<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10Q
Quarterly Report
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
- -------------------------- -------------------------
For the 13 Weeks Ended Commission File No.
AUGUST 30, 1997 1-12757
GENERAL CIGAR HOLDINGS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3922128
(state or other jurisdiction of incorporation (IRS Employer
or organization) Identification Number)
387 PARK AVENUE SOUTH, NEW YORK, NY 10016-8899
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number including Area Code (212) 448-3800
Former name, former address and former fiscal year,
if changed since last report Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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
------ ------
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT SEPTEMBER 30, 1997: 27,167,940
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
----------------------------
FORM 10Q
PART I -- FINANCIAL INFORMATION PAGE
Consolidated Statement of Operations
13 Weeks Ended
August 30, 1997 and August 31, 1996...................................... 3
Consolidated Statement of Operations
39 Weeks Ended
August 30, 1997 and August 31, 1996..................................... 4
Consolidated Balance Sheet
August 30, 1997 and November 30, 1996.................................... 5
Consolidated Statement of Cash Flows
39 Weeks Ended
August 30, 1997 and August 31, 1996...................................... 6
Notes to Consolidated Financial Statements............................ 7-13
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ 14-15
SIGNATURES................................................................... 16
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<PAGE>
GENERAL CIGAR HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands except per share data)
(unaudited)
FOR THE 13 WEEKS ENDED,
----------------------
AUG. 30, 1997 AUG. 31, 1996
------------- -------------
Net sales and other revenue $ 70,660 $ 38,611
Cost of goods sold 35,393 20,449
---------- ----------
Gross profit 35,267 18,162
Selling, general and administrative expenses 16,470 11,526
---------- ----------
Operating profit 18,797 6,636
Nonoperating income 157 401
Interest expense 617 286
---------- ----------
Income before income taxes 18,337 6,751
Income tax provision 6,968 2,609
---------- ----------
Net income $ 11,369 $ 4,142
---------- ----------
---------- ----------
Pro forma net income per common share $ 0.39 $ 0.15
---------- ----------
---------- ----------
Pro forma weighted average common shares
and equivalents outstanding 28,840,000 28,200,000
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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GENERAL CIGAR HOLDINGS, INC.
Consolidated Statement of Operations
(dollars in thousands except per share data)
(unaudited)
FOR THE 39 WEEKS ENDED,
------------------------
AUG. 30, 1997 AUG. 31, 1996
------------- -------------
Net sales and other revenue $ 179,366 $ 102,294
Cost of goods sold 95,343 56,299
---------- ----------
Gross profit 84,023 45,995
Selling, general and administrative expenses 46,771 30,739
---------- ----------
Operating profit 37,252 15,256
Nonoperating income 627 535
Interest expense 2,338 816
---------- ----------
Income before income taxes 35,541 14,975
Income tax provision 13,505 5,788
---------- ----------
Net income $ 22,036 $ 9,187
---------- ----------
---------- ----------
Pro forma net income per common share $ 0.77 $ 0.33
---------- ----------
---------- ----------
Pro forma weighted average common shares
and equivalents outstanding 28,600,000 28,200,000
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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GENERAL CIGAR HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands except per share data)
AUG. 30, 1997 NOV. 30, 1996
------------- -------------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents $ 7,335 $ 409
Receivables, less allowance of $762 (1996-$482) 43,594 31,295
Inventories 93,017 53,702
Other current assets 4,209 3,673
-------- --------
Total current assets 148,155 89,079
Property and equipment, net 62,486 52,507
Intangible assets, net 68,471 -
Other assets 3,930 3,456
-------- --------
Total assets $283,042 $145,042
-------- --------
-------- --------
LIABILITIES, CULBRO INVESTMENT
AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 27,611 $ 22,827
Long-term debt due within one year 1,238 1,131
Income taxes 11,355 -
-------- --------
Total current liabilities 40,204 23,958
Long-term debt 37,318 11,079
Accrued retirement benefits 16,396 12,525
Deferred income taxes 9,193 1,057
Other noncurrent liabilities 3,833 2,704
-------- --------
Total liabilities 106,944 51,323
-------- --------
Culbro Investment - 93,719
Class B common stock, par value $0.01
Authorized: 25,000,000 shares;
Issued: 20,267,940 shares 203 -
Class A common stock, par value $0.01
Authorized: 50,000,000 shares;
Issued: 6,900,000 shares 69 -
Additional paid in capital 158,067 -
Retained earnings 17,759 -
-------- --------
Total Culbro Investment and
stockholders' equity 176,098 93,719
-------- --------
Total liabilities, Culbro Investment
and stockholders' equity $283,042 $145,042
-------- --------
-------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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GENERAL CIGAR HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
FOR THE 39 WEEKS ENDED,
-----------------------
AUG. 30, 1997 AUG. 31, 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $22,036 $9,187
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 4,992 2,656
Changes in assets and liabilities, net of Villazon Acquisition
and Liability Assumption in 1997 (see Note 6):
Increase in accounts receivable (6,337) (632)
Increase in inventories (32,851) (14,971)
Increase (decrease) in accounts payable and accrued liabilities 1,471 (6,150)
Increase in income taxes payable 8,959 -
Increase in deferred income taxes 2,913 275
Other, net 2,112 (1,112)
------- -------
Net cash provided by (used in) operating activities 3,295 (10,747)
------- -------
INVESTING ACTIVITIES
Acquisition of Villazon, net of cash acquired (see Note 8) (70,068) -
Additions to property and equipment (8,807) (6,063)
------- -------
Net cash used in investing activities (78,875) (6,063)
------- -------
FINANCING ACTIVITIES
Net transactions with Culbro,
excluding Liability Assumption (2,240) 16,751
Net proceeds from issuance of stock 112,600 -
Increase in debt - 481
Payments of debt (26,854) (416)
Other, net (1,000) -
------- -------
Net cash provided by financing activities 82,506 16,816
------- -------
Net increase in cash and cash equivalents 6,926 6
Cash and cash equivalents at beginning of period 409 322
------- -------
Cash and cash equivalents at end of period $ 7,335 $ 328
------- -------
------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands except per share data)
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BASIS OF PRESENTATION
The unaudited financial statements of General Cigar Holdings, Inc.
(the "Company") 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 ("FASB"). The accompanying financial
statements should be read in conjunction with the Company's audited 1996
financial statements included in Form S-1, as filed with the Securities and
Exchange Commission on February 26, 1997, and should be read in conjunction
with the Notes to Financial Statements appearing in that report. All
adjustments, comprising only normal recurring adjustments which in the
opinion of management, are necessary for a fair presentation of results for
the interim periods reported herein have been reflected.
The results of operations for the quarter and nine-month period ended
August 30, 1997 are not necessarily indicative of the results to be
expected for the full year. The Company was formed on December 12, 1996.
Up until the Company's initial public offering (See Note 2) on February 28,
1997, the Company was a wholly owned subsidiary of Culbro Corporation
("Culbro"). On August 29, 1997, Culbro was merged into the Company
pursuant to the Merger agreement dated February 27, 1997. At the time of
the merger, Culbro's principal asset was the Class B shares of the Company
and the merger was accounted for at historical cost. Consequently, the
transaction had no effect on the financial condition or results of
operations of the Company.
The accompanying consolidated financial statements of the Company
include the accounts of the Company and its subsidiaries General Cigar
Co., Inc. ("General Cigar"), Club Macanudo, Inc. ("Club Macanudo"), and 387
PAS Corp. ("387 PAS"). Club Macanudo and 387 PAS were not material to the
Company's results of operations in any of the periods presented. All of
these businesses and assets, and certain liabilities, were transferred to
the Company by Culbro pursuant to an earlier Distribution Agreement among
the Company, Culbro, and Culbro's former wholly owned subsidiary, Griffin
Land & Nurseries, Inc. ("Griffin"). Prior to March 18, 1997, Griffin,
which was spun off by Culbro to Culbro's shareholders on July 3, 1997, was
known as Culbro Land Resources, Inc.
INVENTORIES
The Company's inventories are stated at the lower of cost or market
using the average cost method. Raw materials include tobacco in the
process of aging, a substantial amount of which will not be used or sold
within one year. It is industry practice to include such inventories in
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<PAGE>
current assets. Raw materials also include tobacco in bond which is
subject to customs duties payable upon withdrawal from bond. Following
industry practice, the Company does not include such duties in inventories
until paid.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is
determined on a straight-line basis over the estimated useful asset lives
for financial reporting purposes and principally on accelerated methods for
tax purposes.
REVENUE RECOGNITION
Sales and the related cost of sales are recognized upon shipment of
products. The Company generally accepts returns of cigars that are stale
or damaged in transit. Sales revenue is recorded net of anticipated returns
based on historical experience. Sales returns are not material.
ADVERTISING AND PROMOTION EXPENSE
Advertising and promotion costs are expensed when incurred.
Production costs of future media advertising are deferred until the
advertising first occurs.
EARNINGS PER SHARE
For the 1997 period through the Offering (see Note 2) and for all of
1996, the Company was a wholly owned subsidiary of Culbro. Accordingly,
earnings per share for all periods included herein are presented on a pro
forma basis.
Pro forma net income per common share in the 1997 third quarter and
nine-month period, and in the 1996 third quarter and nine-month period, was
computed assuming that the Company's Class B common shares, plus related
stock options, and the Company's 6,900,000 Class A common shares issued on
the Offering date were all outstanding at the beginning of these
respective fiscal years. The options included in these calculations
were based on the treasury stock method.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121"). This Statement requires that long-lived assets and
certain intangibles held and used by a business entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Prior to the issuance
of this Statement the Company periodically reviewed its long-lived assets
considering future performance of those assets and the need for adjustments
to their carrying values. The Company has adopted SFAS No. 121 and
performs such reviews in accordance with the methods prescribed by this
Statement.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). This Statement establishes a
fair value method of accounting for, or disclosing, stock-based
compensation plans. The Company intends to adopt the disclosure provisions
of SFAS No. 123 which require disclosing the pro forma effect on net income
and earnings per share of the fair value method of accounting for
stock-based
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<PAGE>
compensation. The adoption of the disclosure provisions will not affect
consolidated financial condition, results of operations, or cash flows.
In February 1997, the FASB issued Statement No. 128, "Earnings Per
Share" ("SFAS No. 128"). This statement requires companies to present
basic earnings per share and, if applicable, diluted earnings per share
instead of primary and fully diluted earnings per share. Basic earnings
per share includes the weighted average number of common shares outstanding
during the period, and does not include common stock equivalents. Under
SFAS No. 128, diluted earnings per share include the weighted average
shares outstanding and common stock equivalents. SFAS No. 128 must be
adopted by the Company in the 1998 first quarter. Early adoption of SFAS
No. 128 is not permitted. See Note 7.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the period reported.
Actual results could differ from those estimates. Estimates are used when
accounting for allowance for uncollectible accounts receivable,
depreciation and amortization, employee benefit plans, taxes, and
contingencies, among others.
2. STOCK OFFERING
On February 28, 1997, the Company sold 6.9 million shares of its Class
A Common Stock in an initial public offering (the "Offering"), reflecting
approximately 26% of its common equity ownership. The net proceeds from
the Offering, after underwriters' discounts and commissions and estimated
other expenses, were $112.6 million and were received on March 5, 1997.
The proceeds were used to reduce debt, a substantial portion of which was
incurred in connection with the Villazon Acquisition (see Notes 3 and 4).
Each share of Class A Common Stock entitles its holder to one vote. The
remaining equity ownership of the Company in the form of Class B Common
Stock, which entitles its holder to ten votes for each share, was owned by
Culbro. Following the August 29, 1997 merger of Culbro into the Company,
each Culbro shareholder received 4.44557 shares of the Company's Class B
stock in exchange for each share of Culbro stock. Generally, subsequent to
the merger, Class B shares that are sold or otherwise exchanged become
Class A shares.
The increase in additional paid in capital reflects the Offering
proceeds in excess of the par value of the Class A Common Stock and the
excess of the Culbro Investment over the par value of the Class B Common
Stock. The Culbro Investment was reclassified to Class B Common Stock and
additional paid in capital upon completion of the Offering. The retained
earnings of the Company reflect net income subsequent to the Offering.
3. VILLAZON ACQUISITION
On January 21, 1997, the Company completed the acquisitions of two
affiliated companies, Villazon & Company, Inc., a U.S. corporation, and
Honduras American Tabaco, S.A. de C. V., a Honduran corporation
(collectively "Villazon"), for approximately $80.1 million consisting of
$90 million of purchase price and direct acquisition costs less $9.9
million of cash acquired at
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closing (the "Villazon Acquisition"). Cash paid to the sellers was $64.1
million and $24.4 million aggregate principal amount of seller notes were
issued. Both companies are engaged in the cigar business. The Villazon
Acquisition is accounted for using the purchase method of accounting. Cost
in excess of the fair value of net tangible assets acquired is
approximately $70 million representing principally trademarks and
tradenames. The Company entered into a Credit Agreement to finance the
acquisition. Proceeds from the Offering were used to reduce amounts
outstanding under the Credit Agreement and to repay $14.4 million of the
seller notes. The remaining $10 million of seller notes bear interest at
prime plus 1/2% and are due January 2002.
4. CONSOLIDATED CONDENSED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following consolidated condensed unaudited pro forma financial
statement of operations reflects the effect of the Villazon Acquisition,
including the associated borrowings to finance the acquisition, the
Liability Assumption (see Note 6) and the Offering as if these transactions
were completed at the beginning of the respective periods. The Villazon
Acquisition, the Liability Assumption and the Offering are already
reflected in the Company's balance sheet at August 30, 1997. The unaudited
pro forma consolidated condensed financial information presented herein may
not necessarily reflect the results of operations that actually would have
been achieved had the transactions discussed above actually taken place at
the assumed dates.
CONSOLIDATED CONDENSED UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED,
-----------------------
AUG. 30, 1997 AUG. 31, 1996
------------- -------------
Net sales and other revenue $ 184,958 $ 131,821
---------- ----------
Operating profit 38,371 24,138
Other nonoperating income 627 539
Interest expense 1,570 3,046
---------- ----------
Income before income taxes 37,428 21,631
Income tax provision 14,241 8,361
---------- ----------
Net income $ 23,187 $ 13,270
---------- ----------
---------- ----------
Net income per common share $ 0.81 $ 0.47
---------- ----------
---------- ----------
Weighted average common shares
and equivalents outstanding 28,600,000 28,200,000
---------- ----------
---------- ----------
5. Long-term Debt
On January 21, 1997, the Company entered into a Credit Agreement with
certain banks which provided financing of $120 million principally for the
Villazon Acquisition and repayment of Culbro's general corporate debt. The
Credit Agreement, which expires in January 2000, initially, included a $60
million term loan and a revolving credit facility of $60 million. In the
1997 second quarter, net proceeds of $112.6 million were received from the
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Offering and used to repay the term loan and reduce amounts outstanding
under the revolving credit facility. Currently, the commitment under the
revolving credit facility is $50 million. In accordance with the terms of
the Credit Agreement, borrowings under the revolving credit facility bear
interest, at the Company's option, of either (1) the prime rate, (2) the
Eurodollar rate plus 0.75% or (3) a combination thereof. The Company pays
a commitment fee of 1/4 of 1% on the unused portion of the revolving credit
facility. The Credit Agreement includes limitations on indebtedness,
investments and other significant transactions, as defined.
On April 16, 1997, the Company repaid the $5 million mortgage on its
New York City headquarters office building. The Company used borrowings
under its revolving credit facility to repay the building mortgage, which
carried an interest rate of the Eurodollar rate plus 2%.
6. RELATED PARTY TRANSACTIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The consolidated statement of operations reflects general and
administrative expenses of approximately $1.8 million in 1997 through the
date of the Offering and $2.0 million and $5.6 million in the 1996 third
quarter and nine-month period, respectively, allocated by Culbro to the
Company for services performed by Culbro. The charges were based
principally on the Company's proportionate share of expenses relating to
the Culbro corporate activities associated with the Company's operations
and are considered by management to be reasonable.
CULBRO INVESTMENT
Through the date of the Offering, the Company's retained earnings,
capital stock and intercompany account with Culbro were presented as Culbro
Investment in the Company's consolidated balance sheet. Changes in the
Culbro Investment account are summarized as follows:
FOR THE 39 WEEKS ENDED,
-----------------------
AUG. 30, 1997 AUG. 31, 1996
------------- -------------
Balance beginning of period $ 93,719 $ 66,095
Net income (through March 1, in the
1997 39 week period) 4,277 9,187
-------- --------
97,996 75,282
-------- --------
Liability Assumption (see below) (50,017) -
Transactions with Culbro (2,240) 16,751
Reclassification of remaining balance
in Culbro Investment to Class B
common stock and additional
paid in capital (45,739) -
-------- --------
(97,996) 16,751
-------- --------
Balance end of period $ 0 $ 92,033
-------- --------
-------- --------
On February 27, 1997, pursuant to the Distribution Agreement, the
Company completed
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the Liability Assumption, in which the Company assumed Culbro liabilities
of approximately $50 million, including principally Culbro's general
corporate debt, accrued retirement obligations, and certain accounts
payable and accrued liabilities.
7. EARNINGS PER SHARE
There was no material difference between primary earnings per share
(EPS) and fully diluted EPS computed for the quarter and nine-month period
in 1997, and basic earnings per share and diluted earnings computed under
the provisions of SFAS No. 128. Had the Company implemented the computation
provisions of SFAS No. 128, basic EPS for the quarter and nine-month period
would have been $0.42 and $0.81 cents, respectively, and diluted EPS would
have been $0.39 cents and $0.77, respectively.
8. SUPPLEMENTAL FINANCIAL INFORMATION
INVENTORIES
Inventories consist of:
AUG. 30, 1997 NOV. 30, 1996
------------- -------------
Raw materials and supplies $73,945 43,704
Work in process 8,392 4,529
Finished goods 10,680 5,469
------- -------
$93,017 $53,702
------- -------
------- -------
PROPERTY AND EQUIPMENT
Property and equipment consist of:
AUG. 30, 1997 NOV. 30, 1996
------------- -------------
Land $2,557 $2,534
Buildings 64,304 58,225
Machinery and equipment 42,402 33,470
-------- --------
109,263 94,229
Accumulated depreciation (46,777) (41,722)
-------- --------
$ 62,486 $ 52,507
-------- --------
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CASH FLOW
The cash and noncash activities related to the Villazon
Acquisition are summarized as follows:
Estimated fair values of net assets acquired $89,975
Notes issued to sellers (24,370)
Payment of short-term seller notes 14,370
-------
Payments in connection with the acquisition 79,975
Cash acquired (9,907)
-------
Payments in connection with acquisition,
net of cash acquired $70,068
-------
-------
CHANGES IN DEBT NOT AFFECTING CASH
Certain noncash transactions totalling $53,200 which
increased debt are summarized as follows:
Total debt - Nov. 30, 1996 $12,210
-------
Assumed Culbro general corporate debt 43,200
Villazon Seller Notes 10,000
-------
Total increase in debt not affecting cash 53,200
-------
Payments of debt (26,854)
-------
Total debt - Aug. 30, 1997 $38,556
-------
-------
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $3.3 million compared to net
cash of $(10.7) million used in operations in the 1996 period. The cash
generated in 1997 reflected principally higher earnings and a temporary net
reduction in other working capital items which together more than offset higher
tobacco inventories. Investing activities in 1997 reflected the acquisition
cost of Villazon, excluding the portion financed with seller notes, and capital
expenditures principally to increase cigar manufacturing capacity. The
financing activities reflected the proceeds of the Offering, which were used to
repay bank borrowings that had been utilized principally to finance the Villazon
Acquisition and the debt assumed from Culbro.
The Company expects that it will make capital expenditures in excess of
$10.0 million in fiscal 1997, $5.0 million of which will be made in connection
with the expansion of its premium cigar manufacturing facilities. The Company
has continued to increase its inventory of tobacco needed in making premium
cigars.
On March 5, 1997, the Company received $112.6 million of net proceeds from
the Offering completed on February 28, 1997. The proceeds were used to repay
bank borrowings that had been used to fund the Villazon Acquisition and the
assumed Culbro general corporate debt, and to repay certain of the Villazon
seller notes. On April 16, 1997, the Company repaid the $5 million mortgage on
its New York City headquarters office building with borrowings under its
revolving credit facility. The Company has available a $50 million three-year
revolving bank credit agreement which it entered into on January 21, 1997.
Prior to the Offering, the Company's retained earnings and historical
capital accounts were included in the accompanying financial statements as
Culbro Investment. Subsequent to receipt of the Offering proceeds, the
Company's capital structure reflects the effect of the issuance of the Class A
shares in the Offering, the Class B shares owned by Culbro, and retained
earnings for the ensuing periods.
Management believes that cash flow from operations and current borrowing
capacity are sufficient to fund the Company's operations and its anticipated
expansion plans.
RESULTS OF OPERATIONS
Net sales increased 83.0%, or $32.1 million, to $70.7 million in the 1997
third quarter from $38.6 million in the 1996 third quarter. For the nine-month
period, net sales increased 75.3%, or $77.1 million to $179.4 million from
$102.3 million in the 1996 period. These increases reflected principally higher
unit sales of cigars, principally premiums, and higher prices in all cigar
categories. Both the quarter and the nine-month periods included sales of the
newly acquired Villazon business as of January 1997.
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<PAGE>
Gross profit for the quarter increased 94.2%, or $17.1 million, to $35.3
million from $18.2 million in the 1996 quarter. In the nine-month period, gross
profit increased 82.7%, or $38.0 million to $84.0 million, from $46.0 million in
the prior year's comparable period. Gross margin increased to 49.9% in the 1997
third quarter from 47.0% in the 1996 third quarter. In the 1997 nine-month
period gross margin also increased to 46.8% from 45.0% last year. The increase
in gross margin reflected higher prices and the benefit of increasingly higher
unit sales of premium cigars.
Selling, general and administrative expenses increased 42.9%, or $5.0
million, to $16.5 million in the 1997 third quarter from $11.5 million in the
1996 third quarter. For the nine-month period selling, general and
administrative expenses increased 52.2%, or $16.1 million, to $46.8 million from
$30.7 million in the 1996 period. As a percentage of net sales, selling,
general and administrative expenses were 23.3% and 26.1%, in the 1997 third
quarter and nine-month period, respectively, compared to 29.9% and 30.0% in the
1996 third quarter and nine-month period, respectively. The decreases in
selling, general and administrative expenses as a percentage of net sales in
1997 were due to the lower rates of increase in these expenses compared to the
rates of the sales increase. Operating profits in the third quarter and
nine-month period were more than twice the profits in comparable periods last
year. As a result of the higher gross margin and lower expense to sales ratio,
operating margins were 26.6% and 20.8%, in the third quarter and nine-month
period, respectively compared to 17.2% and 14.9%, respectively in the comparable
periods last year.
The higher interest expense in the 1997 nine-month period reflects
principally the cost of financing the Villazon Acquisition. The bank financing
for the acquisition and certain of the sellers notes were repaid with the net
proceeds from the Offering, which were received early in the second quarter.
Net income increased 174.5% in the quarter and 139.9% in the nine-month
period.
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<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.
GENERAL CIGAR HOLDINGS, INC.
DATE: October 14, 1997 /s/ Jay M. Green
----------------------------------------
Jay M. Green
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND TREASURER
DATE: October 14, 1997 /s/ Joseph Aird
----------------------------------------
Joseph Aird
SENIOR VICE PRESIDENT, CONTROLLER
-16-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-29-1997
<PERIOD-END> AUG-30-1997
<CASH> 7,335
<SECURITIES> 0
<RECEIVABLES> 44,356
<ALLOWANCES> (762)
<INVENTORY> 93,017
<CURRENT-ASSETS> 148,155
<PP&E> 109,263
<DEPRECIATION> (46,777)
<TOTAL-ASSETS> 283,042
<CURRENT-LIABILITIES> 40,204
<BONDS> 37,318
0
0
<COMMON> 272
<OTHER-SE> 175,826
<TOTAL-LIABILITY-AND-EQUITY> 283,042
<SALES> 179,366
<TOTAL-REVENUES> 179,366
<CGS> 95,343
<TOTAL-COSTS> 142,114
<OTHER-EXPENSES> 0
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</TABLE>
