volume on packaging machinery and packaging materials. The increased sales
volume and improved margins from manufacturing efficiencies, including better
absorption of fixed costs due to the higher volume, resulted in the higher
operating profit. However, CMS Gilbreth recently was informed that its
largest customer of packaging materials, comprising approximately 20% of CMS
Gilbreth's total annual revenue, has decided to change the type of label to
be applied to its product and therefore will not continue to purchase their
labels from CMS Gilbreth. The impact of this will not affect the current
year's results because the label change by the customer is not expected to
take place until the 1995 first quarter.
Operating profit in the Corporation's nursery products business, Imperial
Nurseries, Inc. ("Imperial") decreased in the second quarter as compared to the
prior year but was substantially unchanged in the six month period as compared
to last year. Imperial's lower second quarter profit was due principally to
timing of shipments, as some customers accepted delivery earlier this year than
last year. In the six month period, higher sales volume was substantially
offset by increased discounts and higher cost of sales, reflecting a change in
the sales mix.
In the Corporation's Connecticut real estate business, Culbro Land
Resources, Inc. ("CLR"), operating results declined from last year in the second
quarter and six month period due to lower revenue from its joint venture
investments and higher expenses. Subsequent to the end of the second quarter,
CLR completed the sale of undeveloped land which generated approximately $1
million in proceeds and operating profit of approximately $900,000. This
transaction will be reflected in the Corporation's third quarter results.
The income in the 1994 second quarter and six month period from the
cumulative adjustments of an accounting change reflects the reduction of the
Corporation's initial liability for post-retirement benefits recorded upon
adoption of Statement of Financial Accounting Standards ("SFAS") No. 106
"Employers' Accounting for Postretirement Benefits". This adjustment resulted
from the deconsolidation of Eli Witt (See Note E).
The higher effective tax rate in the second quarter and six month period
of the current year principally reflects the effect of state taxes.
Page 14 of 17
<PAGE>
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Meeting of Shareholders - April 7, 1994
(b) The following were elected as Directors at the Annual Meeting:
Bruce A. Barnet John L. Ernst
John L. Bernbach Thomas C. Israel
Edgar M. Cullman (Chairman) Dan W. Lufkin
Edgar M. Cullman, Jr. Graham V. Sherren
Frederick M. Danziger Peter J. Solomon
Francis T. Vincent, Jr.
(c) (i) 1) Mr. Bruce A. Barnet was elected a Director for 1994 with
4,007,692 votes in favor, 30,445 opposed and 270,151 not
voting.
2) Mr. John L. Bernbach was elected a Director for 1994 with
4,007,792 votes in favor, 30,345 opposed and 270,151 not
voting.
3) Mr. Edgar M. Cullman was elected a Director for 1994 with
4,008,159 votes in favor, 29,978 opposed and 270,151 not
voting.
4) Mr. Edgar M. Cullman, Jr was elected a Director for 1994 with
4,007,192 votes in favor, 30,945 opposed and 270,151 not
voting.
5) Mr. Frederick M. Danziger was elected a Director for 1994
with 4,008,092 votes in favor, 30,045 opposed and 270,151 not
voting.
6) Mr. John L. Ernst was elected a Director for 1994 with
4,008,092 votes in favor, 30,045 opposed and 270,151 not
voting.
7) Mr. Thomas C. Israel was elected a Director for 1994 with
4,007,992 votes in favor, 30,145 opposed and 270,151 not
voting.
8) Mr. Dan W. Lufkin was elected a Director for 1994 with
4,006,059 votes in favor, 32,078 opposed and 270,151 not
voting.
9) Mr. Graham V. Sherren was elected a Director for 1994 with
4,007,732 votes in favor, 30,405 opposed and 270,151 not
voting.
Page 15 of 17
<PAGE>
PART II - OTHER INFORMATION (cont.)
10) Mr. Peter J. Solomon was elected a Director for 1994 with
4,007,892 votes in favor, 30,245 opposed and 270,151 not
voting.
11) Mr. Francis T. Vincent, Jr. was elected a Director for 1994
with 4,008,092 votes in favor, 30,045 opposed and 270,151 not
voting.
(ii) The selection of Price Waterhouse as independent accountants
for 1994 was approved by 3,847,708 votes in favor and 182,527
opposed with 7,902 abstentions and 270,151 not voting.
(iii) A shareholders' proposal for cumulative voting in the election
of directors received 814,298 votes in favor and 2,961,286
opposed with 9,036 abstentions and 523,668 not voting.
(iv) The grant of stock options pursuant to an employment agreement
with the Corporation's Chief Financial Officer was approved by
3,802,298 in favor, and 225,790 against with 10,049 abstentions
and 270,151 not voting.
(d) Not Applicable
Page 16 of 17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CULBRO CORPORATION
(Registrant)
Date: July 18, 1994
/s/ Jay M. Green
----------------------------------------------------
Jay M. Green
Executive Vice President -
Chief Financial Officer and Treasurer
Date: July 18, 1994
/s/ Joseph Aird
----------------------------------------------------
Joseph Aird
Vice President - Controller
Page 17 of 17
