<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 2, 2000
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
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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 10, 2000, the Registrant had 20,653,168 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
(Dollars in millions, except per share data)
(Unaudited)
THREE MONTH PERIODS ENDED
-------------------------------
APRIL 2, APRIL 4,
2000 1999
--------- ---------
Net sales $ 22.7 $ 24.1
Cost of sales (11.9) (12.4)
------ ------
Gross profit 10.8 11.7
Selling, general and administrative expenses (1.4) (2.0)
Amortization of intangibles (1.1) (1.1)
------ ------
Operating income 8.3 8.6
Interest expense, net (0.8) (0.8)
------ ------
Income before income taxes 7.5 7.8
Provision for income taxes (3.1) (3.3)
------ ------
Net income 4.4 4.5
Preferred stock dividend - (0.4)
------ ------
Net income available to common stockholders $ 4.4 $ 4.1
====== ======
Income per common share:
Basic $ 0.21 $ 0.20
====== ======
Diluted $ 0.21 $ 0.19
====== ======
Weighted average shares outstanding:
Basic 20.7 20.7
====== ======
Diluted 20.7 23.5
====== ======
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
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M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 2, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2.6 $ 1.8
Trade accounts receivable, net 11.6 10.5
Inventories 50.5 50.3
Prepaid expenses and other 2.1 2.5
------ ------
Total current assets 66.8 65.1
Property, plant and equipment, net 23.6 24.4
Deferred tax asset, net 35.1 37.4
Intangible assets related to business acquired, net 153.8 155.5
Pension asset 29.0 27.3
Other assets 1.5 1.7
------ ------
$309.8 $311.4
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 4.0 5.1
Accrued compensation and benefits 2.8 3.8
Taxes payable 5.5 5.2
Other accrued expenses 6.2 6.2
------ ------
Total current liabilities 18.5 20.3
Long-term debt 46.0 49.0
Other liabilities 5.2 5.2
Commitments and contingencies - -
Stockholders' equity:
Common stock, par value $.01; 250,000,0000 shares authorized;
20,663,168 shares issued and outstanding 0.2 0.2
Additional paid-in-capital 26.8 26.8
Retained earnings 220.7 216.3
Accumulated other comprehensive loss (7.6) (6.4)
------ ------
Total stockholders' equity 240.1 236.9
------ ------
$309.8 $311.4
====== ======
</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)
THREE MONTH PERIODS ENDED
-------------------------
APRIL 2, APRIL 4,
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4.4 $ 4.5
Adjustments to reconcile net income to total cash
provided by operating activities:
Depreciation and amortization 1.9 1.8
Changes in assets and liabilities:
Increase in trade accounts receivable (1.2) (2.5)
(Increase) decrease in inventories (0.5) 1.1
Decrease in deferred tax asset 2.3 2.7
Decrease in accounts payable (1.0) (0.8)
Increase in pension asset (1.7) (1.1)
Other, net - (0.9)
----- -----
Cash provided by operating activities 4.2 4.8
----- -----
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (0.3) (0.2)
----- -----
Cash used in investing activities (0.3) (0.2)
----- -----
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of borrowings (6.0) (6.0)
Net short term borrowings - (0.2)
Proceeds from revolving credit facility 3.0 2.0
----- -----
Cash used in financing activities (3.0) (4.2)
----- -----
Effect of exchange rates on cash (0.1) -
----- -----
Net increase in cash and cash equivalents 0.8 0.4
Cash and cash equivalents at beginning of period 1.8 0.7
----- -----
Cash and cash equivalents at end of period $ 2.6 $ 1.1
===== =====
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
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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 1999 Form 10-K. All terms used but not defined
elsewhere herein have the meanings ascribed to them in the Company's 1999 Form
10-K.
2. INVENTORIES
Inventories are valued at the lower of cost or market and consist of the
following:
APRIL 2, DECEMBER 31,
2000 1999
-------- ------------
Raw materials and supplies $34.3 $36.2
Work-in-process 0.4 0.3
Finished goods 15.8 13.8
------ -----
$50.5 $50.3
===== =====
3. INCOME PER COMMON SHARE
Basic income per common share has been computed based on the weighted
average shares outstanding in the 2000 and 1999 periods, respectively. Diluted
income per share is computed using the weighted average shares outstanding plus
the dilutive effect of stock options for all periods presented.
4. COMPREHENSIVE INCOME
Comprehensive income for the Company for the three month periods ended April
2, 2000 and April 4, 1999 was $3.2 and $2.3, respectively. Such amounts
represent the net income less foreign currency translation adjustments for each
period presented.
5
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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 April 2, 2000 compared to the three months ended April 4,
1999
Net sales were $22.7 in the first quarter of 2000 as compared to $24.1 in
the first quarter of 1999 resulting in a decrease of $1.4 or 5.8%. First quarter
sales were negatively affected by lower shipments from the Company's French
subsidiary to their customers including some who made purchases late in 1999 in
anticipation of possible Year 2000 problems and by the foreign currency
translation effect of the weakening Euro. Domestic licorice sales increased
modestly in 2000 as a result of higher sales to foreign tobacco customers and
garden mulch customers offset by lower licorice sales to domestic tobacco
customers due to lower consumption of both cigarettes and smokeless tobacco
products, a decline in exports of domestically produced cigarettes and the
timing of shipments to some customers who made late 1999 purchases to cover
possible Year 2000 problems.
Cost of sales were $11.9 and $12.4 in the first quarter of 2000 and 1999,
respectively, a decrease of $0.5 due to the lower sales volume. As a percentage
of net sales, the Company's cost of sales was 52.4% in 2000 and 51.5% in 1999.
SG&A expenses were $1.4 and $2.0 in the first quarter of 2000 and 1999,
respectively. The 2000 expenses were lower primarily due to higher income
realized on the Company's overfunded pension plan and lower administrative
expenses for legal services.
Interest expense, net was $0.8 in both the first quarter of 2000 and 1999.
The provision for income taxes as a percentage of earnings before income
taxes was 41.3% in the first quarter of 2000 and 42.3% in the first quarter of
1999. The tax provision in the first quarter of 2000 and 1999 reflects a tax
provision for federal, state and local, and foreign income taxes.
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 occurred, these systems could interpret the
year as 1900 rather than 2000. The Company developed an extensive Plan to insure
that no disruptions would result because of this problem. The Company
experienced no disruptions upon commencement of the Year 2000 and does not
expect any disruptions in the future as a result of the Year 2000 issue. The
total cost of the program was approximately $0.3 million.
6
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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 $4.2 and $4.8
for the three month period ended April 2, 2000 and April 4, 1999, respectively.
The decrease in cash flow from operating activities in 2000 primarily resulted
from increased use of working capital. 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 $50.5 is adequate to meet customer
requirements. Capital expenditures for the three month period ended April 2,
2000 were $0.3.
The Company has available tax loss carryforwards in excess of $130.0, which
will be utilized to offset any federal taxable income for 2000.
Under the Credit Agreement dated as of November 17, 1997 as amended (the
"Credit Agreement"), the Company may borrow up to $80.0 under a revolving credit
facility. At April 2, 2000, $46.0 was borrowed under the facility and
approximately $9.1 was reserved to support lender guarantees for outstanding
letters of credit. On April 24, 2000 the Credit Agreement was amended to permit
the Company to use up to $15.0 to make repurchases of its common stock.
Management believes that the remaining availability of approximately $24.9 under
the revolving credit facility and cash flow from operations will be sufficient
to meet the Company's working capital, capital expenditure, debt service and
stock repurchases for the foreseeable future.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended April 2, 2000, 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 of unanticipated costs from Year 2000
non-compliance by one or more of its customers, suppliers, or other strategic
business partners; and (v) the failure of third parties to make full and timely
payment to the Company for environmental, asbestos, tax and other matters for
which the Company is entitled to indemnification. The Company assumes no
responsibility to update forward-looking information contained in this Form 10-Q
filing.
7
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M & F WORLDWIDE CORP. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.15* Amendment Number Three to the Credit Agreement dated as of
April 24, 2000.
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: May 10, 2000 By: /s/ Todd J. Slotkin
-----------------------------
Todd J. Slotkin
Executive Vice President and
Chief Financial Officer
Principal Financial Officer
Date: May 10, 2000 By: /s/ Peter W. Grace
-----------------------------
Peter W. Grace
Principal Accounting Officer
8
<PAGE>
Exhibit 10.15
THIRD AMENDMENT, dated as of April 24, 2000 (this "Amendment"), to the
CREDIT AGREEMENT dated as of November 17, 1997, as amended by the First
Amendment dated as of April 1, 1999 and the Second Amendment dated as of
November 23, 1999 (the "Credit Agreement"), among Pneumo Abex Corporation (the
"Company"), the financial institutions from time to time parties to the Credit
Agreement (the "Lenders"), the arranger and documentation agent named therein
and The Chase Manhattan Bank, as Administrative Agent. Terms defined in the
Credit Agreement shall be used in this Amendment with their defined meanings
unless otherwise defined herein.
W I T N E S S E T H :
WHEREAS, the Company has requested the Lenders to enter into this
Amendment to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
I. AMENDMENTS.
1. The definitions of "Applicable Margin" and "Commitment Fee Rate"
contained in subsection 1.1 of the Credit Agreement are hereby amended and
restated in their entirety as follows:
"Applicable Margin" shall mean 1.0% per annum.
"Commitment Fee Rate" shall mean 0.375% per annum.
2. The definition of "Pricing Grid" contained in subsection 1.1 of the
Credit Agreement is hereby deleted.
3. Subsection 8.1(a) of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"(a) Leverage. Permit the Leverage Ratio as of the last day of any
fiscal quarter to exceed 2.25 to 1.0."
4. Subsection 8.6 of the Credit Agreement is hereby amended by adding
a new clause (vi) to the end thereof which shall read in its entirety as
follows:
"(vi) So long as no Default or Event of Default has occurred and is
continuing at the time such Restricted Payment is made or would result
therefrom, up to $15,000,000 of Restricted Payments made (directly or
indirectly) for the purpose of enabling M&F Worldwide Corp. to
repurchase its common stock"
II. MISCELLANEOUS.
1. Representations and Warranties. The Company hereby represents and
warrants as of the Third Amendment Effective Date that, after giving effect to
this Amendment, (a) no Default or Event of Default has occurred and is
continuing and (b) all representations and warranties of the Company contained
in the Loan Documents (with each reference to the Loan Documents in such
representations and warranties being deemed to include, unless the context
otherwise requires, this
<PAGE>
Amendment and the Credit Agreement as amended by this Amendment) are true and
correct in all material respects with the same effect as if made on and as of
such date.
2. Expenses. The Company agrees to pay or reimburse the Administrative
Agent on demand for all its reasonable out-of-pocket costs and expenses incurred
in connection with the preparation and execution of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
3. No Change. Except as expressly provided herein, no term or
provision of the Credit Agreement shall be amended, modified or supplemented,
and each term and provision of the Credit Agreement shall remain in full force
and effect.
4. Effectiveness. This Amendment shall become effective on the date
(the "Third Amendment Effective Date") on which (a) the Administrative Agent
shall have received counterparts hereof duly executed by the Company and the
Required Lenders and (b) the Company shall have paid to the Administrative Agent
for the account of the relevant Lenders an amendment fee equal to 0.125% of the
Commitment of each Lender that submits an executed signature page to the
Administrative Agent or its counsel (including by facsimile transmission) no
later than 5:00 p.m., New York City time, on April 24, 2000.
5. Counterparts. This Amendment may be executed by the parties hereto
in any number of separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the date first above written.
PNEUMO ABEX CORPORATION
By: /s/ Peter W. Grace
----------------------------------
Title: Senior Vice President
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Neil R. Boylan
----------------------------------
Title: Managing Director
FLEET NATIONAL BANK f/k/a BANKBOSTON,
N.A.
By: /s/ Daniel C. Dupre
----------------------------------
Title: Authorized Officer
<PAGE>
BANQUE PARIBAS
By: /s/ John J. McCormick, III
----------------------------------
Title: Vice President
BANQUE PARIBAS
By: /s/ Darryl M. Monasebian
----------------------------------
Title: Director
Merchant Banking Group
FUJI BANK, LIMITED
By: /s/ John D. Doyle
----------------------------------
Title: Vice President & Manager
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Thomas E. Johnstone
----------------------------------
Title: Duly Authorized Signatory
NATEXIS BANQUE BFCE
By: /s/ Frank H. Madden, Jr.
----------------------------------
Title: Vice President & Group Manager
NATEXIS BANQUE BFCE
By: /s/ Jordan Sadler
----------------------------------
Title: Assistant Vice President
NATIONAL WESTMINSTER BANK PLC
By: /s/ Andrew S. Weinberg
----------------------------------
Title: Senior Vice President
ROYAL BANK OF CANADA
By: /s/ Michael Korine
----------------------------------
Title: Vice President
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Elliot J. Jaffee
----------------------------------
Title: Senior Vice President
CREDIT AGRICOLE INDOSUEZ
By: /s/ Sarah McClintock
----------------------------------
Title: Vice President
CREDIT AGRICOLE INDOSUEZ
By: /s/ Michael Fought
----------------------------------
Title: Vice President
<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
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
<EXCHANGE-RATE> 1
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 12
<ALLOWANCES> 0
<INVENTORY> 51
<CURRENT-ASSETS> 67
<PP&E> 31
<DEPRECIATION> (7)
<TOTAL-ASSETS> 310
<CURRENT-LIABILITIES> 19
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 240
<TOTAL-LIABILITY-AND-EQUITY> 310
<SALES> 23
<TOTAL-REVENUES> 23
<CGS> 12
<TOTAL-COSTS> 12
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 7
<INCOME-TAX> 3
<INCOME-CONTINUING> 4
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
