<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 February 26, 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 March 31, 1994 - 4,308,288
Page 1 of 10
<PAGE>
CULBRO CORPORATION AND SUBSIDIARY COMPANIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Consolidated Balance Sheet
February 26, 1994 and November 27, 1993 3
Consolidated Statement of Operations and
Retained Earnings - thirteen weeks ended
February 26, 1994 and February 27, 1993 4
Consolidated Statement of Cash Flows -
thirteen weeks ended February 26, 1994
and February 27, 1993 5
Notes to Consolidated Financial Statements 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
SIGNATURES 10
<PAGE>
CULBRO CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(dollars in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
February 26, November 27,
ASSETS 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 5,244 $ 8,715
Receivables, less allowance of $2,361
(1993 - $2,364) 68,624 75,917
Inventories 116,185 128,216
Other current assets 6,077 5,931
--------- ---------
Total current assets 196,130 218,779
--------- ---------
Property and equipment, net 113,137 114,898
Real estate held for sale or lease, net 35,076 35,338
Investment in real estate joint ventures 8,099 8,275
Other, principally investment in Centaur
Communications Limited 24,526 24,923
Intangible assets 21,248 21,446
--------- ---------
Total assets $ 398,216 $ 423,659
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 61,865 $ 76,904
Long-term debt due within one year 15,082 14,519
Income taxes 75 264
--------- ---------
Total current liabilities 77,022 91,687
--------- ---------
Long-term debt 166,963 175,405
Deferred income taxes 4,075 5,479
Other noncurrent liabilities 30,068 30,201
--------- ---------
Total liabilities 278,128 302,772
--------- ---------
Minority interest in subsidiary 10,252 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 97,296 98,345
--------- ---------
115,141 116,190
Less - Common stock in Treasury, at cost, 240,902 shares
(1992 - 241,128) (5,305) (5,308)
--------- ---------
Total shareholders' equity 109,836 110,882
--------- ---------
Total liabilities, minority interest and shareholders' equity $ 398,216 $ 423,659
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-3-
<PAGE>
CULBRO CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(dollars in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------
February 26, February 27,
1994 1993
------------ ------------
<S> <C> <C>
Net sales and other revenue $ 317,811 $ 286,655
Costs and expenses
Cost of goods sold 284,390 258,563
Selling, general and administrative expenses 32,072 26,638
--------- ---------
Operating profit 1,349 1,454
Equity in net (income) loss of investee (50) 100
Interest expense, net 3,356 3,637
Fees on sales of accounts receivable - 476
--------- ----------
Loss before income tax benefit (1,957) (2,759)
Income tax benefit (1,155) (1,104)
--------- ---------
Loss before cumulative effect of accounting change (802) (1,655)
Cumulative effect of accounting change for
postretirement benefits, net of tax - (9,177)
--------- ---------
Net loss (802) (10,832)
Accretion of preferred stock of subsidiary (247) -
--------- ---------
Net loss applicable to common shareholders (1,049) (10,832)
Retained earnings - beginning of period 98,345 106,502
--------- ---------
Retained earnings - end of period $ 97,296 $ 95,670
--------- ---------
--------- ---------
Loss per common share before cumulative
effect of accounting change $ (0.24) $ (0.38)
Cumulative effect of accounting change
per common share - (2.13)
--------- ---------
Net loss per common share $ (0.24) $ (2.51)
--------- ---------
--------- ---------
Weighted average common shares outstanding 4,308,000 4,308,000
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE>
CULBRO CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
-------------------------
February 26, February 27,
1994 1993
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (802) $ (10,832)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Cumulative effect of accounting change, net of tax - 9,177
Depreciation and amortization 3,200 2,718
Equity in net (income) loss of investee (50) 100
Provision for bad debts 268 380
Changes in assets and liabilities net of effects from
acquisition of Certified Grocers in 1993:
Reductions in real estate held for sale or lease, net 262 375
Decrease in inventories 12,031 11,746
Decrease in accounts receivable 7,025 10,143
Decrease in sales of accounts receivable - (26,000)
(Decrease) increase in accounts payable and accrued
liabilities (15,039) 9,128
Other, net (1,422) (720)
------- --------
Net cash provided by operating activities 5,473 6,215
------- --------
INVESTING ACTIVITIES:
Additions to property and equipment (1,065) (1,930)
Proceeds from Take-out Agreement with
Moll PlastiCrafters - 4,953
Acquisition of Certified Grocers, net cash acquired - (2,004)
------- --------
Net cash (used in) provided by investing activities (1,065) 1,019
------- --------
FINANCING ACTIVITIES:
Payments of debt (1993 principally reflects refinancing
of debt assumed from acquisition of Certified Grocers) (12,879) (24,518)
Increase in debt (1993 principally reflects debt assumed in
acquisition of Certified Grocers) 5,000 24,320
------- --------
Net cash used in financing activities (7,879) (198)
------- --------
Net (decrease) increase in cash and cash equivalents (3,471) 7,036
Cash and cash equivalents at beginning of period 8,715 1,898
------- --------
Cash and cash equivalents at end of period $ 5,244 $ 8,934
------- --------
------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-5-
<PAGE>
CULBRO CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
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 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 period have been reflected.
The results of operations for the thirteen weeks ended February 26, 1994,
are not necessarily indicative of the results to be expected for the full
year.
B. On November 24, 1993, the Corporation and its subsidiary, The Eli Witt
Company ("Eli Witt"), entered into a letter of intent to purchase the net
assets of the southern divisions of NCC L.P. ("NCC"), a limited partnership
engaged in the wholesale distribution business. Estimated annual revenue
of NCC's southern divisions is approximately $600 million. If this
transaction is completed as presently structured, the Corporation's
ownership in Eli Witt's common equity would be reduced to approximately
53%. This proposed transaction is subject to completion of a definitive
agreement, financing arrangements, and the delivery of certain amounts of
net assets by Eli Witt and NCC at closing.
C. 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 Culbro Corporation 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.
D. 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 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.
The liability for postretirement benefits is included in other noncurrent
liabilities on the Corporation's balance sheet.
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.
-6-
<PAGE>
E. Supplemental Financial Statement Information.
INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
FEBRUARY 26, NOVEMBER 27,
1994 1993
------------ ------------
<S> <C> <C>
Raw materials and supplies $ 36,349 $ 34,232
Work-in-process 18,850 15,213
Finished goods 60,986 78,771
-------- --------
$116,185 $128,216
-------- --------
-------- --------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
FEBRUARY 26, NOVEMBER 27,
1994 1993
------------ ------------
<S> <C> <C>
Land $ 13,434 $ 13,453
Buildings 84,445 84,340
Machinery and equipment 82,209 82,372
Accumulated depreciation (66,951) (65,267)
-------- --------
$113,137 $ 114,898
-------- --------
-------- --------
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
<TABLE>
<CAPTION>
13 WEEKS ENDED
----------------------------
FEBRUARY 26, FEBRUARY 27,
1994 1993
------------ ------------
<S> <C> <C>
Interest, net of amounts capitalized $3,562 $3,930
------ ------
------ ------
Income taxes, net $ 437 $ 153
------ ------
------ ------
</TABLE>
The following summarizes the non-cash investing and financing activities
in the thirteen weeks ended February 27, 1993 related to Eli Witt's acquisition
of Certified Grocers on February 19, 1993:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill $57,870
Liabilities assumed (45,815)
Eli Witt Series A preferred stock issued to former
shareholders of Certified Grocers (9,300)
-------
Cash payments in connection with the acquisition 2,755
Cash acquired (751)
------
Cash payments in connection with the acquisition, net $ 2,004
-------
-------
</TABLE>
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In the 1994 first quarter, net cash provided by operations principally
reflected cash generated from reductions of inventories and accounts receivable
partially offset by a reduction in accounts payable. The reduction of
inventories reflected the sell through of excess cigarette inventories purchased
by The Eli Witt Company ("Eli Witt"), the Corporation's subsidiary in the
wholesale distribution business, in connection with manufacturers' price
increases. The decrease in accounts receivable reflected seasonal reductions in
the cigar and nursery products businesses. The reduction in accounts payable
was related to the reduction of excess cigarette inventories at Eli Witt and the
timing of payments by the Corporation's other businesses. The cash flow
generated from first quarter operations along with a portion of the cash on hand
at the beginning of the quarter was used for capital expenditures and to reduce
debt under the Eli Witt Credit Agreement.
In the 1994 first quarter, the Corporation obtained a $5 million mortgage
on certain equipment. The proceeds were used to reduce the amount outstanding
under the Culbro Corporation Credit Agreement. The mortgage has a term of 10
years, bears interest at 7.25% per annum and has a balloon payment of $1.2
million at termination.
In November 1993, the Corporation and Eli Witt entered into a letter of
intent with NCC L.P., ("NCC"), a limited partnership engaged in the wholesale
distribution business, whereby Eli Witt would purchase the net assets of NCC's
southern divisions in exchange for Eli Witt common stock. As part of this
transaction, the Corporation would receive proceeds of approximately $12 million
in exchange for securities issued to a partner of NCC. This proposed
transaction is subject to completion of a definitive agreement, financing
arrangements, and the delivery of certain amounts of net assets at closing by
NCC and Eli Witt.
Management believes that the Corporation's cash flow from operations will
need to be supplemented by proceeds generated from other transactions to meet
operating and capital requirements and scheduled debt repayments. Management is
pursuing certain alternatives and expects to conclude agreements that will
generate the necessary funds. Over the long-term, management will seek to
maintain a level of indebtedness which is commensurate with the Corporation's
earnings and cash flow. Management believes that cash from operations and
current credit facilities will be sufficient to meet operating and capital
requirements of the Corporation's separately financed subsidiary, Eli Witt.
RESULTS OF OPERATIONS
In the first quarter, the Corporation's results are negatively impacted by
the seasonality of the nursery products business, which historically incurs an
operating loss because of low sales during the winter months. The current
year's first quarter net loss was lower than the 1993 first quarter loss before
the effect of the adoption of Statement of Accounting Standards No. 106
"Accounting for Postretirement Benefits Other Than Pensions" principally because
of lower financing costs in the current year's quarter. The 1993 first quarter
net loss included a net charge of approximately $9.2 million for the cumulative
effect of the adoption of the aforementioned accounting standard. The overall
higher net sales and other revenue in the current year's first quarter
principally reflects the increased volume as a result of the acquisition of
Certified Grocers of Florida, Inc. ("Certified Grocers") last year.
-8-
<PAGE>
Overall operating profit in the current year's first quarter was
substantially unchanged from the 1993 first quarter. In the industrial products
segment, operating profit at CMS Gilbreth Packaging Systems, Inc. increased due
to higher volume on sales of packaging materials and machinery.
Additionally, the gross margin on sales of packaging materials increased due to
improved manufacturing efficiencies, including scrap reduction, as a result of
the continuous improvement programs adopted in 1992.
Operating profit in the consumer products segment declined as lower
operating profit at Eli Witt more than offset higher operating profit at General
Cigar Co., Inc. ("General Cigar"). Eli Witt was adversely affected by lower
profit from price appreciation on excess cigarette inventories and a reduction
by cigarette manufacturers of their purchase incentive programs. Additionally,
competitive pricing pressures in the wholesale distribution industry negatively
affected Eli Witt's gross margins and operating profit. The higher operating
profit at General Cigar was due principally to higher net sales, which included
increased sales volume of premium cigars and price increases on all cigar lines.
The Corporation's financing costs (interest expense and fees on sales of
accounts receivables) were lower in the current year's quarter as compared to
the 1993 first quarter due to substantially lower levels of excess cigarette
inventories on hand at Eli Witt, partially offset by interest expense on the
debt assumed in the acquisition of Certified Grocers which was completed near
the end of the 1993 first quarter. There were no fees on sales of accounts
receivable in the 1994 first quarter because the accounts receivable sales
agreement was terminated last year at the time of the Certified Grocers
acquisition.
The higher effective tax benefit in the current year's first quarter as
compared to the 1993 first quarter principally reflects the effect of state
taxes.
-9-
<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 thereunto duly authorized.
CULBRO CORPORATION
(Registrant)
Date: April 11, 1994 /S/ JAY M. GREEN
-----------------------------------------------------
Jay M. Green
Executive Vice President -
Chief Financial Officer and Treasurer
Date: April 11, 1994 /S/ JOSEPH AIRD
------------------------------------------------------
Joseph Aird
Vice President - Controller
-10-
