<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 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.
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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
(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 7, 2000, the Registrant had 20,112,568 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)
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
------------------------- -----------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 24.5 $ 24.8 $ 47.2 $ 48.9
Cost of sales (12.6) (13.1) (24.5) (25.5)
---------- ---------- --------- ---------
Gross profit 11.9 11.7 22.7 23.4
Selling, general and administrative expenses (1.3) (1.7) (2.7) (3.7)
Amortization of intangibles (1.1) (1.1) (2.2) (2.2)
---------- ---------- --------- ---------
Operating income 9.5 8.9 17.8 17.5
Interest expense, net (0.8) (0.7) (1.6) (1.5)
---------- ---------- --------- ---------
Income before income taxes 8.7 8.2 16.2 16.0
Provision for income taxes (3.6) (3.4) (6.7) (6.7)
---------- ---------- --------- ---------
Net income 5.1 4.8 9.5 9.3
Preferred stock dividend - (0.4) - (0.8)
---------- ---------- --------- ---------
Net income available to common stockholders $5.1 $ 4.4 $9.5 $ 8.5
========== ========== ========= =========
Income per common share:
Basic $ 0.25 $ 0.21 $ 0.46 $ 0.41
========== ========== ========= =========
Diluted $ 0.25 $ 0.21 $ 0.46 $ 0.40
========== ========== ========= =========
Weighted average shares outstanding:
Basic 20.5 20.7 20.6 20.7
========== ========== ========= =========
Diluted 20.5 23.2 20.6 23.4
========== ========== ========= =========
</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>
JULY 2, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1.7 $ 1.8
Trade accounts receivable, net 11.7 10.5
Inventories 50.8 50.3
Prepaid expenses and other 2.3 2.5
------------ ------------
Total current assets 66.5 65.1
Property, plant and equipment, net 23.3 24.4
Deferred tax asset, net 32.3 37.4
Intangible assets related to business acquired, net 152.8 155.5
Pension asset 30.6 27.3
Other assets 1.8 1.7
------------ ------------
$ 307.3 $311.4
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 1.1 $ -
Trade accounts payable 4.7 5.1
Accrued compensation and benefits 3.2 3.8
Taxes payable 5.7 5.2
Other accrued expenses 5.4 6.2
------------ ------------
Total current liabilities 20.1 20.3
Long-term debt 40.0 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 at July 2, 2000 and December 31, 1999 0.2 0.2
Additional paid-in-capital 26.8 26.8
Treasury stock at cost
550,600 shares at July 2, 2000 (3.1) -
Retained earnings 225.8 216.3
Accumulated other comprehensive loss (7.7) (6.4)
------------ ------------
Total stockholders' equity 242.0 236.9
------------ ------------
$ 307.3 $311.4
============ ============
</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>
SIX MONTH PERIODS ENDED
-----------------------
JULY 2, JULY 4,
2000 1999
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9.5 $ 9.3
Adjustments to reconcile net income to total cash
provided by operating activities:
Depreciation and amortization 3.5 3.5
Changes in assets and liabilities:
Increase in trade accounts receivable (1.3) (2.3)
(Increase) decrease in inventories (0.8) 0.9
Decrease in deferred tax asset 5.1 5.7
Decrease in accounts payable (0.3) (0.7)
Increase in pension asset (3.3) (2.7)
Other, net (0.6) (2.3)
--------- ----------
Cash provided by operating activities 11.8 11.4
--------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (0.5) (0.5)
--------- ----------
Cash used in investing activities (0.5) (0.5)
--------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of borrowings (14.0) (12.0)
Net short term borrowings 1.1 (0.5)
Proceeds from revolving credit facility 5.0 3.0
Repurchase of the Company's common stock at cost (3.1) -
Preferred dividends - (0.8)
Debt issuance costs (0.3) -
--------- ----------
Cash used in financing activities (11.3) (10.3)
--------- ----------
Effect of exchange rate on cash (0.1) -
--------- ----------
Net increase in cash and cash equivalents (0.1) 0.6
Cash and cash equivalents at beginning of period 1.8 0.7
--------- ----------
Cash and cash equivalents at end of period $ 1.7 $ 1.3
========= ==========
</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").
Through Pneumo Abex, the Company is primarily in the business of producing
licorice flavors and other flavoring agents and whole and processed plant
products.
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:
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Raw materials and supplies $33.7 $36.2
Work-in-process 0.1 0.3
Finished goods 17.0 13.8
----- -----
$50.8 $50.3
===== =====
</TABLE>
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 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 July
2, 2000 and July 4, 1999 was $5.0 and $3.5, respectively, and $8.2 and $5.8,
respectively, for the six month periods ended July 2, 2000 and July 4, 1999.
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 July 2, 2000 compared to the three months ended July 4, 1999
Net sales were $24.5 in the second quarter of 2000 and $24.8 in the second
quarter of 1999. The decrease of $0.3 or 1.2% was due to lower shipment volume
primarily to the Company's non-licorice natural product customers. This decline
was partially offset by an increase in revenues from the Company's domestic and
foreign licorice operations.
Cost of sales were $12.6 and $13.1 in the second quarter of 2000 and 1999,
respectively. As a percentage of net sales, the Company's cost of sales was
51.4% in 2000 and 52.8% in 1999. This decrease was due to lower material costs
and a change in the mix of products sold.
SG&A expenses were $1.3 and $1.7 in the second quarter of 2000 and 1999,
respectively. The 2000 expenses were lower primarily due to higher income
recorded on the Company's overfunded pension plan.
Interest expense, net was $0.8 and $0.7 in the second quarter of 2000 and
1999, respectively. The increase was due to higher average interest rates.
The tax provision for federal, state and local, and foreign income taxes as
a percentage of earnings before income taxes was 41.4% in 2000 and 41.5% in
1999.
Six months ended July 2, 2000 compared to the six months ended July 4, 1999
Net sales were $47.2 and $48.9 for the six months periods ended July 2, 2000
and July 4, 1999, respectively. The decrease of $1.7 or 3.5% resulted from
decreased shipments to the Company's tobacco and non tobacco customers from its
French subsidiary and lower domestic sales of non-licorice natural products.
Cost of sales were $24.5 and $25.5 in 2000 and 1999, respectively. As a
percentage of net sales, cost of sales was 51.9% in 2000 and 52.1% in 1999. The
2000 decrease was due primarily to lower material costs.
SG&A expenses were $2.7 and $3.7 in 2000 and 1999, respectively. The $1.0
decrease in 2000 was primarily due to higher income from the Company's
overfunded pension plan.
Interest expense, net was $1.6 and $1.5 in 2000 and 1999, respectively. The
increase was due to higher average interest rates in 2000.
6
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS)
The tax provision for federal, state and local, and foreign income taxes as
a percentage of earnings before income taxes was 41.4% and 41.9% in 2000 and
1999 respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows from operating activities were $11.8 and $11.4
for the six month period ended July 2, 2000 and July 4, 1999, respectively. The
increase of $0.4 for the 2000 period resulted primarily from a smaller increase
in accounts receivable due to the timing of shipments and non-recurring
litigation settlement payments partially offset by an increase in inventories
and the timing of accruals and related payments. 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 $50.8 is adequate to meet customer
requirements. Capital expenditures for the six month period ended July 2, 2000
were $0.5.
Under the Credit Agreement dated as of November 17, 1997 as amended April 9,
1999 (the "Credit Agreement"), the Company may borrow up to $80.0 under a
revolving credit facility. At July 2, 2000, $40.0 was borrowed under the
facility and approximately $4.6 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. During the second quarter the Company repurchased 550,600 shares
for $3.1 which averages $5.60 per share. Management believes that the remaining
availability of approximately $35.4 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.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q for the quarter ended July 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; and (iv) the failure of third parties to make full
and timely payment to the Company for the 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
<PAGE>
M & F WORLDWIDE CORP. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on May 18, 2000.
(b) Not required to be presented
(c) At the Annual Meeting of Stockholders, the following matters were voted
upon: the election of four persons to the Board of Directors of the
Company, the ratification of the selection of Ernst & Young LLP, as
independent auditors for the Company for the fiscal year ending
December 31, 2000, and to approve the adoption of the Company's 2000
Stock Option Plan. The results of the voting on matters presented at
the Company's Annual Meeting of Stockholders were as follows:
<TABLE>
<CAPTION>
VOTES
DESCRIPTION VOTES FOR WITHHELD
----------- --------- --------
<S> <C> <C>
ELECTION OF DIRECTORS:
Howard Gittis 18,642,049 382,734
J. Eric Hanson 18,642,100 382,683
James R. Maher 18,641,892 382,891
Paul M. Meister 18,637,047 387,736
</TABLE>
There were no abstentions or broker non-votes on the election of
Directors.
<TABLE>
<CAPTION>
VOTES BROKER
DESCRIPTION VOTES FOR AGAINST ABSTENTIONS NON-VOTES
----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Ratification of the
appointment of
Ernst & Young LLP 18,938,373 71,150 15,260 0
<CAPTION>
VOTES BROKER
DESCRIPTION VOTES FOR AGAINST ABSTENTIONS NON-VOTES
----------- --------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Approval of the 2000
Stock Option Plan 13,398,272 2,452,586 61,215 3,112,710
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27* Financial Data Schedule
* filed herein
(b) Reports on Form 8-K
The Company filed a Form 8-K during the period covered by this report
to register the 2000 M&F Worldwide Stock Option Plan.
8
<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 9, 2000 By: /s/ Todd J. Slotkin
--------------------------------
Todd J. Slotkin
Executive Vice President and
Chief Financial Officer
Date: August 9, 2000 By: /s/ Peter W. Grace
--------------------------------
Peter W Grace
Principal Accounting Officer
9
