<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 MARCH 24, 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 33-67908
-------------------------------------
MOSLER INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-1172814
------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
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 2,238,956 SHARES AS OF MARCH 24, 2000
- ----------------------------- -------------------------------------
Page 1
<PAGE> 2
INDEX
FINANCIAL INFORMATION (PART I)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED CONDENSED BALANCE SHEETS - MARCH 24, 2000
AND JUNE 25, 1999 3-4
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - THREE MONTHS
ENDED MARCH 24, 2000 AND MARCH 27, 1999 5
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - NINE MONTHS-
ENDED MARCH 24, 2000 AND MARCH 27, 1999 6
CONSOLIDATED CONDENSED STATEMENT OF COMMON STOCKHOLDERS'
DEFICIENCY - NINE MONTHS ENDED MARCH 24, 2000 7
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -NINE MONTHS
ENDED MARCH 24, 2000 AND MARCH 27, 1999 8
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 9-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13-18
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
</TABLE>
Page 2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
MOSLER INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 24, June 25,
2000 1999
============= ==============
(Unaudited) (Derived from Audited
Financial Statements)
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 726 $ 363
Accounts receivable, net 107,754 99,629
Equity securities available
for sale (amortized cost of $101) 9,382 3,117
Inventories 34,872 31,754
Other current assets 3,032 2,088
-------- --------
Total current assets 155,766 136,951
Facilities:
Land and land improvements 1,163 1,107
Buildings 7,338 7,142
Machinery and equipment 40,980 39,938
Improvements in progress 2,874
-------- --------
Gross facilities 52,355 48,187
Less accumulated depreciation 34,132 32,254
-------- --------
Net facilities 18,223 15,933
Other assets:
Service agreements 1,128 4,512
Deferred debt issuance costs 2,798 3,518
Goodwill 17,884 16,514
Other 254 644
-------- --------
Total other assets 22,064 25,188
$196,053 $178,072
======== ========
</TABLE>
Page 3
<PAGE> 4
<TABLE>
<CAPTION>
March 24, June 25,
2000 1999
============== ==============
Liabilities, redeemable stock and common (Unaudited) (Derived from Audited
- ---------------------------------------- Financial Statements)
Stockholders' deficiency
------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 29,459 $ 27,615
Accrued liabilities:
Compensation & payroll taxes 8,548 8,454
Product warranty 1,236 1,788
Accrued workers' compensation 4,691 4,534
Accrued interest 3,604 6,318
Other 10,500 7,435
Unearned revenue 26,511 26,732
Income taxes payable 1,169 1,144
Long-term debt due within one year 330 414
--------- ---------
Total current liabilities 86,048 84,434
Long-term debt due after one year 199,830 188,721
Accrued pension and other benefit liabilities 2,292 615
Commitments and contingencies
Redeemable stock:
Series D increasing rate preferred stock 76,181 66,235
Series C adjustable rate preferred stock 52,446 46,241
Common Stock 495 463
--------- ---------
Total redeemable stock 129,122 112,939
Common stockholders' deficiency:
Common stock 254 254
Accumulated deficit (225,193) (205,953)
Redemption value of common stock held by ESOP (495) (463)
Accumulated other comprehensive income 8,294 1,621
Common stock held in treasury (4,099) (4,096)
--------- ---------
Total common stockholders' deficiency (221,239) (208,637)
--------- ---------
$ 196,053 $ 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
================================
March 24, March 27,
2000 1999
=========== ============
<S> <C> <C>
Net sales:
Service $ 38,005 $ 36,126
Product 40,165 39,715
-------- --------
78,170 75,841
Cost of sales:
Service 28,190 25,253
Product 30,660 33,126
-------- --------
58,850 58,379
-------- --------
Gross profit 19,320 17,462
Selling and administrative expense 13,978 14,594
Other expense 201 237
-------- --------
14,179 14,831
-------- --------
Operating income 5,141 2,631
Debt expense:
Interest expense 8,005 6,722
Amortization of debt expense 225 269
Interest income (4) (12)
-------- --------
8,226 6,979
-------- --------
Loss before income taxes and preferred stock charges (3,085) (4,348)
Provision for income taxes 21 25
-------- --------
Loss before preferred stock charges (3,106) (4,373)
Preferred dividends (3,076) (2,456)
Amortization of preferred stock discount (65) (121)
-------- --------
Net loss applicable to common stockholders (6,247) ($ 6,950)
======== ========
Basic and diluted net loss per common
share $ (2.79) ($ 3.34)
======== ========
</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>
Nine months ended
====================================
March 24, March 27,
2000 1999
=============== ==============
<S> <C> <C>
Net sales:
Service $ 115,566 $ 94,990
Product 120,508 117,087
--------- ---------
236,074 212,077
Cost of sales:
Service 82,764 69,924
Product 96,345 96,289
Plant Closing 1,589
--------- ---------
179,109 167,802
--------- ---------
Gross profit 56,965 44,275
Selling and administrative expense 43,687 38,688
Other expense 548 552
--------- ---------
44,235 39,240
--------- ---------
Operating income 12,730 5,035
Debt expense:
Interest expense 22,091 18,179
Amortization of debt expense 720 795
Interest income (73) (27)
--------- ---------
22,738 18,947
--------- ---------
Loss before income taxes and preferred stock charges (10,008) (13,912)
Provision for income taxes 69 47
--------- ---------
Loss before preferred stock charges (10,077) (13,959)
Preferred dividends (8,977) (7,424)
Amortization of preferred stock discount (186) (342)
--------- ---------
Net loss applicable to common stockholders (19,240) ($ 21,725)
========= =========
Basic and diluted net loss per common
share ($ 8.69) ($ 10.45)
========= =========
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE> 7
MOSLER INC.
CONSOLIDATED CONDENSED STATEMENT OF COMMON STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED MARCH 24, 2000
(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 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 (10,077) ($10,077) (10,077)
Foreign currency translation adjustment 408 408 408
Change in unrealized gain (loss) on
available for sale securities 6,265 6,265 6265
------
Comprehensive income (loss) $3,404
======
Net increase in redemption value of
common stock ($32) (32)
Amortization of Series D preferred stock
discount (186) (186)
Dividends on Series D preferred stock (2,764) (2,764)
Dividends on Series C preferred stock (6,213) (6,213)
Common stock held in treasury (3) (3)
---------------------------------------------------------------------------------------
Balance at March 24, 2000 $254 ($225,193) ($495) $8,294 ($4,099) ($221,239)
=======================================================================================
</TABLE>
See accompanying notes to financial statements.
Page 7
<PAGE> 8
MOSLER INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
====================================
March, 24 March 27,
2000 1999
============== ===============
<S> <C> <C>
Net loss $(10,077) $(13,959)
Adjustments to reconcile loss to net cash
Used by operating activities:
Depreciation 2,910 1,871
Amortization 5,354 5,216
Loss on disposal of facilities 18 (479)
Interest paid in shares of preferred stock 7,289 5,231
Provision for doubtful accounts 4
(Increase) in:
Accounts receivable (8,125) (14,095)
Inventories (3,118) (2,510)
Other current assets (944) (1,952)
Increase (decrease) in:
Accounts payable 1,843 2,684
Accrued liabilities 50 (1,480)
Unearned revenue (221) 3,230
Income taxes payable 25 12
-------- --------
Net cash used by operating activities (4,996) (15,748)
Cash flows from investing activities:
Purchase of net assets and business of LeFebure (34,000)
Capital expenditures (5,840) (2,656)
Decrease (increase) in other assets (1,011) (97)
-------- --------
Net cash used by investing activities (6,851) (36,753)
Cash flows from financing activities:
Purchase of preferred stock 296 (2,163)
Net proceeds from revolving line of credit 11,110 56,309
Deferred debt issuance costs 396
Principal payment on long-term debt (1,624)
-------- --------
Net cash provided by financing activities 11,802 52,522
Effect of exchange rate changes on cash 408 (130)
-------- --------
Net increase in cash and cash equivalents 363 (109)
Cash and cash equivalents at beginning of period 363 537
-------- --------
Cash and cash equivalents at end of period $ 726 $ 428
======== ========
</TABLE>
See accompanying notes to financial statements.
Page 8
<PAGE> 9
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 March 24, 2000, and the results of operations for the three
and nine months ended March 24, 2000 and March 27, 1999 and the cash flows
for the nine months ended March 24, 2000 and March 27, 1999. 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 nine
months ended March 24, 2000 and March 27, 1999 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>
March 24, June 25,
2000 1999
---- ----
(in thousands)
--------------
<S> <C> <C>
Finished products and service $34,991 31,710
Products in Process 719 281
Raw materials 9,433 8,128
Less Allowance (10,271) (8,365)
--------------------------
Total $34,872 $31,754
</TABLE>
Page 9
<PAGE> 10
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 nine-month
period of fiscal 2000 is 2,211,681 as compared to 2,077,780 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's 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 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.
Page 10
<PAGE> 11
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 nine months ended
March 27, 1999 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):
<TABLE>
<S> <C>
Net sales $247,426
Net loss (16,851)
Net loss per share (8.11)
</TABLE>
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):
Page 11
<PAGE> 12
<TABLE>
<CAPTION>
Electronic Physical
Security Security Corporate
Service Systems Products and Other Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended March 24, 2000
Segment Information
Customer Revenue 38,005 18,743 18,925 2,497 0 78,170
Operating Profit 2,743 1,299 1,139 (40) 0 5,141
Identifiable Assets 60,021 47,505 42,279 46,248 0 196,053
Three Months Ended March 27, 1999
Segment Information
Customer Revenue 36,126 21,359 16,637 1,820 (101) 75,841
Operating Profit 1,769 534 484 (156) 0 2,631
Identifiable Assets 64,485 40,982 42,358 27,085 0 174,910
</TABLE>
<TABLE>
<CAPTION>
Electronic Physical
Security Security Corporate
Service Systems Products and Other Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended March 24, 2000
Segment Information
Customer Revenue 115,566 56,593 56,772 7,208 (65) 236,074
Operating Profit 7,646 2,876 2,366 (158) 0 12,730
Identifiable Assets 60,021 47,505 42,279 46,248 0 196,053
Nine Months Ended March 27, 1999
Segment Information
Customer Revenue 94,990 55,448 56,013 6,054 (428) 212,077
Operating Profit 3,922 873 537 (297) 0 5,035
Identifiable Assets 64,485 40,982 42,358 27,085 0 174,910
</TABLE>
Page 12
<PAGE> 13
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 March 24, 2000 Compared to the
- -------------------------------------------------
Three Months Ended March 27, 1999
- ---------------------------------
Sales
- -----
The Company's sales increased during the three months ended March 24, 2000
by 3.2% to $78.2 million from $75.8 million. Service Sales increased by
5.3% to $38.0 million from $36.1 million.
Product net sales increased during the three months ended March 24, 2000 by
1.3% to $40.2 million from $39.7 million. Electronic Security product sales
increased by 12.1% to $18.8 million from $21.4 million. Physical Security
product sales decreased by 13.9% to $18.9 million from $16.6 million. This
decrease relates to a reduction in new bank branch openings and capital
budgets being blocked during the last two months of calendar year 1999 due
to Y2K concerns.
Page 13
<PAGE> 14
Gross Profit
- ------------
Gross profit increased during the three months ended March 24, 2000 by
10.2% percent from $17.5 million to $19.3 million for the same period in
the prior year. Gross profit as a percentage of sales increased to 24.7%
from 23.0% for the three months ended March 24, 2000, resulting principally
from higher sales volumes and improved efficiency in Service.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expense decreased during the three months ended
March 24, 2000 by 4.1% to $14.2 million from $14.8 million for the three
months ended March 27, 1999. The decrease is due primarily to a reduction
in selling costs.
Operating Income
- ----------------
The Company's operating income for the three months ended March 24, 2000
increased by 96.2% to $5.1 million from $2.6 million for the three months
ended March 27, 1999. Included in 1999 fiscal operating income were
transition costs associated with the acquisition of LeFebure amounting to
approximately $6.0 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 March 24, 2000 by 18.8%
to $8.2 million from $6.9 million. The increase was due to higher interest
costs on higher bank debt primarily attributable to increased working
capital requirements of the Company.
Net Loss
- --------
Net loss before preferred stock charges decreased by $1.3 million for the
three months ended March 24, 2000 to $3.1 million from $4.4 million for the
three months ended March 27, 1999.
Page 14
<PAGE> 15
Nine Months Ended March 24, 2000 Compared to the
- ------------------------------------------------
Nine Months Ended March 27, 1999.
- ---------------------------------
Sales
- -----
The Company's sales increased by 11.3% during the nine months ended March 24,
2000 to $236.1 million from $212.1 million for the same period in fiscal 1999.
Service sales increased 21.7% to $115.6 million from $95.0 million. The increase
relates primarily to additional service sales to the financial sector.
Product sales increased by 3% to $120.6 million for the nine months ended March
24, 2000 from $117.1 million for the same period in the prior year. Electronic
Security Sales increased by 2.1% in the period. The increase relates to revenues
from the Bell Atlantic and various projects in the electronic security market.
Physical Security System sales increased 1.4% during the first nine months of
fiscal 2000.
Gross Profit
- ------------
Gross profit increased during the nine months ended March 24, 2000 by 28.7% to
$57.0 million from $44.3 million for the nine months ended March 27, 1999. Gross
profit as a percentage of sales increased to 24.1% 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 12.9% to $43.7 million from
$38.7 million for the same nine-month period ending March 27, 1999. The increase
relates primarily to transition costs related to the acquisition of LeFebure in
October 1998.
Operating Income
- ----------------
The Company's operating income for the nine months ended March 24, 2000 of $12.7
million is $7.7 million more than the nine months ended March 27, 1999. Included
in operating income for fiscal 1999 was a one-time charge of $1.6 million (see
above) and approximately $6.0 million in transition costs associated with the
Page 15
<PAGE> 16
acquisition of LeFebure. Included in the operating income for fiscal year 2000
are $2.8 million in transition costs.
Debt Expense
- ------------
Debt expense for the nine months ended March 24, 2000 increased by 20.1% to
$22.7 million from $18.9 million for the same period of the prior year. The
increase was due to higher interest costs on higher bank debt primarily
attributable to increased working capital requirements of the Company.
Net Loss
- --------
Net loss before preferred stock charges decreased by $3.9 million for the nine
months ended March 24, 2000 to $10.1 million from $14.0 million.
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 March
24, 2000, after considering outstanding letters of credit which reduce
availability under the credit facility, available borrowing capacity was
approximately $1.9 million and was $1.5 million at April 28, 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 March 24, 2000 averaged 118 days outstanding based on trailing
12-month sales. The slow collections are contributing to the reduced
liquidity noted above. 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 $5 million for the nine months ended
March 24, 2000 as compared to $15.7 million for the same period of fiscal
1999 for a favorable change of $10.7 million.
The Company's capital expenditures were $5.8 million for the first three
quarters of fiscal 2000 as compared to $2.7 million in the previous year.
Capital
Page 17
<PAGE> 18
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 nine months ended March 24, 2000, the Company was in compliance
with the financial covenants. The Company was only in compliance after
considering the January 2000 amendment.
Page 18
<PAGE> 19
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 March 24, 2000, the carrying value of the Company's debt totaled $200
million. Approximately $85 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
$850,000. The Company has limited its risk related to interest rate
increases by purchasing an interest rate swap agreement.
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
---------------------------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) List of Exhibits
(27) Financial Data Schedule for the nine months ended
March 24, 2000.
(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: 5/15/00 /s/ Robert A. Crisafulli
-------------------- -----------------------------
Robert A. Crisafulli
Chief Financial Officer
Page 22
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-26-1999
<PERIOD-END> MAR-24-2000
<CASH> 726,000
<SECURITIES> 9,382,000
<RECEIVABLES> 109,398,000
<ALLOWANCES> (1,644,000)
<INVENTORY> 34,872,000
<CURRENT-ASSETS> 3,032,000
<PP&E> 52,355,000
<DEPRECIATION> (34,132,000)
<TOTAL-ASSETS> 196,053,000
<CURRENT-LIABILITIES> 86,048,000
<BONDS> 199,830,000
2,292,000
0
<COMMON> 495,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 196,053,000
<SALES> 120,508,000
<TOTAL-REVENUES> 236,074,000
<CGS> 96,345,000
<TOTAL-COSTS> 179,109,000
<OTHER-EXPENSES> 44,235,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,738,000
<INCOME-PRETAX> (10,008,000)
<INCOME-TAX> 69,000
<INCOME-CONTINUING> (10,077,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,077,000)
<EPS-BASIC> (8.59)
<EPS-DILUTED> (8.59)
</TABLE>
