SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q/A
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)
AMENDMENT NO. 1
This amendment to Culbro Corporation's Form 10Q for the thirteen weeks ended
August 27, 1994 filed on October 11, 1994 revises the accounting for the
acquisition of the Southern Divisions of NCC L.P. by the Eli Witt Company, a
subsidiary of Culbro Corporation, and related transactions. The revised
results reflect the elimination of an accounting change income item after tax
and inclusion of a previously deferred gain on the sale of a portion of Culbro
Corporation's common shares of Eli Witt.
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 October 1, 1994 - 4,308,288
</PAGE>
CULBRO CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
Consolidated Statement of Operations and
Retained Earnings - thirteen weeks ended
August 27, 1994 and August 28, 1993. . . . . . . . . . . . . .3
Consolidated Statement of Operations and
Retained Earnings - thirty-nine weeks ended
August 27, 1994 and August 28, 1993. . . . . . . .. . . . . . .4
Consolidated Balance Sheet
August 27, 1994 and November 27, 1993. . . . . . . . . . . . . .5
Consolidated Statement of Cash Flows -
thirty-nine weeks ended August 27, 1994
and August 28, 1993. . . . . . . . . . . . . . . . . . . . . . .6
Notes to Consolidated Financial Statements . . . . . . . . . 7-11
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . .12-13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(dollars in thousands except per share data)
(unaudited)
<TABLE>
13 Weeks Ended
--------------------------
Aug. 27, Aug. 28,
1994 1993
----------- ----------
<S> <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 13,323 33,867
Other expense 4,000 -
---------- -------
Operating profit 69 5,821
Loss from equity investments, net 50 400
Other nonoperating income 586 -
Interest expense, net 2,076 3,602
-------- --------
(Loss) income before taxes (1,471) 1,819
Income tax (benefit) provision (325) 746
---------- --------
Income before minority interest (1,146) 1,073
Minority interest - (224)
---------- --------
Net income (1,146) 849
Accretion of Series A preferred stock of Eli Witt - (221)
--------- -------
Net income applicable to common shareholders (1,146) 628
Retained earnings - beginning of period 99,532 97,221
--------- --------
Retained earnings - end of period $ 98,386 $ 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>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(dollars in thousands except per share data)
(unaudited)
<TABLE>
39 Weeks Ended
------------------------
Aug. 27, Aug. 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
Gain on sale of Eli Witt common stock 2,691 -
Loss from equity investments, net 2,003 525
Other nonoperating income 812 -
Interest expense, net 6,065 11,068
Fees on sales of accounts receivable - 476
-------- ---------
Income before taxes 1,178 2,087
Income tax provision 1,137 853
--------- --------
Income before minority interest 41 1,234
Minority interest - (268)
--------- --------
Income before cumulative effect of
accounting change 41 966
Cumulative effect of accounting change for
postretirement benefits, net of tax - (9,177)
-------- ---------
Net income (loss) 41 (8,211)
Accretion of Series A preferred stock
of Eli Witt - (442)
-------- ---------
Net income (loss) applicable to
common shareholders 41 (8,653)
Retained earnings - beginning of period 98,345 106,502
--------- ------------
Retained earnings - end of period $ 98,386 $ 97,849
========= ==========
Income per common share before cumulative
effect of accounting change $ 0.01 $ 0.12
Cumulative effect of accounting change
per common share - (2.13)
-------- -----------
Net income (loss) per common share $ 0.01 $ (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>
CULBRO CORPORATION
CONSOLIDATED BALANCE SHEET
(dollars in thousands except per share data)
<TABLE>
Aug. 27, Nov. 27,
ASSETS 1994 1993
------------ ----------
<S> <C> <C>
Current Assets (unaudited)
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 12,141 -
Investment in real estate joint ventures 8,075 8,275
Other, including investment in Centaur
Communications of $14,270 (1993 - $14,195) 20,414 24,923
Intangible assets 19,160 21,446
-------- --------
Total assets $275,919 $423,659
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 20,180 $ 72,870
Long-term debt due within one year 4,285 14,519
Income taxes 1,406 264
--------- --------
Total current liabilities 25,871 87,653
Long-term debt 106,633 175,405
Deferred income taxes 5,203 5,479
Accrued retirement benefits 14,917 19,477
Other noncurrent liabilities and
deferred credits 12,369 14,758
--------- ---------
Total liabilities 164,993 302,772
--------- ---------
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 98,386 98,345
---------- ---------
116,231 116,190
Less - Common stock in Treasury, at cost,
240,902 shares (1993 - 241,128) (5,305) (5,308)
----------- ----------
Total shareholders' equity 110,926 110,882
----------- ----------
Total liabilities, minority interest
and shareholders' equity $275,919 $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>
CULBRO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
39 Weeks Ended
------------------------------
Aug. 27, Aug. 28,
1994 1993
----------- ----------
<S> <C> <C>
Operating activities:
- ---------------------
Net income (loss) $ 41 $ (8,211)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Cumulative effect of accounting
change, net of tax - 9,177
Depreciation and amortization 5,409 9,141
Gain on sale of Eli Witt common stock (2,691) -
Loss from equity investments, net 2,003 525
Discount and interest on
subordinated note 812 -
Other nonoperating income (812) -
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:
Decrease 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 (2,401) (6,259)
Decrease in deferred taxes (2,276) (751)
Other, net 280 (938)
----------- ---------
Net cash provided by operating activities 6,111 55,861
----------- --------
Investing activities:
- ---------------------
Additions to property and equipment (2,961) (7,322)
Proceeds from the sale of Eli
Witt common stock 672 -
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 (2,289) (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) 16,328 23,944
--------- ---------
Net cash (used in) financing activities (4,029) (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. On April 25, 1994, Eli Witt acquired the net assets of the six
Southern distribution facilities of NCC L.P. (see Note C) in exchange for
595,000 newly issued common shares of Eli Witt. The Corporation accounted for
this transaction as a like kind exchange and therefore did not recognize any
gain or loss on this transaction. As a result of the additional shares of
common stock issued by Eli Witt and the concurrent sale by the Corporation of
400,000 shares of its Eli Witt common stock holdings (see Note C),
the Corporation's ownership of Eli Witt's outstanding common stock was
reduced from 85% to 50.1%. In connection with these transactions the
Corporation entered into a Shareholders Agreement with MS Distribution, Inc.
("MSD"), a former limited partner in the NCC L.P. partnership. MSD now owns
approximately 38% of the outstanding common stock of Eli Witt. This
Agreement contains certain governance provisions which require the prior
approval of MSD for all major transactions by Eli Witt, including (but not
limited to), incurrence of debt, acquisitions, material contracts, the sale
of assets, issuance and repurchase of stock, changes in Eli Witt's charter
and by-laws, and capital expenditures. Due to the shareholder rights granted
to MSD, the Corporation no longer has unilateral control over Eli Witt.
Therefore, the Corporation deconsolidated Eli Witt as of April 25, 1994 and
is accounting for its remaining investment in Eli Witt under the equity
method. The 1994 financial statements reflect the application of the equity
method of accounting retroactive to the beginning of the year. The financial
statements of the prior year continue to reflect Eli Witt as a fully
consolidated subsidiary.
The following unaudited condensed balance sheet, statements of
operations and statement of cash flows of the Corporation, presented for
comparative purposes, reflect Eli Witt under the equity method on a pro forma
basis in 1993.
Condensed Balance Sheet of Culbro Corporation
<TABLE>
Nov. 27,
Aug. 27, 1993
1994 (pro forma)
----------- -------------
<S> <C> <C>
Total current assets $ 107,971 $ 100,293
Property and equipment, net 76,803 78,770
All other noncurrent assets 91,145 102,833
----------- -----------
Total assets $ 275,919 $ 281,896
========== ===========
Total current liabilities $ 25,871 $ 32,592
Long term debt 106,633 104,914
All other noncurrent liabilities 32,489 33,508
--------- ----------
Total liabilities 164,993 171,014
Shareholders' equity 110,926 110,882
Total liabilities and
shareholders' equity $ 275,919 $ 281,896
========== ==========
</TABLE>
Condensed Statement of Operations of Culbro Corporation
<TABLE>
13 Weeks Ended
---------------------------
Aug. 28,
Aug. 27, 1993
1994 (pro forma)
--------- ------------
<S> <C> <C>
Operating activities:
- --------------------
Net sales and other revenue $ 46,760 $ 41,291
Operating profit (including other expense
of $4,000 in 1994) 69 2,179
(Loss) income from equity investments (50) 245
Net (loss) income (1,146) 628
39 Weeks Ended
------------------------
Aug. 28,
Aug. 27, 1993
1994 (pro forma)
--------- -------------
<S> <C> <C>
Net sales and other revenue $ 134,619 $119,816
Operating profit (including other expense
of $4,000 in 1994) 5,743 4,193
Gain on sale of Eli Witt common stock 2,691 -
(Loss) income from equity investments (2,003) 1,672
Income before cumulative effect of
accounting change 41 524
Condensed Statement of Cash Flows of Culbro Corporation
39 Weeks Ended
-------------------------
Aug. 28,
Aug. 27, 1993
1994 (pro forma)
---------- -----------
<S> <C> <C>
Operating activities:
- --------------------
Net cash provided by (used in)
operating activities $ 6,111 $ (3,755)
-------- ---------
Investing activities:
- ----------------------
Additions to property and equipment (2,961) (3,130)
Proceeds from sale of Eli Witt common stock 672 -
Cash dividend from Eli Witt - 41,529
Net repayment of Eli Witt intercompany debt - 46,129
Issuance of a mortgage on an Eli Witt facility - (10,000)
Proceeds from Take-Out Agreement - 4,953
------- --------
Net cash (used in) provided by
investing activities (2,289) 79,481
--------- ---------
Financing activities:
- --------------------
Payments of long-term debt (20,357) (75,991)
Increases in long-term debt 16,328 -
Net cash used in financing activities (4,029) (75,991)
--------- --------
Net decrease in cash and cash equivalents $ (207) $ (265)
========= =========
</TABLE>
C. At the time of the deconsolidation and at August 27, 1994, Eli Witt
was in a common deficit position, and as such, the Corporation has a negative
basis in its common equity investment in Eli Witt. The negative basis of
approximately $6.5 million at August 27, 1994 is reflected as a deferred
credit on the Corporation's balance sheet. Accordingly, the Corporation
recognized the results of Eli Witt through the April 25, 1994 deconsolidation
date and will not recognize any future profit or loss of Eli Witt until its
common deficit is recouped. At August 27, 1994, the $15 million face value
mandatorily redeemable Series B preferred stock of Eli Witt held by the
Corporation is included on the consolidated balance sheet at approximately
$12.1 million. This amount reflects the fair value of the related subordinated
note for which it is exchangeable in August 1998.
The carrying value of the Series B preferred stock is being increased
by accretion to its $15 million face value, plus 10% cumulative dividends.
The total amount of accretion and dividends is equal to the amortization of
the original issue discount plus accrued interest on the subordinated note.
Other nonoperating income for the thirteen and thirty-nine weeks ended August
27, 1994 in the consolidated statements of operations reflects accretion and
accrued dividends of $586 and $812, respectively, which equal the amounts of
discount amortization and interest on the subordinated note included in the
Corporation's consolidated interest expense for the respective periods.
Eli Witt's unaudited summarized financial information is as follows:
Summarized Statement of Operations of Eli Witt
<TABLE>
39 Weeks Ended
-------------------------------
Aug. 27, Aug. 28,
1994 1993
--------- ---------
<S> <C> <C>
Net sales and other revenues $1,072,063 $ 914,360
Operating (loss) profit (4,575) 9,963
Net (loss) income (6,193) 2,907
Dividends/accretion related
to preferred stock (1,824) (1,217)
Net (loss) income available
to common shareholders (8,077) 1,690
Summarized Balance Sheet of Eli Witt
Aug. 27, Nov. 27,
1994 1993
----------- ---------
<S> <C> <C>
Trade receivables, net $ 73,932 $ 50,832
Inventories 53,766 57,929
Property and equipment, net 42,261 36,128
All other assets 20,820 20,036
---------- ---------
Total assets $190,779 $164,925
========= =========
Accounts payable and accrued expenses $ 64,779 $ 49,666
Total debt 103,016 85,263
All other liabilities 10,084 12,067
---------- ---------
Total liabilities 177,879 146,996
-------- ---------
Mandatorily redeemable Series B
preferred stock 17,275 16,150
-------- --------
Shareholders' (deficit) equity:
Series A preferred stock 9,442 10,005
Series C preferred stock 1,321 -
Common stock and accumulated deficit (15,138) (8,226)
--------- --------
Total shareholders' (deficit) equity (4,375) 1,779
--------- --------
Total liabilities, preferred stock and
shareholders' (deficit) equity $190,779 $164,925
========= ========
</TABLE>
On April 25th, 1994, Eli Witt acquired the net assets of the six
Southern distribution facilities of NCC L.P., ("NCC"), a limited partnership
engaged in the wholesale distribution business. The six facilities,
designated as NCC South, comprised a portion of the overall distribution
business conducted by NCC through nine warehouses in total.
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%, which they received
in connection with Eli Witt's acquisition of Certified Grocers in 1993. In
connection with its acquisition of NCC South, Eli Witt issued to NCC 595,000
shares of common stock, representing approximately 23% of its outstanding
common stock after the acquisition. In a transaction executed simultaneously
with Eli Witt's acquisition of NCC South, the Corporation sold 400,000 shares
of its Eli Witt common stock to MSD, a former limited partner of NCC and an
affiliate of the Morgan Stanley Leveraged Equity Fund II L.P., and issued a
$15 million subordinated note to MSD. In return, the Corporation received
proceeds of $12 million and the right to exchange in 1998, at the Corporation's
option, the subordinated note for the $15 million face value Eli Witt Series
B preferred stock held by the Corporation. The $12 million proceeds received
from MSD was allocated to the subordinated note ($11,328) and to the Eli
Witt common stock sold ($672) based on their fair values as of April 25, 1994.
A pretax gain of $2,691 was recognized on the 400,000 shares sold to MSD
comprising the proceeds of $672 and the Corporation's negative basis of
$2,019 in the shares sold.
As a result of the transactions described above, MSD owns shares
totaling 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.
D. As described in Note C, the Corporation issued a $15 million, 10%
subordinated note due August 1998 and sold 400,000 of its Eli Witt shares for
proceeds of $12 million in connection with Eli Witt's acquisition of NCC
South. No interest payments are required on the note until maturity, at
which time the principal and all accrued interest may be exchanged, at the
Corporation's option, for the Series B preferred stock of Eli Witt held by
the Corporation. Interest expense in the thirteen and thirty-nine weeks
ended August 27, 1994 includes $212 and $294 respectively, for amortization
of the original issue discount on the subordinated note.
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. Supplemental Financial Statement Information
<TABLE>
Inventories
-----------
Inventories consist of:
Aug. 27, Nov. 27,
1994 1993
---------- ---------
<S> <C> <C>
Raw materials and supplies $32,374 $ 34,232
Work-in-process 16,775 15,213
Finished goods 20,724 78,771
----------- ---------
$69,873 $128,216
=========== ==========
Property and equipment
----------------------
Property and equipment consist of:
Aug. 27, Nov. 27,
1994 1993
--------- ---------
<S> <C> <C>
Land $11,303 $ 13,453
Buildings 62,478 84,340
Machinery and equipment 57,964 81,871
Accumulated Depreciation (54,942) (64,766)
---------- -----------
$ 76,803 $114,898
========= =========
Supplemental Cash Flow Information
-----------------------------------
Cash paid during the period for:
39 Weeks Ended
----------------------------
Aug. 27, Aug. 28,
1994 1993
---------- ---------
<S> <C> <C>
Interest, net of amounts
capitalized $ 6,107 $ 10,719
========== ==========
Income taxes, net $ 2,356 $ 1,504
========== ==========
</TABLE>
F. The net income (loss) per common share for the thirteen and
thirty-nine weeks ended August 27, 1994 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
are anti-dilutive. The weighted average number of shares of common stock and
common stock equivalents 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 flows of Eli Witt have not been available to the
Corporation since Eli Witt was financed separately from the Corporation and
its other subsidiaries in February, 1993. Comparisons of changes in cash flow
with the prior year are based on the pro forma 1993 cash flow information
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 ($6.5
million) and the Corporation's higher operating profit, excluding the effect
of the $4.0 million 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
1993 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, partially offset by
the proceeds from the sale of Eli Witt common stock. 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 $11.3 million from the
subordinated note issued to MS Distribution, Inc. ("MSD"), a partner of NCC
L.P., and proceeds of $5 million from an equipment mortgage obtained by the
Corporation. The subordinated note does not require interest or principal
payments until maturity, at which time it is exchangeable at the
Corporation's option, for the Series B preferred stock of Eli Witt currently
held by the Corporation. The payment terms and exchangeability feature
were structured to maximize the Corporation's after-tax cash flow from this
transaction.
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.
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 pro forma condensed
statements of operations contained in Note B, which presents Eli Witt under
the equity method for 1993.
The Corporation's third quarter and nine month results, declined from the
comparative periods of last year due to other expense of $4.0 million
recorded in the current year's third quarter and lower results from the
Corporation's equity investments. 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 close a facility 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 shutdown charge. The nine month period also includes
a pretax gain of approximately $2.7 million on the Corporation's sale of a
portion of its Eli Witt common stock holdings.
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 (April 25,
1994) because of Eli Witt's common deficit position and will not recognize any
future results of Eli Witt until their common deficit is recouped.
<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: May 11, 1995 (Jay M. Green)
Jay M. Green
Executive Vice President -
Chief Financial Officer and Treasurer
Date: May 11, 1995 (Joseph Aird)
Joseph Aird
Vice President - Controller
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