<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
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Commission file number 33-26987
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CONSOLIDATED CIGAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3148462
------------------------------- -------------------
(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
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(Registrant's telephone number, including area code)
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(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___ No X
There were no shares of common stock held by non-affiliates. The number
of shares outstanding of the registrant's common stock $1.00 par value, is
1,000 shares as of May 7, 1997.
<PAGE>
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
Page
Number
------
Part I. FINANCIAL INFORMATION
<S> <C>
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 Stockholder's 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....................................... 13
</TABLE>
-2-
<PAGE>
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 29,
1996 1997
(Unaudited)
------------- -------------
<S> <C> <C>
ASSETS
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 CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, March 29,
1996 1997
(Unaudited)
------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 7,197 $ 7,727
Accrued expenses 20,206 17,518
Due to affiliate 1,606 2,662
------------- -------------
Total current liabilities 29,009 27,907
Long-term debt 97,500 104,100
Deferred taxes 5,851 6,059
Other liabilities 1,796 2,234
------------- -------------
Total liabilities 134,156 140,300
------------- -------------
Commitments and contingencies
- -
Stockholder's equity:
Common stock, $1.00 par value,
1,000 shares authorized, issued
and outstanding 1 1
Additional paid-in capital 34,834 34,834
Retained earnings 36,520 44,915
------------- -------------
Total stockholder's equity 71,355 79,750
------------- -------------
Total liabilities and stockholder's equity $ 205,511 $ 220,050
============= =============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(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 297 441
------------- -------------
2,923 2,934
------------- -------------
Income before provision for
income taxes 5,826 12,476
Provision for income taxes 1,492 3,994
------------- -------------
Net income $ 4,334 $ 8,482
============= =============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------------- ------------- ------------- -------------
<S> <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 $ 1 $ 34,834 $ 36,520 $ 71,355
Net income for the thirteen weeks - - 8,482 8,482
Dividends paid - - (87) (87)
------------ ------------- ------------- -------------
Balance at March 29, 1997 $ 1 $ 34,834 $ 44,915 $ 79,750
============ ============= ============= =============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE>
CONSOLIDATED CIGAR CORPORATION 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 $ 8,482
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 (7,207)
------------- -------------
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 CORPORATION 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
Dividends paid - (87)
------------- -------------
Net cash (used for) provided by financing activities (1,258) 7,578
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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 CORPORATION AND SUBSIDIARIES
NOTE A - BASIS OF PRESENTATION
- ------------------------------
On March 3, 1993, Consolidated Cigar Corporation (the "Company"), became a
direct wholly owned subsidiary of Consolidated Cigar Holdings Inc.
("Consolidated Cigar Holdings"), a holding company with no business operations
of its own that was formed as a Delaware corporation on January 6, 1993 to hold
all of the outstanding capital stock of the Company. The results of operations
and financial position of the Company therefore do not reflect the consolidated
results of operations and financial position of Consolidated Cigar Holdings.
Unless the context otherwise requires, all references in these notes to the
consolidated financial statements of the Company shall mean Consolidated Cigar
Corporation and its subsidiaries.
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 an indirect wholly-owned subsidiary of Mafco Consolidated Group.
On August 21, 1996, Consolidated Cigar Holdings 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 Consolidated Cigar
Holdings 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 Consolidated Cigar Holdings to approximately 63.9%. Neither
Consolidated Cigar Holdings or the Company received any 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 CORPORATION 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
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$45,957 $54,551
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-10-
<PAGE>
CONSOLIDATED CIGAR CORPORATION 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 $8.5 million and $4.3 million for
the 1997 Quarter and 1996 Quarter, respectively, an increase of $4.2 million or
95.7%.
-11-
<PAGE>
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used for operating activities in the 1997 Quarter were $7.2
million. Net cash flows provided by operating activities in the 1996 Quarter
were $1.8 million. The decrease in cash flows of $9.0 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 $7.6
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.
-12-
<PAGE>
CONSOLIDATED CIGAR CORPORATION 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 Corporation filed no reports on Form
8-K during the fiscal quarter ended March 29, 1997.
* Filed herein.
-13-
<PAGE>
CONSOLIDATED CIGAR CORPORATION 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 Corporation
----------------------------------
(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
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Cigar Corporation's Condensed Consolidated Balance Sheet
and Statement of Operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<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> 27,907
<BONDS> 90,000
0
0
<COMMON> 1
<OTHER-SE> 79,749
<TOTAL-LIABILITY-AND-EQUITY> 220,050
<SALES> 55,888
<TOTAL-REVENUES> 55,888
<CGS> 31,258
<TOTAL-COSTS> 31,258
<OTHER-EXPENSES> 9,623
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 2,493
<INCOME-PRETAX> 12,476
<INCOME-TAX> 3,994
<INCOME-CONTINUING> 8,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,482
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
