<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 April 5, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-13780
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M & F WORLDWIDE CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0423416
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 EAST 62ND STREET, NEW YORK, NEW YORK 10021
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(Address of principal executive offices) (Zip Code)
212-572-8600
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirement for the past 90 days. X Yes No
--- ---
As of May 5, 1998, 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. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
--------------------------
APRIL 5, MARCH 30,
1998 1997
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<S> <C> <C>
Net sales $26.8 $27.2
Cost of sales (13.8) (15.7)
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Gross profit 13.0 11.5
Selling, general and administrative expenses (2.1) (2.4)
Amortization of intangibles (1.1) (1.1)
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Operating income 9.8 8.0
Interest expense, net (1.4) (1.7)
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Income before income taxes 8.4 6.3
Provision for income taxes (0.6) (0.8)
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Net income 7.8 5.5
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Preferred stock dividend (0.4) (0.4)
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Net income available to common stockholders $ 7.4 $ 5.1
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Income per common share:
Basic $0.36 $0.25
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Diluted $0.33 $0.24
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Weighted average shares outstanding:
Basic 20.7 20.7
==== ====
Diluted 23.4 23.2
==== ====
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 5, DECEMBER 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 0.7 $ 0.4
Trade accounts receivable, net 12.3 10.0
Inventories 49.1 50.0
Prepaid expenses and other 0.9 1.1
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Total current assets 63.0 61.5
Property, plant and equipment, net 25.4 25.8
Deferred tax asset, net 38.4 38.4
Intangible assets related to business acquired, net 166.5 167.6
Other assets 20.7 19.8
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$314.0 $313.1
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 0.9 $ 1.0
Trade accounts payable 4.5 5.7
Accrued compensation and benefits 2.8 3.6
Taxes payable 3.1 2.7
Deferred cash payments due to MCG - 3.5
Other accrued expenses 6.2 6.4
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Total current liabilities 17.5 22.9
Long-term debt. 75.6 76.6
Other liabilities. 8.1 8.0
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 1998 and 1997 0.2 0.2
Additional paid-in-capital 26.7 26.7
Retained earnings 167.6 160.2
Currency translation adjustment (1.7) (1.5)
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Total stockholders' equity 192.8 185.6
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$314.0 $313.1
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</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED
-------------------------
APRIL 5, MARCH 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $7.8 $5.5
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Adjustments to reconcile net income to total cash
provided by operating activities:
Depreciation and amortization 1.7 1.9
Changes in assets and liabilities:
Increase in trade accounts receivable (2.3) (2.3)
Decrease in inventories. 0.7 3.2
Decrease in accounts payable (1.2) (0.4)
Other, net (0.9) 2.9
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Cash provided by operating activities 5.8 10.8
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (0.2) (0.7)
Investment in joint venture, net - (1.4)
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Cash used in investing activities (0.2) (2.1)
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CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of borrowings, net (1.0) (7.3)
Preferred dividends (0.8) (0.4)
Deferred cash payment due to MCG (3.5) -
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Cash used in financing activities (5.3) (7.7)
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Effect of exchange rate changes on cash - (0.2)
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Net increase in cash and cash equivalents 0.3 0.8
Cash and cash equivalents at beginning of period 0.4 5.7
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Cash and cash equivalents at end of period $0.7 $ 6.5
==== =====
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(UNAUDITED)
1. BACKGROUND AND BASIS OF PRESENTATION
M & F Worldwide Corp. ( the "Company"), 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").
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.
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 1997 Form 10-K. All terms used but not defined
elsewhere herein have the meanings ascribed to them in the Company's 1997 Form
10-K.
2. INVENTORIES
Inventories are valued at the lower of cost or market and consist of the
following:
APRIL 5, DECEMBER 31,
1998 1997
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Raw materials and supplies $34.3 $36.6
Work-in-process 0.5 0.6
Finished goods 14.3 12.8
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$49.1 $50.0
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3. INCOME PER COMMON SHARE
Basic income per common share has been computed based on the weighted
average shares outstanding in the 1998 and 1997 periods, respectively. Diluted
income per share is computed using the weighted average shares outstanding plus
the assumed conversion of the Preferred Stock and the dilutive effect of stock
options for all periods presented.
5
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M & F WORLDWIDE CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(UNAUDITED)
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130 "Reporting on
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components in the financial statements.
Comprehensive income for the Company for the three month periods ended April 5,
1998 and March 30, 1997 was $7.6 and $4.6, respectively. Such amounts represent
the net income less foreign currency translation adjustments for each period
presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS:
GENERAL
The Company's revenues are principally derived from sales of licorice
extract to the tobacco and confectionery industries for use as a flavoring
ingredient. Sales are recorded when title passes to customers.
Due to the Company's policy of ending all interim accounting periods
on Sunday, the 1998 first quarter ended on April 5, 1998 and had 95 days
whereas the 1997 first quarter ended on March 30, 1997 and had 89 days. Because
daily shipment volumes are not consistent but rather depend upon the timing of
customer orders and the availability and timing of shipments by transport
companies, the additional days in 1998 had no significant effect on the results
for the quarter.
Three months ended April 5, 1998 compared to the three months ended March 30,
1997
Net sales were $26.8 in the first quarter of 1998 and $27.2 in the first
quarter of 1997. The decrease of $0.4 or 1.5% was due to lower shipment volume
primarily to the Company's customers in Southeast Asia offset partially by
increased shipments to other foreign customers.
Cost of sales were $13.8 and $15.7 in the first quarter of 1998 and 1997,
respectively. Cost of sales in 1997 included a charge of $1.5 for amortization
of the purchase price allocation related to inventories resulting from the
November 1996 Flavors Acquisition. As a percentage of net sales, the Company's
cost of sales was 51.5% in 1998 and 57.7% in 1997. This decrease was due to the
charges relating to the Flavors Acquisition.
SG&A expenses were $2.1 and $2.4 in the first quarter of 1998 and 1997,
respectively. The 1998 expenses were lower primarily due to higher income
recorded on the Company's overfunded pension plan.
6
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
Interest expense, net was $1.4 and $1.7 in the first quarter of 1998 and
1997, respectively. The decrease was due to lower average interest rates and
lower average debt outstanding in the quarter.
The provision for income taxes as a percentage of earnings before income
taxes was 7.0% in 1998 and 12.7% in 1997. The tax provision in the first
quarter reflects a benefit of approximately 32% and 26% of income before taxes
in 1998 and 1997, respectively, 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 $5.8 and $10.8
for the three month period ended April 5, 1998 and March 30, 1997,
respectively. The decrease in cash flow from operating activities primarily
resulted from a lower decrease in inventories in the 1998 period and other
changes relating to accrued expenses. The Company's working capital
requirements for trade accounts receivables and inventory are affected by
customer demand and by current and prospective supplies of raw material.
Management believes the current inventory of $49.1 is adequate to meet customer
requirements. Capital expenditures for the three month period ended April 5,
1998 were $0.2.
Under the Credit Agreement dated as of November 17, 1997, Pneumo Abex may
borrow up to $120.0 under a revolving credit facility. At April 5, 1998, $75.6
was borrowed under the facility and approximately $23.2 was reserved to support
lender guarantees for outstanding letters of credit. Management believes that
the remaining availability of approximately $21.2 under the revolving credit
facility and cash flow from operations will be sufficient to meet the Company's
working capital, capital expenditure and debt service for the forseeable
future.
7
<PAGE>
M & F WORLDWIDE CORP. 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
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)
May 5, 1998 By: /s/Irwin Engelman
-----------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
May 5, 1998 By: /s/ Laurence Winoker
-----------------------------
Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the M&F
Worldwide Corp. Consolidated Balance Sheet and Statement of Income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000945235
<NAME> M&F WORLDWIDE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-05-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 12
<ALLOWANCES> 0
<INVENTORY> 49
<CURRENT-ASSETS> 63
<PP&E> 28
<DEPRECIATION> (3)
<TOTAL-ASSETS> 314
<CURRENT-LIABILITIES> 18
<BONDS> 0
20
0
<COMMON> 0
<OTHER-SE> 193
<TOTAL-LIABILITY-AND-EQUITY> 314
<SALES> 27
<TOTAL-REVENUES> 27
<CGS> 14
<TOTAL-COSTS> 14
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 8
<INCOME-TAX> 0
<INCOME-CONTINUING> 8
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.33
</TABLE>
