<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 July 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 August 5, 1998, the Registrant had 20,656,502 outstanding shares of
common stock of which 6,566,900 shares were held by Mafco Consolidated
Group Inc.
<PAGE>
M & F WORLDWIDE CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
------------------------------ -----------------------------
JULY 5, JUNE 29, JULY 5, JUNE 29,
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Net sales $26.0 $24.3 $52.8 $51.5
Cost of sales (13.9) (12.6) (27.6) (28.3)
-------- ------ -------- --------
Gross profit 12.1 11.7 25.2 23.2
Selling, general and administrative expenses (2.1) (2.4) (4.3) (4.8)
Amortization of intangibles (1.1) (1.0) (2.2) (2.1)
-------- ------ -------- --------
Operating income 8.9 8.3 18.7 16.3
Interest (expense) income, net (1.2) (1.8) (2.5) (3.5)
-------- ------ -------- --------
Income before income taxes 7.7 6.5 16.2 12.8
Provision for income taxes (0.5) (0.9) (1.2) (1.7)
-------- ------ -------- --------
Net income 7.2 5.6 15.0 11.1
Preferred stock dividend (0.4) (0.4) (0.8) (0.8)
-------- ------ -------- --------
Net income available to common stockholders $6.8 $ 5.2 $14.2 $10.3
======== ====== ======== ========
Income per common share:
Basic $.33 $.25 $.69 $.50
======== ====== ======== ========
Diluted $.31 $.24 $.64 $.48
======== ====== ======== ========
Weighted average shares outstanding:
Basic 20.7 20.7 20.7 20.7
======== ====== ======== ========
Diluted 23.5 23.2 23.5 23.2
======== ====== ======== ========
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
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M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
( IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 5, DECEMBER 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1.2 $ 0.4
Trade accounts receivable, net 10.8 10.0
Inventories 47.0 50.0
Prepaid expenses and other 0.9 1.1
------ ------
Total current assets 59.9 61.5
Property, plant and equipment, net 26.8 25.8
Deferred tax asset, net 38.4 38.4
Intangible assets related to business acquired, net 165.5 167.6
Other assets 21.7 19.8
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$312.3 $313.1
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 1.0 $ 1.0
Trade accounts payable 4.7 5.7
Accrued compensation and benefits 3.2 3.6
Taxes payable 3.4 2.7
Deferred cash payments due to MCG -- 3.5
Other accrued expenses 7.1 6.4
------ ------
Total current liabilities 19.4 22.9
Long-term debt 65.0 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 174.4 160.2
Currency translation adjustment (1.5) (1.5)
------ -------
Total stockholders' equity 199.8 185.6
------ -------
$312.3 $313.1
====== ======
</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>
SIX MONTH PERIODS ENDED
-----------------------
JULY 5, JUNE 29,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15.0 $11.1
----- -----
Adjustments to reconcile net income to total cash
provided by operating activities:
Depreciation and amortization 3.4 3.2
Changes in assets and liabilities:
Increase in trade accounts receivable (0.7) (0.7)
Decrease in inventories 2.9 1.7
Decrease in trade accounts payable (1.1) --
Other, net (0.2) 1.3
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Cash provided by operating activities 19.3 16.6
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (2.2) (1.1)
Investment in joint venture, net -- (1.4)
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Cash used in investing activities (2.2) (2.5)
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CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of borrowings, net (11.6) (6.9)
Preferred dividends (1.2) (0.8)
Deferred cash payment due to MCG (3.5) --
----- ----
Cash used in financing activities (16.3) (7.7)
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Effect of exchange rate changes on cash -- (0.2)
----- ----
Net increase in cash and cash equivalents 0.8 6.2
Cash and cash equivalents at beginning of period 0.4 5.7
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Cash and cash equivalents at end of period $ 1.2 $11.9
===== =====
</TABLE>
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(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:
JULY 5, DECEMBER 31,
1998 1997
--------- ------------
Raw materials and supplies $34.0 $36.6
Work-in-process 0.3 0.6
Finished goods 12.7 12.8
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$47.0 $50.0
===== =====
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 July 5,
1998 and June 29, 1997 was $7.4 and $5.3, respectively and $15.0 and $9.9,
respectively for the six month periods ended July 5, 1998 and June 29, 1997.
Such amounts represent net income less foreign currency translation adjustments
for each period presented.
6
<PAGE>
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 six month period ended on July 5, 1998 and had 186 days
whereas the 1997 six month period ended on June 29, 1997 and had 180 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 six month periods. The second quarter in both 1998 and 1997
had 91 days.
Three months ended July 5, 1998 compared to the three months ended June 29,
1997
Net sales were $26.0 in the second quarter of 1998 and $24.3 in the
second quarter of 1997. The increase of $1.7 or 7.0% was due to higher shipment
volume primarily to the Company's customers in Southeast Asia which had reduced
purchases in the first quarter and higher sales of non-licorice herbal
products.
Cost of sales were $13.9 and $12.6 in the second quarter of 1998 and
1997, respectively As a percentage of net sales, the Company's cost of sales
was 53.5% in 1998 and 51.9% in 1997. This increase was due to a change in the
mix of products sold.
SG&A expenses were $2.1 and $2.4 in the second quarter of 1998 and 1997,
respectively. The 1998 expenses were lower primarily due to higher income
recorded from the Company's overfunded pension plan.
7
<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 $1.2 and $1.8 in the second 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 6.5% in 1998 and 13.8% in 1997. The tax provision in the second
quarter reflects a benefit of approximately 32% and 25% 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.
Six months ended July 5, 1998 compared to the six months ended June 29, 1997.
Net sales were $52.8 and $51.5 for the six month periods ended July 5,
1998 and June 29, 1997, respectively. The increase of $1.3 was 2.5% over 1997
and resulted from increased shipments to the Company's foreign licorice
customers and to non-licorice herbal customers.
Cost of sales were $27.6 and $28.3 in 1998 and 1997, respectively. Cost
of sales in 1997 included a charge of $1.5 for the amortization of the purchase
price allocation related to inventories resulting from the November 1996
Flavors Acquisition. As a percentage of net sales, cost of sales was 52.3% in
1998 and 55.0% in 1997. The 1998 decrease was due primarily to the charges
relating to the Flavors Acquisition in 1997.
SG&A expenses were $4.3 and $4.8 in 1998 and 1997, respectively. The
1998 decrease of $0.5 was primarily due to higher income recorded from the
Company's overfunded pension plan.
Interest expense, net was $2.5 and $3.5 in 1998 and 1997, respectively.
The decrease was due to lower interest rates and lower debt outstanding during
1998.
The provision for income taxes as a percentage of earnings before income
taxes was 7.4% and 13.3% in 1998 and 1997 respectively. The tax provision in
the second quarter reflects a benefit of approximately 31% 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.
8
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows from operating activities were $19.3 and
$16.6 for the six month period ended July 5, 1998 and June 29, 1997,
respectively. The increase resulted primarily from higher net income in the
1998 period. 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 $47.0 is adequate to meet customer requirements. Capital expenditures for
the six month period ended July 5, 1998 were $2.2. During the second quarter
the Company purchased its factory in Richmond, Va. which it had previously
leased, and sold its old factory, which it had used as a warehouse, to the
lessor for a net cash payment of $1.7.
Under the Credit Agreement dated as of November 17, 1997, Pneumo Abex
may borrow up to $120.0 under a revolving credit facility. At July 5, 1998,
$65.0 was borrowed under the facility and approximately $22.8 was reserved to
support lender guarantees for outstanding letters of credit. Management
believes that the remaining availability of approximately $32.2 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 foreseeable future.
9
<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.
10
<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.
M & F WORLDWIDE CORP.
(Registrant)
Date: August 5, 1998 By: /s/ Irwin Engelman
----------------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Date: August 5, 1998 By: /s/ Laurence Winoker
----------------------------------
Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
11
<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>
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-05-1998
<EXCHANGE-RATE> 1
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 11
<ALLOWANCES> 0
<INVENTORY> 47
<CURRENT-ASSETS> 60
<PP&E> 30
<DEPRECIATION> (3)
<TOTAL-ASSETS> 312
<CURRENT-LIABILITIES> 19
<BONDS> 0
20
0
<COMMON> 0
<OTHER-SE> 200
<TOTAL-LIABILITY-AND-EQUITY> 312
<SALES> 53
<TOTAL-REVENUES> 53
<CGS> 28
<TOTAL-COSTS> 28
<OTHER-EXPENSES> 6
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 16
<INCOME-TAX> 1
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.64
</TABLE>
