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 June 29, 1996
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 33-2698
___________________________________________________
CONSOLIDATED CIGAR CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3148462
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5900 NORTH ANDREWS AVENUE, FORT LAUDERDALE, FLORIDA 33309-2369
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(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
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As of July 29, 1996 the Registrant had 1,000 shares of common stock,
par value $1.00 per share, all of which were indirectly held by Mafco
Consolidated Group Inc.
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
INDEX
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Page
Number
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Part I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
Consolidated Balance Sheets as of June 29, 1996
(unaudited) and December 31, 1995 (audited) ................... 4
Consolidated Statements of Operations
for the Thirteen Week Periods Ended June 29, 1996 (unaudited)
and July 1, 1995 (unaudited) .................................. 6
Consolidated Statements of Operations
for the Twenty-Six Week Periods Ended June 29, 1996 (unaudited)
and July 1, 1995 (unaudited) .................................. 7
Consolidated Statements of Stockholder's Equity
for the Twenty-Six Week Periods Ended June 29, 1996 (unaudited)
and July 1, 1995 (unaudited) ................................. 8
Consolidated Statements of Cash Flows
for the Twenty-Six Week Periods Ended June 29, 1996 (unaudited)
and July 1, 1995 (unaudited) .................................. 9
Notes to Consolidated Financial Statements .................... 11
2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 13
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................... 17
3
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Mafco Consolidated Group Inc.)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 29,
1996 December 31,
(Unaudited) 1995
--------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 947 $ 1,145
Accounts receivable, less allowances
of $4,499 and $4,322, respectively .............. 18,241 14,883
Inventories ...................................... 42,915 39,022
Prepaid expenses and other ....................... 4,568 3,914
---------- ----------
Total current assets .......................... 66,671 58,964
Property, plant and equipment, net of
accumulated depreciation .......................... 37,275 35,370
Trademarks, less accumulated amortization
of $2,887 and $2,453, respectively ................ 31,588 32,021
Goodwill, less accumulated amortization
of $5,768 and $4,942, respectively ................ 60,549 61,374
Other intangibles and assets, less accumulated
amortization of $4,205 and $4,670, respectively ... 4,435 4,001
---------- ----------
Total assets .................................. $ 200,518 $ 191,730
========== ==========
See notes to consolidated financial statements
4
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Mafco Consolidated Group Inc.)
CONSOLIDATED BALANCE SHEETS - (Continued)
(Dollars in thousands)
June 29,
1996 December 31,
(Unaudited) 1995
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ................................. $ 6,579 $ 3,797
Accrued expenses ................................. 16,595 16,103
Due to affiliate ................................. 637 1,685
------------ ------------
Total current liabilities ..................... 23,811 21,585
Long-term debt ..................................... 111,500 110,600
Other liabilities .................................. 6,882 5,217
------------ ------------
Total liabilities ............................. 142,193 137,402
------------ ------------
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 ................................ 23,490 19,493
------------ ------------
Total stockholder's equity .................... 58,325 54,328
------------ ------------
Total liabilities and stockholder's equity .... $ 200,518 $ 191,730
============ ============
See notes to consolidated financial statements
5
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Mafco Consolidated Group Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended
June 29, 1996 July 1, 1995
--------------- ---------------
Net sales ......................... $ 51,975 $ 39,912
Cost of sales ..................... 30,103 23,569
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Gross profit ...................... 21,872 16,343
Selling, general
and administrative expenses ...... 9,415 7,860
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Operating income .................. 12,457 8,483
--------------- ---------------
Other expenses:
Interest expense, net ........... 2,675 3,419
Miscellaneous ................... 288 262
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2,963 3,681
--------------- ---------------
Income before provision for
income taxes ..................... 9,494 4,802
Provision for income taxes ........ 2,651 774
--------------- ---------------
Net income ........................ $ 6,843 $ 4,028
=============== ===============
See notes to consolidated financial statements
6
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Mafco Consolidated Group Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
June 29, 1996 July 1, 1995
------------------ --------------
Net sales ......................... $ 92,200 $ 71,449
Cost of sales ..................... 53,416 42,166
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Gross profit ...................... 38,784 29,283
Selling, general ..................
and administrative expenses ...... 17,578 15,295
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Operating income .................. 21,206 13,988
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Other expenses:
Interest expense, net ........... 5,301 6,650
Miscellaneous ................... 585 483
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5,886 7,133
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Income before provision for
income taxes ..................... 15,320 6,855
Provision for income taxes ........ 4,143 1,266
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Net income ........................ $ 11,177 $ 5,589
================== ==============
See notes to consolidated financial statements
7
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Mafco Consolidated Group Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
(Unaudited)
Additional
Common Paid-in Retained
Stock Capital Earnings Total
- -------- ----------- ----------- -------
Balance as of December 31, 1994 ..... $ 1 $ 29,999 $ 10,563 $40,563
Net income for the twenty-six weeks.. - - 5,589 5,589
Dividends paid ...................... - - (5,000) (5,000)
------- ---------- --------- --------
Balance as of July 1, 1995 .......... $ 1 $ 29,999 $ 11,152 $41,152
======= ========== ========= ========
Balance as of December 31, 1995 ..... $ 1 $ 34,834 $ 19,493 $54,328
Net income for the twenty-six weeks.. - - 11,177 11,177
Dividends paid ...................... - - (7,180) (7,180)
------- ---------- --------- --------
Balance as of June 29, 1996 ......... $ 1 $ 34,834 $ 23,490 $ 58,325
======= ========== ========= ========
See notes to consolidated financial statements
8
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Mafco Consolidated Group Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
June 29, 1996 July 1, 1995
--------------- -------------
Cash flows from operating activities:
Net income ............................... $ 11,177 $ 5,589
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .......... 3,647 3,742
Deferred income ........................ (102) (103)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ............... (3,358) (2,256)
Inventories ....................... (3,893) (2,331)
Prepaid expenses and other ........ (654) (450)
Increase in:
Accounts payable .................. 2,782 1,227
Accrued expenses and
other liabilities ............... 1,069 910
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Net cash provided by operating activities .. 10,668 6,328
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Cash flows used for investing activities:
Capital expenditures ..................... (3,170) (370)
Investment in joint venture .............. (482)
Increase in other assets ................. 114 200
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Net cash used for investing activities ..... (3,538) (170)
------------ ------------
See notes to consolidated financial statements
9
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(An Indirect Wholly Owned Subsidiary of Mafco Consolidated Group Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Dollars in thousands)
(Unaudited)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
June 29, 1996 July 1, 1995
-------------- -------------
Cash flows (used for) provided by
financing activities:
Borrowing (repayment) of revolving loan, net ... $ 900 $ (700)
Due to affiliates and other borrowings ......... (1,048) (384)
Dividends paid ................................. (7,180) (5,000)
------------ -----------
Net cash used for financing activities ........... (7,328) (6,084)
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(Decrease) increase in cash and cash equivalents. (198) 74
Cash and cash equivalents, beginning of period ... 1,145 1,700
------------ -----------
Cash and cash equivalents, end of period ......... $ 947 $ 1,774
============ ===========
Supplemental disclosures of cash flow information:
Interest paid during the period ................ $ 5,521 $ 6,819
Income taxes paid during the period ............ 4,830 314
See notes to consolidated financial statements
10
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
NOTE A - BASIS OF PRESENTATION
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 Consolidated Cigar
Corporation and its subsidiaries (the "Company") and Mafco Worldwide
Corporation, with Mafco Consolidated Group, which was the surviving corporation
in the merger. As a result, the Company became an indirect wholly owned
subsidiary of 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 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, 1995, as filed with the Form 10-K. The results
of operations for the twenty-six week periods ended June 29, 1996 and July 1,
1995 are not necessarily indicative of the results for the entire year.
11
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
NOTE B - INVENTORIES
The components of inventory are as follows:
(In thousands)
June 29, 1996 December 31, 1995
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Raw materials and supplies $29,684 $27,518
Work in process 2,276 1,692
Finished goods 11,964 10,634
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43,924 39,844
Reserve for obsolescence (1,009) (822)
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$42,915 $39,022
======= =======
NOTE C - TENDER OFFER
On April 17, 1996, C&F Holdings Corp., a subsidiary of Mafco
Consolidated Group, offered to purchase for cash all of the outstanding 10 1/2%
Senior Subordinated Notes of the Company (the "10 1/2% Notes"). The cash
purchase price was to have been equal to 105.5% of the outstanding principal
amount of $90 million, plus accrued interest. The offer expired on May 15,
1996 and was not extended or modified by C&F Holdings Corp. None of the
10 1/2% Notes were purchased pursuant to the offer.
12
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THE THIRTEEN WEEKS ENDED JUNE 29, 1996 AND JULY 1, 1995
AND THE TWENTY-SIX WEEKS ENDED JUNE 29, 1996 AND JULY 1, 1995
Net sales were $52.0 million and $39.9 million for the thirteen weeks
that ended June 29, 1996 (the "1996 Quarter") and July 1, 1995 (the "1995
Quarter"), respectively, an increase of $12.1 million or 30.2%. Net sales
were $92.2 million and $71.4 million for the twenty-six weeks ended June 29,
1996 (the "1996 Period") and July 1, 1995 (the "1995 Period"), respectively, an
increase of $20.8 million or 29.0%. The increases in net sales were primarily
due to higher sales of cigars. Cigar sales increased primarily 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 slightly lesser extent, an increase in cigar
unit volume, particularly in the premium market.
Gross profit was $21.9 million and $16.3 million for the 1996 Quarter
and the 1995 Quarter, respectively, an increase of $5.6 million or 33.8%.
Gross profit was $38.8 million and $29.3 million for the 1996 Period and the
1995 Period, respectively, an increase of $9.5 million or 32.4%. The increases
in gross profit for the 1996 Quarter and 1996 Period were due to the increases
in sales, partially offset by increases in the costs of raw materials. As a
percentage of net sales, gross profit increased to 42.1% for the 1996 Quarter
and 1996 Period from 41.0% for the 1995 Quarter and 1995 Period, respectively,
primarily due to fixed manufacturing costs spread over increased net sales.
Selling, general and administrative ("SG&A") expenses were $9.4 million
and $7.9 million for the 1996 Quarter and 1995 Quarter, respectively, an
increase of $1.5 million or 19.8%. SG&A expenses were $17.6 million and $15.3
million for the 1996 Period and the 1995 Period, respectively, an increase of
$2.3 million or 14.9%. The increases were primarily due to increased marketing
and selling expenses. As a percentage of net sales, SG&A expenses decreased to
18.1% for the 1996 Quarter from 19.7% for the 1995 Quarter and to 19.1% for the
1996 Period from 21.4% from the 1995 Period. The decreases were primarily due
to SG&A expenses increasing at a lower rate relative to the increases in net
sales.
13
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
Operating income was $12.5 million and $8.5 million for the 1996
Quarter and 1995 Quarter, respectively, an increase of $4.0 million or 46.8%.
Operating income was $21.2 million and $14.0 million for the 1996 Period and
1995 Period, respectively, an increase of $7.2 million or 51.6%. As a
percentage of net sales, operating income increased to 24.0% for the 1996
Quarter from 21.3% for the 1995 Quarter and 23.0% for the 1996 Period from
19.6% for the 1995 Period, primarily due to higher gross profit margins and
decreases in SG&A expenses as a percentage of net sales.
Interest expense, net was $2.7 million and $3.4 million for the 1996
Quarter and 1995 Quarter, respectively, a decrease of $0.7 million or 21.8%.
Interest expense, net was $5.3 million and $6.6 million for the 1996 Period and
1995 Period, respectively, a decrease of $1.3 million or 20.3%. The decreases
were primarily due to a lower amount of debt outstanding during 1996.
The provision for income taxes as a percentage of income before income
taxes was 27.9% and 16.1% for the 1996 Quarter and 1995 Quarter, respectively
and 27.0% and 18.5% for the 1996 Period and 1995 Period, respectively. The
increases in the effective rate are primarily due to an increase in the
provision for federal income taxes during 1996 partially offset by tax benefits
associated with the Company's operations in Puerto Rico. Income tax expense
for the 1996 Quarter and 1996 Period reflect provisions for federal income
taxes, Puerto Rico tollgate taxes, and taxes on Puerto Rico source income,
together with state and franchise taxes. Income tax expense for the 1995
Quarter and 1995 Period reflect provisions for federal income taxes, net of tax
benefits resulting from the utilization of net operating loss carry forwards,
Puerto Rico tollgate taxes and taxes on Puerto Rico source income, along with
state and franchise taxes.
As a result of the foregoing, net income was $6.8 million and $4.0
million for the 1996 Quarter and 1995 Quarter, respectively, an increase of
$2.8 million or 69.9%. Net income was $11.2 million and $5.6 million for the
1996 Period and 1995 Period, respectively, an increase of $5.6 million or
100.0%.
14
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities were $10.7 million and $6.3
million for the 1996 Period and 1995 Period, respectively, representing an
increase of $4.4 million. The increase was due primarily to an increase in net
income partially offset by increased working capital requirements.
Cash flows used in investing activities for the 1996 Period and 1995
Period are primarily related to capital expenditures. Capital expenditures
were $3.2 million and $0.3 million for the 1996 Period and 1995 Period,
respectively. The capital expenditures in the 1996 Period primarily relate to
investments in the Company's manufacturing facilities to meet the increased
demand for the Company's premium cigars. The Company is expanding its existing
manufacturing facilities in the Dominican Republic and Honduras and is
constructing, as part of a joint venture, new facilities in Jamaica. The
Company currently expects that its facility expansion projects in the Dominican
Republic and Honduras and the construction project in Jamaica will be completed
by the end of 1996. Capital expenditures for the remainder of 1996 are
expected to be approximately $1.9 million, including funding for the
construction projects. The capital expenditures in the 1995 Period primarily
relate to investments in cigar manufacturing equipment and are part of the
continual maintenance and upgrading of the Company's manufacturing facilities.
For the 1996 Period, $0.5 million of cash flows was also invested, as part of
an equity investment, in the Jamaica joint venture.
Cash flows used for financing activities were $7.3 million and $6.1
million for the 1996 Period and 1995 Period, respectively, and were primarily
used to make a $7.2 million dividend to Mafco Consolidated Group during the
1996 Period and a $5.0 million dividend to Mafco Holdings during the 1995
Period.
15
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
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 July 17, 1996, the Company would have realized a
combined loss of approximately $2.1 million. Future positive or negative cash
flows associated with these agreements 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 was $39.9 million as of
June 29, 1996, of which the Company had borrowed $22.5 million (including
letters of credit issued). The Company intends to pay a cash dividend of
approximately $5.6 million funded by borrowings under the Credit Agreement. As
of June 29, 1996, after giving effect to the proposed borrowings under the
Credit Agreement to fund such $5.6 million dividend, there would have been
approximately $28.1 outstanding (including letters of credit) and $11.8 million
available under the Credit Agreement. The amounts available for borrowing
under the Credit Agreement will be reduced to $34.9 million by December 31,
1996. 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 to meet the Company's ongoing operating needs
during 1996.
16
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Consolidated Cigar Corporation filed no reports on Form
8-K during the fiscal quarter ended June 29, 1996.
17
CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
MAFCO CONSOLIDATED GROUP INC.)
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: July 30, 1996 /s/ Theo W. Folz
----------------------------
Theo W. Folz
Chief Executive Officer
DATE: July 30, 1996 /s/ Gary R. Ellis
----------------------------
Gary R. Ellis
Chief Financial Officer
18