<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 24, 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 33-67908
-----------------------------------
MOSLER INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1172814
(State or other jurisdiction of ------------------------------------
Incorporation or organization) (I.R.S. Employer Identification No.)
8509 BERK BOULEVARD
HAMILTON, OHIO 45015-2213
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(513) 870-1900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(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
------------------ -------------------
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 2,239,823 SHARES AS OF DECEMBER 24, 1999
- ----------------------------- ----------------------------------------
Page 1
<PAGE> 2
INDEX
FINANCIAL INFORMATION (PART I)
PAGE
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED CONDENSED BALANCE SHEETS - DECEMBER 24, 1999
AND JUNE 25, 1999 3-4
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - THREE MONTHS
ENDED DECEMBER 24, 1999 AND DECEMBER 26, 1998 5
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - SIX MONTHS- 6
ENDED DECEMBER 24, 1999 AND DECEMBER 26, 1998
CONSOLIDATED CONDENSED STATEMENT OF COMMON STOCKHOLDERS'
DEFICIENCY - SIX MONTHS ENDED DECEMBER 24, 1999 7
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -SIX MONTHS
ENDED DECEMBER 24, 1999 AND DECEMBER 26, 1998 8
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 9-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13-19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 19
OTHER INFORMATION (PART II)
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
Page 2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
MOSLER INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Dec. 24, June 25,
1999 1999
=========== ==============
(Unaudited) (Derived from Audited
Financial Statements)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 966 $ 363
Accounts receivable, net 112,653 99,629
Equity securities available
for sale (amortized cost of 101) 7,473 3,117
Inventories 34,796 31,754
Other current assets 2,197 2,088
-------- --------
Total current assets 158,085 136,951
Facilities:
Land and land improvements 1,107 1,107
Buildings 7,156 7,142
Machinery and equipment 41,781 39,938
-------- --------
Gross facilities 50,044 48,187
Less accumulated depreciation 33,127 32,254
-------- --------
Net facilities 16,917 15,933
Other assets:
Service agreements 2,256 4,512
Deferred debt issuance costs 3,023 3,518
Goodwill 18,383 16,514
Sundry 284 644
-------- --------
Total other assets 23,946 25,188
$198,948 $178,072
======== ========
</TABLE>
Page 3
<PAGE> 4
<TABLE>
<CAPTION>
Dec. 24, June 25,
1999 1999
-========== ==============
Liabilities, redeemable stock and common (Unaudited) (Derived from Audited
Stockholders' deficiency Financial Statements)
<S> <C> <C>
Current liabilities:
Accounts payable $ 26,696 $ 27,615
Accrued liabilities:
Compensation & payroll taxes 9,590 8,454
Product warranty 1,709 1,788
Accrued workers' compensation 4,302 4,534
Accrued interest 6,402 6,318
Other 15,197 7,435
Unearned revenue 29,979 26,732
Income taxes payable 1,160 1,144
Long-term debt due within one year 410 414
--------- ---------
Total current liabilities 95,445 84,434
Long-term debt due after one year 196,261 188,721
Accrued pension and other benefit liabilities 1,492 615
Commitments and contingencies
Redeemable stock:
Series D increasing rate preferred stock 72,465 66,235
Series C adjustable rate preferred stock 50,104 46,241
Common Stock 495 463
--------- ---------
Total redeemable stock 123,064 112,939
Common stockholders' deficiency:
Common stock 254 254
Accumulated deficit (218,946) (205,953)
Redemption value of common stock held by ESOP (495) (463)
Accumulated other comprehensive income 5,972 1,621
Common stock held in treasury (4,099) (4,096)
--------- ---------
Total common stockholders' deficiency (217,314) (208,637)
--------- ---------
$ 198,948 $ 178,072
========= =========
</TABLE>
See accompanying notes to financial statements
Page 4
<PAGE> 5
MOSLER INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended
=============================
Dec. 24, Dec. 26,
1999 1998
======== ========
<S> <C> <C>
Net sales:
Service $ 40,541 $ 34,619
Product 48,593 44,236
-------- --------
89,134 78,855
Cost of sales:
Service 28,418 26,293
Product 40,196 36,443
Plant closing 78
-------- --------
68,692 62,736
-------- --------
Gross profit 20,442 16,119
Selling and administrative expense 15,600 14,987
Other expense 223 208
-------- --------
15,823 15,195
-------- --------
Operating income 4,619 924
Debt expense:
Interest expense 7,082 6,114
Amortization of debt expense 225 268
Interest income (54) (10)
-------- --------
7,253 6,372
-------- --------
Loss before income taxes and preferred stock charges (2,634) (5,448)
Provision for income taxes (23) (23)
-------- --------
Loss before preferred stock charges (2,657) (5,471)
Preferred dividends (3,053) (2,552)
Amortization of preferred stock discount (61) (112)
-------- --------
Net loss applicable to common stockholders ($5,771) ($8,135)
======== ========
Basic and diluted net loss per common
share ($2.58) ($3.91)
======== ========
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE> 6
MOSLER INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Six months ended
===============================
Dec. 24, Dec. 26,
1999 1998
========= =========
<S> <C> <C>
Net sales:
Service $ 77,561 $ 58,864
Product 80,343 77,372
--------- ---------
157,904 136,236
Cost of sales:
Service 54,574 44,671
Product 65,566 61,574
Plant Closing 119 1,589
--------- ---------
120,259 107,834
--------- ---------
Gross profit 37,645 28,402
Selling and administrative expense 29,709 24,092
Other expense 347 1,904
--------- ---------
30,056 25,996
--------- ---------
Operating income 7,589 2,406
Debt expense:
Interest expense 14,086 11,457
Amortization of debt expense 495 526
Interest income (69) (15)
--------- ---------
14,512 11,968
--------- ---------
Loss before income taxes and preferred stock charges (6,923) (9,562)
Provision for income taxes (48) (22)
--------- ---------
Loss before preferred stock charges (6,971) (9,584)
Preferred dividends (5,901) (4,976)
Amortization of preferred stock discount (121) (221)
--------- ---------
Net loss applicable to common stockholders ($12,993) ($14,781)
========= =========
Basic and diluted net loss per common
share ($5.80) ($7.10)
========= =========
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE> 7
MOSLER INC.
CONSOLIDATED CONDENSED STATEMENT OF COMMON STOCKHOLDERS' DEFICIENCY
SIX MONTHS ENDED DECEMBER 24, 1999
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Redemption
Common Value of Accumulated
Stock Common Other
$.10 Par Accumulated Stock held Comprehensive Comprehensive Treasury
Value Deficit By ESOP Income (Loss) Income (Loss) Stock Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 25, 1999 $254 ($205,953) ($463) $1,621 ($4,096) ($208,637)
Net loss before preferred stock
charges (6,971) ($6,971) (6,971)
Foreign currency translation
adjustment (5) (5) (5)
Change in unrealized gain (loss)
on available for sale securities 4,356 4,356 4,356
--------
Comprehensive income (loss) ($2,620)
========
Net increase in redemption value
of common stock ($32) (32)
Amortization of Series D preferred
stock discount (121) (121)
Dividends on Series D preferred
stock (1,842) (1,842)
Dividends on Series C preferred
stock (4,059) (4,059)
Common stock held in treasury (3) (3)
--------------------------------------------------------------------------------------------
Balance at December 24, 1999 $254 ($218,946) ($495) $5,972 ($4,099) ($217,314)
============================================================================================
</TABLE>
See accompanying notes to financial statements.
Page 7
<PAGE> 8
MOSLER INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
=============================
Dec. 24, Dec. 26,
1999 1998
======== ========
<S> <C> <C>
Net loss $ (6,971) $ (9,584)
Adjustments to reconcile loss to net cash
Used by operating activities:
Depreciation 1,860 1,246
Amortization 3,372 2,343
Loss on disposal of facilities 18 0
Interest paid in shares of preferred stock 4,370 3,255
Provision for doubtful accounts 4
Decrease (increase) in:
Accounts receivable (13,024) (6,569)
Inventories (3,042) (2,249)
Other current assets (109) (1,529)
Increase (decrease) in:
Accounts payable (920) (5,331)
Accrued liabilities 7,682 2,024
Unearned revenue 3,247 4,864
Income taxes payable 16 (9)
-------- --------
Net cash used by operating activities (3,501) (11,535)
Cash flows from investing activities:
Purchase of net assets and business of LeFebure (34,000)
Capital expenditures (3,455) (1,368)
Decrease (increase) in other assets 352 1,439
-------- --------
Net cash used by investing activities (3,103) (33,929)
Cash flows from financing activities:
Purchase of preferred stock (296) (2,163)
Purchase of common stock (29)
Net proceeds from revolving line of credit 7,536 52,551
Deferred debt issuance costs 0 526
Principal payment on long-term debt 0 (1,624)
-------- --------
Net cash provided by financing activities 7,211 49,290
Effect of exchange rate changes on cash (4) (26)
-------- --------
Net increase in cash and cash equivalents 603 3,800
Cash and cash equivalents at beginning of period 363 537
-------- --------
Cash and cash equivalents at end of period $ 966 $ 4,337
======== ========
</TABLE>
See accompanying notes to financial statements.
Page 8
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FINANCIAL INFORMATION
Item 1. Notes to Consolidated Condensed Financial Statements
----------------------------------------------------
1. Basis of Presentation
In the opinion of management, the unaudited consolidated condensed
financial statements include all adjustments (which consist of only normal,
recurring accruals) necessary to present fairly the consolidated financial
position as of December 24, 1999, and the results of operations for the
three and six months ended December 24, 1999 and December 26, 1998 and the
cash flows for the six months ended December 24, 1999 and December 26,
1998. In accordance with generally accepted accounting principles for
interim financial information, these statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete annual financial statements. Financial information
as of June 25, 1999 has been derived from the audited consolidated
financial statements of the Registrant. The results of operations and cash
flows for the three and six months ended December 24, 1999 and December 26,
1998 are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended June 25, 1999, included
in the Registrant's Annual Report on Form 10-K. Certain prior year's data
has been reclassified to conform to current presentation.
2. Inventories
The Company's inventories are stated at the lower of cost (determined using
the first-in, first-out method) or market.
The components of inventories are as follows:
<TABLE>
<CAPTION>
Dec. 24, June 25,
1999 1999
---- ----
(in thousands)
--------------
<S> <C> <C>
Finished products and service $35,018 $31,710
Products in Process 158 281
Raw materials 8,927 8,128
Less Allowance (9,307) (8,365)
----------------------------
Total $34,796 $31,754
</TABLE>
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3. Net Loss per Share
Net loss per share is computed based on the weighted average number of
common shares outstanding for the period after deducting preferred dividend
requirements including amortization of preferred stock discount. The
average number of shares of common stock outstanding for the six-month
period of fiscal 2000 is 2,239,823 as compared to 2,080,275 shares for the
same period of fiscal 1999.
4. Contingencies
The Internal Revenue Service (IRS) has conducted examinations of the
Company's federal income tax returns for fiscal years 1988 through 1993 and
has proposed various adjustments to increase taxable income. The Company
has agreed to certain adjustments and has previously recorded a provision
for additional income tax and interest. The IRS has issued deficiency
notices on these issues related to 1) the allocation of the Company's
purchase price of assets from American Standard Inc. and 2) the value of
the Company's Series C preferred stock contributed to its ESOP.
In September 1999, the Company agreed to settle these issues with the IRS.
Under the terms of the settlement, the Company will pay additional taxes of
approximately $576,000 along with related interest of approximately
$575,000. These amounts were accrued as of June 25, 1999. The Company will
also, for tax purposes, reduce the allocated value of it intangibles to $45
million and increase the amortization period to 17 years.
Various lawsuits and claims arising during the normal course of business
are pending against the Company. In the opinion of management, the ultimate
liability, if any, resulting from these matters will have no significant
effect on the Company's consolidated financial position, results of
operations or cash flows.
5. Acquisition
On October 9, 1998, the Company acquired substantially all the assets and
assumed substantially all the liabilities of the LeFebure Division of De La
Rue Cash Systems Inc. ("LeFebure") for approximately $39 million. LeFebure
specializes in the manufacture, distribution and service of security
equipment for financial institutions. The acquisition of LeFebure has been
accounted for by the purchase method of accounting. The cost of the
acquisition has been allocated on the basis of the fair market value of
assets acquired and liabilities assumed, resulting in goodwill of
approximately $18.3 million which is being amortized over a period of 15
years.
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On August 23, 1999, as part of the Company's acquisition integration plan,
management announced the shut down of LeFebure's Mexico, Missouri plant.
The cost of this shut down, of approximately $1.8 million, which includes
fixed asset write-offs and severance costs, is recorded as an adjustment to
the purchase price.
The unaudited consolidated results of operations for the six months ended
December 26, 1998 on a pro forma basis as though LeFebure had been acquired
as of June 28,1998 are as follows ($000's except per share amount):
Net sales $171,585
Net loss (9,907)
Net loss per share (4.76)
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would
have occurred had the LeFebure acquisition been consummated as of the above
date, nor are they indicative of future operating results.
6. New Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as subsequently amended, is effective for the Company's 2001
fiscal year. The statement revises the accounting for derivative
instruments and requires, among other things, that all derivative
instruments be recorded within the financial statements. The Company has
not yet determined the impact of adopting this standard.
7. Segment Information
Since the Company's fiscal year 1999 financial statements, there have been
no changes in reportable segments or the manner in which the Company
determines reportable segments or measures segment profit or loss.
Summarized segment information for the interim periods for fiscal year 2000
and 1999 is as follows (000's):
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<TABLE>
<CAPTION>
Electronic Physical
Security Security Corporate
Service Systems Products and Other Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended December 24, 1999
Segment Information
Customer Revenue 40,541 24,469 20,789 3,319 16 89,134
Operating Profit 2,928 1,087 629 (25) 0 4,619
Identifiable Assets 70,521 47,591 40,412 40,424 0 198,948
Three Months Ended December 26, 1998
Segment Information
Customer Revenue 34,619 18,022 24,070 2,296 (152) 78,855
Operating Profit 636 21 412 (145) 0 924
Identifiable Assets 62,150 33,493 44,805 33,874 0 174,322
</TABLE>
<TABLE>
<CAPTION>
Electronic Physical
Security Security Corporate
Service Systems Products and Other Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended December 24, 1999
Segment Information
Customer Revenue 77,561 37,850 37,847 4,711 (65) 157,904
Operating Profit 4,903 1,577 1,227 (118) 0 7,589
Identifiable Assets 70,521 47,591 40,412 40,424 0 198,948
Six Months Ended December 26, 1998
Segment Information
Customer Revenue 58,864 34,089 39,376 4,234 (327) 136,236
Operating Profit 2,153 340 53 (140) 0 2,406
Identifiable Assets 62,150 33,493 44,805 33,874 0 174,322
</TABLE>
Page 12
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MOSLER INC.
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Such statements include,
without limitations, the Company's beliefs about trends in the Company's
industries, and its views about the long-term future of these industries
and the Company. The following factors, among others, could cause the
Company's financial performance to differ materially from that expressed in
such statements: (i) changes in consumer preferences resulting in a decline
in the demand for product and service, (ii) the inability to reduce SG&A
expenses as expected, (iii) an increase in the price of raw materials, (iv)
political and/or economic instability in foreign countries where the
Company has operations or has suppliers who supply the Company, (v) an
unexpected increase in interest rates, (vi) a shift in strength of the
overall U.S. economy thereby possibly reducing purchases, and, (vii)
failure to remedy in a timely manner any Year 2000 issues that might arise.
Results of Operations
Three Months Ended December 24, 1999 Compared to the
Three Months Ended December 26, 1998
Sales
The Company's sales increased during the three months ended December 24,
1999 by 12.9% to $89.1 million from $78.9 million. Service Sales increased
by 17.1% to $40.5 million from $34.6 million. These increases are due
principally to the acquisition of LeFebure in October 1998.
Product net sales increased during the three months ended December 24, 1999
by 10.0% to $48.6 million from $44.2 million. Electronic Security product
sales increased by 36.1% to $24.5 million from $18.0 million. This increase
is attributable to the acquisition of LeFebure. Physical Security product
sales decreased by 13.7% to $20.8 million from $24.1 million. This decrease
relates to the Company's decreased focus on the physical security sales.
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Gross Profit
Gross profit increased during the three months ended December 24, 1999 by
26.7% percent from $16.1 million to $20.4 million for the same period in
the prior year. Gross profit as a percentage of sales increased to 22.9 %
from 20.4% for the three months ended December 24, 1999, resulting
principally from higher sales volumes and higher margins.
Selling and Administrative Expenses
Selling and administrative expense increased during the three months ended
December 24, 1999 by 4.0% to $15.6 million from $15.0 million for the three
months ended December 26, 1998. The increase is due to the need for more
administrative and sales support resulting from the LeFebure acquisition
and evaluation of the Company's current systems.
Operating Income
The Company's operating income for the three months ended December 24, 1999
increased by 411% to $4.6 million from $.9 million for the three months
ended December 26, 1998. Included in 1999 fiscal operating income were
transition costs associated with the acquisition of LeFebure amounting to
approximately $4.2 million. Included in the operating income for 2000 are
$2.0 million in transition costs.
Debt Expense
Debt expense increased for the three months ended December 24, 1999 by
14.1% to $7.3 million from $6.4 million. The increase was due to higher
interest costs on higher bank debt primarily attributable to the LeFebure
acquisition.
Net Loss
Net loss before preferred stock charges decreased by $2.8 million for the
three months ended December 24, 1999 to $2.7 million from $5.5 million for
the three months ended December 26, 1998.
Page 14
<PAGE> 15
Six Months Ended December 24, 1999 Compared to the
Six Months Ended December 26, 1998.
Sales
The Company's sales increased by 15.9% during the six months ended December 24,
1999 to $157.9 million from $136.2 million for the same period in fiscal 1999.
Service sales increased 31.8 % to $77.6 million from $58.9 million. The increase
relates to the acquisition of LeFebure.
Product sales increased by 3.8% to $80.3 million for the six months ended
December 24, 1999 from $77.4 million for the same period in the prior year.
Electronic Security Sales increased by 11.0% in the period. The increase relates
to revenues from the Bell Atlantic and Washington Mutual projects. The
acquisition of LeFebure also contributed to the increased revenues. Physical
Security System sales decreased 4.8% during the first six months of fiscal 2000.
Gross Profit
Gross profit increased during the six months ended December 24, 1999 by 32.4% to
$37.6 million from $28.4 million for the six months ended December 26, 1998.
Gross profit as a percentage of sales increased to 23.8 % from 20.9 %. Included
in gross profit for fiscal 1999 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.
Selling and Administrative Expense
Selling and Administrative expenses increased by 23.2% to $29.7 million from
$24.1 million for the same six-month period ending December 26, 1998. The
increase relates to the acquisition of LeFebure in October 1998.
Operating Income
The Company's operating income for the six months ended December 24, 1999 of
$7.6 million is $5.2 million more than the six months ended December 26, 1998.
Included in operating income for fiscal 1999 was a one-time charge of $1.6
million associated with the closing of the Company's Wayne, NJ manufacturing
facility. The Company will outsource the manufacturing of certain products
produced in Wayne.
Page 15
<PAGE> 16
Included in 1999 fiscal operating income were transition costs associated with
the acquisition of LeFebure amounting to approximately $4.2 million. Included in
the operating income for 2000 are $2.8 million in transition costs.
Debt Expense
Debt expense for the six months ended December 24, 1999 increased by 20.8% to
$14.5 million from $12.0 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
Net loss before preferred stock charges decreased by $2.6 million for the six
months ended December 24, 1999 to $7.0 million from $9.6.
Page 16
<PAGE> 17
Inflation
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 due to the competitive nature of the industries
which it serves.
Liquidity and Capital Resources
As more fully described in Item I, Note 5, the Company on October 9, 1998
acquired substantially all the assets 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 provide working capital for operations. Under the terms of the
Financing Agreement, a Credit facility was established at $85 million.
Effective September 25, 1999 this was increased to $90 million. At December
24, 1999, after considering outstanding letters of credit which reduce
availability under the credit facility, available borrowing capacity was
approximately $5.6 million and was $1.5 million at February 9, 2000.
Borrowing under the credit facility bears interest at LIBOR plus 2.625% or
at the prime lending rate plus 1.625%.
The Company is experiencing slow collections of its accounts receivable,
which at December 24, 1999 averaged 127 days outstanding based on trailing
12-month sales. The slow collections are contributing to the reduced
liquidity noted above. The Company's liquidity requirements were
exacerbated by the January 17, 2000 semi-annual bond interest payment of
$6.325 million. The Company is taking steps to expedite collection of its
accounts receivable by increasing the promptness and accuracy of its
billing, and the Company is also trying to relieve pressure on working
capital by reducing inventory levels. The Company will also endeavor, among
other things, to increase its credit line in order to allow it to satisfy
its liquidity requirements. There can be no assurance, however, that these
efforts will be successful.
Cash used by operating activities was $3.5 million for the six months ended
December 24, 1999 as compared to $11.5 million for the same period of
fiscal 1999 for a favorable change of $8.0 million.
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<PAGE> 18
The Company's capital expenditures were $3.5 million for the first two
quarters of fiscal 2000 as compared to $1.4 million in the previous year.
Capital expenditures for 2000 have been higher than expected due to higher
than anticipated computer system costs.
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.
The Company is required to maintain certain financial debt covenants under
its Financing Agreement as amended on January 27, 2000. For the fiscal
quarter and six months ended December 24, 1999, the Company was in
compliance with the financial covenants. The Company was only in compliance
after considering the January 2000 amendment.
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<PAGE> 19
Year 2000
The Year 2000 problem is a result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1990 rather than the year 2000, which would result
in miscalculations or system failures.
The Company's major computer systems consist of third-party software. The
conclusion of the Company's research is that the latest existing releases
of this software contain the necessary changes to correct any significant
Year 2000 problems. As a matter of ongoing policy, in order to assure
continuing contractual vendor support, the Company promptly installs and
implements new releases of third-party software. To date, the Company has
implemented third-party releases that it believes are Year 2000 compliant
for substantially all of its software. The Company has spent approximately
$1.6 million on these releases during 1999, which amounts were planned
expenditures irrespective of any Year 2000 issues. The Company has tested
and has further plans to test its software for compliance. Costs of
addressing potential problems has not and are not currently expected to
have a material adverse impact on the Company's financial position, results
of operations or cash flows in future periods. The Company did not
experience any difficulties as a result of Year 2000.
The most likely Year 2000 problems that the Company may still face appear
to arise from the possible noncompliance of third parties. Possible
difficulties could arise in receiving materials from suppliers or from
failures in the operation of the Company's customers. The Company has
documented and confirmed (in writing) Y2K compliance of the services and
products provided to Mosler by its vendors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The principal market risk (i.e., the risk of loss arising from adverse changes
in market rates and prices) to which the Company is exposed is interest rates on
debt.
At December 24, 1999, the carrying value of the Company's debt totalled $196
million. Approximately $81 million was at variable interest rates. For such
floating rate debt, interest rate changes generally do not affect the fair
market value but do impact earnings and cash flows, assuming other factors are
held constant. Holding other variables constant (such as debt levels), the
earnings and cash flow impact for the next year resulting from a one percentage
point increase in interest rates on variable rate debt would be approximately
$.8 million. The Company has limited its risk related to interest rate increases
by purchasing an interest rate cap.
Page 19
<PAGE> 20
Part II. Other Information
Item 1. Legal Proceedings
None
Page 20
<PAGE> 21
Item 4. Submission of Matters to a Vote of Security Holders
The following are the results of voting by stockholders present or
represented by proxy at the Annual Meeting of Stockholders held on
September 30, 1999. At such meeting, Messrs. William A. Marquard, Michel
Rapoport, Thomas R. Wall, IV, and Robert A. Young, III were elected
directors to service until the 2000 Annual Meeting of Stockholders and the
Mosler Inc. Stock Incentive Plan was approved. The votes cast on each of
such matters was as follows:
1. Election of Directors
For Withheld
--- --------
William A. Marquard 1,822,680.49792 67,162.1835
Michel Rapoport 1,819,898.49792 69,944.1835
Thomas R. Wall IV 1,822,680.49792 67,162.1835
Robert A. Young III 1,822,680.49792 67,162.1835
2. Approval of Stock Incentive Plan
For Against Abstain
--- ------- -------
1,809,393.73874 78,292.64268 2,156.3
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits
(27) Financial Data Schedule for the six months ended
December 24, 1999.
(b) Reports on Form 8-K
None
Page 21
<PAGE> 22
MOSLER INC.
Signature
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.
Mosler Inc.
(Registrant)
Date: 2/18/00 /s/ Robert A. Crisafulli
--------------------------- -----------------------
Robert A. Crisafulli
Chief Financial Officer
Page 22
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<PERIOD-START> JUN-26-1999
<PERIOD-END> DEC-24-1999
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122,569,000
0
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