<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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 1-11240
MAFCO CONSOLIDATED GROUP INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 02-0424104
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 East 62nd Street, New York, New York 10021
(Address of principal executive offices) (Zip Code)
212-572-8600
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
At November 5, 1996, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 23,237,340 shares, of which 19,777,752 were
indirectly held by Mafco Holdings Inc.
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 29, October 1, September 29, October 1,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 85,635 $ 68,679 $ 230,380 $ 195,268
Cost of sales 49,201 40,695 131,868 115,270
------------- ------------- ------------- -------------
Gross profit 36,434 27,984 98,512 79,998
Selling, general and administrative expenses 12,512 17,247 40,018 37,184
------------- ------------- ------------- -------------
Operating income 23,922 10,737 58,494 42,814
Interest expense (6,419) (6,738) (19,255) (20,373)
Interest, investment and dividend income 3,617 2,117 7,057 2,809
Amortization of deferred charges and bank fees (508) (558) (1,516) (1,548)
Equity in earnings from continuing operations and
preferred dividends of PCT 1,307 418 2,773 418
Gain on Cigar IPO 127,809 127,809
Other expense, net (398) (156) (759) (241)
------------- ------------- ------------- -------------
Income from continuing operations before income taxes 149,330 5,820 174,603 23,879
Provision for income taxes (51,305) (1,876) (59,052) (7,494)
------------- ------------- ------------- -------------
Income from continuing operations 98,025 3,944 115,551 16,385
Discontinued operations
Equity in discontinued operations of PCT,
net of income taxes 384 660 15,052 660
------------- ------------- ------------- -------------
Net income $ 98,409 $ 4,604 $ 130,603 $ 17,045
============= ============= ============= =============
Income per share:
Continuing operations $ 4.22 $ 0.17 $ 4.97 $ 0.77
Discontinued operations 0.02 0.03 0.65 0.03
------------- ------------- ------------- -------------
$ 4.24 $ 0.20 $ 5.62 $ 0.80
============= ============= ============= =============
Weighted average common shares outstanding 23,237 23,482 23,237 21,315
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
September 29, December 31,
ASSETS 1996 1995
------------- -------------
Current assets:
Cash and cash equivalents $ 19,248 $ 93,417
Trading securities 225,362 190
Notes and trade receivables, net 31,299 25,211
Inventories 91,013 84,494
Prepaid expenses and other 23,770 25,420
------------- -------------
Total current assets 390,692 228,732
Property, plant and equipment, net 47,955 46,052
Pension asset 62,475 57,245
Investment in PCT preferred and common stock 73,481 55,547
Trademarks, net 31,372 32,021
Intangible assets related to businesses
acquired, net 61,498 62,770
Other assets 62,250 78,232
------------- -------------
$ 729,723 $ 560,599
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
short-term borrowings $ 11,200 $ 10,960
Accounts payable 14,678 9,595
Accrued expenses and other 63,805 55,515
------------- -------------
Total current liabilities 89,683 76,070
Long-term debt 209,915 218,678
Deferred income taxes 43,462 5,280
Other liabilities 152,875 156,850
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share,
250,000,000 shares authorized, 24,722,190
shares issued 247 247
Additional paid-in-capital 167,105 167,105
Retained earnings (accumulated deficit) 94,998 (35,605)
Currency translation adjustment 1,341 1,877
Treasury stock at cost (1,484,850 shares) (29,903) (29,903)
------------- -------------
Total stockholders' equity 233,788 103,721
------------- -------------
$729,723 $560,599
============= =============
See notes to consolidated financial statements.
3
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Month Periods Ended
----------------------------------
September 29, October 1,
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 130,603 $ 17,045
--------------- ---------------
Adjustments to reconcile net income to net cash flows (used in)
provided by operating activities:
Depreciation and amortization 7,736 7,868
Gain on Cigar IPO (127,809) -
Equity in earnings of affiliates in excess of distributions (17,934) (272)
Deferred income (153) (154)
Changes in assets and liabilities:
Net increase in trading securities (225,172) -
Increase in notes and trade receivables (5,132) (5,547)
(Increase) decrease in inventories (6,862) 1,039
Increase (decrease) in accounts payable 5,139 (692)
Increase (decrease) in deferred taxes and other, net 50,838 (1,018)
--------------- ---------------
(319,349) 1,224
--------------- ---------------
Net cash flows (used in) provided by operating activities (188,746) 18,269
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (5,844) (2,059)
Cash acquired in Abex Merger, net of transaction costs - 176,505
Purchase of PCT common stock - (33,653)
Other, net (498) 1,855
--------------- ---------------
Net cash flows (used in) provided by investing activities (6,342) 142,648
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings - 231
Repayment of borrowings (8,535) (10,123)
Purchase of Company common stock and Abex VSRs - (30,254)
Net proceeds from Cigar IPO 127,809
Dividends paid - (14,000)
Due to affiliates and other borrowings (459) (386)
Decrease (increase) in restricted deposits 2,187 (16,467)
--------------- ---------------
Net cash flows provided by (used in) financing activities 121,002 (70,999)
--------------- ---------------
Effect of exchange rate changes on cash (83) 76
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (74,169) 89,994
Cash and cash equivalents at beginning of period 93,417 9,323
--------------- ---------------
Cash and cash equivalents at end of period $ 19,248 $ 99,317
=============== ===============
Supplemental schedule of cash flow information
Interest paid $ 19,020 $ 20,853
Income taxes paid, net of refunds 3,827 5,153
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Mafco
Consolidated Group Inc. ("MC Group" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. The statements
should be read in conjunction with the consolidated financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 1995. All terms used but not defined elsewhere herein have the meanings
ascribed to them in the Company's annual report on Form 10-K. The results of
operations for the nine month period ended October 1, 1995 have been restated to
reflect the discontinued operations of PCT (see Note 3). Certain
reclassifications have been made to conform to the current period's
presentation. The results of operations for the nine month periods are not
necessarily indicative of the results for the entire year.
The Company recognizes gains and losses on sales of subsidiary stock in the
statement of operations.
2. INVENTORIES
September 29, December 31,
1996 1995
------------- ------------
Raw materials and supplies $ 65,630 $ 59,742
Work-in-progress 2,681 1,988
Finished goods 22,702 22,764
------------- ------------
$ 91,013 $ 84,494
============= ============
3. SALE OF PCT OPERATIONS
On April 15, 1996, Power Control Technologies Inc. ("PCT") received the
necessary approval from its stockholders and consummated the sale of its entire
operations, including substantially all its assets, to Parker-Hannifin
Corporation, for aggregate cash consideration of $201,100, before transaction
costs.
Equity in discontinued operations of PCT, net of income taxes, represents
the Company's interest in the discontinued operations of PCT, including the gain
on sale of PCT's aerospace business.
5
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(Unaudited)
4. INITIAL PUBLIC OFFERING AND PROMISSORY NOTE
On August 21, 1996, MC Group's wholly owned subsidiary, Consolidated Cigar
Holdings Inc. ("Cigar Holdings") completed an initial public offering (the
"Cigar 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 underwriter's discount and
related fees and expenses, of $127,809, were paid as a dividend to MC Group and
resulted in a gain to the Company of $83,076, net of income taxes of $44,733.
All of the proceeds received from the sale of stock in the Cigar IPO were
treated as gain as the net book value of Cigar Holdings was a deficit at the
time of the Cigar IPO and no allocation of the deficit was made to minority
interest. Minority interest in the earnings of Cigar Holdings subsequent to the
Cigar IPO was not recorded as the book value of Cigar Holdings remained negative
after including Cigar Holdings' net earnings subsequent to the Cigar IPO. The
net proceeds from the Cigar IPO as well as other funds of the Company were
invested in marketable securities, which include U.S. Treasury and agency
securities, mortgage-back securities, corporate debt securities and other debt
securities. These securities are classified as trading securities.
Simultaneously with the Cigar IPO, each of Cigar Holdings' then outstanding
shares of common stock were converted into 24,600 shares of the newly created
Class B Common Stock which totaled 24,600,000 shares. In addition, Cigar
Holdings issued a non-interest bearing promissory note (the "Cigar Note") in an
original principal amount of $70,000 to MC Group. The Cigar Note is payable in
quarterly installments of $2,500, beginning March 31, 1997 with the final
installment payable on December 31, 2003.
5. SALE OF FLAVORS HOLDINGS TO PCT
On October 23, 1996, MC Group entered into a Stock and VSR Purchase
Agreement (the "Purchase Agreement"), dated as of October 23, 1996, with PCT and
PCT International Holdings Inc., a Delaware corporation and wholly owned
subsidiary of PCT ("Purchaser"), pursuant to which Purchaser agreed to
purchase from MC Group (the "Acquisition"), and MC Group agreed to sell and
issue to Purchaser, all the issued and outstanding shares (the "Shares") of
capital stock of Flavors Holdings Inc., a Delaware corporation and wholly
owned subsidiary of MC Group ("Flavors"), and 23,156,502 Value Support Rights
(each a "VSR" and collectively, the "VSRs") issued pursuant to the Value
Support Rights Agreement (the "VSR Agreement") entered into between MC Group
and American Stock Transfer & Trust Company, as trustee. Flavors, through its
wholly owned subsidiary Mafco Worldwide Corporation, operates MC Group's
licorice extract and other flavoring agents manufacturing and distributing
business. The agreement was unanimously approved by the Boards of Directors of
MC Group and PCT and, in the case of PCT, upon the recommendation of a
Special Committee of directors who are not officers
or employees of PCT or its affiliates including MC Group, formed to consider the
transaction.
6
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
(Unaudited)
On November 25, 1996, pursuant to the Purchase Agreement, MC Group sold
to PCT International (i) all of the outstanding shares of Flavors Common Stock
and (ii) 23,156,502 VSRs for aggregate consideration of $297,300, consisting of
$180,000 in cash, the assumption of approximately $110,100 of indebtedness of
Mafco Worldwide and deferred cash payments from PCT of $7,200. The VSRs were
subsequently distributed to PCT. Pursuant to the Purchase Agreement, PCT will be
required to make deferred cash payments to MC Group of $3,700 on June 30, 1997
and $3,500 on December 31, 1997.
It is anticipated that the VSRs will be distributed to all holders of PCT
Common Stock and PCT Preferred Stock promptly following the effectiveness of a
registration statement to be filed by MC Group with the Securities and Exchange
Commission. Each VSR, subject to certain limitations, entitles its holder to
receive a payment, if any, of up to $3.25 per VSR if the 30-Day Average Market
Price (as defined in the VSR Agreement) of PCT Common Stock is below $11.00 per
share on January 1, 1999; provided, however, MC Group has an optional right to
call the VSRs each April 1, July 1, October 1 and January 1 from and including
April 1, 1997 to and including October 1, 1998 (each, an "Optional Call Date").
If MC Group calls the VSRs on or before January 1, 1998, holders will be
entitled to receive a payment of at least $0.50 and up to $3.25 per VSR if the
30-Day Average Market Price is below $10.25 per share as of such Optional Call
Date. If MC Group calls the VSRs after January 1, 1998, each VSR will entitle
its holder to a payment, if any, of up to $3.25 per VSR if the 30-Day Average
Market Price is below $11.00 per share on such Optional Call Date.
The Company's VSR obligation incurred in connection with the Purchase
Agreement will be accounted for at market value at the date of issuance and
subsequently marked to the closing market price of the security at each
financial statement date. As a result, income in future periods may be affected
by any positive or negative mark to market adjustments.
7
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except share data)
Results of Operations
Three month period ended September 29, 1996 compared with the three month period
ended October 1, 1995
Net sales in 1996 and 1995 were $85.6 and $68.7, respectively, an increase
of $16.9 or 24.7%. The increase in net sales was primarily due to higher sales
of cigars. Cigar sales increased primarily as a result of both a shift in 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.
Cost of sales were $49.2 and $40.7 in 1996 and 1995, respectively, an
increase of $8.5 or 20.9%. The increase in cost of sales in 1996 was due
primarily to the increase in sales and to increases in the costs of raw
materials for cigars. As a percentage of sales, cost of sales improved to 57.5%
in 1996 from 59.3% in 1995 primarily due to fixed manufacturing costs spread
over increased production.
Selling, general and administrative ("SG&A") expenses were $12.5 and $17.2
in 1996 and 1995, respectively. The decrease was primarily attributable to a
non-recurring expense in the third quarter of 1995 and a bad debt recovery in
the third quarter of 1996. This decrease in SG&A expenses was partially offset
by increased compensation, marketing and selling administrative expenses for
Consolidated Cigar. As a percentage of net sales, SG&A expenses were 14.6% in
1996 and 25.1% in 1995.
Interest expense was $6.4 and $6.7 in 1996 and 1995, respectively. The
decrease was due to a lower amount of debt outstanding during 1996 as compared
to 1995.
Interest, investment and dividend income was $3.6 and $2.1 in 1996 and
1995, respectively. The increase primarily reflects interest income on cash
acquired in connection with the Merger and the Cigar Offering.
Equity in earnings from continuing operations and preferred dividends of
PCT represent the Company's interest in the continuing operations of the common
stock of PCT acquired in July 1995 and preferred dividends on the Company's
investment in PCT preferred stock.
The provision for income taxes as a percentage of income from continuing
operations before income taxes was 34.4% in the 1996 and 32.2% in 1995. The
increase in the effective rate is primarily due to an increase in the provision
for federal and state income taxes during 1996 partially offset by tax benefits
associated with the Company's operations in Puerto Rico. Income tax expense in
1996 reflects 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 in 1995 reflects provisions for federal income taxes, net of
tax benefits resulting from the utilization of Consolidated Cigar's net
operating loss carryforwards, Puerto Rico tollgate taxes and taxes on Puerto
Rico source income, along with state and franchise taxes.
Equity in discontinued operations of PCT, net of income taxes which reflect
a dividend exclusion deduction, represents the Company's interest in the
discontinued operations of PCT.
8
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except share data)
Nine month period ended September 29, 1996 compared with the nine month period
ended October 1, 1995
Net sales in the first nine months of 1996 and 1995 were $230.4 and $195.3,
respectively, an increase of $35.1 or 18.0%. The increase in net sales was
primarily due to higher sales of cigars. Cigar sales increased primarily as a
result of both a shift in 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.
Cost of sales were $131.9 and $115.3 in the first nine months of 1996 and
1995, respectively, an increase of $16.6 or 14.4%. The increase in cost of sales
in 1996 was due primarily to the increase in sales and increases in the costs of
raw materials for cigars. As a percentage of sales, cost of sales improved to
57.2% in 1996 from 59.0% in 1995 primarily due to fixed manufacturing costs
spread over increased production and an insurance recovery in 1996 related to
damaged inventory of $0.5 above cost.
SG&A expenses were $40.0 and $37.2 in the first nine months of 1996 and
1995, respectively. This increase was primarily due to increased compensation,
marketing and selling expenses, partially offset by a bad debt recovery. As a
percentage of net sales, SG&A expenses were 17.4% in the 1996 period and 19.0%
in the 1995 period. The decrease was primarily due to SG&A expenses increasing
at a lower rate relative to the increase in net sales.
Interest expense was $19.3 and $20.4 in the first nine months of 1996 and
1995, respectively. The decrease was primarily due to a lower average amount of
debt outstanding during 1996 as compared to 1995.
Interest, investment and dividend income was $7.1 and $2.8 in 1996 and
1995, respectively. The increase primarily reflects interest income on invested
cash acquired in connection with the C&F Merger and the Cigar IPO.
Equity in earnings from continuing operations of PCT represents the
Company's interest in the continuing operations of PCT Common Stock acquired in
July 1995 and preferred dividends on the Company's investment in PCT Preferred
Stock.
The provision for income taxes as a percentage of income from continuing
operations before income taxes was 33.8% and 31.4% in the first nine months of
1996 and 1995, respectively. The increase in the effective rate is due to an
increase in income from U.S. operations which primarily relates to the gain on
the Cigar IPO subject to state and federal income taxes during 1996 partially
offset by a tax benefit associated with the Company's operations in Puerto Rico.
In addition, the 1995 tax provision also reflects a tax benefit associated with
the utilization of Consolidated Cigar's net operating loss carryforwards.
Equity in discontinued operations of PCT, net of income taxes which reflect
a dividend received deduction, represents the Company's interest in the
discontinued operations of PCT, including the gain on sale of PCT's aerospace
business in April 1996.
9
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except share data)
Financial Condition, Liquidity and Capital Resources
The Company's net cash flows (used for) provided by operating activities
were ($188.7) and $18.3 in the first nine months of 1996 and 1995, respectively.
The decrease of $207.0 reflects a net increase in trading securities partially
offset by higher net income, excluding the after tax effect of the gain on the
Cigar IPO.
Cash flows (used in) provided by investing activities were $(6.3) and
$142.6 in the first nine months of 1996 and 1995, respectively. In 1996, these
activities consist primarily of capital expenditures. Capital expenditures of
$5.8 in 1996 primarily relate to investments in the Company's manufacturing
facilities to meet 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 projects in
Jamaica will be completed by the end of 1996. Capital expenditures for the
remainder of 1996 are expected to be $1.5, including funding for the
construction project. The capital expenditures in 1995 primarily relate to
investments in manufacturing equipment and are part of the continual maintenance
and upgrading of the Company's manufacturing facilities. The 1995 period
consists primarily of cash acquired in the Abex merger partially offset by cash
used to finance the purchase of PCT common stock.
Cash flows provided by (used in) financing activities were $121.0 and
$(71.0) in the first nine months of 1996 and 1995, respectively. Cash flows
provided by financing activities in the first nine months of 1996 reflect the
proceeds from the Cigar IPO partially offset by net repayments of borrowings.
Cash flows used for financing activities in the first nine months of 1995
reflects the purchase of Company common stock and VSRs, dividends paid to Mafco
Holdings, net repayments of borrowings and an increase in restricted deposits.
Availability for borrowings under Mafco Worldwide's revolving credit
facility was $22.6 at September 29, 1996 and $2.4 of this revolving credit
facility had been reserved to support lender guarantees for outstanding letters
of credit. As of September 28, 1996, there was approximately $16.4 unused and
available under Consolidated Cigar's credit agreement after taking into account
amounts utilized to support letters of credit. Given the availability of
borrowings under these credit agreements and cash flow generated from
operations, the Company does not currently foresee the need to incur additional
indebtedness to meet its ongoing operating needs during 1996.
In 1993 and 1994, Consolidated Cigar entered into two five-year interest
rate swap agreements in an aggregate notional amount of $85.0. Under the terms
of the agreements, Consolidated Cigar receives a fixed interest rate averaging
5.8% and pays a variable interest rate equal to the six month LIBOR.
Consolidated Cigar 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 of fixed-rate indebtedness to a variable
rate. Had Consolidated Cigar terminated these agreements which it considers to
be held for other than trading purposes on October 16, 1996, a combined loss of
approximately $1.0 would have been realized. 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
10
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except share data)
the counterparties at anytime during the remaining lives of these agreements
which expire at December 1998 and January 1999, Consolidated Cigar could lose
some or all of any future positive cash flows. However, Consolidated Cigar does
not anticipate non-performance by such counterparties.
On August 21, 1996, Cigar Holdings completed the Cigar 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 underwriter's discount and related fees and
expenses, of $127.8, were paid as a dividend to MC Group.
Simultaneously with the Cigar IPO, each of Cigar Holdings' then outstanding
shares of common stock were converted into 24,600 shares of the newly created
Class B Common Stock which totaled 24,600,000 shares. In addition, Cigar
Holdings issued the Cigar Note in an original principal amount of $70.0 to MC
Group. The Cigar Note is payable in quarterly installments of $2.5, beginning
March 31, 1997 with the final installment payable on December 31, 2003.
On October 7, 1996, Mafco Worldwide entered into a joint venture agreement
with a Chinese partner to produce tobacco flavoring in China. As part of this
agreement, Mafco Worldwide will purchase one half of certain assets of Weihai
Green Industry of Science and Technology for approximately $1.2.
On October 23, 1996, MC Group entered into a Stock and VSR Purchase
Agreement (the "Purchase Agreement"), dated as of October 23, 1996, with PCT and
PCT International Holdings Inc., a Delaware corporation and wholly owned
subsidiary of PCT ("Purchaser"), pursuant to which Purchaser agreed to
purchase from MC Group (the "Acquisition"), and MC Group agreed to sell and
issue to Purchaser, all the issued and outstanding shares (the "Shares")
of capital stock of Flavors Holdings Inc., a Delaware corporation and
wholly owned subsidiary of MC Group ("Flavors"), and 23,156,502 Value
Support Rights (each a "VSR" and collectively, the "VSRs") issued
pursuant to the Value Support Rights Agreement (the "VSR Agreement")
entered into between MC Group and American Stock Transfer & Trust
Company, as trustee. Flavors, through its wholly owned subsidiary Mafco
Worldwide Corporation, operates MC Group's licorice extract and other
flavoring agents manufacturing and distributing business. The agreement
was unanimously approved by the Boards of Directors of MC Group and PCT
and, in the case of PCT, upon the recommendation of a Special Committee
of directors who are not officers or employees of PCT or its affiliates
including MC Group, formed to consider the transaction.
On November 25, 1996, pursuant to the Purchase Agreement, MC Group sold
to PCT International (i) all of the outstanding shares of Flavors Common Stock
and (ii) 23,156,502 VSRs for aggregate consideration of $297,300, consisting of
$180,000 in cash, the assumption of approximately $110,100 of indebtedness of
Mafco Worldwide and deferred cash payments from PCT of $7,200. The VSRs were
subsequently distributed to PCT. Pursuant to the Purchase Agreement, PCT will be
required to make deferred cash payments to MC Group of $3,700 on June 30, 1997
and $3,500 on December 31, 1997.
It is anticipated that the VSRs will be distributed to all holders of PCT
Common Stock and PCT Preferred Stock promptly following the effectiveness of a
registration statement to be filed by MC Group with the Securities and Exchange
Commission. Each VSR, subject to certain limitations, entitles its holder to
receive a payment, if any, of up to $3.25 per VSR if the 30-Day Average Market
Price (as defined in the VSR Agreement) of PCT Common Stock is below $11.00 per
share on January 1, 1999; provided, however, MC Group has an optional right to
call the VSRs each April 1, July 1, October 1 and January 1 from and including
April 1, 1997 to and including October 1, 1998 (each, an "Optional Call Date").
11
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except share data)
If MC Group calls the VSRs on or before January 1, 1998, holders will be
entitled to receive a payment of at least $0.50 and up to $3.25 per VSR if the
30-Day Average Market Price is below $10.25 per share as of such Optional Call
Date. If MC Group calls the VSRs after January 1, 1998, each VSR will entitle
its holder to a payment, if any, of up to $3.25 per VSR if the 30-Day Average
Market Price is below $11.00 per share on such Optional Call Date.
The Company's VSR obligation incurred in connection with the Purchase
Agreement will be accounted for at market value at the date of issuance and
subsequently marked to the closing market price of the security at each
financial statement date. As a result, income in future periods may be affected
by any positive or negative mark to market adjustments.
The Board of Directors of the Company has authorized the purchase, from
time-to-time, of up to one million common shares of the Company.
The credit agreements of Consolidated Cigar and Mafco Worldwide prohibit
the payment of dividends and distribution of funds to MC Group, subject to
certain limited exceptions. MC Group is a holding company with no business
operations of its own. MC Group's cash requirements for liabilities assumed in
the Merger are expected to be met from the cash received in the Merger and the
Cigar Offering, payment on the Cigar Notes and the proceeds from the sale of
Mafco Worldwide. MC Group may also acquire additional operating assets and may
raise capital through debt or equity financings or through refinancings of
existing indebtedness of its operating companies. However, there can be no
assurance that any of such financings or refinancings could be accomplished or,
if accomplished, effected on terms satisfactory to MC Group.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Description
10.1 Stock and VSR Purchase Agreement, dated as of October 23, 1996,
by and between Mafco Consolidated Group Inc. and Power Control
Technologies Inc. and PCT International Holdings Inc.
(incorporated by reference to Exhibit 7 of the Mafco
Consolidated Group Inc. Schedule 13D, dated October 25, 1996
filed with respect to Power Control Technologies Inc.)
10.2 Form of Value Support Rights Agreement between Mafco
Consolidated Group Inc. and American Stock Transfer & Trust
Company, as the trustee (included as Exhibit A to the Stock and
VSR Purchase Agreement incorporated by reference in Exhibit
10.1).
27 Financial Data Schedule (incorporated by reference to the Mafco
Consolidated Group Inc. Form 10-Q for the quarterly period ended
October 1, 1996).
(b) Reports on Form 8-K
None
13
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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.
MAFCO CONSOLIDATED GROUP INC.
-----------------------------
(Registrant)
Date: December 23, 1996 By:/s/Irwin Engelman
------------------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Date: December 23, 1996 By:/s/Laurence Winoker
------------------------------------
Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
