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 June 30, 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 No __
At August 7, 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 Month Periods Ended Six Month Periods Ended
------------------------- -----------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales $78,577 $68,236 $144,745 $126,589
Cost of sales 44,365 40,026 82,667 74,575
------- ------- -------- --------
Gross profit 34,212 28,210 62,078 52,014
Selling, general and administrative expenses 15,303 10,352 27,506 19,937
------- ------- -------- --------
Operating income 18,909 17,858 34,572 32,077
Interest expense (6,537) (6,884) (12,836) (13,635)
Interest, investment and dividend income 1,566 590 3,440 692
Amortization of deferred charges and bank fees (509) (503) (1,008) (990)
Equity in earnings from continuing operations and preferred
dividends of PCT 1,096 - 1,466 -
Other income (expense), net (367) 47 (361) (85)
------- ------- ------- -------
Income from continuing operations before income taxes 14,158 11,108 25,273 18,059
Provision for income taxes (4,272) (3,223) (7,747) (5,618)
------- ------- ------- -------
Income from continuing operations 9,886 7,885 17,526 12,441
Discontinued operations
Equity in discontinued operations of PCT
(net of income taxes of $1,721 and $1,360) 13,997 - 14,668 -
------- -------- -------- --------
Net income $23,883 $ 7,885 $ 32,194 $ 12,441
======== ======= ======== ========
Income per share:
Continuing operations $ 0.43 $ 0.38 $ 0.76 $ 0.62
Discontinued operations 0.60 - 0.63 -
-------- -------- -------- --------
$ 1.03 $ 0.38 $ 1.39 $ 0.62
======= ======= ========= ========
Weighted average common shares outstanding 23,237 20,602 23,237 20,190
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------ -------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 99,506 $ 93,417
Notes and trade receivables, net 31,242 25,211
Inventories 85,733 84,494
Prepaid expenses and other 25,483 25,610
-------- ---------
Total current assets 241,964 228,732
Property, plant and equipment, net 47,760 46,052
Pension asset 60,710 57,245
Investment in PCT preferred and common stock 72,602 55,547
Trademarks, net 31,588 32,021
Intangible assets related to businesses acquired, net 61,922 62,770
Other assets 73,006 78,232
-------- --------
$589,552 $560,599
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and short-term borrowings $7,280 $10,960
Accounts payable 10,878 9,595
Accrued expenses and other 57,672 55,515
-------- --------
Total current liabilities 75,830 76,070
Long-term debt 216,402 218,678
Other liabilities 161,944 162,130
Commitments and contingencies
Stockholders' equity:
Common stock of Mafco Consolidated Group Inc., 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
Accumulated deficit (3,411) (35,605)
Currency translation adjustment 1,338 1,877
Treasury stock at cost (1,484,850 shares) (29,903) (29,903)
-------- --------
Total stockholders' equity 135,376 103,721
-------- --------
$589,552 $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>
Six Month Periods Ended
-----------------------
June 29, July 2,
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $32,194 $ 12,441
------- --------
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization 5,131 5,145
Earnings of affiliates less than distributions - 694
Equity in earnings of PCT (17,855) -
Deferred income (102) (103)
Changes in assets and liabilities:
Increase in notes and trade receivables (6,144) (6,406)
(Increase) decrease in inventories (1,627) 653
Increase in accounts payable 1,339 50
Increase (decrease) in accrued expenses and other, net 2,330 (1,841)
------- --------
(16,928) (1,808)
------- --------
Net cash flows provided by operating activities 15,266 10,633
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,107) (1,330)
Cash acquired in Abex Merger, net of transaction costs - 180,160
Other, net (368) 200
------- --------
Net cash flows (used in) provided by investing activities (4,475) 179,030
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 1,000 843
Repayment of borrowings (6,940) (3,426)
Dividends paid - (14,000)
Due to affiliates and other borrowings (1,048) (384)
Decrease (increase) in restricted deposits 2,356 (15,744)
------- --------
Net cash flows used in financing activities (4,632) (32,711)
------- --------
Effect of exchange rate changes on cash (70) 57
------- --------
Net increase in cash and cash equivalents 6,089 157,009
Cash and cash equivalents at beginning of period 93,417 9,323
------- --------
Cash and cash equivalents at end of period $99,506 $166,332
======= ========
Supplemental schedule of cash flow information
Interest paid $13,013 $ 14,397
Income taxes paid, net of refunds 2,876 4,527
</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 unaudited consolidated financial statements of Mafco Consolidated
Group Inc. ("MC Group" or the "Company") 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. 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. Certain reclassifications have been made to conform to the
current period's presentation. The results of operations for the three month
periods ended June 30, 1996 and July 2, 1995 are not necessarily indicative of
the results for the entire year.
2. INVENTORIES
JUNE 30, DECEMBER 31,
1996 1995
------------ -----------
Raw materials and supplies $ 58,325 $ 59,742
Work-in-progress 3,027 1,988
Finished goods 24,381 22,764
------------ -----------
$ 85,733 $ 84,494
============ ===========
3. TENDER OFFER
On April 17, 1996, C&F Holdings Corp., a subsidiary of MC Group, offered
to purchase for cash, all of the outstanding 11 7/8% Senior Subordinated Notes
due 2002 of Mafco Worldwide (the "11 7/8% Senior Subordinated Notes") and all of
the outstanding 10 1/2% Senior Subordinated Notes due 2003 of Consolidated Cigar
(the "10 1/2% Senior Subordinated Notes"). The offers expired on May 15, 1996.
None of the 11 7/8% Senior Subordinated Notes or the 10 1/2% Senior Subordina-
ted Notes were purchased.
5
<PAGE>
4. 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 estimated
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. INITIAL PUBLIC OFFERING
On June 26, 1996, MC Group announced that its wholly owned subsidiary,
Consolidated Cigar Holdings Inc. ("Cigar Holdings"), filed a registration
statement with the Securities and Exchange Commission relating to an initial
public offering of approximately 15% of its common stock. Cigar Holdings is a
holding company which owns all of Consolidated Cigar's outstanding capital
stock. It is planned that, upon the successful completion of the offering, the
net proceeds will be distributed as a dividend to MC Group.
6
<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 June 30, 1996 compared with the three month period
ended July 2, 1995
Net sales in 1996 and 1995 were $78.6 and $68.2, respectively, an
increase of $10.4 or 15.2%. 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 slightly lesser extent, an increase in cigar units,
particularly in the premium market.
Cost of sales were $44.4 and $40.0 in 1996 and 1995, respectively, an
increase of $4.4 or 11.0%. The increase in cost of sales in 1996 was due
primarily to the increase in sales. As a percentage of sales, cost of sales
improved to 56.5% in 1996 from 58.7% in 1995 primarily due to fixed
manufacturing costs spread over increased net sales and an insurance recovery
related to damaged inventory.
Selling, general and administrative ("SG&A") expenses were $15.3 and
$10.4 in 1996 and 1995, respectively. As a percentage of net sales, SG&A
expenses were 19.5% in 1996 and 15.2% in 1995. The increase primarily reflects
increased marketing and selling expenses and the inclusion of corporate
expenses of MC Group in 1996.
Interest expense was $6.5 and $6.9 in 1996 and 1995, respectively. The
decrease was due to a lower amount of debt outstanding in 1996 partially offset
by interest accretion on certain liabilities assumed in the Merger.
Interest, investment and dividend income was $1.6 and $.6 in 1996 and
1995, respectively. The increase primarily reflects interest income on cash
acquired in connection with the Merger.
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 before income
taxes was 30.2% in the 1996 and 29.0% in 1995. The increase in the effective
rate is 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 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 a provision for Puerto Rico tollgate taxes and taxes on Puerto
Rico source income, together with state income and franchise taxes. In
addition, 1995 reflects a provision for federal income taxes, net of tax
benefits resulting from the utilization of Consolidated Cigar's net operating
loss carryforwards.
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, including the gain on sale of PCT's
aerospace business.
Six month period ended June 30, 1996 compared with the six month period ended
July 2, 1995
Net sales in 1996 and 1995 were $144.7 and $126.6, respectively, an
increase of $18.1 or 14.3%. 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 slightly lesser extent, an increase in cigar units,
particularly in the premium market.
Cost of sales were $82.7 and $74.6 in 1996 and 1995, respectively, an
increase of $8.1 or 10.9%. The increase in cost of sales in 1996 was due
primarily to the increase in sales. As a percentage of sales, cost of sales
improved to 57.2% in 1996 from 58.9% in 1995 primarily due to fixed
manufacturing costs spread over increased net sales and an insurance recovery
related to damaged inventory.
SG&A expenses were $27.5 and $19.9 in 1996 and 1995, respectively. As a
percentage of net sales, SG&A expenses were 19.0% in the 1996 period and 15.7%
in the 1995 period. The increase primarily reflects increased marketing and
selling expenses and the inclusion of corporate expenses of MC Group in the
1996 period.
Interest expense was $12.8 and $13.6 in 1996 and 1995, respectively. The
decrease was due to a lower amount of debt outstanding in 1996 partially offset
by interest accretion on certain liabilities assumed in the Merger.
Interest, investment and dividend income was $3.4 and $.7 in 1996 and
1995, respectively. The increase primarily reflects interest income on cash
acquired in connection with the Merger.
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 before income
taxes was 30.7% in the 1996 and 31.1% in 1995. The decrease in the effective
rate is primarily due to 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 a provision for Puerto Rico tollgate taxes and taxes on Puerto Rico
source income, together with minimal state income and franchise taxes. In
addition, 1995 reflects a provision for federal income taxes, net of tax
benefits resulting from the utilization of Consolidated Cigar's net operating
loss carryforwards.
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.
Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
The Company's net cash flows provided by operating activities were $15.3
and $10.6 in 1996 and 1995, respectively. The increase reflects higher net
income and decreased working capital requirements in 1996 as compared to 1995.
The Company's working capital requirements, especially for inventory, are
affected by customer demand, current and prospective supplies of raw materials
and raw material prices. Management expects that inventory levels will continue
to fluctuate in the future as the Company takes advantage of opportunities to
purchase quality inventory at favorable prices while maintaining its policy of
purchasing some raw materials, particularly licorice root, from all available
sources to maintain relationships with its suppliers and ensure a continuous
supply of such raw materials.
Cash flows (used in) provided by investing activities were $(4.5) and
$179.0 in 1996 and 1995, respectively. In 1996, these activities consist
primarily of capital expenditures. Capital expenditures 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 $3.4, 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. For 1996, $0.5 of cash flows was also
invested, as part of an equity investment, in the Jamaican joint venture. The
1995 period consists primarily of cash acquired in the Abex merger net of
transaction costs.
Cash flows used in financing activities were $4.6 and $32.7 in 1996 and
1995, respectively. The 1996 period primarily reflects net repayments of
borrowings. The 1995 period reflects dividends paid to Mafco Holdings of $14.0,
an increase in restricted deposits of $15.7 and net repayment of borrowings of
$3.0.
Availability for borrowings under Mafco Worldwide's revolving credit
facility was $20.7 at June 30, 1996 and $3.3 of this revolving credit facility
had been reserved to support lender guarantees for outstanding letters of
credit. As of June 29, 1996, there was approximately $17.4 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.
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)
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 July 17, 1996, a combined loss of
approximately $2.1 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.
The Company's operating businesses intend to fund future working capital,
capital expenditure and debt service requirements for the foreseeable future
through cash flow generated from operations and borrowings under their credit
agreements. 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. 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.
10
<PAGE>
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<S> <C> <C>
(a) Exhibits
10.6 Amendment No. 9 to the Credit Agreement of Consolidated Cigar Corporation dated as of March 13, 1996
(incorporated by reference from Exhibit 10.2(i) to Consolidated Cigar Holdings Inc. Amendment No. 1 to
Form S-1 as filed July 30, 1996 (the "1996 Cigar S-1")).
10.7 Indenture by and between Consolidated Cigar Corporation and Continental Bank, National Association, as
trustee, relating to the Senior Subordinated Notes due 2003 (incorporated by reference to the 1996
Cigar S-1).
27* Financial Data Schedule
* filed herein
(b) Reports on Form 8-K
None
</TABLE>
11
<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: August 7, 1996 By:/s/Irwin Engelman
--------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Date: August 7, 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 exxtracted 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>
<CIK> 0000888676
<NAME> MAFCO CONSOLIDATED GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 99,506
<SECURITIES> 0
<RECEIVABLES> 36,506
<ALLOWANCES> (5,534)
<INVENTORY> 85,733
<CURRENT-ASSETS> 241,964
<PP&E> 77,474
<DEPRECIATION> (29,714)
<TOTAL-ASSETS> 589,552
<CURRENT-LIABILITIES> 75,830
<BONDS> 0
<COMMON> 247
0
0
<OTHER-SE> 135,129
<TOTAL-LIABILITY-AND-EQUITY> 589,552
<SALES> 144,745
<TOTAL-REVENUES> 144,745
<CGS> 82,667
<TOTAL-COSTS> 82,667
<OTHER-EXPENSES> 27,506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12,836)
<INCOME-PRETAX> 25,273
<INCOME-TAX> (7,747)
<INCOME-CONTINUING> 17,526
<DISCONTINUED> 14,668
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,194
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 0.00
</TABLE>
