<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 28, 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: 1-13780
-------
M & F WORLDWIDE CORP.
(Formerly Power Control Technologies Inc.)
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 02-0423416
- -------------------------------------------------------------------------------
(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 requirement for the past 90 days. X Yes No
--- ---
As of November 3, 1997, the Registrant had 20,656,502 outstanding shares of
common stock of which 6,239,400 shares were held by Mafco Consolidated Group
Inc.
<PAGE>
M & F WORLDWIDE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
-------------------------- -------------------------
SEPT. 28, SEPT. 30, SEPT. 28, SEPT. 30,
1997 1996 1997 1996
--------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales $23.6 $ - $75.1 $ -
Cost of sales (12.3) - (40.6) -
------ ------ ------ -----
Gross profit 11.3 - 34.5 -
Selling, general and administrative expenses (2.4) 0.2 (7.3) 1.2
Amortization of intangibles (1.1) - (3.2) -
------ ------ ----- ------
Operating income 7.8 0.2 24.0 1.2
Interest (expense) income, net (1.6) 3.3 (5.1) 5.5
------ ------ ------ ------
Income from continuing operations before income
taxes 6.2 3.5 18.9 6.7
Provision for income taxes (0.8) - (2.5) -
------ ------- ------ -----
Income from continuing operations 5.4 3.5 16.4 6.7
Discontinued operations:
Income from operations of aerospace
business, net of taxes - - - 4.4
Gain on sale of aerospace business, net
of taxes - - - 153.7
------- ------- ------- ------
Net income 5.4 3.5 16.4 164.8
Preferred stock dividend (0.4) (0.4) (1.2) (1.2)
----- ------- ------ -------
Net income available to common stockholders $ 5.0 $ 3.1 $15.2 $163.6
===== ====== ===== ======
Income per common and common equivalent share:
Continuing operations $.24 $.15 $.74$ .27
Discontinued operations - - - 7.63
------ ------ ----- ------
Net income $.24 $.15 $.74 $7.90
==== ==== ==== =====
Fully diluted income per common share:
Continuing operations $.23 $.15 $.71$ .29
Discontinued operations - - - 6.81
----- ------ ------ ------
Net income $.23 $.15 $.71 $7.10
==== ==== ==== =====
Weighted average shares outstanding:
Primary 20.7 20.7 20.7 20.7
==== ==== ==== ====
Fully diluted 23.2 23.2 23.2 23.2
==== ==== ==== ====
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
<PAGE>
M & F WORLDWIDE CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31,
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12.7 $ 5.7
Trade accounts receivable, net 11.8 11.3
Inventories 46.9 46.0
Prepaid expenses and other 1.2 3.3
------- -------
Total current assets 72.6 66.3
Property, plant and equipment, net 26.2 26.3
Deferred tax asset, net 38.4 38.4
Intangible assets related to business acquired, net 169.5 172.7
Other assets 18.0 14.4
------- -------
$324.7 $318.1
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 0.3 $ -
Trade accounts payable 5.5 5.2
Accrued interest 3.7 1.3
Accrued compensation and benefits 4.1 3.1
Taxes payable 2.6 1.4
Deferred cash payments due to Mafco 3.5 7.2
Other accrued expenses 5.9 5.5
------- -------
Total current liabilities 25.6 23.7
Long-term debt 90.5 100.1
Other liabilities 8.5 8.3
Redeemable preferred stock 20.0 20.0
Commitments and contingencies - -
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 250.0 shares authorized;
20.7 shares issued and outstanding in 1997 and 1996 0.2 0.2
Additional paid-in-capital 26.7 26.7
Retained earnings 154.5 139.3
Currency translation adjustment (1.3) (0.2)
------- --------
Total stockholders' equity 180.1 166.0
------- -------
$324.7 $318.1
======= =======
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
M & F WORLDWIDE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
------------------------
SEPT. 28, SEPT. 30,
1997 1996
------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $16.4 $164.8
----- ------
Adjustments to reconcile net income to total cash
provided by (used in) operating activities:
Income from operations of discontinued businesses - (4.4)
Gain on sale of discontinued business - (153.7)
Depreciation and amortization 4.9 -
Changes in assets and liabilities:
Net increase in trading securities - (196.5)
Increase in trade accounts receivables (0.9) -
Increase in inventories. (1.6) -
Other, net 1.7 (2.4)
------ -------
Cash provided by (used in) operating activities 20.5 (192.2)
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued business, net - 196.8
Capital expenditures (1.8) -
Investment in joint venture, net (1.2) -
------- ------
Cash (used in) provided by investing activities (3.0) 196.8
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings, net (7.0) -
Preferred dividends (1.2) (1.2)
Deferred cash payments (3.7) -
Decrease (increase) in restricted cash 1.6 (2.1)
-------- --------
Cash used in financing activities (10.3) (3.3)
-------- --------
Effect of exchange rate changes on cash (0.2) -
------- --------
Net increase in cash and cash equivalents 7.0 1.3
Cash and cash equivalents at beginning of period 5.7 -
------ -------
Cash and cash equivalents at end of period $12.7 $ 1.3
===== =======
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
M & F WORLDWIDE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS)
(UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION
M & F Worldwide Corp. (the "Company"), formerly Power Control
Technologies Inc., was incorporated in Delaware on June 1, 1988 and is a
holding company which conducts its operations through its indirect wholly-owned
subsidiary Pneumo Abex Corporation ("Pneumo Abex").
As a result of the sale of the Company's aerospace business in 1996, the
Company has classified those operations as discontinued in the consolidated
financial statements.
On November 25, 1996, the Company acquired (the "Flavors Acquisition") all
the issued and outstanding shares of capital stock of Flavors Holdings Inc.
("Flavors"), the direct parent of Mafco Worldwide Corporation ("Mafco
Worldwide"). Subsequently, Mafco Worldwide merged into Pneumo Abex with Pneumo
Abex as the surviving entity.
The accompanying unaudited consolidated financial statements 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 by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the interim
periods are not necessarily indicative of the results that may be expected for
a full year.
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's 1996 Form 10-K. All terms used but not defined
elsewhere herein have the meanings ascribed to them in the Company's 1996 Form
10-K.
2. INVENTORIES
Inventories are valued at the lower of cost or market and consist of the
following:
SEPTEMBER 28, DECEMBER 31,
1997 1996
--------- ----------
Raw materials and supplies $34.1 $32.2
Work-in-process 0.4 0.4
Finished goods 12.4 13.4
------ ------
$46.9 $46.0
===== =====
3. INCOME PER COMMON SHARE
Income per common share has been computed based on 20.7 weighted average
shares outstanding in the 1997 and 1996 periods. Fully diluted income per share
is computed assuming the conversion of the Preferred Stock for all periods
presented.
5
<PAGE>
M & F WORLDWIDE CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS)
(UNAUDITED)
4. LONG TERM DEBT REFINANCING
On October 17, 1997, Pneumo Abex informed the trustee of the 11 7/8% Senior
Subordinated Notes due 2002 (the "Notes") that it will call the $85.0 principal
amount of the Notes for redemption on November 15, 1997. On September 30, 1997,
Pneumo Abex signed a commitment letter whereby a group of banks will provide a
new revolving credit facility (the "Revolving Credit Facility") of $120.0.
Pneumo Abex anticpates using cash and a portion of the proceeds from the
Revolving Credit Facility to finance the principal amount of the Notes,
together with a call premium of approximately $5.0. The Revolving Credit
Facility which expires on November 15, 2002, will be unsecured, will have no
mandatory prepayments and will have interest rates at less than one percent
over LIBOR. The Revolving Credit Facility contains various restrictive
covenants which limit, among other things, Pneumo Abex's ability to incur debt
and pay dividends.
6
<PAGE>
M & F WORLDWIDE CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN MILLIONS)
RESULTS OF OPERATIONS:
GENERAL
As a result of the sale of the Company's aerospace business in 1996,
the Company has classified those operations as discontinued in the condensed
consolidated financial statements.
The discussion of historical results reflects the results of operations of
Flavor's licorice extract and other flavoring agents business since November
25, 1996, the date of the Flavors Acquisition. The historical results of
operations data presented below reflects the application of the purchase method
of accounting for the Flavors Acquisition based on the purchase price
allocation.
Certain results of operations data of Flavors prior to the Flavors
Acquisition, which exclude purchase accounting adjustments, are also presented
below for comparative purposes.
Three months ended September 28, 1997 compared to the three months ended
September 30, 1996
Net sales were $23.6 in the third quarter of 1997. Net sales of Flavors,
prior to the Flavors Acquisition, were $25.1 in the third quarter of 1996. The
decrease of $1.5 was due to lower sales of licorice flavors to the Company's
tobacco and non tobacco customers.
Cost of sales were $12.3 in the third quarter of 1997. Cost of sales of
Flavors in the third quarter of 1996, prior to the Flavors Acquisition, was
$14.3. The decrease was due to the lower sales volume and lower raw material
costs. As a percentage of net sales, the Company's cost of sales was 52.1% in
1997 and Flavors' cost of sales, prior to the Flavors Acquisition, was 57.0% in
1996. This decrease was due to the lower raw material costs in 1997.
SG&A expenses were $2.4 in the third quarter of 1997. The 1997 expenses
reflect SG&A expenses of the business of Flavors and ongoing corporate costs,
partially offset by income recognized on the Company's overfunded pension plan.
SG&A expenses of the Company in 1996 reflect income recognized on the Company's
overfunded pension plan partially offset by ongoing corporate costs.
Interest expense, net was $1.6 in the third quarter of 1997 which
primarily relates to the debt assumed in connection with the Flavors
Acquisition. Interest income of $3.3 in 1996 primarily reflects interest income
on the cash proceeds received from the Aerospace Sale.
The provision for income taxes as a percentage of earnings before income
taxes was 12.9% in 1997. The tax provision in the third quarter of 1997
reflects a benefit of approximately 27% of
7
<PAGE>
M & F WORLDWIDE CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN MILLIONS)
income from continuing operations before taxes relating primarily to net
deferred tax assets which have been recorded by way of a reduction in the
valuation allowance. The net deferred tax assets recorded represent a portion
of the Company's net operating loss carryforwards expected to be utilized.
Based upon the historical results of Flavors projected for a period which takes
into consideration the current operating environment in the tobacco industry,
the Company believes that it is more likely than not that it will be able to
utilize these benefits.
Nine month period ended Sept. 28, 1997 compared with the nine month period
ended Sept. 30, 1996
Net sales were $75.1 for the nine months ended September 28, 1997. Net
sales of Flavors prior to the Flavors Acquisition, were $77.7 for the nine
months ended September 29, 1996. The decrease of $2.6 was due to lower sales of
licorice products to the Company's chewing tobacco customers and lower sales of
non licorice flavors partially offset by increased sales of licorice products
to the Company's cigarette customers.
Cost of sales were $40.6 for the nine months ended September 28, 1997. Cost
of sales of Flavors in the nine month period ended September 29, 1996, prior to
the Flavors Acquisition, was $43.6. The decrease was primarily due to the lower
sales volume and lower material costs partially offset by purchase price
accounting amortization and depreciation of $1.3 in 1997. As a percentage of
net sales, the Company's cost of sales was 54.1% in 1997 and Flavor's cost of
sales, prior to the Flavors Acquisition, was 56.1% in 1996.
SG&A expenses were $7.3 for the nine months ended September 28, 1997. The
1997 expenses reflect SG&A expenses of the business of Flavors and ongoing
corporate costs partially offset by income recognized on the Company's
overfunded pension plan. SG&A expenses of the Company in 1996 reflect income
recognized on the Company's overfunded pension plan partially offset by ongoing
corporate costs.
Interest expense, net was $5.1 for the nine months ended September 28, 1997
which primarily relates to the debt assumed in connection with the Flavors
Acquisition. Interest income of $5.5 in 1996 primarily reflects interest income
on the cash proceeds received from the Aerospace Sale.
The provision for income taxes as a percentage of earnings before income
taxes was 13.2% in 1997. The tax provision for the nine months ended September
28, 1997 reflects a benefit of approximately 26% of income from continuing
operations before taxes relating primarily to net deferred tax assets which
have been recorded by way of a reduction in the valuation allowance. The net
deferred tax assets recorded represent a portion of the Company's net operating
loss carryforwards expected to be utilized. Based upon the historical results
of Flavors projected for a period which takes into consideration the current
operating environment in the tobacco industry, the Company believes that it is
more likely than not that it will be able to utilize these benefits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows from operating activities were $20.5 and $4.3
(excluding the net increase in trading securities in 1996 primarily from the
sale of a discontinued business) for the nine months ended September 28, 1997
and September 30, 1996, respectively. The increase in cash flow
8
<PAGE>
M & F WORLDWIDE CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(IN MILLIONS)
from operating activities primarily reflects operating cash flows of the
Flavors business acquired in November 1996.
The Company's working capital requirements, especially for accounts
receivable and inventory, are affected by customer demand, by current and
prospective supplies of raw materials and raw material prices. Management
believes the current inventory of $46.9 is adequate to meet customer
requirements. Inventory levels may fluctuate in the future as the Company takes
advantage of opportunities to purchase quality raw materials at favorable
prices while maintaining its policy of purchasing licorice root from all
available sources to maintain relationships with its suppliers. Capital
expenditures for the nine month period ended September 28, 1997 were $1.8.
On October 17, 1997, Pneumo Abex informed the trustee of the 11 7/8% Senior
Subordinated Notes due 2002 that it will call the $85.0 principal amount of the
Notes for redemption on November 15, 1997. On September 30, 1997, Pneumo Abex
signed a commitment letter whereby a group of banks will provide a new
revolving credit facility of $120.0. Pneumo Abex anticpates using cash and a
portion of the proceeds from the Revolving Credit Facility to finance the
principal amount of the Notes, together with a call premium of approximately
$5.0. The Revolving Credit Facility which expires on November 15, 2002, will be
unsecured, will have no mandatory prepayments and will have interest rates at
less than one percent over LIBOR. The Revolving Credit Facility contains
various restrictive covenants which limit, among other things, Pneumo Abex's
ability to incur debt and pay dividends. Management believes that the remaining
availability under the Revolving Credit Facility will be sufficient to meet the
Company's working capital, capital expenditure and debt service needs for the
next twelve months. Currently Pneumo Abex has a senior credit agreement (the
"Senior Credit"), as amended, whereby Pneumo Abex may borrow up to $12.5 under
a revolving credit facility. At September 28, 1997, there were no borrowings
under the facility and approximately $4.8 of this facility had been reserved to
support lender guarantees for outstanding letters of credit. Upon signing of
the Revolving Credit Facility in early November, the Senior Credit will be
terminated. The Company's French subsidiary has agreements with two local banks
whereby it may borrow up to fourteen million French francs (approximately $2.3)
for working capital. At September 28, 1997, approximately $0.3 was outstanding.
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.
9
<PAGE>
M & F WORLDWIDE CORP.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27* Financial Data Schedule
28* 1997 Annual Meeting of Shareholders Certificate of Inspector of
Election
* filed herein
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the period covered by
this report.
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.
M & F WORLDWIDE CORP.
(Registrant)
Date: November 3, 1997 By: /s/Irwin Engelman
-----------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Date: November 3, 1997 By: /s/ Laurence Winoker
------------------------
Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the M&F
Worldwide Corp. (formerly Power Control Consolidated Balance Sheet and Statement
of Income and is qualified in its entirely by reference to such financial
statements.
</LEGEND>
<S> <C>
<CIK> 0000945235
<NAME> M&F Worldwide Corp. (formerly Power Control
Technologies Inc.)
<MULTIPLIER> 1,000,000
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-28-1997
<PERIOD-TYPE> 9-MOS
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 12
<ALLOWANCES> 0
<INVENTORY> 47
<CURRENT-ASSETS> 73
<PP&E> 26
<DEPRECIATION> 0
<TOTAL-ASSETS> 325
<CURRENT-LIABILITIES> 26
<BONDS> 85
20
0
<COMMON> 0
<OTHER-SE> 180
<TOTAL-LIABILITY-AND-EQUITY> 325
<SALES> 75
<TOTAL-REVENUES> 75
<CGS> 41
<TOTAL-COSTS> 41
<OTHER-EXPENSES> 10
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 19
<INCOME-TAX> 3
<INCOME-CONTINUING> 16
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.71
</TABLE>
