<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission file number 1-11995
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CONSOLIDATED CIGAR HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3694743
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5900 NORTH ANDREWS AVENUE, FORT LAUDERDALE, FLORIDA 33309-2369
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(954) 772-9000
--------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 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 [ ]
As of May 7, 1997 the Registrant had 11,075,000 shares of Class A
Common Stock and 19,600,000 shares of Class B Common Stock outstanding. All of
the shares of Class B Common Stock were held by Mafco Consolidated Group Inc.
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
INDEX
-----
Page
Number
------
Part I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
Condensed Consolidated Balance Sheets at March 29, 1997
(unaudited) and December 31, 1996...................................... 3
Condensed Consolidated Statements of Operations
for the Thirteen Weeks Ended March 29, 1997 (unaudited)
and March 30, 1996 (unaudited)......................................... 5
Condensed Consolidated Statements of Stockholders' Equity
for the Thirteen Weeks Ended March 29, 1997 (unaudited)
and March 30, 1996 (unaudited)......................................... 6
Condensed Consolidated Statements of Cash Flows
for the Thirteen Weeks Ended March 29, 1997 (unaudited)
and March 30, 1996 (unaudited)......................................... 7
Notes to Unaudited Condensed Consolidated Financial Statements......... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................................11
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................14
2
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 29,
1996 1997
(Unaudited)
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,906 $ 1,328
Accounts receivable, less allowances
of $5,604 and $5,942, respectively 19,498 24,895
Inventories 45,957 54,551
Deferred taxes and other 5,591 7,411
-------- --------
Total current assets 72,952 88,185
Property, plant and equipment, net of accumulated depreciation 37,224 37,155
Trademarks, less accumulated amortization
of $3,319 and $3,535, respectively 31,155 30,939
Goodwill, less accumulated amortization
of $6,593 and $6,995, respectively 59,723 59,310
Other intangibles and assets, less accumulated
amortization of $3,406 and $3,628, respectively 4,457 4,461
-------- --------
Total assets $205,511 $220,050
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements
3
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 29,
1996 1997
(Unaudited)
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of promissory note due to affiliate $ 10,000 $ 10,000
Accounts payable 7,197 7,727
Accrued expenses 20,206 17,518
Due to affiliate 1,606 2,662
--------- ---------
Total current liabilities 39,009 37,907
Long-term debt due to third parties 97,500 104,100
Promissory note due to affiliate 60,000 60,000
Deferred taxes 5,851 6,059
Other liabilities 1,796 2,234
--------- ---------
Total liabilities 204,156 210,300
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, par value $0.01 per share, 20,000,000 shares
authorized, no shares issued and outstanding -- --
Class A Common Stock, par value $0.01 per share; 300,000,000
shares authorized, 6,075,000 and 11,075,000 shares issued and
outstanding, respectively 61 111
Class B Common Stock, par value $0.01 per share; 250,000,000
shares authorized, 24,600,000 and 19,600,000 shares issued and
outstanding, respectively 246 196
Capital deficiency (13,314) (13,314)
Retained earnings 14,362 22,757
--------- ---------
Total stockholders' equity 1,355 9,750
--------- ---------
Total liabilities and stockholders' equity $ 205,511 $ 220,050
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements
4
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
March 30, March 29,
1996 1997
----------- -----------
<S> <C> <C>
Net sales $ 40,225 $ 55,888
Cost of sales 23,313 31,258
----------- -----------
Gross profit 16,912 24,630
Selling, general
and administrative expenses 8,163 9,220
----------- -----------
Operating income 8,749 15,410
----------- -----------
Other expenses:
Interest expense, net 2,626 2,493
Miscellaneous 297 570
----------- -----------
2,923 3,063
----------- -----------
Income before provision for
income taxes 5,826 12,347
Provision for income taxes 1,492 3,952
----------- -----------
Net income $ 4,334 $ 8,395
=========== ===========
Net income per common share $ 0.18 $ 0.27
=========== ===========
Weighted average common shares outstanding 24,600,000 30,675,000
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements
5
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Paid-in
Class A Class B Capital
Common Common Common (Capital Retained
Stock Stock Stock Deficiency) Earnings Total
--------- --------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1 $ - $ - $ 34,834 $ 19,493 $ 54,328
Net income for the thirteen weeks - - - - 4,334 4,334
--------- --------- --------- ----------- --------- ----------
Balance at March 30, 1996 $ 1 $ - $ - $ 34,834 $ 23,827 $ 58,662
========= ========= ========= =========== ========= ==========
Balance at December 31, 1996 $ - $ 61 $ 246 $ (13,314) $ 14,362 $ 1,355
Net income for the thirteen weeks - - - - 8,395 8,395
Secondary public offering and retirement
of Class B Common Stock sold - 50 (50) - - -
--------- --------- --------- ----------- --------- ----------
Balance at March 29, 1997 $ - $ 111 $ 196 $ (13,314) $ 22,757 $ 9,750
========= ========= ========= =========== ========= ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements
6
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
March 30, March 29,
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,334 $ 8,395
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,805 1,869
Deferred income (51) (53)
Changes in assets and liabilities:
Increase in:
Accounts receivable (345) (5,397)
Inventories (3,122) (8,594)
Prepaid expenses and other (53) (1,856)
Increase (decrease) in:
Accounts payable 3,188 530
Accrued expenses and
other liabilities (3,933) (2,188)
------- -------
Net cash provided by (used for) operating activities 1,823 (7,294)
------- -------
Cash flows used for investing activities:
Capital expenditures (460) (949)
------- -------
Net cash used for investing activities (460) (949)
------- -------
</TABLE>
See notes to unaudited condensed consolidated financial statements
7
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
March 30, March 29,
1996 1997
----------- -----------
<S> <C> <C>
Cash flows (used for)provided by financing activities:
(Repayment) borrowings of revolving loan, net $(1,900) $ 6,600
Due to affiliates and other borrowings 642 1,065
------- -------
Net cash (used for) provided by financing activities (1,258) 7,665
------- -------
Increase (decrease) in cash and cash equivalents 105 (578)
Cash and cash equivalents, beginning of period 1,145 1,906
------- -------
Cash and cash equivalents, end of period $ 1,250 $ 1,328
======= =======
Supplemental disclosures of cash flow information:
Interest paid during the period $ 5,166 $ 4,892
Income taxes paid during the period 381 2,340
</TABLE>
See notes to unaudited condensed consolidated financial statements
8
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
- ------------------------------
Consolidated Cigar Holdings Inc. (formerly Consolidated Cigar (Parent)
Holdings Inc.) (the "Company") is a holding company with no business operations
of its own and was formed as a Delaware corporation on January 6, 1993 to hold
all of the outstanding capital stock of Consolidated Cigar Corporation
("Consolidated Cigar"), through which the Company conducts its business
operations. The results of operations and financial position of the Company
therefore reflect the consolidated results of operations and financial position
of Consolidated Cigar.
On June 15, 1995 Mafco Holdings Inc. ("Mafco Holdings") and Mafco
Consolidated Group Inc. ("Mafco Consolidated Group")formerly known as Abex Inc.
("Abex"), consummated an agreement and plan of merger (the "Merger Agreement")
executed between the parties on January 6, 1995. The Merger Agreement provided
for, among other things, the merger of C&F Merger Inc., a subsidiary of Mafco
Holdings and the indirect parent of both the Company and its subsidiaries and
Mafco Worldwide Corporation, with Mafco Consolidated Group, which was the
surviving corporation in the merger. As a result of the merger, the Company
became a direct wholly-owned subsidiary of Mafco Consolidated Group.
On August 21, 1996, the Company completed an initial public offering
(the "IPO") in which it issued and sold 6,075,000 shares of its Class A Common
Stock for $23.00 per share. The proceeds, net of underwriters' discount and
related fees and expenses, of $127.8 million, were paid as a dividend to Mafco
Consolidated Group. On March 20, 1997 the Company completed a secondary
offering (the "Offering"), of 5,000,000 shares of Class A Common Stock sold by
Mafco Consolidated Group, reducing its ownership in the Company to
approximately 63.9%. The Company did not receive any of the proceeds from the
sale of the shares.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
accordingly include all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
statement of the operations for the periods presented. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The fiscal year of the
Company is comprised of four quarters with each quarter consisting of thirteen
weeks ending on Saturday except the last quarter which ends on December 31st.
The statements should be read in conjunction with the consolidated financial
statements of the Company and notes thereto for the fiscal year ended December
31, 1996, as filed with Form 10-K. The results of operations for the thirteen
week period ended March 29, 1997 and March 30, 1996 are not necessarily
indicative of the results for the entire year.
-9-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTE B - INVENTORIES
- --------------------
The components of inventory are as follows:
(In thousands)
December 31, 1996 March 29, 1997
----------------- --------------
Raw materials and supplies $34,469 $37,508
Work in process 1,974 3,185
Finished goods 9,514 13,858
------- -------
$45,957 $54,551
======= =======
NOTE C - NET INCOME PER COMMON SHARE
- ------------------------------------
Net income per common share has been computed assuming the conversion
of the Company's common stock into Class B Common Shares as of the beginning of
all periods presented and is therefore based upon the weighted average of
24,600,000 shares of common stock outstanding prior to the IPO and 30,675,000
shares of common stock outstanding after the IPO. The dilutive effect of stock
options has not been included as it is less than 3%.
-10-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COMPARISON OF THE THIRTEEN WEEKS ENDED MARCH 29, 1997 AND MARCH 30, 1996
Net sales were $55.9 million and $40.2 million for the thirteen weeks
that ended March 29, 1997 (the "1997 Quarter") and March 30, 1996 (the "1996
Quarter"), respectively, an increase of $15.7 million or 38.9%. The increase in
net sales was primarily due to higher sales of cigars. Cigar sales increased as
a result of both a shift in the sales mix to higher priced cigars and price
increases on certain cigar brands and, to a lesser extent, an increase in cigar
unit volume, particularly in the premium market.
Gross profit was $24.6 million and $16.9 million for the 1997 Quarter
and the 1996 Quarter, respectively, an increase of $7.7 million or 45.6%. The
increase in gross profit for the 1997 Quarter was due to the increase in sales,
partially offset by increases in the costs of raw materials. As a percentage of
net sales, gross profit increased to 44.1% for the 1997 Quarter from 42.0% for
the 1996 Quarter primarily due to the impact of price increases and fixed
manufacturing costs spread over increased production volume.
Selling, general and administrative ("SG&A") expenses were $9.2
million and $8.2 million for the 1997 Quarter and 1996 Quarter, respectively,
an increase of $1.0 million or 12.9%. The increase for the 1997 Quarter was
primarily due to increases in selling expenses and professional fees. As a
percentage of net sales, SG&A expenses decreased to 16.5% for the 1997 Quarter
from 20.3% for the 1996 Quarter. The decrease was primarily due to SG&A
expenses increasing at a lower rate relative to the increase in net sales.
Operating income was $15.4 million and $8.7 million for the 1997
Quarter and 1996 Quarter, respectively, an increase of $6.7 million or 76.1%.
As a percentage of net sales, operating income increased to 27.6% for the 1997
Quarter from 21.8% for the 1996 Quarter primarily due to higher gross profit
margins and a decrease in SG&A expenses as a percentage of net sales.
Interest expense, net was $2.5 million and $2.6 million for the 1997
Quarter and 1996 Quarter, respectively, a decrease of $0.1 million or 5.1%. The
decrease was primarily due to a lower amount of debt due to third parties
outstanding during 1997.
The provision for income taxes as a percentage of income before income
taxes was 32.0% and 25.6% for the 1997 Quarter and 1996 Quarter, respectively.
The increase in the effective rate is primarily due to an increase in income
subject to United States taxation during the 1997 Quarter partially offset by
tax benefits associated with the Company's operations in Puerto Rico. Income
tax expense for the 1997 Quarter and 1996 Quarter reflect provisions for
federal income taxes, Puerto Rico tollgate taxes, and taxes on Puerto Rico
source income, together with state and franchise taxes.
As a result of the foregoing, net income was $8.4 million and $4.3 million for
the 1997 Quarter and 1996 Quarter, respectively, an increase of $4.1 million or
93.7%.
-11-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used for operating activities in the 1997 Quarter were
$7.3 million. Net cash flows provided by operating activities in the 1996
Quarter were $1.8 million. The decrease in cash flows of $9.1 million was due
primarily to an increase in working capital requirements, partially offset by
an increase in net income.
Cash flows used for investing activities were $0.9 million for the
1997 Quarter and $0.5 million for the 1996 Quarter which relate to capital
expenditures. The capital expenditures in the 1997 and 1996 Quarters primarily
relate to investment in the Company's manufacturing facilities to meet the
increased demand for the Company's premium cigars. Capital expenditures for the
remainder of 1997 are expected to be approximately $3.0 million.
Cash flows provided by financing activities for the 1997 Quarter were
$7.7 million and consist primarily of borrowings under the Credit Agreement (as
defined herein). Cash flows used for financing activities for the 1996 Quarter
were $1.3 million and were primarily used to repay borrowings under the credit
agreement.
In 1993 and 1994 the Company entered into two five-year interest rate
swap agreements in an aggregate notional amount of $85.0 million. Under the
terms of the agreements, the Company receives a fixed interest rate averaging
5.8% and pays a variable interest rate equal to the six month London interbank
offered rate (LIBOR). The Company entered into such agreements to take
advantage of the differential between long-term and short-term interest rates
and effectively converted the interest rate on $85.0 million of fixed-rate
indebtedness under the 10 1/2% Notes to a variable rate. Had the Company
terminated these agreements, which the Company considers to be held for other
than trading purposes on March 31, 1997, the Company would have realized a
combined loss of approximately $1.9 million. Future positive or negative cash
flows associated with these contracts will depend upon the trend of short-term
interest rates during the remaining life of the agreements. In the event of
non-performance of the counterparties at anytime during the remaining lives of
these agreements which expire at December 1998 and January 1999, the Company
could lose some or all of any future positive cash flows. However, the Company
does not anticipate non-performance by such counterparties.
The Company's principal sources of working capital for the current
year will be generated from operations and borrowings under the credit
agreement with The Chase Manhattan Bank, as the agent (the "Credit Agreement").
The availability for borrowings under the Credit Agreement , as amended, was
$34.9 million as of March 29, 1997, of which the Company had borrowed $16.3
million (including letters of credit issued). The amounts available for
borrowing under the Credit Agreement will remain constant for the term of the
Credit Agreement which expires on April 3, 1999.
Simultaneously with the IPO, the Company issued a non-interest bearing
promissory note in an original principal amount of $70.0 million (the
"Promissory Note") to Mafco Consolidated Group. The Promissory Note is payable
in quarterly installments of $2.5 million, which began on March 31, 1997 with
the final installment payable on December 31, 2003. Given the availability of
borrowing under the Credit Agreement and cash flow generated from operations,
the Company does not currently foresee the need to incur additional
indebtedness (other than from the Credit Agreement), to meet the Company's
ongoing operating needs during the next twelve months.
-12-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share", which established new standards for computing and presenting
earnings per share. SFAS No. 128 will be effective for interim and annual
financial statements ending after December 15, 1997. The Company believes that
the adoption of SFAS No. 128 will not have a material impact on the Company's
reported earnings per share.
-13-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*27.0 Financial Data Schedule
(b) Reports on Form 8-K
Consolidated Cigar Holdings Inc. filed no reports on Form 8-K
during the fiscal quarter ended March 29, 1997.
* Filed herein.
-14-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
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.
Consolidated Cigar Holdings Inc.
--------------------------------
(Registrant)
DATE: May 7, 1997 /s/ Theo W. Folz
----------------
Theo W. Folz
Chief Executive Officer
DATE: May 7, 1997 /s/ Gary R. Ellis
-----------------
Gary R. Ellis
Chief Financial Officer
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Cigar Holdings Inc. Condensed Consolidated Balance Sheet and
Statement of Operations and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001017550
<NAME> CONSOLIDATED CIGAR HOLDINGS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<CASH> 1,328
<SECURITIES> 0
<RECEIVABLES> 30,837
<ALLOWANCES> (5,942)
<INVENTORY> 54,551
<CURRENT-ASSETS> 88,185
<PP&E> 52,095
<DEPRECIATION> (14,940)
<TOTAL-ASSETS> 220,050
<CURRENT-LIABILITIES> 37,907
<BONDS> 90,000
0
0
<COMMON> 307
<OTHER-SE> 9,443
<TOTAL-LIABILITY-AND-EQUITY> 220,050
<SALES> 55,888
<TOTAL-REVENUES> 55,888
<CGS> 31,258
<TOTAL-COSTS> 31,258
<OTHER-EXPENSES> 9,752
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 2,493
<INCOME-PRETAX> 12,347
<INCOME-TAX> 3,952
<INCOME-CONTINUING> 8,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,395
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.00
</TABLE>
