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 August 27, 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 (IRS Employer
incorporation or 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 October 1, 1994 - 4,308,288
<PAGE>
CULBRO CORPORATION AND SUBSIDIARY COMPANIES
INDEX
PART I - FINANCIAL INFORMATION PAGE
Consolidated Balance Sheet
August 27, 1994 and November 27, 1993 . . . . . . . . . . 3
Consolidated Statement of Operations and
Retained Earnings - thirteen weeks ended
August 27, 1994 and August 28, 1993 . . . . . . . . . . . . 4
Consolidated Statement of Operations and
Retained Earnings - thirty-nine weeks ended
August 27, 1994 and August 28, 1993 . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows -
thirty-nine weeks ended August 27, 1994
and August 28, 1993 . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . .7-12
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 13-14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
<TABLE> CULBRO CORPORATION
CONSOLIDATED BALANCE SHEET
(dollars in thousands except per share data)
<CAPTION>
<S> August 27, November 27,
ASSETS 1994 1993
----------- ------------
Current Assets (unaudited)
<C> <C>
Cash and cash equivalents $ 668 $ 8,715
Receivables, less allowance of $1,208
(1993 - $2,364) 23,736 75,917
Inventories 69,873 128,216
Other current assets 13,694 5,931
----------- ------------
Total current assets 107,971 218,779
Property and equipment, net 76,803 114,898
Real estate held for sale or lease, net 31,355 35,338
Investment in Series B preferred stock of
The Eli Witt Company 15,000 -
Investment in real estate joint ventures 8,075 8,275
Other assets 20,414 24,923
Intangible assets 19,160 21,446
-------- ---------
Total assets $278,778 $423,659
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 24,977 $ 76,904
Long-term debt due within one year 4,285 14,519
Income taxes 1,406 264
-------- --------
Total current liabilities 30,668 91,687
Long-term debt 107,259 175,405
Deferred income taxes - 5,479
Other postretirement benefit obligations 11,912 14,548
Other noncurrent liabilities and
deferred credits 18,120 15,653
--------- ----------
Total liabilities 167,959 302,772
-------- ---------
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 98,279 98,345
-------- ----------
116,124 116,190
Less - Common stock in Treasury, at cost,
240,902 shares (1993 - 241,128) (5,305) (5,308)
-------- ----------
Total shareholders' equity 110,819 110,882
---------- -----------
Total liabilities, minority interest
and shareholders' equity $278,778 $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>
<TABLE>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(dollars in thousands except per share data)
(unaudited)
<CAPTION>
13 Weeks Ended
-----------------------------
August 27, August 28,
<S> 1994 1993
------------ -----------
<C> <C>
Net sales and other revenue $ 46,760 $357,919
Costs and expenses
Cost of goods sold 29,368 318,231
Selling, general and
administrative expenses 13,549 33,867
Other expense 4,000 -
----------- ----------
Operating (loss) profit (157) 5,821
Income (loss) related to
equity investments 869 (400)
Interest expense, net 2,183 3,602
----------- -----------
(Loss) income before taxes (1,471) 1,819
Income tax (benefit) provision (325) 746
------------ -----------
(Loss) income before minority interest (1,146) 1,073
Minority interest - (224)
------------ -----------
Net (loss) income (1,146) 849
Accretion of Series A preferred
stock of Eli Witt - (221)
------------ -----------
Net (loss) income applicable to
common shareholders (1,146) 628
Retained earnings - beginning of period 99,425 97,221
------------ -----------
Retained earnings - end of period $ 98,279 $ 97,849
============= ===========
Net (loss) income per common share $ (0.27) $ 0.14
============== ===========
</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>
<TABLE>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(dollars in thousands except per share data)
(unaudited)
<CAPTION>
39 Weeks Ended
--------------------------------
August 27, August 28,
1994 1993
------------ -----------
<S> <C> <C>
Net sales and other revenue $134,619 $1,034,176
Costs and expense
Cost of goods sold 85,446 927,147
Selling, general and
administrative expenses 39,430 92,873
Other expense 4,000 -
----------- -----------
Operating profit 5,743 14,156
Loss related to equity investments (1,191) (525)
Interest expense, net 6,172 11,068
Fees on sales of accounts receivable - 476
------------ -----------
(Loss) income before taxes (1,620) 2,087
Income tax provision 18 853
----------- ------------
(Loss) income before minority interest
and cumulative effect of accounting
change (1,638) 1,234
Minority interest - (268)
----------- -----------
Income before cumulative effect of
accounting change (1,638) 966
Cumulative effect of accounting change for
postretirement benefits, net of tax 1,572 (9,177)
------------ ------------
Net loss (66) (8,211)
Accretion of Series A preferred stock
of Eli Witt - (442)
----------- -----------
Net loss applicable to common
shareholders (66) (8,653)
Retained earnings - beginning of period 98,345 106,502
------------- -------------
Retained earnings - end of period $ 98,279 $ 97,849
============= =============
(Loss) income per common share before
cumulative effect of accounting change $ (0.38) $ 0.12
Cumulative effect of accounting change
per common share 0.36 (2.13)
--------------- ------------
Net loss per common share $ (0.02) $ (2.01)
=============== ============
</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>
<TABLE>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
<CAPTION>
39 Weeks Ended
------------------------------
August 27, August 28,
1994 1993
------------ -----------
<S> <C> <C>
Operating activities:
Net (loss) $ (66) $(8,211)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Cumulative effect of accounting change,
net of tax (1,572) 9,177
Depreciation and amortization 5,409 9,141
Loss related to equity investment 1,191 525
Provision for bad debts 308 1,207
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 3,983 616
Decrease in inventories 414 71,029
Decrease in accounts receivable 1,041 6,325
Decrease in sales of accounts
receivable - (26,000)
Decrease in accounts payable and
accrued liabilities (1,638) (6,259)
Decrease in deferred taxes (2,843) (751)
Other, net (116) (938)
----------- ----------
Net cash provided by operating activities 6,111 55,861
----------- ----------
Investing activities:
Additions to property and equipment (2,961) (7,322)
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 (2,961) (4,373)
----------- ------------
Financing activities:
Payments of debt (1993 principally reflects
refinancing of debt assumed from
acquisition of Certified Grocers) (20,357) (70,751)
Increase in debt (1993 principally reflects
debt assumed in acquisition
of Certified Grocers) 17,000 23,944
----------- -----------
Net cash used in financing activities (3,357) (46,807)
----------- ------------
Net (decrease) increase in cash and
cash equivalents (207) 4,681
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 $ 668 $ 6,579
============= =============
</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>
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 thirty-nine weeks
ended August 27, 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 net assets of 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, Eli Witt issued additional
common stock totaling approximately 24% of its outstanding common stock to
NCC L.P. ("NCC"). In a separate transaction executed simultaneously with Eli
Witt's acquisition of the net assets of NCC South, the Corporation received
proceeds of $12 million from MS Distribution, Inc. ("MSD"), holder of a
partnership interest in NCC and an affiliate of the Morgan Stanley Leveraged
Equity Fund II, L.P., in exchange for a $15 million subordinated note and
approximately 14% of Eli Witt's outstanding common stock held by the
Corporation (See Note D). As a result of these transactions, MSD now holds
approximately 38% of the outstanding common stock of Eli Witt. The
Corporation retained a 50.1% ownership in the outstanding 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 and MSD entered into a Shareholders Agreement. 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 of the
Corporation, presented for comparative purposes, reflect a restatement of
the prior year to present Eli Witt under the equity method.
<PAGE>
<TABLE>
Condensed Balance Sheet of Culbro Corporation
Nov. 27,
August 27, 1993
1994 (restated)
---------- --------------
<S> <C> <C>
Total current assets $ 107,971 $ 100,293
Property and equipment, net 76,803 78,770
Investment in Series B preferred
stock of Eli Witt 15,000 15,000
Other noncurrent assets 59,844 71,859
Intangible assets 19,160 19,646
----------- --------------
Total assets $ 278,778 $ 285,568
============= ===============
Long term debt due within
one year $ 4,285 $ 9,747
All other current liabilities 26,383 26,879
------------- -------------
Total current liabilities 30,668 36,626
Long term debt 107,259 104,914
Deferred taxes, other noncurrent
liabilities and deferred
credits 30,032 33,146
------------ ------------
Total liabilities 167,959 174,686
Shareholders' equity 110,819 110,882
------------ ------------
Total liabilities and
shareholders' equity $ 278,778 $ 285,568
============== ==============
Condensed Statements of Operations of Culbro Corporation
13 Weeks Ended
------------------------------
August 28,
August 27, 1993
1994 (restated)
------------- ------------
<S> <C> <C>
Net sales and other revenue $ 46,760 $ 41,291
Cost of goods sold 29,368 26,119
Selling, general and
administrative expenses 13,549 13,218
Other expense 4,000 -
------------ ------------
Operating (loss) profit (157) 1,954
Income related to equity investments 869 418
Interest expense, net 2,183 2,019
------------ -------------
(Loss) income before taxes (1,471) 353
Income tax (benefit) (325) (275)
------------ -------------
Net (loss) income applicable to
common shareholders $ (1,146) $ 628
============= =============
Net (loss) income per common share $ (0.27) $ 0.14
============= =============
39 Weeks Ended
---------------------------------
August 28,
August 27, 1993
1994 (restated)
------------- ------------
<S> <C> <C>
Net sales and other revenue $134,619 $ 119,816
Cost of goods sold 85,446 77,365
Selling, general and
administrative expenses 39,430 38,258
Other expense 4,000 -
------------- ----------
Operating profit 5,743 4,193
(Loss) income related to equity investments (1,191) 1,672
Interest expense, net 6,172 5,524
Fees on sales of accounts receivable - 476
------------- ---------
(Loss) before taxes (1,620) (135)
Income tax provision (benefit) 18 (659)
------------ -----------
(Loss) income applicable to common
shareholders before cumulative effect
of accounting change $ (1,638) $ 524
============ ============
(Loss) income per common share before
cumulative effect of accounting change $ (0.38) $ 0.12
============ ===========
</TABLE>
<PAGE>
<TABLE>
Condensed Statement of Cash Flows of Culbro Corporation
39 Weeks Ended
------------------------------
August 28,
August 27, 1993
1994 (restated)
------------ -----------
<S> <C> <C>
Operating activities:
- ---------------------
Net loss $ (66) $ (8,211)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Cumulative effect of accounting change (1,572) 9,177
Depreciation and amortization 5,409 5,643
Loss (income) related to equity
investments 1,191 (1,672)
Decrease in sale of accounts receivable - (6,500)
Changes in assets and liabilities 957 (1,419)
Other, net 192 (773)
------------ -----------
Net cash provided by (used in) operating
activities 6,111 (3,755)
------------- ------------
Investing activities:
- ----------------------
Additions to property and equipment (2,961) (3,130)
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 (2,961) 79,481
------------- ------------
Financing activities:
- ----------------------
Payments of long-term debt (20,357) (75,991)
Increases in long-term debt 17,000 -
------------ ------------
Net cash used in financing activities (3,357) (75,991)
------------- -------------
Net decrease in cash and cash equivalents (207) (265)
Cash and cash equivalents at beginning
of period 875 794
-------------- -------------
Cash and cash equivalents at end
of period $ 668 $ 529
============== ==============
</TABLE>
C. The Corporation's investment in Eli Witt as of August 27, 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>
Condensed Statement of Operations of Eli Witt
39 weeks ended
----------------------------------
August 27, August 28,
1994 1993
---------------- ------------
<S> <C> <C>
Net sales and other revenues $1,072,063 $ 914,359
Operating (loss) profit (4,575) 9,963
Net (loss) income $ (6,193) $ 2,907
</TABLE>
<PAGE>
Condensed Balance Sheet of Eli Witt
August 27, November 27,
1994 1993
------------ --------------
Total current assets $136,256 $ 118,486
Property and equipment, net 42,261 36,128
Other assets 12,262 12,382
----------- --------------
Total assets $190,779 $ 166,996
=========== ===============
Total current liabilities $ 71,302 $ 54,438
Long-term debt 96,493 80,491
Other noncurrent liabilities 10,084 11,659
------------ --------------
Total liabilities 177,879 146,588
------------ --------------
Mandatorily redeemable preferred stock 17,275 16,150
------------- --------------
Shareholders' (deficit) equity:
Series A preferred stock 10,764 10,005
Common deficit (15,139) (5,747)
------------- -------------
Total shareholders' (deficit) equity (4,375) 4,258
------------- -------------
Total liabilities, preferred stock &
shareholders' (deficit) equity $190,779 $166,996
============== ============
<PAGE>
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 operated primarily
in the same region as Eli Witt and had 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 $50.3 million and $47.7 million,
respectively.
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 and Eli Witt common stock 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 for 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 for 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.
Subsequent to the end of the third quarter, Eli Witt obtained an $8
million mortgage from a financial institution on their Ocala, Florida
distribution facility. Eli Wit used all of the proceeds to substantially
repay the $10 million mortgage that was held by the Corporation. The
Corporation used the proceeds to reduce the outstanding amounts under its
Credit Agreement and now holds a $2 million second mortgage on the Ocala
facility. The $8 million is included in Other Current Assets on the
Corporation's August 27, 1994 balance sheet.
<PAGE>
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 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.
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
adjusted the charge for the cumulative effect of adopting SFAS No. 106 in
the current year. Upon adopting SFAS No. 106 in 1993, the Corporation
elected to immediately recognize the cumulative effect of this accounting
change. 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 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. The Other Expense of $4.0 million in the 1994 third quarter and nine
month statements of operations reflects a $3.6 million charge, in the
Connecticut real estate business, for the writeoff of costs expended in
earlier years on projects which will not be developed as they are no longer
deemed viable, and a $400 charge to restructure a unit in the industrial
products business.
G. 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
39 weeks ended August 28, 1993 and is presented for comparative purposes.
<TABLE>
Inventories
----------------
Inventories consist of:
<CAPTION>
Nov. 27, Nov. 27,
August 27, 1993 1993
1994 (as reported) (restated)
------------ ------------- -------------
<S> <C> <C> <C>
Raw materials
and supplies $32,374 $ 34,232 $34,232
Work-in-process 16,775 15,213 15,213
Finished goods 20,724 78,771 20,842
------------ -------------- ------------
$69,873 $128,216 $70,287
============ ============== ===========
<PAGE>
</TABLE>
<TABLE>
Property and equipment
-----------------------
Property and equipment
consist of:
<CAPTION>
Nov. 27, Nov. 27,
August 27, 1993 1993
1994 (as reported) (restated)
------------ ------------- -----------
<S> <C> <C> <C>
Land $11,303 $ 13,453 $ 11,414
Buildings 62,478 84,340 62,072
Machinery and equipment 57,964 81,871 56,865
Accumulated Depreciation (54,942) (64,766) (51,581)
------------ -------------- -----------
$76,803 $114,898 $ 78,770
============ ============== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
39 Weeks Ended
-----------------------------------------
August 28, August 28,
August 27, 1993 1993
1994 (as reported) (restated)
-------------- -------------- -----------
Cash paid during the period for:
Interest, net of amounts
capitalized $6,107 $10,719 $5,478
============== ============== ============
Income taxes, net $2,356 $ 1,504
============== ==============
</TABLE>
H. The results per common share for the thirteen and thirty-nine weeks ended
August 27, 1994 and the thirteen and thirty-nine weeks ended August 28, 1993
is based on the weighted average number of shares of common stock outstanding
during the respective periods. The Corporation's outstanding stock options
were not considered because they were anti-dilutive during these periods.
The weighted average number of shares of common stock was 4,308,228 and
4,308,261 for the thirteen and thirty-nine weeks ended August 27, 1994,
respectively. The weighted average common shares outstanding for the thirteen
and thirty-nine weeks ended August 28, 1993 was 4,308,062.
<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"), was deconsolidated
from the Corporation's financial statements in the current year's second
quarter. 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 flow of Eli Witt has not been available to the Corporation
since Eli Witt was financed separately from the Corporation and its other
subsidiaries in February, 1993. However, the following comparison of changes
in cash flow with the prior year are based on the restated 1993 financial
statements contained in Note B.
Net cash provided by operating activities in the current year's nine
month period as compared to net cash used in operating activities in the
comparable period of the prior year principally reflects the effect of the
termination of the accounts receivable sales agreement last year and the
Corporation's higher operating profit, excluding the effect of the $4.0
pretax charge, which primarily reflected the writeoff of previously expended
costs in the Corporation's Connecticut real estate business. The termination
of the accounts receivable sales agreement was related to the separate
financing of Eli Witt that became effective in the prior year's first quarter.
Cash used in 1994 investing activities reflects capital expenditures,
primarily in the Corporation's industrial products business, which were
slightly lower than the prior year's nine month period. The prior year's
investing activities reflected 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 their Ocala, Florida distribution facility.
The net proceeds from these, transactions were used by the Corporation to
repay its debt last year.
Cash used in financing activities declined in the current period because
the prior year reflected higher payments of long-term debt principally from
cash generated by the one-time transactions described above. Cash used in
financing activities in the current period reflects payments of long-term
debt, including a $3 million prepayment and a $7.6 million scheduled payment
of the 9.7% Senior Notes and a reduction of amounts outstanding under the
Credit Agreement, principally from the proceeds of subordinated debt issued
to MS Distribution, Inc. ("MSD"), a partner of NCC L.P., and an equipment
mortgage obtained by the Corporation. The subordinated debt does not require
interest or principal payments until maturity, at which time it is
exchangeable for the Series B preferred stock of Eli Witt currently held by
the Corporation.
Subsequent to the end of the third quarter, Eli Witt obtained an $8
million mortgage from a financial institution on their Ocala distribution
facility on which the Corporation held a $10 million mortgage. Eli Witt used
all of the mortgage proceeds to reduce its mortgage with the Corporation, which
repaid outstanding debt under its Credit Agreement. The Corporation retained
a $2 million second mortgage on the Ocala facility.
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>
Results of Operations
- ------------------------
As a result of the deconsolidation of Eli Witt, and accounting for this
subsidiary under the equity method, 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 were not restated. The comparisons
reflected in the following discussion pertain to the statements of operations
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 third quarter and nine month results, before the
cumulative effect of the accounting change for postretirement benefits,
declined from the comparative periods of last year due to other expense of
$4.0 million recorded in the current year's third quarter. The other expense
includes a $3.6 million charge in the Corporation's Connecticut real estate
business for the writeoff of previously expended costs on projects which will
not be developed as they are no longer viable, and a $400,000 charge to
restructure a unit in the industrial products business. These items were
partially offset by higher operating profit in the cigar business and in the
industrial products business, excluding the restructuring charge.
Operating profit at General Cigar Co., Inc. ("General Cigar") increased
due principally to higher volume on premium cigar sales and price increases
on all cigar categories. Excluding the restructuring charge, operating
profit at CMS Gilbreth Packaging Systems, Inc. ("CMS Gilbreth") increased due
principally to higher sales volume on both packaging machinery and packaging
materials and improved margins on sales. The improved margins reflected
benefits realized from manufacturing efficiencies and better absorption of
fixed costs due to the higher volume. CMS Gilbreth's largest customer of
packaging materials, comprising approximately 20% of CMS Gilbreth's total
annual revenue, has informed management that they will change the type of
label to be applied to their product and therefore will not continue to
purchase labels from CMS Gilbreth. The impact of this will not affect the
current year's results because the change by the customer is not expected to
take place until the 1995 first quarter, at the earliest.
In the Corporation's Connecticut real estate business, Culbro Land
Resources, Inc. ("CLR"), excluding the $3.6 million charge described above,
operating results increased in the third quarter and nine months as compared
to corresponding periods of the prior year. This increase was due to a
significant land sale completed in the current year's third quarter, whereby
CLR received proceeds of approximately $1,000,000 and profit of approximately
$900,000 on the sale of 78 acres of undeveloped land.
Results in the Corporation's nursery products business, Imperial
Nurseries, Inc. ("Imperial") were substantially unchanged in the third
quarter and nine month period. Imperial's business continues to be
negatively affected by competitive pricing pressures in the industry and\
higher costs.
The Corporation's lower results from equity investments was due to Eli
Witt, as the cigarette inventory price appreciation and manufacturers'
purchase incentive programs that benefitted Eli Witt in the prior year did
not occur in the current 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. The Corporation did not recognize
its share of Eli Witt's results subsequent to the deconsolidation because of
Eli Witt's common deficit position and will not recognize any future results
of Eli Witt until their common deficit is recouped.
The 1994 nine month period included a net benefit of approximately $1.6
million representing the reductions 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 item resulted from the deconsolidation of Eli
Witt (See Note E).
<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: October 10, 1994 (Jay M. Green)
Jay M. Green
Executive Vice President -
Chief Financial Officer and
Treasurer
Date: October 10, 1994 (Joseph Aird)
Joseph Aird
Vice President - Controller
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