<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 July 4, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 August 12, 1998 the Registrant had 10,475,101 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 July 4, 1998
(unaudited) and December 31, 1997................................ 3
Condensed Consolidated Statements of Income for the Thirteen
Weeks Ended July 4, 1998 (unaudited) and June 28, 1997
(unaudited)...................................................... 5
Condensed Consolidated Statements of Income for the Twenty-Six
Weeks Ended July 4, 1998 (unaudited) and June 28, 1997
(unaudited)...................................................... 6
Condensed Consolidated Statements of Stockholders' Equity for
the Twenty-Six Weeks Ended July 4, 1998 (unaudited) and June
28, 1997 (unaudited)............................................. 7
Condensed Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended July 4, 1998 (unaudited) and June 28,
1997 (unaudited)................................................. 8
Notes to Unaudited Condensed Consolidated Financial
Statements....................................................... 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................. 12
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..... 15
Item 6. Exhibits and Reports on Form 8-K........................ 15
2
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, July 4,
1997 1998
(Unaudited)
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,231 $ 3,143
Accounts receivable, less allowances
of $6,008 and $6,140, respectively 24,969 28,443
Inventories 88,945 131,824
Deferred taxes 4,187 4,358
Prepaid and other 13,220 15,870
-------- --------
Total current assets 134,552 183,638
Property, plant and equipment, net 39,511 39,775
Trademarks, less accumulated amortization
of $4,190 and $4,630, respectively 30,876 30,436
Goodwill, less accumulated amortization
of $8,295 and $9,256, respectively 70,590 69,629
Other intangibles and assets, less accumulated
amortization of $4,359 and $158, respectively 3,904 2,916
-------- --------
Total assets $279,433 $326,394
======== ========
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - (Continued)
(Dollars in thousands)
December 31, July 4,
1997 1998
(Unaudited)
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of promissory note due to affiliate $ 10,000 $ 10,000
Current portion of long-term debt 657 730
Accounts payable 13,704 19,843
Accrued expenses and other 18,440 18,252
--------- ---------
Total current liabilities 42,801 48,825
Long-term debt due to third parties 112,900 147,100
Promissory note due to affiliate 50,000 45,000
Deferred taxes 13,810 16,557
Other liabilities 4,785 5,957
--------- ---------
Total liabilities 224,296 263,439
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, par value $0.01 per share;
20,000,000 shares authorized -- --
Class A Common Stock, par value $0.01 per share;
300,000,000 shares authorized 111 111
Class B Common Stock, par value $0.01 per share;
250,000,000 shares authorized 196 196
Capital deficiency (13,123) (13,123)
Retained earnings 67,953 83,698
--------- ---------
55,137 70,882
Less treasury stock, at cost -- (7,927)
--------- ---------
Total stockholders' equity 55,137 62,955
--------- ---------
Total liabilities and stockholders' equity $ 279,433 $ 326,394
========= =========
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
(Unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended
June 28, July 4,
1997 1998
----------- -----------
Net sales $ 76,377 $ 69,060
Cost of sales 42,935 39,845
----------- -----------
Gross profit 33,442 29,215
Selling, general
and administrative expenses 10,765 10,902
----------- -----------
Operating income 22,677 18,313
----------- -----------
Other expenses:
Interest expense, net 2,670 2,257
Minority interest 236 448
Miscellaneous, net 355 145
----------- -----------
3,261 2,850
----------- -----------
Income before provision for income taxes 19,416 15,463
Provision for income taxes 6,212 4,973
----------- -----------
Net income $ 13,204 $ 10,490
=========== ===========
Basic and diluted net income per common share $ 0.43 $ 0.34
=========== ===========
Basic weighted average common shares outstanding 30,675,000 30,510,512
=========== ===========
Diluted weighted average common shares outstanding 30,809,134 30,510,512
=========== ===========
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
(Unaudited)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
June 28, July 4,
1997 1998
----------- -----------
Net sales $ 132,265 $ 132,251
Cost of sales 74,193 76,404
----------- -----------
Gross profit 58,072 55,847
Selling, general
and administrative expenses 19,985 21,221
----------- -----------
Operating income 38,087 34,626
----------- -----------
Other expenses:
Interest expense, net 5,163 4,984
Minority interest 455 997
Miscellaneous, net 706 410
----------- -----------
6,324 6,391
----------- -----------
Income before provision for income taxes and
extraordinary item 31,763 28,235
Provision for income taxes 10,164 9,316
----------- -----------
Income before extraordinary item 21,599 18,919
Extraordinary item-
Early extinguishment of debt, net of tax -- 3,174
----------- -----------
Net income $ 21,599 $ 15,745
=========== ===========
Basic and diluted net income per common share:
Income before extraordinary item $ 0.70 $ 0.62
Extraordinary item -- (0.11)
----------- -----------
Basic and diluted net income per common share $ 0.70 $ 0.51
=========== ===========
Basic weighted average common shares outstanding 30,675,000 30,595,411
=========== ===========
Diluted weighted average common shares outstanding 30,768,457 30,595,411
=========== ===========
See notes to unaudited condensed consolidated financial statements.
6
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B
Common Common Capital Retained Treasury
Stock Stock Deficiency Earnings Stock Total
------- ------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 61 $ 246 $(13,314) $ 14,362 $ -- $ 1,355
Net income for the twenty-six weeks -- -- -- 21,599 -- 21,599
Secondary public offering and retirement
of Class B Common Stock sold 50 (50) -- -- -- --
------- ------- -------- -------- -------- --------
Balance at June 28, 1997 $ 111 $ 196 $(13,314) $ 35,961 $ -- $ 22,954
======= ======= ======== ======== ======== ========
Balance at December 31, 1997 $ 111 $ 196 $(13,123) $ 67,953 $ -- $ 55,137
Net income for the twenty-six weeks -- -- -- 15,745 -- 15,745
Purchase of treasury stock -- -- -- -- (7,927) (7,927)
------- ------- -------- -------- -------- --------
Balance at July 4, 1998 $ 111 $ 196 $(13,123) $ 83,698 $ (7,927) $ 62,955
======= ======= ======== ======== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
June 28, July 4,
1997 1998
----------- -----------
Cash flows from operating activities:
Net income $ 21,599 $ 15,745
Adjustments to reconcile net income to net
cash provided by (used for)
operating activities:
Depreciation and amortization 3,754 4,198
Loss on early extinguishment of debt, net of tax -- 3,174
Deferred income (61) 566
Changes in assets and liabilities:
Increase in:
Accounts receivable (8,018) (3,474)
Inventories (13,925) (42,879)
Prepaid expenses and other (4,878) (3,198)
Increase (decrease) in:
Accounts payable (483) 6,139
Accrued expenses and
other liabilities 3,678 4,321
-------- --------
Net cash provided by (used for) operating activities 1,666 (15,408)
-------- --------
Cash flows used for investing activities:
Capital expenditures (2,815) (2,827)
Increase in other assets -- (326)
-------- --------
Net cash used for investing activities (2,815) (3,153)
-------- --------
See notes to unaudited condensed consolidated financial statements.
8
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Dollars in thousands)
(Unaudited)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
June 28, July 4,
1997 1998
----------- -----------
Cash flows provided by (used for)
financing activities:
Borrowings of revolving loan, net $ 9,200 $ 153,073
Early extinguishment of debt -- (118,800)
Debt issuance and refinancing costs -- (3,386)
Purchase of treasury stock -- (7,927)
Due to affiliates and other borrowings (6,844) (4,487)
--------- ---------
Net cash provided by financing activities 2,356 18,473
--------- ---------
Increase (decrease) in cash and cash equivalents 1,207 (88)
Cash and cash equivalents, beginning of period 1,906 3,231
--------- ---------
Cash and cash equivalents, end of period $ 3,113 $ 3,143
========= =========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 5,407 $ 7,454
Income taxes paid (refunded) during the period 10,597 (1,536)
See notes to unaudited condensed consolidated financial statements.
9
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
Consolidated Cigar 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. Unless the context otherwise requires, all
references in these notes to the consolidated financial statements of the
Company shall mean Consolidated Cigar Holdings Inc. and its subsidiaries.
On August 21, 1996, the Company, then a direct wholly-owned subsidiary of
Mafco Consolidated Group Inc. ("Mafco Consolidated Group"), 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. The
Company did not receive any of the proceeds from the Offering. Mafco
Consolidated Group's current ownership in the Company is 65.2%.
Since July 9, 1997, Mafco Consolidated Group has been a wholly-owned
subsidiary of Mafco Holdings Inc. ("Mafco Holdings"), which is owned by Ronald
O. Perelman. Prior to that date, Mafco Holdings held an 85% ownership interest
in Mafco Consolidated Group.
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 a 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, 1997, as filed with Form 10-K. The results of operations for the twenty-six
week periods ended July 4, 1998 and June 28, 1997 are not necessarily indicative
of the results for the entire year.
-10-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION (CONTINUED)
During the first quarter of 1998, the Company adopted the Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of SFAS 130 had no impact
on the Company's net income or shareholders' equity. There was no difference
between the Company's net income and comprehensive income for the thirteen and
twenty-six week periods ended July 4, 1998 and June 28, 1997.
NOTE B - INVENTORIES
The components of inventory are as follows:
(In thousands)
December 31, 1997 July 4, 1998
----------------- ------------
Raw materials and supplies $61,764 $ 81,799
Work in process 3,977 6,765
Finished goods 23,204 43,260
------- --------
$88,945 $131,824
======= ========
NOTE C - EXTRAORDINARY ITEM
On March 2, 1998, the Company redeemed its 10 1/2% Senior Subordinated
Notes due 2003 (the "Senior Subordinated Notes") at a price of 103.00% of the
principal amount, together with accrued interest. As a result, the Company
recognized an extraordinary charge of $3.2 million, net of a $1.6 million income
tax benefit for this early extinguishment of debt.
Coinciding with the redemption of the Senior Subordinated Notes, the
Company entered into a new credit agreement (the "New Credit Agreement") with
Chase Manhattan Bank ("Chase") as administrative agent for the lenders. The New
Credit Agreement initially provided for an unsecured revolving credit facility
in an aggregate principal amount not to exceed $140.0 million. In addition to
financing the redemption of the Senior Subordinated Notes, the New Credit
Agreement was used to satisfy obligations under the previous credit agreement as
of March 2, 1998. On April 27, 1998, the New Credit Agreement was amended to
allow for an additional $50.0 million of borrowings for a total availability of
$190.0 million. The New Credit Agreement will be utilized as the source for
working capital needs and other general corporate purposes.
NOTE D- NET INCOME PER COMMON SHARE
For the thirteen and twenty-six week periods ended July 4, 1998, there
was no difference between the basic and diluted earnings per share ("EPS")
calculation. For the thirteen and twenty-six week periods ended June 28, 1997,
the only difference between the basic and diluted EPS calculation was the
dilutive impact of stock options which are included in the diluted EPS
calculations.
-11-
<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 JULY 4, 1998 AND JUNE 28, 1997 AND THE
TWENTY-SIX WEEKS ENDED JULY 4, 1998 AND JUNE 28, 1997
Net sales were $69.1 million and $76.4 million for the thirteen weeks
ended July 4, 1998 (the "1998 Quarter") and June 28, 1997 (the "1997 Quarter"),
respectively, a decrease of $7.3 million or 9.6%. Net sales were $132.3 million
for both twenty-six week periods ended July 4, 1998 (the "1998 Period"), and
June 28, 1997 (the "1997 Period"). The decrease in net sales for the 1998
Quarter is primarily due to a decrease in premium cigar unit volume sales,
partially offset by an increase in natural-wrapped mass market sales. Sales for
the 1998 Quarter and the 1998 Period were negatively impacted by
retailer/wholesaler inventory imbalances and an excess of historically unknown
brands. These trends could continue through the end of the current year and
possibly beyond depending on when normal customer ordering patterns resume.
Gross profit was $29.2 million and $33.4 million for the 1998 Quarter and
the 1997 Quarter, respectively, a decrease of $4.2 million or 12.6%. The
decrease in gross profit for the 1998 Quarter was due to the decrease in sales
and lower margins. Gross profit was $55.8 million and $58.1 million for the 1998
Period and the 1997 Period, respectively, a decrease of $2.3 million or 3.8%.
The decrease in gross profit for the 1998 Period was due to an increase in the
costs of raw materials. As a percentage of net sales, gross profit was 42.3% for
the 1998 Quarter, compared to 43.8% for the 1997 Quarter. Gross profit for the
1998 Period was 42.2% compared to 43.9% for the 1997 Period. The decrease in
margin was primarily due to a shift in the sales mix to lower margin cigars and
the impact of tobacco cost increases.
Selling, general and administrative ("SG&A") expenses were $10.9 million
and $10.8 million for the 1998 and 1997 Quarters, respectively, an increase of
1.3%. SG&A expenses were $21.2 million and $20.0 million for the 1998 Period and
1997 Period, respectively, an increase of $1.2 million or 6.2%. The increases
for the 1998 Period were primarily due to increased marketing and selling
expenses. As a percentage of net sales, SG&A expenses increased to 15.8% for the
1998 Quarter from 14.1% for the 1997 Quarter and to 16.0% for the 1998 Period
from 15.1% for the 1997 Period. The increase for the quarter was primarily due
to flat SG&A expenses on a lower net sales base, as compared to the 1997
Quarter.
Operating income was $18.3 million and $22.7 million for the 1998 Quarter
and 1997 Quarter, respectively, a decrease of $4.4 million or 19.2%. Operating
income was $34.6 million and $38.1 million for the 1998 Period and the 1997
Period, respectively, a decrease of $3.5 million or 9.1%. As a percentage of net
sales, operating income decreased to 26.5% for the 1998 Quarter from 29.7% for
the 1997 Quarter and to 26.2% for the 1998 Period from 28.8% for the 1997
Period. The decreases were primarily due to lower gross profit margins and an
increase in SG&A expenses as a percentage of net sales.
Interest expense, net was $2.3 million and $2.7 million for the 1998
Quarter and 1997 Quarter, respectively. Interest expense, net was $5.0 million
and $5.2 million for the 1998 Period and the 1997 Period, respectively. The
decreases were primarily due to lower interest rates partially offset by higher
average borrowings.
-12-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
The provision for income taxes as a percentage of income before income
taxes was 32.2% and 32.0% for the 1998 Quarter and 1997 Quarter, respectively,
and 33.0% and 32.0% for the 1998 Period and 1997 Period, respectively. The
increases in the effective rate were primarily due to an increase in the state
and franchise tax rate during the 1998 Quarter and 1998 Period. Income tax
expense for all periods reflects provisions for federal income taxes, Puerto
Rico tollgate taxes, and taxes on Puerto Rico source income, together with state
and franchise taxes.
An extraordinary charge of $3.2 million net, of a $1.6 million related
income tax benefit was recorded in the first quarter of 1998 as a result of the
early extinguishment of debt related to the Senior Subordinated Notes and the
previous credit agreement.
As a result of the foregoing, net income was $10.5 million and $13.2
million for the 1998 Quarter and 1997 Quarter, respectively, a decrease of $2.7
million, or 20.6%. Net income was $15.7 million and $21.6 million for the 1998
Period and the 1997 Period, respectively, a decrease of $5.9 million or 27.1%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used for operating activities were $15.4 million for the
1998 Period. Net cash flows provided by operating activities were $1.7 million
for the 1997 Period. The decrease in cash flows of $17.1 million between the two
periods was due primarily to an increase in inventories which were partially
offset by decreases in other working capital requirements. The significant
increase in demand for premium cigars over the past few years has created
shortages of most types of tobacco leaf, resulting in the Company making
commitments to increase its tobacco purchases in 1998. Due to the slowdown in
premium sales occurring in 1998 and the increase in purchases of tobacco, the
Company's inventory of raw tobacco leaf has substantially increased. The Company
has also substantially increased its inventory of finished goods compared to the
relative low levels of prior periods. As a result of the increases in
inventories, the Company has undertaken a program to balance its raw material
and finished goods inventory requirements to levels more proportionate with
current sales. Inventories could continue to increase through the end of fiscal
1998, although they are not expected to increase at the rate experienced during
the 1998 Period.
Cash flows used for investing activities were $3.2 million for the 1998
Period and $2.8 million for the 1997 Period which relate primarily to capital
expenditures. The capital expenditures in both the 1998 and 1997 Periods relate
primarily to the expansion of the Company's manufacturing facilities. Capital
expenditures for the remainder of 1998 are expected to be approximately $3.6
million.
Cash flows provided by financing activities were $18.5 million for the
1998 Period and $2.4 million for the 1997 Period. Cash flows provided by
financing activities for the 1998 Period consist primarily of net borrowings
under a revolving credit agreement to fund the debt redemption, reduced by
payments for the purchase of treasury stock and amounts due to affiliates. Cash
flows provided by financing activities for the 1997 Period consisted primarily
of borrowings under the credit agreement, reduced by payment due to affiliates.
-13-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
On February 11, 1998 the Company's Board of Directors authorized the
Company to repurchase from time to time up to 4.0 million shares of the
Company's Common Stock at prices deemed by the Company's officers to be
advantageous. The Board specified that any such purchase be subject to
compliance with applicable law and any credit or other agreements by which the
Company may be bound. The Company repurchased $7.9 million of Common Stock
during the 1998 Period and has classified them as treasury shares.
The Company's principal sources of working capital for the current year
will be generated from operations and borrowings under the New Credit Agreement.
The availability for borrowings under the New Credit Agreement, as amended, was
$190.0 million as of July 4, 1998, of which the Company had borrowed $147.5
million (including letters of credit issued). Given the availability of
borrowing under the New Credit Agreement as amended, the Company does not
currently foresee the need to incur additional indebtedness (other than from the
New Credit Agreement), to meet its ongoing operating needs during the next
twelve months.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q filing, the words "believe," "should,"
"would" and similar expressions which are not historical are intended to
identify forward-looking statements that involve risks and uncertainties. Such
statements include, without limitation, expectations with respect to the results
for the full year 1998, the Company's beliefs about trends in the cigar industry
and its views about the long-term future of the industry and the Company. In
addition to factors that may be described in the Company's other Securities and
Exchange Commission filings, the following factors, among others, could cause
the Company's financial performance to differ materially from that expressed in
any forward-looking statements made by, or on behalf of, the Company: (i)
changes in consumer preference resulting in a decline in the demand for and
consumption of cigars; (ii) sustained inventory imbalances at the
retailer/wholesaler level; (iii) an inability on the part of the Company to
increase its production of premium cigars as a result of, among other things, a
shortage of raw materials; (iv) additional governmental regulation of tobacco
products or further tobacco industry litigation; (v) enactment of new or
significant increases in existing excise taxes on cigars and pipe tobacco; and
(vi) the failure to receive a tax credit with respect to the Company's Puerto
Rico taxable earnings or the elimination of an exemption from Puerto Rican
income taxes. The Company does not undertake any responsibility to update the
forward-looking statements contained in this Form 10-Q filing.
-14-
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on May
12, 1998. The results of the voting with respect to matters
presented at the Annual Meeting were as follows:
Common Stock Voted
---------------------------
For Against Abstain
--- ------- -------
(b) Election of Directors for a
one-year term ending upon the
Company's next Annual Meeting
Ronald O. Perelman 10,356,970 16,390
Theo W. Folz 10,357,421 15,939
Howard Gittis 10,357,421 15,939
Lee A. Iacocca 10,357,421 15,939
Robert Sargent Shriver 10,357,421 15,939
(c) Ratify the appointment of Ernst &
Young LLP as independent Auditors
of the Company for the year 1998.
Common Stock Voted
---------------------------
For Against Abstain
--- ------- -------
10,364,623 3,862 4,875
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*10.1(a) Amendment No. 1 to the New Credit Agreement dated
as of April 27, 1998.
*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 July 4,
1998.
* Filed herein.
-15-
<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: August 12, 1998 /s/ Theo W. Folz
------------------------------------
Theo W. Folz
Chief Executive Officer
DATE: August 12, 1998 /s/ Gary R. Ellis
------------------------------------
Gary R. Ellis
Chief Financial Officer
-16-
<PAGE>
FIRST AMENDMENT, dated as of April 27, 1998 (this "First Amendment"),
to the Credit Agreement, dated as of March 2, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among
CONSOLIDATED CIGAR CORPORATION (the "Company"), the financial institutions from
time to time parties thereto (the "Lenders"), CHASE SECURITIES, INC., as
arranger, THE CHASE MANHATTAN BANK, as administrative agent (in such capacity,
the "Administrative Agent"), NATIONSBANK, N.A., as documentation agent (in such
capacity, the "Documentation Agent"), and CREDIT SUISSE FIRST BOSTON, as
syndication agent (in such capacity, the "Syndication Agent").
W I T N E S S E T H :
WHEREAS, the Company has requested that the Credit Agreement be amended
as more fully set forth herein;
WHEREAS, the Lenders and the Administrative Agent are willing to
consent to such amendment only upon the terms, and subject to the conditions,
set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company, the Lenders and the Administrative
Agent hereby agree as follows:
1. Definitions. Capitalized terms which are used herein shall have the
meanings assigned to them in the Credit Agreement, unless otherwise defined
herein.
2. First Amendment to the Credit Agreement. (a) Subsection 1.1 of the
Credit Agreement is hereby amended by (i) deleting the reference to
"$140,000,000" in the definition of "Aggregate Commitment" and replacing it with
"$190,000,000" and (ii) deleting the reference to "for the fiscal quarter ended
June 30, 1998" in the definitions of "Applicable Margin" and "Commitment Fee
Rate" and replacing it with "for the fiscal year ended December 31, 1998";
(b) Subsection 4.1 of the Credit Agreement is hereby amended by adding
the following clause (b) thereto and relettering subsections 4.1(b), (c) and (d)
as 4.1(c), (d) and (e), respectively:
"On December 31, 1999, the Aggregate Commitment shall be reduced by
$20,000,000 and on December 31, 2000, the Aggregate Commitment shall be
reduced by $30,000,000. Such reductions of the Aggregate Commitment
shall be pro rata among the Lenders and shall permanently reduce the
Aggregate Commitment then in effect."
(c) Subsection 8.6(c) of the Credit Agreement is hereby amended by
deleting it in its entirety and replacing it with the following:
"(c) So long as no Default or Event of Default has occurred and is
continuing at the time such Restricted Payment is made or would result
therefrom, (i) for the
<PAGE>
1998 fiscal year of the Company, Restricted Payments in an aggregate
amount not to exceed the sum of (A) the greater of (I) 50% of
Consolidated Net Income for the prior fiscal year (the "NI Amount") and
(II) $10,000,000 plus (B) $5,000,000 ( provided that, to the extent
Restricted Payments actually made in the 1998 fiscal year exceed the
amount permitted by clause (i)(A) above, such excess amount shall be
the "Additional RP Amount"), and (ii) for each fiscal year of the
Company thereafter, Restricted Payments in an aggregate amount not to
exceed the greater of (I) the NI Amount and (II) $10,000,000, provided
that, for the 1999 and each subsequent fiscal year of the Company, to
the extent the NI Amount exceeds $10,000,000 such NI Amount shall be
reduced to $10,000,000 to the extent of the Additional RP Amount (but
only to the extent the Additional RP Amount has not been applied in
prior fiscal years to reduce the NI Amount), and provided, further,
that to the extent that Restricted Payments actually made in the 1998
fiscal year exceed the amount permitted by clause (i)(A) to be made,
such excess shall be made solely for the purpose of enabling Holdings
to repurchase its capital stock."
(d) Schedule 1.1(B) of the Credit Agreement is hereby amended by
deleting it in its entirety and replacing it with Schedule 1.1(B) attached
hereto as Annex A.
3. Fee. The Company agrees to pay to each Lender a fee in an amount
equal to .15% of the amount by which such Lender's Commitment is increased by
this First Amendment.
4. Conditions to Effectiveness. This First Amendment shall become
effective on and as of the date that the Administrative Agent shall have
received counterparts of this First Amendment duly executed by the Company and
the Required Lenders.
5. Representations and Warranties. The Company, as of the date hereof
and after giving effect to the amendments contained herein, hereby confirms,
reaffirms and restates in all material respects the representations and
warranties made by it in Section 5 of the Credit Agreement and otherwise in the
Credit Documents to which it is a party; provided that each reference to the
Credit Agreement therein shall be deemed to be a reference to the Credit
Agreement after giving effect to this First Amendment.
6. Reference to and Effect on the Credit Documents; Limited Effect. On
and after the date hereof and the satisfaction of the conditions contained in
Section 4 of this First Amendment, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the other Credit Documents to "the
Credit Agreement", "thereunder", "thereof" or words of like import referring to
the Credit Agreement, shall mean and be a reference to the Credit Agreement as
modified hereby. The execution, delivery and effectiveness of this First
Amendment, shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of any Lender or the Administrative Agent under
any of the Credit Documents, nor constitute a waiver or amendment of any
provisions of any of the Credit
<PAGE>
Documents. Except as expressly modified herein, all of the provisions and
covenants of the Credit Agreement and the other Credit Documents are and shall
continue to remain in full force and effect in accordance with the terms thereof
and are hereby in all respects ratified and confirmed. This First Amendment
shall constitute a Credit Document.
7. Counterparts. This First Amendment may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
8. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
CONSOLIDATED CIGAR CORPORATION
By:
------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender
By:
------------------------------------------
Name:
Title:
NATIONSBANK, N.A., as Documentation Agent
and as a Lender
By:
------------------------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON, as Syndication
Agent and as a Lender
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
<PAGE>
CREDIT LYONNAIS ATLANTA AGENCY
By:
------------------------------------------
Name:
Title:
BANCO POPULAR DE PUERTO RICO
By:
------------------------------------------
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By:
------------------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
------------------------------------------
Name:
Title:
BANK ONE, KENTUCKY, N.A.
By:
------------------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
------------------------------------------
Name:
Title:
<PAGE>
NATEXIS BANQUE BFCE
By:
------------------------------------------
Name:
Title:
SUNTRUST BANK, SOUTH FLORIDA, N.A.
By:
------------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By:
------------------------------------------
Name:
Title:
ERSTE BANK
By:
------------------------------------------
Name:
Title:
<PAGE>
Each of the undersigned hereby consents to
the First Amendment and reaffirms its
Guarantee of all Obligations under the
Credit Documents as revised by the First
Amendment.
CONSOLIDATED CIGAR HOLDINGS INC.
By:
------------------------------------------
Name:
Title:
TRIPLE C MARKETING INC.
By:
------------------------------------------
Name:
Title:
CONGAR INTERNATIONAL CORPORATION
By:
------------------------------------------
Name:
Title:
<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 Income
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001017550
<NAME> CONSOLIDATED CIGAR HOLDINGS INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jul-04-1998
<EXCHANGE-RATE> 1
<CASH> 3,143
<SECURITIES> 0
<RECEIVABLES> 34,583
<ALLOWANCES> (6,140)
<INVENTORY> 131,824
<CURRENT-ASSETS> 183,638
<PP&E> 60,530
<DEPRECIATION> (20,755)
<TOTAL-ASSETS> 326,394
<CURRENT-LIABILITIES> 48,825
<BONDS> 0
0
0
<COMMON> 307
<OTHER-SE> 62,648
<TOTAL-LIABILITY-AND-EQUITY> 326,394
<SALES> 132,251
<TOTAL-REVENUES> 132,251
<CGS> 76,404
<TOTAL-COSTS> 76,404
<OTHER-EXPENSES> 22,553
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 4,984
<INCOME-PRETAX> 28,235
<INCOME-TAX> 9,316
<INCOME-CONTINUING> 18,919
<DISCONTINUED> 0
<EXTRAORDINARY> (3,174)
<CHANGES> 0
<NET-INCOME> 15,745
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
