<PAGE>
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 September 27, 1997
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 __
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of
the latest practicable date.
Class Outstanding at November 10, 1997
------------- --------------------------------
Common Stock, $1.00 par 1,000
As of November 10, 1997, all of the Registrant's outstanding
common stock was indirectly held by Mafco Holdings Inc.
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH THREE MONTH
PERIODS ENDED PERIODS ENDED
-------------------------------- --------------------------------
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
1997 1996 1997 1996
(restated) (restated)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 214,907 $ 230,380 $ 82,642 $ 85,635
Cost of sales 121,492 131,868 47,299 49,201
--------------- --------------- --------------- ---------------
Gross profit 93,415 98,512 35,343 36,434
Selling, general and administrative expenses 74,615 40,018 43,975 12,512
--------------- --------------- --------------- ---------------
Operating income (loss) 18,800 58,494 (8,632) 23,922
Interest expense (9,440) (19,255) (3,073) (6,419)
Interest and investment income 13,838 7,057 3,685 3,617
Amortization of deferred charges and bank fees (713) (1,516) (220) (508)
Gain on Cigar Secondary Offering 110,811 - - -
Gain on Cigar IPO - 127,809 - 127,809
Equity in earnings from continuing operations and
preferred dividends of M&F Worldwide 5,624 2,773 1,879 1,307
Mark-to-market of VSR obligation 8,278 - 919 -
Other income (expense), net 48 (759) 177 (398)
--------------- --------------- --------------- ---------------
Income (loss) from continuing operations before income taxes
and minority interests 147,246 174,603 (5,265) 149,330
(Provision) benefit for income taxes (47,573) (59,052) 3,190 (51,305)
Minority interest (27,479) (17,203) (6,468) (14,594)
--------------- --------------- --------------- ---------------
Income (loss) from continuing operations 72,194 98,348 (8,543) 83,431
Discontinued operations
Equity in earnings from discontinued operations of M&F
Worldwide, net of taxes - 12,811 - 327
--------------- --------------- --------------- ---------------
Net income (loss) $ 72,194 $ 111,159 $ (8,543) $ 83,758
=============== =============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 31,
ASSETS 1997 1996
(restated)
----------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,132 $ 6,222
Trading securities 1,645 409,605
Notes and trade receivables, net 35,215 19,498
Inventories 74,208 45,957
Prepaid expenses and other 21,763 25,396
----------------- --------------
Total current assets 134,963 506,678
Property, plant and equipment, net 41,598 37,277
Pension asset 70,355 62,738
Investment in M&F Worldwide preferred and common stock 29,035 12,996
Trademarks, net 31,096 31,155
Intangible assets related to businesses acquired, net 148,139 59,723
Loan to an affiliate 105,137 -
Other assets 58,095 58,934
================= ==============
$ 618,418 $ 769,501
================= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,157 $ 7,323
Accrued expenses and other 121,675 100,847
----------------- --------------
Total current liabilities 132,832 108,170
Long-term debt 113,400 97,500
Deferred income taxes 6,598 36,109
Minority interest 17,009 54,672
Other liabilities 167,334 166,221
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1.00; 1,000 shares authorized, issued and outstanding 1 -
Common stock, par value $.01 per share, 250,000,000 shares authorized,
24,722,190 shares issued - 247
Additional paid-in-capital 34,290 63,947
Retained earnings 146,954 272,538
Treasury stock at cost (1,484,850 shares) - (29,903)
----------------- --------------
Total stockholders' equity 181,245 306,829
================= ==============
$ 618,418 $ 769,501
================= ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
---------------- ---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996, restated $ 247 $ 63,947 $ 272,538 $ (29,903) $ 306,829
Net income 72,194 72,194
Recapitalization (246) (29,657) -- 29,903 --
Distributions to parent (197,778) (197,778)
---------------- ---------------- --------------- ---------------- ----------------
Balance at September 27, 1997 $ 1 $ 34,290 $ 146,954 $ - $ 181,245
================ ================ =============== ================ ================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
------------------------------------
SEPTEMBER 27, SEPTEMBER 29,
1997 1996
(restated)
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 72,194 $ 111,159
----------------- -----------------
Adjustments to reconcile net income to net cash flows provided by (used for)
operating activities:
Depreciation and amortization 7,981 7,736
Gain on Cigar Secondary Offering (110,811) -
Gain on Cigar IPO - (127,809)
Equity in earnings of M&F Worldwide (4,424) (15,693)
Minority interest 27,479 17,203
Changes in assets and liabilities:
Decrease (increase) in trading securities 407,960 (225,172)
Increase in notes and trade receivables (14,843) (5,132)
Increase in inventories (24,862) (6,862)
Increase in accounts payable 3,168 5,139
(Decrease) increase in deferred taxes and other, net (10,047) 50,427
----------------- -----------------
281,601 (300,163)
----------------- -----------------
Net cash flows provided by (used for) operating activities 353,795 (189,004)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from Cigar Secondary Offering 112,400 -
Acquisition of shares in Merger, including fees and expenses
and purchase component of options (126,120) -
Acquisition of La Flor, net of cash acquired (14,420) -
Purchase of M&F Worldwide common stock (2,715) -
Capital expenditures (4,582) (5,844)
Loan to affiliate (105,137) -
Other, net 9 (323)
----------------- -----------------
Net cash flows used for investing activities (140,565) (6,167)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 19,398 -
Repayment of borrowings (2,900) (8,535)
Net proceeds from Cigar IPO - 127,809
Distributions to minority shareholders (34,470) -
Distributions to parent (197,778) -
Due to affiliates and other, net (1,570) 1,728
----------------- -----------------
Net cash flows (used for) provided by financing activities (217,320) 121,002
----------------- -----------------
Net increase in cash and cash equivalents (4,090) (74,169)
Cash and cash equivalents at beginning of period 6,222 93,417
----------------- -----------------
Cash and cash equivalents at end of period $ 2,132 $ 19,248
================= =================
Supplemental schedule of cash flow information
Interest paid $ 13,210 $ 19,020
Income taxes paid 103,984 3,827
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1996. 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
"1996 10-K"). In connection with the Merger (see Note 3), the financial
statement for all periods presented have been restated to reflect Mafco
Consolidated Holdings Inc. ("MC Holding") basis in the Company. The results of
operations for the three and nine month periods ended September 27, 1997 and
September 29, 1996 are not necessarily indicative of the results for the
entire year.
2. INVENTORIES
September 27, December 31,
1997 1996
------------ ------------
Raw materials and supplies $ 50,784 $ 34,469
Work-in-progress 4,282 1,974
Finished goods 19,142 9,514
------------ ------------
$ 74,208 $ 45,957
============ ============
3. MERGER AGREEMENT
On February 20, 1997, MC Holdings, the direct parent and 85% owner of
MC Group, entered into an Agreement and Plan of Merger (the "1997 Merger
Agreement") with MC Group whereby MC Holdings, through its wholly-owned
subsidiary MCG Acquisition Inc. ("MCG Acquisition"), agreed to buy the
remaining 15% of MC Group that it did not already own. Pursuant to the 1997
Merger Agreement, MCG Acquisition merged with and into MC Group (the "Merger")
and each outstanding share of MC Group common stock (other than shares held by
MC Holdings) was converted into the right to receive $33.50 per share in cash
(the "Merger Consideration"). Pursuant to the 1997 Merger Agreement the Company
also made cash payments aggregating approximately $38,800 during July 1997 in
respect of outstanding stock options ("Stock Option Settlement") of which
approximately $33,007 was charged to selling, general and administrative
expenses in the consolidated statement of operations. Additionally, on
February 20, 1997, in connection with the 1997 Merger Agreement, MC Group
declared a special cash dividend of $10 per share which was paid on March 14,
1997 to stockholders of record as of the close of business on March 10, 1997.
The Merger was accounted for under the purchase method of accounting.
The aggregate
6
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
purchase price was $126,120, including the Merger Consideration, estimated
fees and expenses and the purchase component of the Stock Option Settlement
of $5,774. The aggregate purchase price exceeded the fair value of net
assets acquired by $78,839, which has been assigned to goodwill and is
being amortized over 40 years on a straight line basis.
4. SECONDARY OFFERING
On March 26, 1997, Consolidated Cigar Holdings Inc. ("Cigar") completed
a public offering of 5,000,000 shares of the Cigar Common Stock at an offering
price of $23.75 per share (the "Cigar Secondary Offering"). All of the shares
sold were owned by MC Group. The proceeds from the Cigar Secondary Offering,
net of underwriter's discount and related fees and expenses, were $112,400 and
resulted in a pre-tax gain to the Company of $110,811. As a result of the
Cigar Secondary Offering, MC Group's ownership in Cigar was reduced to
approximately 64%.
5. CIGAR ACQUISITION
On August 26, 1997, Cigar entered into a stock purchase agreement with
certain shareholders of Fabrica de Tabacos La Flor de Copan, S.A. de C.V. ("La
Flor"), a Honduran corporation, to acquire 75% of La Flor's outstanding
capital stock for $14,420, net of cash acquired. La Flor is a manufacturer of
handmade premium cigars located in Santa Rosa, Honduras. The acquisition was
accounted as a purchase with the purchase price allocated to tangible and
intangible assets acquired and liabilities assumed based upon initial fair
value estimates. The La Flor acquisition was funded through borrowings under
Cigar's credit agreement, as amended, with The Chase Manhattan Bank, as the
agent.
6. 1997 KOLL AGREEMENTS
In connection with the 1992 Distribution, Abex and Henley allocated
between them certain liabilities related to the businesses of Henley or its
predecessors, including certain liabilities relating to self-insurance
programs, and each indemnified the other against loss associated with
liabilities assumed by the indemnifying party. In addition, Abex guaranteed
certain contingent obligations of Koll relating to a predecessor company
pension plan ("Pullman Plan") and environmental liabilities of Henley and
certain of its predecessors, and Koll agreed to indemnify Abex in respect
thereof. During the first quarter of 1997, the Company, Koll and certain of
its subsidiaries entered into certain agreements (the "1997 Koll Agreements"),
the material terms of which provide for a re-allocation of the liabilities
relating to the self-insurance programs, the Company to assume sponsorship of,
and financial responsibility for, the Pullman Plan referred to above which had
a projected benefit obligation in excess of plan assets of $11,587 at March 31,
1997, the Company to pay to Koll $2,289, the Company to keep $500 from a third
party in connection with the sale of an asset by Koll and the assumption by
the Company of the Pullman Claims (as described below). In connection with the
1997 Koll Agreements, the Company recorded a charge of $7,600 in the first
quarter of 1997. On September 15, 1997, the Pullman Plan was merged with the
MC Group Retirement Plan. Koll has been discharging its assumed and
indemnification responsibilities in the ordinary course. Based on (i) the
Company's balance sheet reserves as of September 27, 1997 which include
reserves for each remaining category of the Company's self-insurance
obligations to Koll and (ii) currently available information, including
information filed with the Securities and
7
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Exchange Commission and the EPA regarding such environmental liabilities,
the Company believes that liability for the discharge of the Company's
remaining obligations with respect to all of the matters described in this
paragraph, including its guarantee and indemnification obligations, will not
have a material adverse effect on its financial position or results of
operations even if Koll's financial circumstances were to cause Koll to stop
discharging its responsibilities.
In addition, in connection with the 1997 Koll Agreements, the Company
agreed to assume whatever liability, if any, Koll or certain of its
subsidiaries may have with respect to personal injury claims arising out of
the operations of either the passenger rail car business of Pullman
Incorporated ("Pullman"), a predecessor of Koll and the Company, or the
business of Pullman Passenger Car Company, a subsidiary of Koll (collectively,
the "Pullman Claims"). Koll also transferred to the Company all of the rights
that Koll and such subsidiaries may have against Wheelabrator Technologies
Inc., another predecessor of Koll and the Company, with respect to the Pullman
Claims. As of the date of the Company's assumption of the Pullman Claims, Koll
was defending approximately 360 claims that individuals had contracted
asbestos-related diseases by reason of their work maintaining or repairing
Pullman cars. Management believes that costs related to these approximately
360 claims will not have a material adverse effect on the Company.
7. RELATED PARTY TRANSACTIONS
MC Group loans funds in excess of corporate requirements to its
affiliates at an interest rate of LIBOR plus 4.5%. As of September 27, 1997,
the net loan to affiliates was $105,137.
During the third quarter of 1997, the Company purchased an additional
300,000 shares of M&F Worldwide common stock on the open market for aggregate
consideration of $2,715. As a result of the purchase, MC Group's investment
increased to approximately 30% of the outstanding common shares (38% assuming
conversion of the PCT Preferred Stock).
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)
RESULTS OF OPERATIONS
- ---------------------
The discussion of historical results below includes the results of the
Company's cigar business for all periods presented and the results of Flavors'
licorice extract and other flavoring agents business, which was sold November
25, 1996 (the "Flavors Disposition"), in the three and nine month periods
ended September 29, 1996.
Three month period ended September 27, 1997 compared with the three month
period ended September 29, 1996
Net sales in 1997 and 1996 were $82.6 and $85.6, respectively, a
decrease of $3.0 or 3.5%. The decrease in sales reflects a decrease of $25.0
due to the Flavors Disposition partially offset by an increase in net sales by
Cigar of $22.0. Cigar sales increased as a result of both a shift in the sales
mix to higher priced cigars and price increases on certain cigar brands and,
to a lesser extent, an increase in cigar unit volume, particularly in the
premium market.
Gross profit was $35.3 and $36.4 in 1997 and 1996, respectively, a
decrease of $1.1 or 3.0%. The decrease in gross profit in 1997 reflects a
decrease of $10.8 due to the Flavors Disposition partially offset by an
increase of $9.7 in the gross profit of Cigar. The increase in gross profit of
Cigar was due to the increase in sales, partially offset by increases in the
costs of raw materials and amortization expense of $1.6 related to the
purchase price adjustment to the inventory of Cigar in connection with the
Merger. In addition, Cigar's gross profit as a percentage of net sales,
increased primarily due to the impact of price increases and fixed
manufacturing costs spread over increased production volume.
Selling, general and administrative ("SG&A") expenses were $44.0 and
$12.5 in 1997 and 1996, respectively. The increase in SG&A reflects the $33.0
stock option settlement expense in connection with the Merger (see Note 3) and
an increase in selling expenses and professional fees of Cigar partially offset
by a decrease of $1.6 due to the Flavors Disposition and a decrease in
corporate expenses of MC Group.
Interest expense was $3.1 and $6.4 in 1997 and 1996, respectively. The
decrease was primarily due to the Flavors Disposition.
Equity in earnings from continuing operations and preferred dividends of
M&F Worldwide Corp. ("M&F Worldwide", formerly Power Control Technologies
Inc.) represents the Company's common equity interest in M&F Worldwide's
continuing operations and preferred dividends received on the Company's
investment in M&F Worldwide Preferred Stock.
The mark-to-market income of $0.9 in 1997 reflects the decrease in the
closing market price of the VSR obligation in the third quarter of 1997. The
Company's VSR obligation is marked to the
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)
closing market price of the security at each financial statement date. As a
result, income or expense may result from future mark-to-market adjustments.
Equity in discontinued operations of M&F Worldwide (which were sold in
April 1996), net of income taxes and minority interest, represents the
Company's common equity interest in M&F Worldwide's discontinued operations
in 1996.
Minority interest was $6.5 and $14.6 in 1997 and 1996 respectively.
The decrease primarily reflects the gain on the Cigar IPO in 1996 partially
offset by the increased net income of Cigar during 1997.
The benefit for income taxes as a percentage of loss from continuing
operations before income taxes and minority interest was 60.6% in 1997 and
the provision for income taxes as a percentage of income from continuing
operations before income taxes and minority interest was 34.4% in 1996. The
increase in the effective rate is primarily due to the greater impact of
non-taxable income in 1997 than in 1996.
Nine month period ended September 27, 1997 compared with the nine month period
ended September 29, 1996
Net sales in 1997 and 1996 were $214.9 and $230.4, respectively, a
decrease of $15.5 or 6.7%. The decrease in sales reflects a decrease of $77.6
due to the Flavors Disposition partially offset by an increase in net sales by
Cigar of $62.1. Cigar sales increased as a result of both a shift in the sales
mix to higher priced cigars and price increases on certain cigar brands and,
to a lesser extent, an increase in cigar unit volume, particularly in the
premium market.
Gross profit was $93.4 and $98.5 in 1997 and 1996, respectively, a
decrease of $5.1 or 5.2%. The decrease in gross profit in 1997 reflects a
decrease of $34.1 due to the Flavors Disposition partially offset by an
increase of $29.0 in gross profit of Cigar. The increase in gross profit of
Cigar was due to the increase in sales, partially offset by increases in the
costs of raw materials and amortization expense of $1.6 related to the
purchase price adjustment to the inventory of Cigar in connection with the
Merger. In addition, Cigar's gross profit as a percentage of net sales,
increased primarily due to the impact of price increases and fixed
manufacturing costs spread over increased production volume.
SG&A expenses were $74.6 and $40.0 in 1997 and 1996, respectively. The
increase in SG&A in 1997 reflects the $33.0 stock option settlement expense
in connection with the Merger (see Note 3), a non-cash charge of $7.6 related
to the 1997 Koll Agreements (see Note 6) and an increase in selling expenses
and professional fees of Cigar partially offset by a decrease of $6.5 due to
the Flavors Disposition and a decrease in corporate expenses of MC Group.
Interest expense was $9.4 and $19.3 in 1997 and 1996, respectively. The
decrease was primarily due to the Flavors Disposition.
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)
Interest and investment income was $13.8 and $7.1 in 1997 and 1996,
respectively. The increase primarily reflects interest income on the cash
proceeds received from the Cigar IPO, the Secondary Offering and the Flavors
Disposition, a portion of which was used to fund the special dividend in March
1997, the Merger Consideration in July 1997, and loans to affiliates.
Gain on Cigar Secondary Offering represents the gain from the sale of
5,000,000 shares of Cigar by the Company, net of fees and related expenses
(See Note 4).
Equity in earnings from continuing operations and preferred dividends of
M&F Worldwide represents the Company's common equity interest in M&F
Worldwide's continuing operations and preferred dividends received on the
Company's investment in M&F Worldwide Preferred Stock.
Minority interest was $27.5 and $17.2 in 1997 and 1996, respectively.
The increase reflects the Cigar Secondary Offering, the Cigar IPO, and the
increased net income of Cigar during 1997.
The mark-to-market income of $8.3 in 1997 reflects the decrease in the
closing market price of the VSR obligation in the nine month period ended
September 27, 1997. The Company's VSR obligation is marked to the closing
market price of the security at each financial statement date. As a result,
income or expense may result from future mark-to-market adjustments.
Equity in discontinued operations of M&F Worldwide, net of income taxes
and minority interest, represents the Company's common equity interest in M&F
Worldwide's discontinued operations in 1996.
The provision for income taxes as a percentage of income before income
taxes and minority interest was 32.3% in 1997 and 33.8% in 1996. The decrease
in the effective rate is primarily due to the higher tax rate on Flavors'
operations in 1996 and the tax benefits associated with the Company's
operations in Puerto Rico partially offset by an increase in income subject to
the United States taxation during 1997. Income tax expense in 1997 and 1996
reflects provisions for federal income taxes, Puerto Rico tollgate taxes and
taxes on Puerto Rico source income, together with state and franchise taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
The Company's net cash flows provided by (used for) operating activities
were $353.8 and $(189.0) in 1997 and 1996, respectively. The increase
primarily reflects a decrease in trading securities partially offset by
decreased net income and increased working capital requirements in 1997 as
compared to 1996.
Net cash flows used for investing activities were $140.6 and $6.2 in
1997 and 1996, respectively. The increase in 1997 primarily reflects the
acquisition of MC Group shares in the Merger, the La Flor acquisition, and
loans to affiliates partially offset by the proceeds from the Cigar Secondary
Offering. Capital expenditures in 1997 and 1996 primarily relate to an
investment in Cigar's
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)
manufacturing facilities to meet the increased demand for the Company's
premium cigars. Capital expenditures for the remainder of 1997 are expected
to be $0.9.
Net cash flows (used for) provided by financing activities was $(217.3)
and $121.0 in 1997 and 1996, respectively. Net cash flows used for financing
activities in 1997 primarily reflects the special dividend paid in March 1997
and net cash flows provided by financing activities in 1996 primarily reflects
the net proceeds from the Cigar IPO.
In 1993 and 1994, Cigar entered into two five-year interest rate swap
agreements in an aggregate notional amount of $85.0. Under the terms of the
agreements, Cigar received a fixed interest rate averaging 5.8% and paid a
variable interest rate equal to the six month London interbank offered rate
(LIBOR). In October 1997, Cigar paid $0.5 to terminate the swap agreements
upon completion of their current coupon periods, which end in December 1997
and January 1998. The termination payment will be amortized over the remaining
original term of the swap agreements.
Cigar's principal sources of working capital for the current year will
be generated from operations and borrowings under its credit agreement. The
availability for borrowings under Cigar's credit agreement was $49.9 as of
September 27, 1997, of which Cigar had borrowed $29.4 (including letters of
credit issued). The amounts available for borrowings under Cigar's credit
agreement were increased by $15.0, effective with the La Flor acquisition, and
will remain constant for the term of the credit agreement which expires on
April 3, 1999.
Given the availability of borrowings under Cigar's Credit Agreement and
cash flow generated from operations, Cigar does not currently foresee the need
to incur additional indebtedness to meet its ongoing operating needs during
the next twelve months.
Pursuant to the 1997 Merger Agreement, on July 9, 1997, each outstanding
share of MC Group common stock (other than shares held by MC Holdings) was
converted into the right to receive $33.50 per share in cash. Pursuant to the
1997 Merger Agreement, the Company also made cash payments aggregating $38.8
during July 1997 in connection with the Stock Option Settlement. The aggregate
purchase price of the shares acquired in the Merger was $126.1, including the
Merger Consideration, estimated fees and expenses and the purchase component
of the Stock Option Settlement of $5.8 (see Note 3). Additionally, on February
20, 1997, in connection with the 1997 Merger Agreement, MC Group declared a
special cash dividend of $10 per share which was paid on March 14, 1997 to
stockholders of record as of the close of business on March 10, 1997.
MC Group used the proceeds from the sale of its trading securities to
pay the Merger Consideration, related fees and expenses and amounts owing in
respect of outstanding stock options. MC Group loans funds in excess of
corporate requirements to its affiliates at an interest rate of LIBOR plus
4.5%. As of September 27, 1997, the net loan to affiliates was $105.1. MC
Group will primarily depend on the collection of loans from affiliates, the
remaining amounts due under the Promissory Note from Cigar and the remaining
deferred cash payments from Flavors to fund its corporate obligations,
including the funding of liabilities assumed in the Abex Merger.
12
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27* Financial Data Schedule
* filed herein
(b) Reports on Form 8-K
July 9, 1997 (Items 5 and 7)
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)
By: /s/Laurence Winoker
----------------------------
November 10, 1997 Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<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>
<CIK> 0000888676
<NAME> MAFCO CONSOLIDATED GROUP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-27-1997
<CASH> 2,132
<SECURITIES> 1,645
<RECEIVABLES> 41,525
<ALLOWANCES> (6,310)
<INVENTORY> 74,208
<CURRENT-ASSETS> 134,963
<PP&E> 58,780
<DEPRECIATION> (17,182)
<TOTAL-ASSETS> 618,418
<CURRENT-LIABILITIES> 132,832
<BONDS> 87,100
0
0
<COMMON> 1
<OTHER-SE> 181,244
<TOTAL-LIABILITY-AND-EQUITY> 618,418
<SALES> 214,907
<TOTAL-REVENUES> 214,907
<CGS> 121,492
<TOTAL-COSTS> 121,492
<OTHER-EXPENSES> 74,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (9,440)
<INCOME-PRETAX> 147,246
<INCOME-TAX> (47,573)
<INCOME-CONTINUING> 72,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,194
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
