<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 October 3, 1999
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.
- --------------------------------------------------------------------------------
(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 10, 1999, the Registrant had 20,663,168 outstanding shares of
common stock of which 6,648,800 shares were held by Mafco Consolidated Group
Inc.
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
------------------------- ------------------------
OCTOBER 3, OCTOBER 4, OCTOBER 3, OCTOBER 4,
1999 1998 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net sales $ 23.1 $ 24.2 $ 72.0 $ 77.0
Cost of sales (12.6) (12.5) (38.1) (40.1)
-------- -------- -------- -------
Gross profit 10.5 11.7 33.9 36.9
Selling, general and administrative expenses (2.4) (1.8) (6.1) (6.1)
Amortization of intangibles (1.0) (1.1) (3.2) (3.3)
-------- -------- -------- -------
Operating income 7.1 8.8 24.6 27.5
Interest expense, net (0.6) (1.0) (2.1) (3.5)
-------- -------- -------- -------
Income before income taxes 6.5 7.8 22.5 24.0
Provision for income taxes (2.8) (0.5) (9.5) (1.7)
-------- -------- -------- -------
Net income 3.7 7.3 13.0 22.3
Preferred stock dividend (0.4) (0.4) (1.2) (1.2)
-------- -------- -------- -------
Net income available to common stockholders $3.3 $ 6.9 $ 11.8 $ 21.1
======== ======== ======== =======
Income per common share:
Basic $ 0.16 $ 0.33 $ 0.57 $ 1.02
======== ======== ======== =======
Diluted $ 0.16 $ 0.31 $ 0.56 $ 0.95
======== ======== ======== =======
Weighted average shares outstanding:
Basic 20.7 20.7 20.7 20.7
======== ======== ======== =======
Diluted 23.4 23.6 23.4 23.6
======== ======== ======== =======
</TABLE>
See Notes to 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>
OCTOBER 3, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1.5 $ 0.7
Trade accounts receivable, net 11.9 9.6
Inventories 49.3 50.4
Prepaid expenses and other 2.0 2.2
--------- ----------
Total current assets 64.7 62.9
Property, plant and equipment, net 25.0 26.6
Deferred tax asset, net 39.4 47.4
Intangible assets related to business acquired, net 157.4 161.8
Pension asset 26.0 21.9
Other assets 1.5 1.7
--------- ----------
$ 314.0 $322.3
========= ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 0.3 $ 1.3
Trade accounts payable 4.2 4.6
Accrued compensation and benefits 4.4 4.0
Taxes payable 3.9 3.3
Other accrued expenses 6.5 6.5
--------- ----------
Total current liabilities 19.3 19.7
Long-term debt 37.0 52.0
Other liabilities 5.1 7.5
Redeemable preferred stock 20.0 20.0
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 250,000,0000 shares authorized;
20,663,168 shares issued and outstanding in 1999; 20,656,502
shares issued and outstanding in 1998 0.2 0.2
Additional paid-in-capital 26.8 26.7
Retained earnings 210.5 198.7
Currency translation adjustment (4.9) (2.5)
--------- ----------
Total stockholders' equity 232.6 223.1
--------- ----------
$ 314.0 $322.3
========= ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
--------------------------
OCTOBER 3, OCTOBER 4,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13.0 $ 22.3
Adjustments to reconcile net income to total cash
provided by operating activities:
Depreciation and amortization 5.3 5.2
Changes in assets and liabilities:
Increase in trade accounts receivable (2.5) (0.5)
Decrease in inventories 0.2 1.2
Decrease in accounts payable (0.2) (1.1)
Other, net 2.9 (0.9)
------- --------
Cash provided by operating activities 18.7 26.2
------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (0.8) (3.0)
------- --------
Cash used in investing activities (0.8) (3.0)
------- --------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of borrowings, net (15.9) (17.6)
Preferred dividends (1.2) (1.6)
Deferred cash payment due to parent company - (3.5)
------- --------
Cash used in financing activities (17.1) (22.7)
------- --------
Net increase in cash and cash equivalents 0.8 0.5
Cash and cash equivalents at beginning of period 0.7 0.4
------- --------
Cash and cash equivalents at end of period $ 1.5 $ 0.9
======= ========
</TABLE>
See Notes to 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 1998 Form 10-K. All terms used but not defined
elsewhere herein have the meanings ascribed to them in the Company's 1998 Form
10-K.
2. INVENTORIES
Inventories are valued at the lower of cost or market and consist of the
following:
OCTOBER 4, DECEMBER 31,
1999 1998
---------- ------------
Raw materials and supplies $36.2 $36.0
Work-in-process 0.4 0.5
Finished goods 12.7 13.9
----- -----
$49.3 $50.4
===== =====
3. INCOME PER COMMON SHARE
Basic income per common share has been computed based on the weighted average
shares outstanding in the 1999 and 1998 period, 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.
4. COMPREHENSIVE INCOME
Comprehensive income for the Company for the three month periods ended
October 3, 1999 and October 4, 1998 was $4.8 and $8.1, respectively, and $10.6
and $23.1, respectively, for the nine month periods ended October 3, 1999 and
October 4, 1998. Such amounts represent the net income adjusted for changes in
foreign currency translations for each period presented.
5
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
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.
Three months ended October 3, 1999 compared to the three months ended October 4,
1998
Net sales were $23.1 in the third quarter of 1999 and $24.2 in the third
quarter of 1998. The decrease of $1.1 or 4.6% was due to lower demand in the
United States, China and eastern Europe.
Cost of sales were $12.6 and $12.5 in the third quarter of 1999 and 1998,
respectively. As a percentage of net sales, the Company's cost of sales was
54.5% in 1999 and 51.7% in 1998. This increase was due to the lower sales volume
of higher margin products.
SG&A expenses were $2.4 and $1.8 in the third quarter of 1999 and 1998,
respectively. The 1999 expenses were higher primarily due to a nonrecurring
severance obligation.
Interest expense, net was $0.6 and $1.0 in the third quarter of 1999 and
1998, respectively. The decrease was due to lower average debt outstanding in
the quarter.
The provision for income taxes as a percentage of earnings before income
taxes was 43.1% in 1999 and 6.4% in 1998. The tax provision in the third quarter
reflects a tax provision for federal, state and local, and foreign income taxes.
The lower effective tax rate in the third quarter of 1998 reflects a reduction
in the valuation allowance for the portion of the Company's net operating loss
carryforwards expected to be utilized.
Nine months ended October 3, 1999 compared to the nine months ended October 4,
1998
Net sales were $72.0 and $77.0 for the nine months ended October 3, 1999 and
October 4, 1998, respectively. The decrease of $5.0 or 6.5% resulted from lower
demand in the United States, China and eastern Europe.
Cost of sales were $38.1 and $40.1 in 1999 and 1998, respectively. As a
percentage of net sales, cost of sales was 52.9% in 1999 and 52.1% in 1998. The
1999 increase was due primarily to lower sales of higher margin products.
SG&A expenses were $6.1 in both 1999 and 1998. The $0.6 increase in SG&A
expenses relating to severance costs was offset in the second quarter due to
higher income from the Company's over-funded pension plan.
Net interest expense was $2.1 and $3.5 in 1999 and 1998, respectively. The
decrease was due to lower interest rates and lower debt outstanding during 1999.
6
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
The provision for income taxes as a percentage of earnings before income
taxes was 42.2% and 7.1% in 1999 and 1998, respectively. The tax provision in
the nine months ended October 3, 1999 reflects a tax provision for federal,
state and local, and foreign income taxes. The lower effective tax rate in the
nine months ended October 4, 1998 reflects a reduction in the valuation
allowance for the portion of the Company's net operating loss carryforwards
expected to be utilized.
YEAR 2000
The Year 2000 issue refers to the fact that many computer systems were
originally programmed using two digits rather than four digits to identify the
applicable year. When the year 2000 occurs, these systems could interpret the
year as 1900 rather than 2000. Unless hardware, system software and applications
are corrected to be Year 2000 compliant, computers and the devices they control
could generate miscalculations and create operational problems. Various systems
could be affected, ranging from complex information technology ("IT") computer
systems to non-IT devices such as an individual machine's programmable logic
controller.
To address this issue, the Company developed a multi-phase plan including the
formation of a team consisting of internal resources and third-party experts.
The phases of the plan included: inventorying affected technology and assessing
the impact of the Year 2000 issue on IT systems, non-IT systems (such as factory
equipment, building systems and other embedded systems) and business partner
readiness; developing solution plans; modification or replacement; testing and
certification; and developing contingency plans. The Company has completed the
remediation and testing of the software, hardware and manufacturing control
systems which management believes are now compliant.
The Company relies on third-party suppliers for many products and services
and the Company could be adversely impacted if these suppliers, and the
Company's customers as well, do not make the necessary changes to their own
systems and products successfully and in a timely manner. The Company has
communicated with its customers and suppliers on this issue in an effort to
minimize any potential Year 2000 compliance impact. The Company's primary
suppliers of licorice root and licorice extract do not rely on computer
applications and will therefore be able to supply the Company with its licorice
requirements after the turn of the century. In addition, the Company plans to
have on hand at December 31, 1999, enough licorice root to meet production
requirements for the next fifteen to twenty four months, thus mitigating any
major disruptions in the ocean freight transportation system. The Company's
principal customers are the major US cigarette and chewing tobacco companies.
They have informed us that they have programs in effect to become compliant by
the turn of the century, however, it is not possible to guarantee their
compliance.
The total cost of the program is estimated to be $0.3 of which primarily all
has been incurred and expensed.
Management of the Company believes it has resolved the Year 2000 issue in a
timely manner. Nevertheless, since it is not possible to anticipate all possible
future outcomes, especially when third parties are involved, there could be
circumstances in which the Company would be unable, in its usual fashion, to
take customer orders, manufacture and ship products, invoice customers or
collect payments. In addition, failure of critical suppliers and service
providers to perform and disruptions in the economy generally resulting from
Year 2000 issues could also materially adversely affect the Company. The amount
of potential liability and lost revenue, if any, cannot be reasonably estimated
at this time nor can the Company identify specifically the most likely worst
case scenario.
7
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
The Company has contingency plans for its critical applications which
involve, among other actions, manual workarounds, increasing certain inventories
and adjusting staffing strategies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows from operating activities were $18.7 and $26.2
for the nine months ended October 3, 1999 and October 4, 1998, respectively. The
decrease of $7.5 for the 1999 period resulted primarily from lower net income.
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 $49.3 is
adequate to meet customer requirements. Capital expenditures for the nine months
ended October 3, 1999 were $0.8.
Under the Credit Agreement dated as of November 17, 1997 and amended April 9,
1999, the Company may borrow up to $80.0 under a revolving credit facility. At
October 3, 1999, $37.0 was borrowed under the facility and approximately $8.8
was reserved to support lender guarantees for outstanding letters of credit.
Management believes that the remaining availability of approximately $34.2 under
the revolving credit facility and cash flow from operations will be sufficient
to meet the Company's working capital, capital expenditures and debt service for
the foreseeable future.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended October 3, 1999, as
well as certain of the Company's other public documents and statements and oral
statements, contains forward-looking statements that reflect management's
current assumptions and estimates of future performance and economic conditions.
Such statements are made in reliance upon the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company cautions investors
that any forward-looking statements are subject to risks and uncertainties that
may cause actual results and future trends to differ materially from those
projected, stated, or implied by the forward-looking statements.
The Company's consolidated results and the forward-looking statements could
be affected by, among other things, (i) economic, climatic or political
conditions in countries in which the Company sources licorice root; (ii)
economic, climatic or political conditions that have an impact on the worldwide
tobacco industry or on the consumption of tobacco products in which licorice
extract is used; (iii) additional government regulation of tobacco products,
tobacco industry litigation or enactment of new or increased taxes on cigarettes
or other tobacco products, to the extent any of the foregoing curtail growth in
or actually reduce consumption of tobacco products in which licorice extract is
used; (iv) difficulties, delays or unanticipated costs in achieving Year 2000
compliance or unanticipated consequences from non-compliance by the Company or
one or more of its customers, suppliers, or other strategic business partners.
The Company assumes no responsibility to update forward-looking information
contained in this Form 10-Q filing.
8
<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)
Date: November 10, 1999 By: /s/ Todd J. Slotkin
------------------------------
Todd J. Slotkin
Executive Vice President and
Chief Financial Officer
Date: November 10, 1999 By: /s/ Laurence Winoker
------------------------------
Laurence Winoker
Senior Vice President, Controller
and Treasurer
(Principal Accounting Officer)
9
<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
qualilfied in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000945235
<NAME> M&F WORLDWIDE CORPORATION
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-03-1999
<EXCHANGE-RATE> 1
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 12
<ALLOWANCES> 0
<INVENTORY> 49
<CURRENT-ASSETS> 65
<PP&E> 32
<DEPRECIATION> (7)
<TOTAL-ASSETS> 314
<CURRENT-LIABILITIES> 19
<BONDS> 0
20
0
<COMMON> 0
<OTHER-SE> 233
<TOTAL-LIABILITY-AND-EQUITY> 314
<SALES> 72
<TOTAL-REVENUES> 72
<CGS> 38
<TOTAL-COSTS> 38
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 23
<INCOME-TAX> 10
<INCOME-CONTINUING> 13
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.56
</TABLE>
