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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 27, 1999
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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 33-67908
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MOSLER INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 31-1172814
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8509 BERK BOULEVARD
HAMILTON, OHIO 45015-2213
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(Address of principal executive offices) (Zip Code)
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(513) 870-1900
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if changed since last
report)
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practical date.
Common Stock, $0.10 Par Value 2,072,790.02 SHARES AS OF MARCH 27, 1999
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MOSLER INC.
ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Certain statements contained in the following Discussion and Analysis of
Financial Condition and Results of Operations are "Forward-looking statements"
within the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions that such
statements are necessarily based on certain assumptions which are subject to
risks and uncertainties, including, but not limited to, changes in general
economic conditions, increased competition, and the availability of production
capacity which could cause actual results to differ materially from those
indicated herein. Further information or these risk factors in included in the
Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS:
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THREE MONTHS ENDED MARCH 27, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 28,
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1998
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SALES
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The Company's sales increased during the three months ended March 27, 1999 by
36.5% to $75.8 million from $55.5 million. Service sales increased by 40.1% to
$36.1 million from $25.8 million and product sales increased by 33.4% to $39.7
million from $29.7 for the three months ended March 27, 1999 as compared to the
three months ended March 28, 1998. Electronic Security Systems sales increased
73.2% and Physical Security Systems sales increased by 8.2%. The increases are
mainly attributed to the acquisition of LeFebure in October 1998.
GROSS PROFIT
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Gross profit for the three months ended March 27, 1999 increased by 43.6% to
$17.5 million from $12.2 million for the same period in the prior year. Gross
profit as a percentage of sales increased to 23.0% from 21.8% for the three
months ended March 27, 1999.
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SELLING AND ADMINISTRATIVE EXPENSE
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Selling and administrative expense increased in the three months ended March 27,
1999 by 49.6% to $14.6 million from $9.8 million. The increase is a result of
the purchase of LeFebure. Selling and administrative expense as a percentage of
sales increased to 19.2% from 17.5%.
OPERATING INCOME
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The Company's operating income for the three months ended March 27, 1999 of $2.6
million is $.1 million less than for the three months ended March 28, 1998.
Included in operating income were transition costs associated with the
acquisition of LeFebure amounting to $1.8 million.
DEBT EXPENSE
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Debt expense increased for the three months ended March 27, 1999 by 50.0% to
$7.0 million from $4.7 million for the same period in the prior year. The
increase was due to the interest on the additional debt required to purchase
LeFebure.
NET LOSS
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Net loss before preferred stock charges increased $2.4 million for the three
months ended March 27, 1999 to $4.4 million as compared to a net loss of $2.0
million for the three months ended March 28, 1998.
NINE MONTHS ENDED MARCH 27, 1999 COMPARED TO THE NINE MONTHS ENDED MARCH 28,
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1998.
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SALES
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The Company's sales increased by 26.7% during the nine months ended March 27,
1999 to $212.0 million from $167.4 million for the same period in fiscal 1998.
Service sales increased 22.2% to $95.0 million from $77.7 million. The increase
relates to the acquisition of LeFebure.
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Product sales increased by 30.6% to $117.1 million for the nine months ended
March 27, 1999 from $89.6 million for the same period in the prior year.
Electronic Security Sales increased by 55.5% in the period. The increase relates
to revenues from the Port Authority project and from a retrofit of currency
handling equipment to meet the new twenty-dollar bill requirements. The
acquisition of LeFebure also contributed to the increased revenues. Physical
Security System sales increased 17.6% during the first nine months of fiscal
1999. The increase is principally attributable to the LeFebure acquisition.
GROSS PROFIT
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Gross profit increased during the nine months ended March 27, 1999 by 19.4% to
$44.3 million from $37.1 million for the nine months ended March 28, 1998. Gross
profit as a percentage of sales decreased to 20.8% from 22.1%. The decrease
relates to transition costs associated with the LeFebure acquisition.
Additionally, included in gross profit was a one-time charge of $1.6 million
associated with the closing of the Company's Wayne, NJ manufacturing facility,
primarily severance and fixed asset write-offs. The Company will outsource the
manufacturing of certain products produced in Wayne, while the remainder will be
produced in its newly acquired Mexico, MO manufacturing plant. The Wayne
facility was closed during the Company's third quarter of fiscal 1999.
SELLING AND ADMINISTRATIVE EXPENSE
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Selling and Administrative expenses increased by 39.6% to $38.7 million from
$27.6 million for the same nine-month period ending March 27, 1999. The increase
relates to the acquisition of LeFebure in October 1998.
OPERATING INCOME
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The Company's operating income for the nine months ended March 27, 1999 of $5.0
million is $4.3 million less than the nine months ended March 28, 1998. Included
in operating income was a one-time charge of $1.6 million associated with the
future closing of the Company's Wayne, NJ manufacturing facility. The Company
will outsource the manufacturing of certain products produced in Wayne, while
the remainder will be produced by its newly acquired Mexico, MO manufacturing
plant. The Wayne facility was closed during the Company's third quarter of
fiscal 1999. Also, included in operating income were transition costs associated
with the acquisition of LeFebure amounting to $6.0 million.
DEBT EXPENSE
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Debt expense for the nine months ended March 27, 1999 increased by 34.2 % to
$18.9 million from $14.1 million for the same period of the prior year. The
increase was due to the interest on the additional funds required to purchase
LeFebure.
NET LOSS
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Net loss before preferred stock charges increased by $9.1 million for the nine
months ended March 27, 1999 to $14.0 million from $4.9.
INFLATION
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The Company believes that its business is affected by inflation to approximately
the same extent as the national economy. Generally, the Company has been able to
offset the inflationary impact of wages and other costs through a combination of
improved productivity, cost reduction programs and price increases. The Company
has had difficulty in effecting significant price increases because of the
discounting practices of its competitors.
LIQUIDITY AND CAPITAL RESOURCES
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As more fully described in Item I, Note 2, the Company on October 9, 1998
acquired substantially all the assets and assumed substantially all the
liabilities of the LeFebure division of De La Rue Cash Systems Inc. and De La
Rue Systems Americas Corporation. Coincident with the acquisition the Company
entered into a Financing Agreement with a group of lenders, led by Fleet
National Bank, to finance the acquisition and to provide working capital for
operations. Under the terms of the Financing Agreement, a Credit facility was
established at $85.0 million. The Company also agreed to certain financial
covenants. The Company believes that this facility will provide adequate
financial resources for its operations. Borrowing under the credit facility
bears interest at LIBOR plus 2.625% or at the prime lending rate plus 1.625%.
Cash used by operating activities was $15.7 million for the nine months ended
March 27, 1999 as compared to $4.6 million for the same period of fiscal 1998
for an unfavorable change of $11.1 million.
The Company's capital expenditures were $2.7 million for the first nine months
1999 as compared to $1.1 million in the previous year. The Company anticipates
capital expenditure for fiscal 1999 will be approximately $3.5 million. These
amounts do not include the actual assets purchased for LeFebure.
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The Company currently makes cash contributions to the ESOP only to the extent
necessary to fund the cash needs of the ESOP for payments to retired, terminated
and deceased participants and for administrative expenses.
YEAR 2000 DISCLOSURE
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The Company is substantially complete with the process of conducting a
comprehensive review of its key internal financial, information and operational
systems to identify the systems that could be materially affected by the Year
2000 issue. The Company will be making appropriate modifications and conducting
compliance testing on these systems. The Company believes that with
modifications to, or replacement of, existing systems, the Year 2000 issue will
not pose significant operating problems. The Company will complete all known
modifications or replacements prior to December 31,1999. The total expenditure
for the modification to, or replacement of the existing systems is presently
estimated to be approximately $2.5 million. As of March 27, 1999 the Company
had spent approximately $2.2 million. Although the Company feels its efforts
will be successful, the Company makes no assurances as to the projects ultimate
cost and completion date. As such the Company has developed certain
contingency, plans that will enable the Company to continue to operate. The
plans include, but are not limited to, continued utilization of existing
systems complemented by certain manual approaches.
The Company is currently engaged in assessing the capability of its products to
handle the transition to and operate in the Year 2000. The Company believes that
its current products are Year 2000 compliant. The Company has assessed the
compatibility of products sold in the past and has provided information to it's
customers as to how these products can be made Year 2000 compliant. The Company
does not believe that it is legally responsible for the cost incurred by
customers related to ensuring their Year 2000 compatibility.
The Company is in the process of assessing the readiness of significant
suppliers and customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. While the Company currently does not anticipate problems related to
third party Year 2000 issues, the Company will continue to assess potential risk
from third parties. However, the Company cannot guarantee that the systems of
other companies will be converted in a timely manner, or that the conversion or
failure to convert systems, would not have an adverse material effect on the
Company.
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MOSLER INC.
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Mosler Inc.
(Registrant)
Date: May 19, 1999 /s/ Thomas J. Bell
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Thomas J. Bell
Chief Financial Officer
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