<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 March 29, 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 [ ]
At May 15, 1997, 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 INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
-------------------------
MARCH 29, MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 55,888 $ 66,168
Cost of sales 31,258 38,302
--------- ---------
Gross profit 24,630 27,866
Selling, general and administrative expenses 18,350 12,203
--------- ---------
Operating income 6,280 15,663
Interest expense (3,090) (6,299)
Interest and investment income 5,315 1,874
Amortization of deferred charges and bank fees (222) (499)
Gain on Cigar Secondary Offering 110,811 --
Equity in earnings from continuing operations and preferred
dividends of PCT 1,866 370
Other (expense) income, net (129) 81
--------- ---------
Income from continuing operations before income taxes and minority interests 120,831 11,190
Provision for income taxes (41,322) (3,475)
Minority interests in earnings of subsidiaries (1,882) (75)
--------- ---------
Income from continuing operations 77,627 7,640
Discontinued operations
Equity in discontinued operations of PCT, net of taxes of $361 -- 671
--------- ---------
Net income $ 77,627 $ 8,311
========= =========
Income per common share and common share equivalents:
Continuing operations $ 3.24 $ 0.33
Discontinued operations -- 0.03
--------- ---------
Net income $ 3.24 $ 0.36
========= =========
Weighted average common shares and common share equivalents outstanding 23,954 23,237
</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>
MARCH 29, DECEMBER 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $3,301 $6,222
Trading securities 253,504 409,605
Notes and trade receivables, net 24,895 19,498
Inventories 54,551 45,957
Other 27,147 25,396
--------- ---------
Total current assets 363,398 506,678
Property, plant and equipment, net 37,203 37,277
Pension asset 64,506 62,738
Investment in PCT preferred and common stock 14,462 12,996
Trademarks, net 30,939 31,155
Intangible assets related to businesses acquired, net 59,310 59,723
Other assets 72,500 58,934
========= =========
$642,318 $769,501
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,873 $7,323
Accrued expenses and other 138,563 100,847
--------- ---------
Total current liabilities 146,436 108,170
Long-term debt 104,100 97,500
Deferred income taxes 6,059 36,109
Minority interests in subsidiaries 4,476 1,007
Other liabilities 175,372 166,223
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share, 250,000,000 shares
authorized, 24,722,190 shares issued in 1997 and 1996 247 247
Additional paid-in-capital 167,105 167,105
Retained earnings 68,426 223,043
Treasury stock at cost (1,484,850 shares) (29,903) (29,903)
--------- ---------
Total stockholders' equity 205,875 360,492
========= =========
$642,318 $769,501
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
-------------------------
MARCH 29, MARCH 31,
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 77,627 $ 8,311
--------- ---------
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization 1,874 2,540
Gain on Cigar Secondary Offering (110,811) --
Equity in earnings of PCT (1,466) (1,002)
Minority interests in earnings of subsidiaries 1,882 75
Deferred income (53) (51)
Changes in assets and liabilities:
Decrease in trading securities 156,101 --
Increase in notes and trade receivables (5,397) (1,640)
Increase in inventories (8,594) (3,043)
Increase in accounts payable 550 2,564
Decrease in taxes payable and other, net (1,945) (2,310)
--------- ---------
32,141 (2,867)
--------- ---------
Net cash flows provided by operating activities 109,768 5,444
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from Cigar Secondary Offering 112,400 --
Capital expenditures (949) (900)
--------- ---------
Net cash flows provided by (used for) investing activities 111,451 (900)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayment) of revolving loan, net 6,600 (7,821)
Cash dividend paid (232,244) --
Due to affiliates and other borrowings 1,504 642
--------- ---------
Net cash used for financing activities (224,140) (7,179)
--------- ---------
Net decrease in cash and cash equivalents (2,921) (2,635)
Cash and cash equivalents at beginning of period 6,222 93,417
--------- ---------
Cash and cash equivalents at end of period $ 3,301 $ 90,782
========= =========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 5,218 $ 6,109
Income taxes paid 38,640 1,538
</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, 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"). Certain reclassifications have been made to conform to the
current period's presentation. The results of operations for the three month
periods ended March 29, 1997 and March 31, 1996 are not necessarily indicative
of the results for the entire year.
2. INVENTORIES
<TABLE>
<CAPTION>
March 29, December 31,
1997 1996
------- -------
<S> <C> <C>
Raw materials and supplies $37,508 $34,469
Work-in-progress 3,185 1,974
Finished goods 13,858 9,514
------- -------
$54,551 $45,957
======= =======
</TABLE>
3. MERGER AGREEMENT
On February 20, 1997, Mafco Consolidated Holdings Inc. ("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 will buy the remaining 15% of MC Group that it does not
already own. Pursuant to the 1997 Merger Agreement, each outstanding share of
MC Group common stock (other than shares held by MC Holdings) will be converted
into the right to receive $33.50 per share in cash, subject to upward
adjustment (the "Merger Consideration"). 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. In addition, pursuant to
the 1997 Merger Agreement the Company has agreed to make cash payments
aggregating $38,800 in respect of outstanding stock options.
The Merger Consideration shall be equal to the sum of (x) $33.50 per
share plus (y) an amount, if any (the "Additional Amount"), equal to the Excess
(as defined below) multiplied by 79.7%. The Additional Amount shall be payable
only if the average of the per share closing prices (the "Average") of Cigar
Common Stock on the New York Stock Exchange for the ten trading days ending two
trading days prior to the effectiveness of the Merger, exceeds $33.00 per share
(the amount
5
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
by which the Average exceeds $33.00 per share, the "Excess"). MC Group
stockholders will be entitled to receive the Merger Consideration in cash,
without interest, upon surrender of the certificate formerly representing
shares of MC Group Common Stock.
The 1997 Merger Agreement has been unanimously approved by the Boards
of Directors of each company and, in the case of MC Group, by a special
committee of independent directors formed to consider the transaction. The
consummation of the transaction is subject to the approval of MC Group
stockholders, the review by the Securities and Exchange Commission of an
information statement to be sent to MC Group stockholders, and other customary
conditions. Mafco Consolidated Holdings has agreed to vote in favor of the
transaction which is expected to close in late June 1997 or early July 1997.
4. SECONDARY OFFERING
On March 26, 1997, Cigar Holdings 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 Holdings was reduced to 64%.
5. 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 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 predecessor company's pension 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. Koll has been discharging its assumed and
indemnification responsibilities in the ordinary course. Based on (i) the
Company's balance sheet reserves as of March 31, 1997 which include recognition
of the full pension plan underfunding as of such date and 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 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
6
<PAGE>
MAFCO CONSOLIDATED GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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.
6. INCOME PER COMMON SHARE
Income per common share has been computed based on 23,954 and 23,237
weighted average shares outstanding in the 1997 and 1996 periods, respectively,
including the dilutive effect of stock options in the 1997 period.
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
The discussion of historical results below includes the results of
operations of Flavors' licorice extract and other flavoring agents business,
which was sold November 25, 1996 (the "Flavors Disposition"), in the three
month period ended March 31, 1996.
Three month period ended March 29, 1997 compared with the three month period
ended March 31, 1996
Net sales in 1997 and 1996 were $55.9 and $66.2, respectively, a
decrease of $10.3 or 15.6%. The decrease in sales reflects a decrease of $26.0
due to the Flavors Disposition partially offset by an increase in net sales by
Cigar of $15.7. 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 $24.6 and $27.9 in 1997 and 1996, respectively, a
decrease of $3.3 or 11.8%. The decrease in gross profit in 1997 reflects a
decrease of $11.0 due to the Flavors Disposition partially offset by an
increase 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. As a percentage of net sales, Cigar's gross profit increased to
44.1% in 1997 from 42.0% in 1996 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 $18.4 and
$12.2 in 1997 and 1996, respectively. The increase in SG&A in 1997 primarily
reflects a non-cash charge of $7.6 related to the 1997 Koll Agreements (see
Note 5) and an increase in selling expenses and professional fees of Cigar
partially offset by a decrease of $2.4 due to the Flavors Disposition.
Interest expense was $3.1 and $6.3 in 1997 and 1996, respectively. The
decrease was primarily due to the Flavors Disposition.
Interest and investment income was $5.3 and $1.9 in 1997 and 1996,
respectively. The increase primarily reflects interest income on the cash
proceeds received from the Cigar IPO and the Flavors Disposition.
Gain on Cigar Secondary Offering represents the gain from the sale of
5,000,000 shares of Cigar Holdings by the Company, net of fees and related
expenses (See Note 4).
Equity in earnings from continuing operations and preferred dividends
of PCT represents the Company's common equity interest in PCT's continuing
operations and preferred dividends received on the Company's investment in PCT
Preferred Stock.
Equity in discontinued operations of PCT (which were sold in April
1996), net of income taxes represents the Company's common equity interest in
PCT's discontinued operations in 1996.
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)
The provision for income taxes as a percentage of income before income
taxes and minority interests was 34.2% in 1997 and 31.1% in 1996. The increase
in the effective rate is primarily due to an increase in income subject to
United States taxation during 1997 partially offset by tax benefits associated
with the Company's operations in Puerto Rico and a higher tax rate on Flavors
operations in 1996. 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 operating activities were
$109.8 and $5.4 in 1997 and 1996, respectively. The increase primarily reflects
a decrease in trading securities partially offset by increased working capital
requirements in 1997 as compared to 1996.
Cash flows provided by (used for) investing activities were $111.5 and
($0.9) in 1997 and 1996, respectively. The increase in 1997 reflects the
proceeds from the Cigar Secondary Offering of $112.4 which was completed on
March 26, 1997. Capital expenditures in 1997 and 1996 primarily relate to an
investment in Cigar's manufacturing facilities to meet the increased demand for
the Company's premium cigars. Capital expenditures for the remainder of 1997
are expected to be $3.0.
Cash flows used for financing activities were $224.1 and $7.2 in 1997
and 1996, respectively. The increase primarily reflects the $232.2 dividend
paid by MC Group in connection with the 1997 Merger Agreement, partially offset
by borrowings under Cigar's credit agreement.
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 receives a fixed interest rate averaging 5.8% and pays a
variable interest rate equal to the six month LIBOR. 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 Cigar terminated these
agreements which it considers to be held for other than trading purposes on
March 31, 1997, a combined loss of approximately $1.9 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, Cigar could lose some or all of any future positive cash
flows. However, Cigar does not anticipate non-performance by such
counterparties.
On February 20, 1997, MC Holdings entered into the 1997 Merger
Agreement with MC Group whereby MC Holdings will buy the remaining 15% of MC
Group that it does not already own (See Note 3).
The Company expects to use its cash resources, currently invested in
trading securities, to pay the 1997 Merger Agreement consideration, including
related fees and expenses and amounts owing in respect of outstanding stock
options, of approximately $156.6. Such amount excludes the Additional Amount,
if any. The balance of the Company's cash resources will be used for general
corporate
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)
purposes, including funding of liabilities assumed in the Abex Merger and loans
or distributions to the Company's parent.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share", which established new standards for computing and presenting
earnings per share. SFAS No. 128 will be effective for interim and annual
financial statements after December 15, 1997. The Company believes that the
adoption of SFAS No. 128 will not have a material impact on the Company's
reported earnings per share.
10
<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
None
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)
By: /s/Irwin Engelman
----------------------------
May 16, 1997 Irwin Engelman
Executive Vice President
By: /s/Laurence Winoker
----------------------------
May 16, 1997 Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
12
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,301
<SECURITIES> 253,504
<RECEIVABLES> 30,837
<ALLOWANCES> (5,942)
<INVENTORY> 54,551
<CURRENT-ASSETS> 363,398
<PP&E> 52,169
<DEPRECIATION> (14,966)
<TOTAL-ASSETS> 642,318
<CURRENT-LIABILITIES> 146,436
<BONDS> 0
0
0
<COMMON> 247
<OTHER-SE> 205,628
<TOTAL-LIABILITY-AND-EQUITY> 642,318
<SALES> 55,888
<TOTAL-REVENUES> 55,888
<CGS> 31,258
<TOTAL-COSTS> 31,258
<OTHER-EXPENSES> 18,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,090)
<INCOME-PRETAX> 120,831
<INCOME-TAX> (41,322)
<INCOME-CONTINUING> 77,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,627
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 0.00
</TABLE>
