Edgar Cullman Jr.

CEO, General Cigar Company

(continued from page 5)

CA: But it's obviously not enough.

Cullman: Not enough.

CA: The reason given is that the shortage is in wrappers.

Cullman: There is a shortage, over the years, but we're now in good shape with large leaves.

CA: Is the production of double coronas and Churchills and so forth increasing rapidly?

Cullman: Rapidly. And they will continue to grow.

CA: Can you give us what Partagas No. 10 production was in 1992 versus 1995 and 1996, and what your internal projections are for three years from now?

Cullman: Again, I can't give you specific numbers. But if you take 1992 as a baseline of 100, then in 1995 we produced 2.5 times as many of the No. 10s, and in 1996, we will produce 4.5 times as many.

CA: There's been a lot written and said that the industry back-orders are exceeding 25 million or 30 million to even 50 million today. Are you able in '96 to reduce your back-order problem, or when will you be?

Cullman: We have not been able to reduce our back-order problem, which is mounting. We do not want to give specific numbers, but I can tell you this, we have increased our production 20 percent this year, and yet we still are increasing our back orders.

CA: In 1995, your sales in units were far greater than the year before as reported in your annual report.

Cullman: Right.

CA: What kind of increase in shipments will you have in '96?

Cullman: Our shipments will be up significantly in '96, but not as significantly as they were in '95 over '94. Mostly because we can't produce the cigars fast enough. The limitations are two: first, tobacco--not wrapper tobacco, we have enough wrapper tobacco--but mostly filler and binder. And we have enough filler and binder but it's not aged enough. We would be using too young tobaccos.

CA: If your production is up 20 percent this year, what kind of increase do you expect in 1997?

Cullman: We should have at least a 50 percent increase. I mean, if the demand still holds up.

CA: In 1995, how many handmade cigars did General Cigar make and sell?

Cullman: Without being specific, it exceeded 25 million cigars.

CA: And so in '96, there will be a 20 percent increase.

Cullman: Right.

CA: And in '97 it could be 30 or 40 percent above the 30 million?

Cullman: Yes.

CA: One cannot have a discussion of handmade cigars, obviously, without talking about what happens when we wake up one morning and read that the embargo's over.

Cullman: It will be like the afterburners kicking in for the cigar business. I was talking to one individual in the industry a couple of weeks ago, who flatly said that five out of every six Cuban cigars that are made are being consumed in the United States.

CA: That's ridiculous.

Cullman: I think it's ridiculous. But, I remember saying 10 years ago that there were 10 million Cuban cigars consumed [annually] in the United States, and people said I was ridiculous. I think there's at least that today.

CA: Do you have any specific plans or is it really so difficult now until you know what the policy is going to be in terms of being able to purchase Cuban tobacco in bulk? Do you think we may end up with parallel brands, where you buy a Cuban-made Partagas and then a Dominican-made Partagas, and so on and so forth?

Cullman: It's a very good question. There are so many unanswerable questions in that area, but our thought was when we actually sat down to negotiate with Tabacalera [Spain's tobacco monopoly] last year there were advantages it offered us, including that they wanted to develop a worldwide cigar company. There wasn't such a thing.

CA: It should be pointed out that Tabacalera purchases 50 percent of all Cuban cigar exports for the world, so they really dominate the Cuban cigar industry in the world as a distributor.

Cullman: Exactly. So, their interest in building a worldwide cigar company was attractive to us. There is no such thing; unlike the multinationals in the cigarette industry or in the liquor industry, there really isn't anything like it in the cigar industry. The second advantage was their closeness to the Cuban tobacco industry. And, quite frankly, we would love to have seen a partnership we could have achieved, since they claim to have ownership of the Partagas brand outside of Cuba and the United States, and we have the Partagas brand in the United States. We thought it would be very interesting to see, as an experimental thing, if we could ever have gotten together. I hope it still may work. To me, it would be interesting to see the sale of the Partagas brand in Spain, with our Partagas right next to their Cuban Partagas, distinguished enough so that the consumer would not be confused and it would be obvious that our Partagas was a Dominican Partagas. It only strengthens the brand. That's how I'd love to see it happen in the United States. None of us, as manufacturers in the Dominican Republic, Jamaica, Honduras and other places, are going to give up our factories just because Cuban cigars are available.

CA: Of course. Well, there will always be great demand for your product.

Cullman: I hope so. That is our thought as well.

CA: But it could end up that the Cuban factories are privatized and that Mr. Moneybags, whether it's Philip Morris or General Motors, or whoever is able to pay the highest price, becomes the supplier to the world market, including the United States, of Partagas or Cohiba or Montecristo, and you end up either being able to or not being able to negotiate a distribution agreement in these markets. Conversely, because Macanudo is your brand, you have the ability to take that to the world market.

Cullman: Yes. It's very hard to know how the world will develop in this area.

CA: Well, it's very exciting.

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