UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 October 1, 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0424104
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(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
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(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 Offering 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)
<TABLE>
<CAPTION>
September 29, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,248 $ 93,417
Marketable 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
========= =========
</TABLE>
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 from
operating activities:
Depreciation and amortization 7,736 7,868
Gain on Cigar Offering (127,809) --
Equity in earnings of affiliates in excess of distributions (17,934) (272)
Deferred income (153) (154)
Changes in assets and liabilities:
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)
--------- ---------
(94,177) 1,224
--------- ---------
Net cash flows provided by operating activities 36,426 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)
Net increase in marketable securities (225,172) --
Other, net (498) 1,855
--------- ---------
Net cash flows (used in) provided by investing activities (231,514) 142,648
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings -- 231
Repayment of borrowings (8,535) (10,123)
Purchase of Company common stock and VSRs -- (30,254)
Net proceeds from Cigar Offering 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.
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 15, 1996, MC Group's wholly owned subsidiary, Consolidated
Cigar Holdings Inc. ("Cigar Holdings") completed an initial public offering
(the "Cigar Offering") 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.
Simultaneously with the Cigar Offering, 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 MAFCO WORLDWIDE 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 has agreed to
purchase from MC Group, and MC Group has 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") to be issued pursuant to the Value Support Rights
Agreement (the "VSR Agreement") to be 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. The
transaction is expected to close in the fourth quarter of 1996 and is expected
to result in a gain to the Company.
In consideration for the Shares and VSRs, Purchaser has agreed to pay
MC Group cash in the amount of $180,000. In addition, Purchaser shall pay MC
Group deferred cash payments 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
6
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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 Purchase Agreement contains a number of representations,
warranties and covenants by the parties.
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.
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)
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.
Nine month period ended September 29, 1996 compared with the nine month period
ended October 1, 1995
Net sales in 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 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 related to damaged inventory.
SG&A expenses were $40.0 and $37.2 in 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 1996 and 1995, respectively.
The decrease was primarily due to a lower 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 Merger and the Cigar Offering.
Equity in earnings from continuing operations of PCT represents the
Company's interest in the continuing operations of 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 33.8% in the 1996 and 31.4% in
1995. The increase in the effective rate is primarily due to an increase in the
provision for state and federal 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.
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)
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, including the gain on sale of PCT's
aerospace business in 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows provided by operating activities were
$36.4 and $18.3 in 1996 and 1995, respectively. The increase reflects higher
net income, excluding the after tax effect of the gain on the Cigar Offering,
partially offset by increased working capital requirements in 1996 as compared
to 1995.
Cash flows (used in) provided by investing activities were $(231.5)
and $142.6 in 1996 and 1995, respectively. In 1996, these activities consist
primarily of purchases of marketable securities and 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 1996 and 1995, respectively. The 1996 period primarily reflects the
proceeds from the Cigar Offering partially offset by net repayments of
borrowings. Cash flows used for financing activities in 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
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)
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
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 15, 1996, Cigar Holdings completed the Cigar Offering, 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 Offering, 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 has agreed to
purchase from MC Group, and MC Group has 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") to be issued pursuant to the Value Support Rights
Agreement (the "VSR Agreement") to be 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. The
transaction is expected to close in the fourth quarter of 1996 and is expected
to result in a gain to the Company.
In consideration for the Shares and VSRs, Purchaser has agreed to pay
MC Group cash in the amount of $180. In addition, Purchaser shall pay MC Group
deferred cash payments of $3.7 on June 30, 1997 and $3.5 on December 31, 1997.
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)
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 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.
11
<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
* filed herein
(b) Reports on Form 8-K
None
12
<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.
MAFCO CONSOLIDATED GROUP INC.
(Registrant)
Date: November 12, 1996 By:/s/Irwin Engelman
-----------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Date: November 12, 1996 By:/s/Laurence Winoker
--------------------------------
Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Mafco
Consolidated Group Inc. Consolidated Balance Sheet and Statement of Operations
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> USD
<EXCHANGE-RATE> 1
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 19
<SECURITIES> 225
<RECEIVABLES> 36,004
<ALLOWANCES> (4,705)
<INVENTORY> 91,013
<CURRENT-ASSETS> 390,692
<PP&E> 79,143
<DEPRECIATION> (31,188)
<TOTAL-ASSETS> 729,723
<CURRENT-LIABILITIES> 89,683
<BONDS> 0
0
0
<COMMON> 247
<OTHER-SE> 233,541
<TOTAL-LIABILITY-AND-EQUITY> 729,723
<SALES> 230,380
<TOTAL-REVENUES> 230,380
<CGS> 131,868
<TOTAL-COSTS> 158,464
<OTHER-EXPENSES> 13,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (19,255)
<INCOME-PRETAX> 174,603
<INCOME-TAX> (59,052)
<INCOME-CONTINUING> 115,551
<DISCONTINUED> 15,052
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130,603
<EPS-PRIMARY> 5.62
<EPS-DILUTED> 0.00
</TABLE>
