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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 1, 2000
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
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
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As of November 13, 2000, the Registrant had 19,121,271 outstanding shares of
common stock of which 6,648,800 shares were held by Mafco Consolidated Group
Inc.
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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
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OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $ 22.3 $ 23.1 $ 69.5 $ 72.0
Cost of sales (11.7) (12.6) (36.2) (38.1)
------ ---- ------ ------
Gross profit 10.6 10.5 33.3 33.9
Selling, general and administrative expenses (0.7) (2.4) (3.4) (6.1)
Amortization of intangibles (1.1) (1.0) (3.3) (3.2)
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Operating income 8.8 7.1 26.6 24.6
Interest expense, net (0.8) (0.6) (2.4) (2.1)
------ ---- ------ ------
Income before income taxes 8.0 6.5 24.2 22.5
Provision for income taxes (3.4) (2.8) (10.1) (9.5)
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Net income 4.6 3.7 14.1 13.0
Preferred stock dividend - (0.4) - (1.2)
------ ---- ------ ------
Net income available to common stockholders $ 4.6 $3.3 $ 14.1 $ 11.8
====== ====== ====== ======
Income per common share:
Basic $ 0.24 $ 0.16 $ 0.70 $ 0.57
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Diluted $ 0.24 $ 0.16 $ 0.70 $ 0.56
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Weighted average shares outstanding:
Basic 19.5 20.7 20.2 20.7
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Diluted 19.6 23.4 20.3 23.4
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</TABLE>
See Notes to 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>
OCTOBER 1, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2.8 $ 1.8
Trade accounts receivable, net 10.9 10.5
Inventories 49.1 50.3
Prepaid expenses and other 2.2 2.5
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Total current assets 65.0 65.1
Property, plant and equipment, net 22.7 24.4
Deferred tax asset, net 29.7 37.4
Intangible assets related to business acquired, net 150.8 155.5
Pension asset 32.3 27.3
Other assets 1.7 1.7
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$302.2 $311.4
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LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 1.3 $ --
Trade accounts payable 3.6 5.1
Accrued compensation and benefits 3.8 3.8
Taxes payable 6.2 5.2
Other accrued expenses 4.8 6.2
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Total current liabilities 19.7 20.3
Long-term debt 38.0 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 October 1, 2000 and
December 31, 1999 0.2 0.2
Additional paid-in-capital 26.8 26.8
Treasury stock at cost
1,541,900 shares at October 1, 2000 (8.7) --
Retained earnings 230.4 216.3
Accumulated other comprehensive loss (9.4) (6.4)
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Total stockholders' equity 239.3 236.9
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$302.2 $311.4
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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M & F WORLDWIDE CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
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OCTOBER 1, OCTOBER 3,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14.1 $ 13.0
Adjustments to reconcile net income to total cash
provided by operating activities:
Depreciation and amortization 5.2 5.3
Changes in assets and liabilities:
Increase in trade accounts receivable (0.7) (2.5)
Decrease in inventories 0.4 0.2
Decrease in deferred tax asset 7.7 8.0
Decrease in accounts payable (1.3) (0.2)
Increase in pension asset (5.0) (4.0)
Other, net 0.2 (1.1)
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Cash provided by operating activities 20.6 18.7
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (0.8) (0.8)
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Cash used in investing activities (0.8) (0.8)
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CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of borrowings (21.3) (18.0)
Net short term borrowings 1.4 (0.9)
Proceeds from revolving credit facility 10.3 3.0
Repurchase of the Company's common stock at cost (8.7) -
Preferred dividends - (1.2)
Debt issuance costs (0.3) -
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Cash used in financing activities (18.6) (17.1)
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Effect of exchange rate on cash (0.2) -
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Net increase in cash and cash equivalents 1.0 0.8
Cash and cash equivalents at beginning of period 1.8 0.7
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Cash and cash equivalents at end of period $ 2.8 $ 1.5
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</TABLE>
See Notes to 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").
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:
OCTOBER 1, DECEMBER 31,
2000 1999
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Raw materials and supplies $34.2 $36.2
Work-in-process 0.2 0.3
Finished goods 14.7 13.8
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$49.1 $50.3
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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 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 until its redemption on December
6, 1999 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 1, 2000 and October 3, 1999 was $2.9 and $4.8, respectively, and $11.1
and $10.6, respectively, for the nine month periods ended October 1, 2000 and
October 3, 1999. Such amounts represent the net income less foreign currency
translations 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 October 1, 2000 compared to the three months ended October 3,
1999
Net sales were $22.3 in the third quarter of 2000 and $23.1 in the third
quarter of 1999. The decrease of $0.8 or 3.5% was due to lower shipment volume
primarily to the Company's non-licorice natural product customers.
Cost of sales were $11.7 and $12.6 in the third quarter of 2000 and 1999,
respectively. As a percentage of net sales, the Company's cost of sales was
52.5% in 2000 and 54.5% in 1999. This decrease was due to lower material costs
and a change in the mix of products sold.
SG&A expenses were $0.7 and $2.4 in the third quarter of 2000 and 1999,
respectively. The 2000 expenses were lower primarily due to higher income
recorded on the Company's overfunded pension plan, lower salary and benefit
expenses, and lower professional service costs.
Interest expense, net was $0.8 and $0.6 in the third quarter of 2000 and
1999, respectively. The increase was due to higher average interest rates and
higher average borrowings in 2000.
The tax provision for federal, state and local, and foreign income taxes as
a percentage of earnings before income taxes was 42.5% in 2000 and 43.1% in
1999.
Nine months ended October 1, 2000 compared to the nine months ended October 3,
1999
Net sales were $69.5 and $72.0 for the nine months ended October 1, 2000 and
October 3, 1999, respectively. The decrease of $2.5 or 3.5% resulted from
decreased shipments to the Company's tobacco and non tobacco licorice customers
from its French subsidiary and lower U.S. and foreign sales of non-licorice
natural products.
Cost of sales were $36.2 and $38.1 in 2000 and 1999, respectively. As a
percentage of net sales, cost of sales was 52.1% in 2000 and 52.9% in 1999. The
2000 decrease was due primarily to lower material costs.
SG&A expenses were $3.4 and $6.1 in 2000 and 1999, respectively. The $2.7
decrease in 2000 was primarily due to higher income from the Company's
overfunded pension plan, lower salary and related benefit expenses, and lower
professional service costs.
Interest expense, net was $2.4 and $2.1 in 2000 and 1999, respectively. The
increase was due to higher average interest rates and higher average borrowings
in 2000.
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)
The tax provision for federal, state and local, and foreign income taxes as
a percentage of earnings before income taxes was 41.7% and 42.2% in 2000 and
1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows from operating activities were $20.6 and $18.7
for the nine months ended October 1, 2000 and October 3, 1999, respectively. The
increase of $1.9 for the 2000 period resulted primarily from the increase in net
income, a smaller increase in accounts receivable due to the timing of shipments
and non-recurring litigation settlement payments in 1999 partially offset by 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 $49.1 is adequate to meet customer
requirements. Capital expenditures for the nine months ended October 1, 2000
were $0.8.
Under the Credit Agreement dated as of November 17, 1997 and amended April
9, 1999 (the "Credit Agreement"), the Company may borrow up to $80.0 under a
revolving credit facility. At October 1, 2000, $38.0 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 third quarter the Company repurchased 991,300 shares
for $5.6 which averages $5.675 per share. Management believes that the remaining
availability of approximately $37.4 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 October 1, 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
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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
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 13, 2000 By: /s/ Todd J. Slotkin
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Todd J. Slotkin
Executive Vice President and
Chief Financial Officer
Date: November 13, 2000 By: /s/ Peter W. Grace
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Peter W. Grace
Principal Accounting Officer
8
