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SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
New Jersey | 21-0682685 | |
(State of other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
520 Fellowship Road, Suite A114, Mt. Laurel, NJ | 08054 | |
(Address of principal executive offices) | (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Stock, $.20 par value | NYSE Amex |
Large accelerated filero | Accelerated filero | Non-accelerated filero | Smaller reporting companyþ | |||
(Do not check if a smaller reporting company) |
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F1 | ||||||||
Exhibit 10.6 | ||||||||
Exhibit 21 | ||||||||
Exhibit 23 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
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• | additions or departures of key personnel; | ||
• | changes in market valuations of similar companies; | ||
• | announcements of new products or services by competitors or new competing technologies; | ||
• | conditions or trends in medical equipment, medical imaging, military and commercial aerospace and electric utility industries; | ||
• | general market and economic conditions; and | ||
• | other events or factors that are unforeseen. |
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Approx. | ||||||||
Square | Owned or Leased And | |||||||
Location | General Character | Footage | Expiration Date | |||||
Ventura, CA | Administration, design and sales of power supply products (SLPE) | 31,200 | Leased – 4/30/2011 | |||||
Mexicali, Mexico | Manufacture and distribution of power supply products (SLPE) | 62,500 | Leased – Monthly | |||||
Mexicali, Mexico | Manufacture and distribution of power supply products (SLPE) | 14,500 | Leased – 5/1/2009 | |||||
South Molton, United Kingdom | Sales and distribution of power supply products (SLPE) | 2,500 | Leased – 6/30/2010 | |||||
Beijing, China | Design of power supply products (SLPE) | 1,500 | Leased –12/31/2009 | |||||
Beijing, China | Employee dormitory (SLPE) | 800 | Leased –10/12/2009 | |||||
Canton, MA | Design of power supply products (SLPE) | 4,800 | Leased – 8/31/2013 | |||||
Shanghai, China | Design of power supply products (SLPE) | 8,800 | Leased – 7/31/2010 |
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Approx. | ||||||||
Square | Owned or Leased And | |||||||
Location | General Character | Footage | Expiration Date | |||||
Shanghai, China | Design of power supply products (SLPE) | 600 | Leased – 6/30/2009 | |||||
Shanghai, China | Employee dormitory (SLPE) | 1,400 | Leased – 7/31/2010 | |||||
Xianghe, China | Manufacture and distribution of power supply products and employee dormitory (SLPE) | 60,600 | Owned | |||||
Xianghe, China | Employee dormitory (SLPE) | 18,800 | Leased – 12/31/2009 | |||||
Xianghe, China | Employee dormitory (SLPE) | 2,900 | Leased – 12/1/2009 | |||||
San Diego, CA | Administration, sales, design and manufacture of power distribution and conditioning units (High Power Group) | 35,500 | Leased – 12/31/2012 | |||||
Tecate, Mexico | Manufacture of power distribution and conditioning units (High Power Group) | 20,800 | Leased – 4/30/2009 | |||||
Menomonee Falls, WI | Design, sales, manufacture and distribution of power quality electromagnetic products (High Power Group) | 25,000 | Leased – 7/31/2010 | |||||
Juarez, Mexico | Manufacture of power distribution and conditioning units (High Power Group) | 12,900 | Leased – Monthly | |||||
Montevideo, MN | Administration, design, sales and manufacture of precision motors and motion control systems(SL-MTI) | 30,000 | Owned | |||||
Matamoros, Mexico | Manufacture of precision motors (SL-MTI) | 28,500 | Leased – 12/31/2009 | |||||
Boonton Twp., NJ | Administration, design, sales and manufacture of electric utility equipment protection systems (RFL) | 78,000 | Owned | |||||
Camden, NJ | Industrial surface finishing (Other)(1) | 15,800 | Owned | |||||
Pennsauken, NJ | Document warehouse (Other)(2) | 6,000 | Owned | |||||
Mt. Laurel, NJ | Corporate office (Other) | 4,200 | Leased – 11/30/2010 |
(1) | Ownership retained by the Company after the sale of SurfTech on November 24, 2003. | |
(2) | Formerly used for industrial surface finishing operations. |
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ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Year | Year | |||||||||||||||
Ended December 31, | Ended December 31, | |||||||||||||||
2008 | 2007 | |||||||||||||||
HIGH | LOW | HIGH | LOW | |||||||||||||
Stock Prices | ||||||||||||||||
1st Quarter | 20.97 | 16.95 | 16.42 | 12.23 | ||||||||||||
2nd Quarter | 19.89 | 12.65 | 18.00 | 13.84 | ||||||||||||
3rd Quarter | 15.25 | 11.10 | 24.00 | 16.20 | ||||||||||||
4th Quarter | 13.25 | 4.75 | 24.00 | 16.35 |
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![](https://capedge.com/proxy/10-K/0001362310-09-005343/c83084c8308401.gif)
2003 | 2004 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||
SL INDUSTRIES, INC. | 100.00 | 176.43 | 200.12 | 202.62 | 249.38 | 109.73 | ||||||||||||||||||
S&P GROUP INDEX | 100.00 | 114.37 | 126.58 | 151.44 | 191.04 | 118.50 | ||||||||||||||||||
RUSSELL 2000 INDEX | 100.00 | 117.49 | 121.40 | 142.12 | 135.10 | 88.09 |
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Total Number | Maximum Number | |||||||||||||||
of Shares | of Shares That May | |||||||||||||||
Total | Purchased as Part | Yet Be Purchased | ||||||||||||||
Number of | Average | of Publicly | under Publicly | |||||||||||||
Shares | Price Paid | Announced Plans | Announced Plans or | |||||||||||||
Period | Purchased | per Share | or Programs | Programs | ||||||||||||
January 2008 | 2,160 | (1) | $ | 20.25 | — | 548,199 | ||||||||||
February 2008 | 2,700 | (1) | $ | 20.55 | — | 548,199 | ||||||||||
March 2008 | 2,600 | (1) | $ | 19.40 | — | 548,199 | ||||||||||
April 2008 | 1,500 | (1) | $ | 19.75 | — | — | ||||||||||
May 2008 | 3,500 | (1) | $ | 14.66 | — | — | ||||||||||
June 2008 | 2,700 | (1) | $ | 14.60 | — | — | ||||||||||
July 2008 | — | — | — | — | ||||||||||||
August 2008 | 3,230 | (1) | $ | 13.56 | — | — | ||||||||||
September 2008 | 2,080 | (1) | $ | 11.56 | — | — | ||||||||||
October 2008 | 3,680 | (1) | $ | 11.21 | — | — | ||||||||||
November 2008 | 3,180 | (1) | $ | 9.75 | — | — | ||||||||||
December 2008 | 2,900 | (1) | $ | 5.28 | — | 500,000 | ||||||||||
Total | 30,230 | $ | 14.07 | — | ||||||||||||
(1) | The Company purchased these shares other than through a publicly announced plan or program. |
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Number of securities | ||||||||||||
remaining available for | ||||||||||||
Number of securities | future issuance under equity | |||||||||||
to be issued upon | Weighted average | compensation plans | ||||||||||
exercise of | exercise price of | excluding shares reflected in | ||||||||||
outstanding options | outstanding options | column (a) | ||||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 405,340 | $ | 10.322 | 160,000 | ||||||||
Equity compensation plans not approved by security holders | none | |||||||||||
Total | 405,340 | $ | 10.322 | 160,000 | ||||||||
Years Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006(1) | 2005 | 2004 | ||||||||||||||||
(amounts in thousands except per share data) | ||||||||||||||||||||
Net sales | $ | 185,954 | $ | 200,863 | $ | 176,773 | $ | 126,873 | $ | 118,804 | ||||||||||
Income from continuing operations | $ | 4,636 | $ | 10,274 | $ | 6,860 | $ | 7,620 | $ | 6,301 | ||||||||||
(Loss) income from discontinued operations(2) | $ | (2,302 | ) | $ | (1,863 | ) | $ | (3,307 | ) | $ | (473 | ) | $ | 2,371 | ||||||
Net income(3) | $ | 2,334 | $ | 8,411 | $ | 3,553 | $ | 7,147 | $ | 8,672 | ||||||||||
Diluted net income per common share | $ | 0.39 | $ | 1.43 | $ | 0.61 | $ | 1.25 | $ | 1.48 | ||||||||||
Shares used in computing diluted net income per common share | 5,948 | 5,876 | 5,823 | 5,738 | 5,871 | |||||||||||||||
Cash dividend per common share | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Year-end financial position | ||||||||||||||||||||
Working capital | $ | 27,222 | $ | 30,606 | $ | 27,511 | $ | 25,807 | $ | 19,496 | ||||||||||
Current ratio(4) | 2.03 | 2.10 | 1.94 | 2.40 | 2.05 | |||||||||||||||
Total assets | $ | 101,286 | $ | 104,673 | $ | 106,543 | $ | 70,314 | $ | 63,084 | ||||||||||
Long-term debt | $ | — | $ | 6,000 | $ | 19,800 | $ | — | $ | 1,456 | ||||||||||
Shareholders’ equity | $ | 64,860 | $ | 61,629 | $ | 50,419 | $ | 46,645 | $ | 37,687 | ||||||||||
Book value per share | $ | 10.98 | $ | 10.54 | $ | 8.94 | $ | 8.33 | $ | 6.91 | ||||||||||
Other | ||||||||||||||||||||
Capital expenditures(5) | $ | 2,426 | $ | 1,742 | $ | 3,055 | $ | 1,904 | $ | 1,642 | ||||||||||
Depreciation and amortization | $ | 3,652 | $ | 3,600 | $ | 2,605 | $ | 1,986 | $ | 2,133 |
(1) | On January 26, 2006, the Company completed the acquisition of Ault. On October 31, 2006, the Company completed the acquisition of MTE. Sales and operating results for both entities are included in fiscal year 2006 from the date of acquisition. | |
(2) | On November 24, 2003, the Company sold certain assets of SurfTech. On January 6, 2003, effective for the year ended December 31, 2002, the Company sold EME. Accordingly, the operations of SurfTech, EME, and SL Waber have been accounted for as discontinued operations in all periods presented. | |
(3) | Fiscal 2008 includes a provision for environmental remediation of $1,410,000, net of tax. Fiscal 2006 includes a provision for environmental remediation of $2,480,000, net of tax. Fiscal 2004 includes a settlement fee of $2,516,000, net of tax, received by SL Waber and the recovery of certain legal fees for environmental matters in the amount of $392,000, net of tax. | |
(4) | The current ratio calculations for all years exclude net current assets and liabilities held for sale. | |
(5) | Excludes assets acquired in business combinations. |
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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December 31, | December 31, | |||||||||||||||
2008 | 2007 | $ Variance | % Variance | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents | $ | 504 | $ | 733 | $ | (229 | ) | (31 | %) | |||||||
Bank debt | $ | — | $ | 6,000 | $ | (6,000 | ) | (100 | %) | |||||||
Working capital | $ | 27,222 | $ | 30,606 | $ | (3,384 | ) | (11 | %) | |||||||
Shareholders’ equity | $ | 64,860 | $ | 61,629 | $ | 3,231 | 5 | % |
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Less Than | 1 to 3 | 4 to 5 | After | |||||||||||||||||
1 Year | Years | Years | 5 Years | Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating Leases | $ | 1,311 | $ | 1,781 | $ | 29 | $ | — | $ | 3,121 | ||||||||||
Debt | — | — | — | — | — | |||||||||||||||
Capital Leases | 8 | 4 | — | — | 12 | |||||||||||||||
Other Obligations | — | — | — | — | — | |||||||||||||||
$ | 1,319 | $ | 1,785 | $ | 29 | $ | — | $ | 3,133 | |||||||||||
Years Ended December 31, | ||||||||||||||||
2008 | 2007 | $ Variance | % Variance | |||||||||||||
(in thousands) | ||||||||||||||||
Net sales | ||||||||||||||||
Power Electronics Group: | ||||||||||||||||
SLPE | $ | 72,811 | $ | 91,072 | $ | (18,261 | ) | (20 | %) | |||||||
High Power Group | 60,462 | 58,025 | 2,437 | 4 | % | |||||||||||
Total | 133,273 | 149,097 | (15,824 | ) | (11 | %) | ||||||||||
SL-MTI | 28,647 | 28,256 | 391 | 1 | % | |||||||||||
RFL | 24,034 | 23,510 | 524 | 2 | % | |||||||||||
Total | $ | 185,954 | $ | 200,863 | $ | (14,909 | ) | (7 | %) | |||||||
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Years Ended December 31, | ||||||||||||||||
2008 | 2007 | $ Variance | % Variance | |||||||||||||
(in thousands) | ||||||||||||||||
Income from operations | ||||||||||||||||
Power Electronics Group: | ||||||||||||||||
SLPE | $ | 315 | $ | 8,233 | $ | (7,918 | ) | (96 | %) | |||||||
High Power Group | 4,868 | 7,810 | (2,942 | ) | (38 | %) | ||||||||||
Total | 5,183 | 16,043 | (10,860 | ) | (68 | %) | ||||||||||
SL-MTI | 3,892 | 3,469 | 423 | 12 | % | |||||||||||
RFL | 2,379 | 2,677 | (298 | ) | (11 | %) | ||||||||||
Other | (4,141 | ) | (6,170 | ) | 2,029 | 33 | % | |||||||||
Total | $ | 7,313 | $ | 16,019 | $ | (8,706 | ) | (54 | %) | |||||||
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Years Ended December 31, | ||||||||||||||||
2007 | 2006 | $ Variance | % Variance | |||||||||||||
(in thousands) | ||||||||||||||||
Net sales | ||||||||||||||||
Power Electronics Group: | ||||||||||||||||
SLPE | $ | 91,072 | $ | 87,949 | $ | 3,123 | 4 | % | ||||||||
High Power Group | 58,025 | 39,993 | 18,032 | 45 | % | |||||||||||
Total | 149,097 | 127,942 | 21,155 | 17 | % | |||||||||||
SL-MTI | 28,256 | 25,704 | 2,552 | 10 | % | |||||||||||
RFL | 23,510 | 23,127 | 383 | 2 | % | |||||||||||
Total | $ | 200,863 | $ | 176,773 | $ | 24,090 | 14 | % | ||||||||
Years Ended December 31, | ||||||||||||||||
2007 | 2006 | $ Variance | % Variance | |||||||||||||
(in thousands) | ||||||||||||||||
Income from operations | ||||||||||||||||
Power Electronics Group: | ||||||||||||||||
SLPE | $ | 8,233 | $ | 6,316 | $ | 1,917 | 30 | % | ||||||||
High Power Group | 7,810 | 5,836 | 1,974 | 34 | % | |||||||||||
Total | 16,043 | 12,152 | 3,891 | 32 | % | |||||||||||
SL-MTI | 3,469 | 1,555 | 1,914 | 123 | % | |||||||||||
RFL | 2,677 | 2,217 | 460 | 21 | % | |||||||||||
Other | (6,170 | ) | (4,871 | ) | (1,299 | ) | (27 | %) | ||||||||
Total | $ | 16,019 | $ | 11,053 | $ | 4,966 | 45 | % | ||||||||
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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Evaluation Of Disclosure Controls And Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures,” as such term is defined in Rules 13a-15e and 15d-15e promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this Annual Report on Form 10-K. This conclusion was based on the material weakness indentified in the Company’s internal control over financial reporting related to inventory existence and recording at MTE, as noted below. Such controls and procedures are designed to ensure that all material information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated as appropriate to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported as specified in the rules and forms of the SEC.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles in the United States (“GAAP”).
The Company’s internal control over financial reporting includes those policies and procedures that:
• | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; |
• | provide reasonable assurance that the Company’s transactions are recorded as necessary to permit preparation of the Company’s financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and the Company’s directors; and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on its financial statements. |
Because of its inherent limitations, internal control over financial reporting cannot prevent or detect every potential misstatement. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.
The Company’s management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting, based on the framework and criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management assessed the effectiveness of the Company’s internal control over financial reporting for the year ended December 31, 2008 and concluded that such internal control over financial reporting was not effective with respect to the material weakness described below.
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A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2008, management identified the following material weakness:
Inventory Existence and Recording
The Company’s management concluded that the controls over inventory tracking and recording at MTE had significant control deficiencies. In particular, errors were detected in the following areas; (i) tracking the movement of inventory from various production and warehouse locations; (ii) recording all required journal entries; (iii) counting of all inventory items; and (iv) reconciling detailed physical inventory reports to the general ledger. Due to the number and magnitude of events in which the Company’s internal controls and procedures were not followed at MTE, management concluded that these internal control deficiencies constitute a material weakness in the Company’s internal control over financial reporting.
Remediation and Changes in Internal Control
Management commenced a number of efforts to remediate the weaknesses noted above. These efforts will continue throughout fiscal 2009 and include the following:
• | re-establish a full cycle count program to be carried out daily by well trained and competent individuals; |
• | elevate staffing qualifications at MTE; |
• | hire a Director of Operations with appropriate materials and manufacturing experience; |
• | review corporate accounting policies and procedures with each member of all accounting staffs at all locations throughout the Company; and |
• | increase oversight of MTE, including conducting internal audit reviews, by the corporate staff. |
During the fiscal quarter ended December 31, 2008, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that require only management’s report in this Annual Report.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
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(Company)
By: | /s/ James C. Taylor | Date: April 13, 2009 | ||
By: | /s/ Glen M. Kassan | Date: April 13, 2009 | ||
By: | /s/ James C. Taylor | Date: April 13, 2009 | ||
(Principal Executive Officer) | ||||
By: | /s/ David R. Nuzzo | Date: April 13, 2009 | ||
Treasurer and Secretary (Principal Financial and Accounting Officer) | ||||
By: | /s/ J. Dwane Baumgardner | Date: April 13, 2009 | ||
By: | /s/ Avrum Gray | Date: April 13, 2009 | ||
By: | /s/ James R. Henderson | Date: April 13, 2009 | ||
By: | /s/ James A. Risher | Date: April 13, 2009 | ||
By: | /s/ Mark E. Schwarz | Date: April 13, 2009 | ||
By: | /s/ John H. McNamara | Date: April 13, 2009 | ||
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The exhibit number, description and sequential page number in the original copy of this document where exhibits can be found as follows: |
Exhibit # | Description | |||
2.1 | Securities Purchase Agreement by and among SL Industries, Inc., SL Industries Vertrieb GmbH, and DCX-Chol Holding GmbH, DCX-Chol Enterprises, Inc. and Chol Enterprises, Inc. dated as of January 3, 2003. Incorporated by reference to Exhibit 2.1 to the Company’s report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2003. | |||
2.2 | Agreement and Plan of Merger, dated December 16, 2005, by and among SL Industries, Inc., Lakers Acquisition Corp. and Ault Incorporated. Incorporated by reference to Exhibit 2.1 to the Company’s report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2005. | |||
2.3 | Stock Purchase Agreement, dated October 31, 2006 by and among SL Industries, Inc., Norbert D. Miller, Revocable Living Trust of Fred A. Lewis and Margaret Lange-Lewis U/A dated January 28, 1993, as Amended and Restated as of October 31, 2001 and the Einhorn Family Foundation. Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K/A filed with the Securities and Exchange Commission on December 21, 2006. | |||
3.1 | Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2000. | |||
3.2 | Restated By-Laws. Incorporated by reference to Exhibit 3.2 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2000. | |||
10.1 | * | Supplemental Compensation Agreement for the Benefit of Byrne Litschgi. Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K dated November 9, 1990. | ||
10.2 | * | 1988 Deferred Compensation Agreement with a Certain Officer. Incorporated by reference to Exhibit 10.6 to the Company’s report on Form 8-K dated November 9, 1990. | ||
10.3 | * | 1991 Long Term Incentive Plan of SL Industries, Inc., as amended, is incorporated by reference to Appendix to the Company’s Proxy Statement for its 1995 Annual Meeting held November 17, 1995, previously filed with the Securities and Exchange Commission. | ||
10.4 | * | Capital Accumulation Plan. Incorporated by reference to the Company’s report on Form 10K/A for the fiscal period ended July 31, 1994. | ||
10.5 | * | Change-in-Control Agreement, dated May 1, 2001, between the Teal Electronics Corporation and James C. Taylor. Incorporated by reference to Exhibit 10.9 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2003. | ||
10.6 | * | Amendment to Change-in-Control Agreement, dated December 22, 2008, to the Change-in-Control Agreement, dated May 1, 2001, between the Teal Electronics Corporation and James C. Taylor (transmitted herewith). | ||
10.7 | * | Bonus Agreement dated August 5, 2002 between the Company and James C. Taylor. Incorporated by reference to Exhibit 10.10 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2003. |
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Exhibit # | Description | |||
10.8 | * | Management Agreement dated as of January 23, 2002 between the Company and Steel Partners, Ltd. Incorporated by reference to Exhibit 10.12 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2003. | ||
10.9 | Amended And Restated Revolving Credit Agreement dated as of October 23, 2008, among Bank of America, N.A., as Agent, various financial institutions party hereto from time to time, as Lenders, SL Industries, Inc., as the parent borrower and, SL Delaware, Inc., SL Delaware Holdings, Inc., MTE Corporation, RFL Electronics Inc., SL Montevideo Technology, Inc., Cedar Corporation, Teal Electronics Corporation, MEX Holdings LLC, SL Power Electronics Corporation, SLGC Holdings, Inc., SLW Holdings, Inc., SL Auburn, Inc., and SL Surface Technologies, Inc. as subsidiary borrowers. Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q dated November 10, 2008. | |||
14 | Code of Conduct and Ethics. Incorporated by reference to Exhibit 14 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2003. | |||
21 | Subsidiaries of the Company (transmitted herewith). | |||
23 | Consent of Independent Registered Public Accounting Firm (transmitted herewith). | |||
31.1 | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted herewith). | |||
31.2 | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted herewith). | |||
32 | Certification by Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (transmitted herewith). |
* | Indicates a management contract or compensatory plan or arrangement. |
Page 43
Table of Contents
Page number | ||||
in this report | ||||
F2 | ||||
F3 | ||||
F4 | ||||
F4 | ||||
F5 | ||||
F6 | ||||
F7 to F36 | ||||
Financial Statement Schedule: | ||||
F37 |
F-1
Table of Contents
SL Industries, Inc.
April 14, 2009
F-2
Table of Contents
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 504,000 | $ | 733,000 | ||||
Receivables, net | 25,496,000 | 30,068,000 | ||||||
Inventories, net | 21,578,000 | 22,242,000 | ||||||
Prepaid expenses | 1,059,000 | 959,000 | ||||||
Deferred income taxes, net | 5,004,000 | 4,302,000 | �� | |||||
Total current assets | 53,641,000 | 58,304,000 | ||||||
Property, plant and equipment, net | 10,648,000 | 11,047,000 | ||||||
Deferred income taxes, net | 6,701,000 | 5,148,000 | ||||||
Goodwill | 22,769,000 | 22,006,000 | ||||||
Other intangible assets, net | 5,831,000 | 6,741,000 | ||||||
Other assets and deferred charges | 1,696,000 | 1,427,000 | ||||||
Total assets | $ | 101,286,000 | $ | 104,673,000 | ||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 9,942,000 | $ | 12,612,000 | ||||
Accrued income taxes | 3,922,000 | 495,000 | ||||||
Accrued liabilities | ||||||||
Payroll and related costs | 5,259,000 | 7,948,000 | ||||||
Other | 7,296,000 | 6,643,000 | ||||||
Total current liabilities | 26,419,000 | 27,698,000 | ||||||
Debt | — | 6,000,000 | ||||||
Deferred compensation and supplemental retirement benefits | 2,681,000 | 2,812,000 | ||||||
Other liabilities | 7,326,000 | 6,534,000 | ||||||
Total liabilities | 36,426,000 | 43,044,000 | ||||||
Commitments and contingencies | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
Preferred stock, no par value; authorized, 6,000,000 shares; none issued | $ | — | $ | — | ||||
Common stock, $.20 par value; authorized, 25,000,000 shares; issued, 8,298,000 shares | 1,660,000 | 1,660,000 | ||||||
Capital in excess of par value | 43,651,000 | 42,999,000 | ||||||
Retained earnings | 39,135,000 | 36,801,000 | ||||||
Accumulated other comprehensive (loss) | (118,000 | ) | (70,000 | ) | ||||
Treasury stock at cost, 2,391,000 and 2,449,000 shares, respectively | (19,468,000 | ) | (19,761,000 | ) | ||||
Total shareholders’ equity | 64,860,000 | 61,629,000 | ||||||
Total liabilities and shareholders’ equity | $ | 101,286,000 | $ | 104,673,000 | ||||
F-3
Table of Contents
2008 | 2007 | 2006 | ||||||||||
Net sales | $ | 185,954,000 | $ | 200,863,000 | $ | 176,773,000 | ||||||
Cost and expenses: | ||||||||||||
Cost of products sold | 129,473,000 | 134,394,000 | 120,125,000 | |||||||||
Engineering and product development | 13,972,000 | 12,791,000 | 12,300,000 | |||||||||
Selling, general and administrative | 30,867,000 | 34,059,000 | 30,690,000 | |||||||||
Depreciation and amortization | 3,652,000 | 3,600,000 | 2,605,000 | |||||||||
Restructuring costs | 677,000 | — | — | |||||||||
Total cost and expenses | 178,641,000 | 184,844,000 | 165,720,000 | |||||||||
Income from operations | 7,313,000 | 16,019,000 | 11,053,000 | |||||||||
Other income (expense): | ||||||||||||
Amortization of deferred financing costs | (77,000 | ) | (88,000 | ) | (88,000 | ) | ||||||
Interest income | 28,000 | 47,000 | 35,000 | |||||||||
Interest expense | (237,000 | ) | (855,000 | ) | (744,000 | ) | ||||||
Income from continuing operations before income taxes | 7,027,000 | 15,123,000 | 10,256,000 | |||||||||
Income tax provision | 2,391,000 | 4,849,000 | 3,396,000 | |||||||||
Income from continuing operations | 4,636,000 | 10,274,000 | 6,860,000 | |||||||||
(Loss) from discontinued operations (net of tax) | (2,302,000 | ) | (1,863,000 | ) | (3,307,000 | ) | ||||||
Net income | $ | 2,334,000 | $ | 8,411,000 | $ | 3,553,000 | ||||||
Basic net income (loss) per common share | ||||||||||||
Income from continuing operations | $ | 0.79 | $ | 1.80 | $ | 1.22 | ||||||
(Loss) from discontinued operations (net of tax) | (0.39 | ) | (0.33 | ) | (0.59 | ) | ||||||
Net income | $ | 0.40 | $ | 1.47 | $ | 0.63 | ||||||
Diluted net income (loss) per common share | ||||||||||||
Income from continuing operations | $ | 0.78 | $ | 1.75 | $ | 1.18 | ||||||
(Loss) from discontinued operations (net of tax) | (0.39 | ) | (0.32 | ) | (0.57 | ) | ||||||
Net income | $ | 0.39 | $ | 1.43 | $ | 0.61 | ||||||
Shares used in computing basic net income (loss) per common share | 5,868,000 | 5,714,000 | 5,632,000 | |||||||||
Shares used in computing diluted net income (loss) per common share | 5,948,000 | 5,876,000 | 5,823,000 |
2008 | 2007 | 2006 | ||||||||||
Net income | $ | 2,334,000 | $ | 8,411,000 | $ | 3,553,000 | ||||||
Other comprehensive income (net of tax): | ||||||||||||
Foreign currency translation | (48,000 | ) | (27,000 | ) | (19,000 | ) | ||||||
Unrealized (loss) on securities | — | — | (67,000 | ) | ||||||||
Comprehensive income | $ | 2,286,000 | $ | 8,384,000 | $ | 3,467,000 | ||||||
F-4
Table of Contents
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
Accumulated | ||||||||||||||||||||||||||||
Common Stock | Capital in | Other | ||||||||||||||||||||||||||
Issued | Held In Treasury | Excess of | Retained | Comprehensive | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Par Value | Earnings | Income (Loss) | ||||||||||||||||||||||
Balance December 31, 2005 | 8,298,000 | $ | 1,660,000 | (2,701,000 | ) | $ | (20,055,000 | ) | $ | 40,136,000 | $ | 24,837,000 | $ | 67,000 | ||||||||||||||
Net income | 3,553,000 | |||||||||||||||||||||||||||
Foreign currency translation | (29,000 | ) | ||||||||||||||||||||||||||
Investments available for sale | (67,000 | ) | ||||||||||||||||||||||||||
Other, including exercise of employee stock options and related income tax benefits | 92,000 | 691,000 | 515,000 | |||||||||||||||||||||||||
Treasury stock sold | 27,000 | 203,000 | 238,000 | |||||||||||||||||||||||||
Treasury stock purchased | (76,000 | ) | (1,330,000 | ) | ||||||||||||||||||||||||
Balance December 31, 2006 | 8,298,000 | $ | 1,660,000 | (2,658,000 | ) | $ | (20,491,000 | ) | $ | 40,889,000 | $ | 28,390,000 | $ | (29,000 | ) | |||||||||||||
Net income | 8,411,000 | |||||||||||||||||||||||||||
Foreign currency translation | (41,000 | ) | ||||||||||||||||||||||||||
Other, including exercise of employee stock options and related income tax benefits | 233,000 | 1,857,000 | 1,381,000 | |||||||||||||||||||||||||
Treasury stock sold | 83,000 | 655,000 | 729,000 | |||||||||||||||||||||||||
Stock repurchase plan | (12,000 | ) | (177,000 | ) | ||||||||||||||||||||||||
Treasury stock purchased | (95,000 | ) | (1,605,000 | ) | ||||||||||||||||||||||||
Balance December 31, 2007 | 8,298,000 | $ | 1,660,000 | (2,449,000 | ) | $ | (19,761,000 | ) | $ | 42,999,000 | $ | 36,801,000 | $ | (70,000 | ) | |||||||||||||
Net income | 2,334,000 | |||||||||||||||||||||||||||
Foreign currency translation | (48,000 | ) | ||||||||||||||||||||||||||
Other, including exercise of employee stock options and related income tax benefits | 4,000 | 34,000 | 27,000 | |||||||||||||||||||||||||
Stock-based compensation | 317,000 | |||||||||||||||||||||||||||
Treasury stock sold | 84,000 | 684,000 | 308,000 | |||||||||||||||||||||||||
Treasury stock purchased | (30,000 | ) | (425,000 | ) | ||||||||||||||||||||||||
Balance December 31, 2008 | 8,298,000 | $ | 1,660,000 | (2,391,000 | ) | $ | (19,468,000 | ) | $ | 43,651,000 | $ | 39,135,000 | $ | (118,000 | ) | |||||||||||||
F-5
Table of Contents
2008 | 2007 | 2006 | ||||||||||
OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 2,334,000 | $ | 8,411,000 | $ | 3,553,000 | ||||||
Adjustment for losses from discontinued operations | 2,302,000 | 1,863,000 | 3,307,000 | |||||||||
Income from continuing operations | 4,636,000 | 10,274,000 | 6,860,000 | |||||||||
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | ||||||||||||
Depreciation | 2,218,000 | 2,216,000 | 2,129,000 | |||||||||
Amortization | 1,434,000 | 1,384,000 | 476,000 | |||||||||
Amortization of deferred financing costs | 77,000 | 88,000 | 88,000 | |||||||||
Stock-based compensation | 317,000 | — | 71,000 | |||||||||
Non-cash compensation (benefit) expense | (655,000 | ) | 638,000 | 39,000 | ||||||||
Non-cash restructuring | 170,000 | — | — | |||||||||
Provisions for (recoveries of) losses on accounts receivable | (169,000 | ) | 35,000 | (173,000 | ) | |||||||
Cash surrender value of life insurance policies | (13,000 | ) | (29,000 | ) | 11,000 | |||||||
Deferred compensation and supplemental retirement benefits | 431,000 | 454,000 | 452,000 | |||||||||
Deferred compensation and supplemental retirement benefit payments | (543,000 | ) | (520,000 | ) | (1,397,000 | ) | ||||||
Deferred income taxes | (3,319,000 | ) | (183,000 | ) | (942,000 | ) | ||||||
Loss on sales of equipment | 159,000 | 79,000 | 16,000 | |||||||||
Changes in operating assets and liabilities, excluding effects of business combinations and dispositions: | ||||||||||||
Accounts receivable | 4,809,000 | 557,000 | (5,104,000 | ) | ||||||||
Note receivable | — | 561,000 | 1,125,000 | |||||||||
Inventories | 664,000 | (1,152,000 | ) | 305,000 | ||||||||
Prepaid expenses | (100,000 | ) | 617,000 | (87,000 | ) | |||||||
Other assets | 91,000 | — | 451,000 | |||||||||
Accounts payable | (2,358,000 | ) | (1,290,000 | ) | (1,320,000 | ) | ||||||
Other accrued liabilities | (2,645,000 | ) | 1,246,000 | 432,000 | ||||||||
Accrued income taxes | 4,842,000 | 257,000 | 2,895,000 | |||||||||
Net cash provided by operating activities from continuing operations | 10,046,000 | 15,232,000 | 6,327,000 | |||||||||
Net cash (used in) operating activities from discontinued operations | (1,680,000 | ) | (2,165,000 | ) | (768,000 | ) | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 8,366,000 | 13,067,000 | 5,559,000 | |||||||||
INVESTING ACTIVITIES: | ||||||||||||
Acquisition of businesses, net of cash acquired | — | (65,000 | ) | (31,766,000 | ) | |||||||
Purchases of property, plant and equipment | (2,426,000 | ) | (1,742,000 | ) | (3,055,000 | ) | ||||||
Purchases of other assets | (8,000 | ) | (283,000 | ) | — | |||||||
Proceeds from sale of equipment | — | — | 18,000 | |||||||||
NET CASH (USED IN) INVESTING ACTIVITIES | (2,434,000 | ) | (2,090,000 | ) | (34,803,000 | ) | ||||||
FINANCING ACTIVITIES: | ||||||||||||
Proceeds from Revolving Credit Facility | 20,440,000 | 22,570,000 | 55,163,000 | |||||||||
Payments of Revolving Credit Facility | (26,440,000 | ) | (36,370,000 | ) | (35,363,000 | ) | ||||||
Payments of deferred financing costs | (551,000 | ) | — | — | ||||||||
Proceeds from stock options exercised | 54,000 | 2,654,000 | 930,000 | |||||||||
Tax benefit from exercise of stock options | 7,000 | 584,000 | 204,000 | |||||||||
Treasury stock sales (purchases), net | 567,000 | (398,000 | ) | (889,000 | ) | |||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (5,923,000 | ) | (10,960,000 | ) | 20,045,000 | |||||||
Effect of exchange rate changes on cash | (238,000 | ) | (41,000 | ) | (29,000 | ) | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (229,000 | ) | (24,000 | ) | (9,228,000 | ) | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 733,000 | 757,000 | 9,985,000 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 504,000 | $ | 733,000 | $ | 757,000 | ||||||
F-6
Table of Contents
F-7
Table of Contents
F-8
Table of Contents
F-9
Table of Contents
Net Income | Shares | Per Share Amount | ||||||||||
(in thousands, except per share amounts) | ||||||||||||
For the Year Ended December 31, 2008: | ||||||||||||
Basic net income per common share | $ | 2,334 | 5,868 | $ | 0.40 | |||||||
Effect of dilutive securities | — | 80 | (0.01 | ) | ||||||||
Diluted net income per common share | $ | 2,334 | 5,948 | $ | 0.39 | |||||||
For the Year Ended December 31, 2007: | ||||||||||||
Basic net income per common share | $ | 8,411 | 5,714 | $ | 1.47 | |||||||
Effect of dilutive securities | — | 162 | (0.04 | ) | ||||||||
Diluted net income per common share | $ | 8,411 | 5,876 | $ | 1.43 | |||||||
For the Year Ended December 31, 2006: | ||||||||||||
Basic net income per common share | $ | 3,553 | 5,632 | $ | 0.63 | |||||||
Effect of dilutive securities | — | 191 | (0.02 | ) | ||||||||
Diluted net income per common share | $ | 3,553 | 5,823 | $ | 0.61 | |||||||
F-10
Table of Contents
F-11
Table of Contents
Year Ended | ||||
December 31, | ||||
2008 | ||||
Expected dividend yield | 0 | % | ||
Expected stock price volatility | 42.52 | % | ||
Risk-free interest rate | 3.12 | % | ||
Expected life of stock option | 4.25 years |
Shares | Weighted Average | |||||||||
(in thousands) | Option Price | Exercise Price | ||||||||
Outstanding and exercisable as of December 31, 2005 | 134 | $6.00 to $14.625 | $ | 7.40 | ||||||
Exercised | (11 | ) | $6.875 to 10.50 | $ | 8.26 | |||||
Outstanding and exercisable as of December 31, 2006 | 123 | $6.00 to $14.625 | $ | 7.32 | ||||||
Exercised | (5 | ) | $7.1875 to $13.6875 | $ | 9.53 | |||||
Outstanding and exercisable as of December 31, 2007 | 118 | $6.00 to $14.625 | $ | 7.23 | ||||||
Exercised | (3 | ) | $12.0313 to $14.625 | $ | 13.24 | |||||
Cancelled | (4 | ) | $11.1563 to $14.625 | $ | 13.26 | |||||
Outstanding and exercisable as of December 31, 2008 | 111 | $6.00 to $12.9375 | $ | 6.86 | ||||||
F-12
Table of Contents
Shares | Weighted Average | ||||||||||
(in thousands) | Option Price | Exercise Price | |||||||||
Outstanding as of December 31, 2005 | 499 | $5.75 to $17.01 | $ | 11.21 | |||||||
Exercised | (81 | ) | $5.75 to $13.50 | $ | 10.36 | ||||||
Cancelled | (13 | ) | $17.01 to $17.01 | $ | 17.01 | ||||||
Outstanding and exercisable as of December 31, 2006 | 405 | $5.75 to $17.01 | $ | 11.20 | |||||||
Exercised | (228 | ) | $5.75 to $13.50 | $ | 11.45 | ||||||
Cancelled | (29 | ) | $5.75 to $17.01 | $ | 13.54 | ||||||
Outstanding and exercisable as of December 31, 2007 | 148 | $5.75 to $13.50 | $ | 10.37 | |||||||
Exercised | (1 | ) | $11.125 to $11.125 | $ | 11.13 | ||||||
Cancelled | (8 | ) | $11.125 to $11.125 | $ | 11.13 | ||||||
Outstanding and exercisable as of December 31, 2008 | 139 | $5.75 to $13.50 | $ | 10.32 | |||||||
Shares | Weighted Average | |||||||||
(in thousands) | Option Price | Exercise Price | ||||||||
Outstanding as of December 31, 2007 | — | — | — | |||||||
Granted | 155 | $12.80 to $12.80 | $ | 12.80 | ||||||
Outstanding as of December 31, 2008 | 155 | $12.80 to $12.80 | $ | 12.80 | ||||||
Weighted | ||||||||||||||
Average Life | ||||||||||||||
Shares | Weighted Average | Remaining | ||||||||||||
(in thousands) | Option Price | Exercise Price | (years) | |||||||||||
Outstanding as of December 31, 2005 | 633 | $5.75 to $17.01 | $ | 10.406 | 4.78 | |||||||||
Exercised | (92 | ) | $5.75 to $13.50 | $ | 10.11 | |||||||||
Cancelled | (13 | ) | $17.01 to$17.01 | $ | 17.01 | |||||||||
Outstanding as of December 31, 2006 | 528 | $5.75 to $17.01 | $ | 10.302 | 3.80 | |||||||||
Exercised | (233 | ) | $5.75 to $13.6875 | $ | 11.40 | |||||||||
Cancelled | (29 | ) | $5.75 to $17.01 | $ | 13.54 | |||||||||
Outstanding as of December 31, 2007 | 266 | $5.75 to $14.625 | $ | 8.976 | 3.52 | |||||||||
Granted | 155 | $12.80 to$12.80 | $ | 12.80 | ||||||||||
Exercised | (4 | ) | $11.125 to $14.625 | $ | 12.62 | |||||||||
Cancelled | (12 | ) | $11.125 to $14.625 | $ | 11.82 | |||||||||
Outstanding as of December 31, 2008 | 405 | $5.75 to $13.50 | $ | 10.322 | 4.24 | |||||||||
Exercisable as of December 31, 2008 | 302 | $5.75 to $13.50 | $ | 9.474 | ||||||||||
F-13
Table of Contents
Weighted Average | ||||||||||
Options Outstanding | Range of Option Prices per | Weighted Average | Life Remaining | |||||||
(in thousands) | Share | Exercise Price | (years) | |||||||
132 | $5.75 to $8.04 | $ | 5.968 | 3.7 | ||||||
52 | $8.10 to $12.15 | $ | 11.064 | 1.4 | ||||||
221 | $12.1563 to $13.50 | $ | 12.739 | 5.3 | ||||||
— | ||||||||||
405 | ||||||||||
Options Exercisable | Range of Option Prices per | Weighted Average | ||||||||
(in thousands) | Share | Exercise Price | ||||||||
132 | $5.75 to $8.04 | $ | 5.968 | |||||||
52 | $8.10 to $12.15 | $ | 11.064 | |||||||
118 | $12.1563 to $13.50 | $ | 12.685 | |||||||
— | ||||||||||
302 |
F-14
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F-15
Table of Contents
F-16
Table of Contents
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands) | ||||||||||||
Income tax provision from continuing operations | $ | 2,391 | $ | 4,849 | $ | 3,396 | ||||||
Income tax (benefit) from discontinued operations | (1,369 | ) | (1,173 | ) | (1,986 | ) | ||||||
Total | $ | 1,022 | $ | 3,676 | $ | 1,410 | ||||||
F-17
Table of Contents
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands) | ||||||||||||
U.S. | $ | 5,251 | $ | 14,172 | $ | 10,241 | ||||||
Non-U.S. | 1,776 | 951 | 15 | |||||||||
$ | 7,027 | $ | 15,123 | $ | 10,256 | |||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands) | ||||||||||||
Current: | ||||||||||||
Federal | $ | 3,982 | $ | 1,819 | $ | 2,455 | ||||||
International | 598 | 697 | 163 | |||||||||
State | (11 | ) | 575 | 212 | ||||||||
Deferred: | ||||||||||||
Federal | (2,199 | ) | 1,794 | 643 | ||||||||
International | — | (122 | ) | (251 | ) | |||||||
State | 21 | 86 | 174 | |||||||||
$ | 2,391 | $ | 4,849 | $ | 3,396 | |||||||
F-18
Table of Contents
December 31, | ||||||||
2008 | 2007* | |||||||
(in thousands) | ||||||||
Deferred tax assets: | ||||||||
Deferred compensation | $ | 1,108 | $ | 1,225 | ||||
Inventory valuation | 1,154 | 862 | ||||||
Tax loss carryforward | 3,811 | 3,806 | ||||||
Foreign tax credit carryforward | 1,687 | 752 | ||||||
R&D tax credit carryforward | 2,104 | 1,924 | ||||||
Accrued expenses | 1,438 | 2,062 | ||||||
Warranty | 606 | 471 | ||||||
Other | 912 | 566 | ||||||
12,820 | 11,668 | |||||||
Less valuation allowances | (185 | ) | (934 | ) | ||||
12,635 | 10,734 | |||||||
Deferred tax liabilities: | ||||||||
Accelerated depreciation and amortization | 3,893 | 3,822 | ||||||
8,742 | 6,912 | |||||||
Assets & liabilities related to discontinued operations, net | 2,963 | 2,538 | ||||||
$ | 11,705 | $ | 9,450 | |||||
* | The balances of the significant components of the Company’s deferred tax assets and liabilities as of December 31, 2007 have been reclassified to reflect the tax rates applied to temporary differences on a Company rather than on a consolidated basis, as well as to more accurately reflect deferred assets and liabilities in continuing operations. The above reclassifications had no effect on the total net deferred tax assets. |
F-19
Table of Contents
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Statutory rate | 34 | % | 34 | % | 34 | % | ||||||
Tax rate differential on extraterritorial income exclusion/ domestic manufacturing deduction benefit | (1 | ) | (1 | ) | (2 | ) | ||||||
International rate differences | — | 2 | (1 | ) | ||||||||
State income taxes, net of federal income tax | 2 | 3 | 4 | |||||||||
Foreign tax credits | 1 | — | 1 | |||||||||
Research and development credits | (5 | ) | (5 | ) | (5 | ) | ||||||
Other | 3 | (1 | ) | 2 | ||||||||
34 | % | 32 | % | 33 | % | |||||||
Gross unrecognized tax benefits at January 1, 2008 | $ | 2,785,000 | ||
Increases in tax positions taken in the current year | 132,000 | |||
Decreases in tax positions taken in prior years | (48,000 | ) | ||
Statute of limitations expired | (24,000 | ) | ||
Gross unrecognized tax benefits at December 31, 2008 | $ | 2,845,000 | ||
F-20
Table of Contents
December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Trade receivables | $ | 25,216 | $ | 29,790 | ||||
Less: allowance for doubtful accounts | (621 | ) | (865 | ) | ||||
24,595 | 28,925 | |||||||
Recoverable income taxes | 16 | 58 | ||||||
Other | 885 | 1,085 | ||||||
$ | 25,496 | $ | 30,068 | |||||
December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Raw materials | $ | 16,197 | $ | 15,805 | ||||
Work in process | 3,904 | 4,849 | ||||||
Finished goods | 5,225 | 4,615 | ||||||
25,326 | 25,269 | |||||||
Less: allowances | (3,748 | ) | (3,027 | ) | ||||
$ | 21,578 | $ | 22,242 | |||||
F-21
Table of Contents
December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Land | $ | 1,074 | $ | 1,170 | ||||
Buildings and leasehold improvements | 8,272 | 8,650 | ||||||
Equipment and other property | 24,774 | 25,152 | ||||||
34,120 | 34,972 | |||||||
Less: accumulated depreciation | (23,472 | ) | (23,925 | ) | ||||
$ | 10,648 | $ | 11,047 | |||||
December 31, 2008 | December 31, 2007 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Gross Value | Amortization | Net Value | Gross Value | Amortization | Net Value | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Goodwill | $ | 22,769 | $ | — | $ | 22,769 | $ | 22,006 | $ | — | $ | 22,006 | ||||||||||||
Other intangible assets: | ||||||||||||||||||||||||
Customer relationships | 3,700 | 1,062 | 2,638 | 3,700 | 553 | 3,147 | ||||||||||||||||||
Patents | 1,259 | 998 | 261 | 1,219 | 924 | 295 | ||||||||||||||||||
Trademarks | 1,672 | — | 1,672 | 1,672 | — | 1,672 | ||||||||||||||||||
Developed technology | 1,700 | 636 | 1,064 | 1,700 | 334 | 1,366 | ||||||||||||||||||
Licensing fees | 355 | 160 | 195 | 355 | 124 | 231 | ||||||||||||||||||
Covenant-not-to-compete | 100 | 100 | — | 100 | 75 | 25 | ||||||||||||||||||
Other | 51 | 50 | 1 | 51 | 46 | 5 | ||||||||||||||||||
Total other intangible assets | 8,837 | 3,006 | 5,831 | 8,797 | 2,056 | 6,741 | ||||||||||||||||||
$ | 31,606 | $ | 3,006 | $ | 28,600 | $ | 30,803 | $ | 2,056 | $ | 28,747 | |||||||||||||
F-22
Table of Contents
Balance | Balance | |||||||||||||||||||
December 31, | Deferred | Intangible | Foreign | December 31, | ||||||||||||||||
2007 | Taxes | Assets | Exchange | 2008 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
SLPE (Ault) | $ | 3,513 | $ | 789 | $ | — | $ | (26 | ) | $ | 4,276 | |||||||||
High Power Group (MTE) | 8,189 | — | — | — | 8,189 | |||||||||||||||
High Power Group (Teal) | 5,055 | — | — | — | 5,055 | |||||||||||||||
RFL | 5,249 | — | — | — | 5,249 | |||||||||||||||
Total | $ | 22,006 | $ | 789 | $ | — | $ | (26 | ) | $ | 22,769 | |||||||||
F-23
Table of Contents
December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Prime rate loan | $ | — | $ | — | ||||
LIBOR rate loan | — | 6,000 | ||||||
— | 6,000 | |||||||
Less: current portion | — | — | ||||||
Total long-term debt | $ | — | $ | 6,000 | ||||
F-24
Table of Contents
December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Taxes (other than income) and insurance | $ | 560 | $ | 117 | ||||
Commissions | 839 | 869 | ||||||
Litigation and legal fees | 270 | 927 | ||||||
Other professional fees | 596 | 1,053 | ||||||
Environmental | 1,057 | 514 | ||||||
Warranty | 1,325 | 1,271 | ||||||
Deferred revenue | 556 | 320 | ||||||
Other | 2,093 | 1,572 | ||||||
$ | 7,296 | $ | 6,643 | |||||
December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Liability, beginning of year | $ | 1,271 | $ | 1,197 | ||||
Expense for new warranties issued | 893 | 380 | ||||||
Expense related to accrual revisions for prior year | 5 | 181 | ||||||
Warranty claims paid | (844 | ) | (487 | ) | ||||
Liability, end of period | $ | 1,325 | $ | 1,271 | ||||
F-25
Table of Contents
Year Ended | ||||||||||||||||
December 31, 2008 | ||||||||||||||||
(in thousands) | ||||||||||||||||
Temporary | ||||||||||||||||
Severance | Labor | Other Costs | Total | |||||||||||||
Beginning balance | $ | — | $ | — | $ | — | $ | — | ||||||||
Restructuring charges | 315 | 117 | 245 | 677 | ||||||||||||
Cash payments | (227 | ) | (117 | ) | (163 | ) | (507 | ) | ||||||||
Ending balance | $ | 88 | $ | — | $ | 82 | $ | 170 | ||||||||
F-26
Table of Contents
Operating | Capital | |||||||
(in thousands) | ||||||||
2009 | $ | 1,311 | $ | 8 | ||||
2010 | 828 | 4 | ||||||
2011 | 506 | — | ||||||
2012 | 447 | — | ||||||
2013 | 29 | — | ||||||
Thereafter | — | — | ||||||
Total minimum payments | $ | 3,121 | $ | 12 | ||||
Less: interest | — | |||||||
Total principal payable | $ | 12 | ||||||
F-27
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F-28
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F-29
Table of Contents
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands) | ||||||||||||
Interest paid | $ | 347 | $ | 1,001 | $ | 604 | ||||||
Income taxes paid | $ | 725 | $ | 2,853 | $ | 1,671 |
F-30
Table of Contents
• | nature of products and services |
• | nature of production process |
• | type or class of customer |
• | methods of distribution |
F-31
Table of Contents
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 * | ||||||||||
(in thousands) | ||||||||||||
Net sales | ||||||||||||
Power Electronics Group: | ||||||||||||
SLPE | $ | 72,811 | $ | 91,072 | $ | 87,949 | ||||||
High Power Group | 60,462 | 58,025 | 39,993 | |||||||||
Total | 133,273 | 149,097 | 127,942 | |||||||||
SL-MTI | 28,647 | 28,256 | 25,704 | |||||||||
RFL | 24,034 | 23,510 | 23,127 | |||||||||
Consolidated | $ | 185,954 | $ | 200,863 | $ | 176,773 | ||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 * | ||||||||||
(in thousands) | ||||||||||||
Income from operations | ||||||||||||
Power Electronics Group: | ||||||||||||
SLPE | $ | 315 | $ | 8,233 | $ | 6,316 | ||||||
High Power Group | 4,868 | 7,810 | 5,836 | |||||||||
Total | 5,183 | 16,043 | 12,152 | |||||||||
SL-MTI | 3,892 | 3,469 | 1,555 | |||||||||
RFL | 2,379 | 2,677 | 2,217 | |||||||||
Other | (4,141 | ) | (6,170 | ) | (4,871 | ) | ||||||
Income from operations | 7,313 | 16,019 | 11,053 | |||||||||
Amortization of deferred financing costs | (77 | ) | (88 | ) | (88 | ) | ||||||
Interest income | 28 | 47 | 35 | |||||||||
Interest expense | (237 | ) | (855 | ) | (744 | ) | ||||||
Income from continuing operations before income taxes | $ | 7,027 | $ | 15,123 | $ | 10,256 | ||||||
* | SLPE includes net sales and income from operations of Ault from the acquisition date, January 26, 2006. The High Power Group includes net sales and income from operations of MTE for two months in 2006, since the acquisition was not completed until October 31, 2006. |
F-32
Table of Contents
December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Total assets | ||||||||
Power Electronics Group: | ||||||||
SLPE | $ | 33,253 | $ | 37,940 | ||||
High Power Group | 30,985 | 29,305 | ||||||
Total | 64,238 | 67,245 | ||||||
SL-MTI | 12,479 | 12,246 | ||||||
RFL | 15,480 | 16,124 | ||||||
Other | 9,089 | 9,058 | ||||||
Consolidated | $ | 101,286 | $ | 104,673 | ||||
December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands) | ||||||||
Intangible assets, net | ||||||||
Power Electronics Group: | ||||||||
SLPE | $ | 5,785 | $ | 5,399 | ||||
High Power Group | 17,370 | 17,863 | ||||||
Total | 23,155 | 23,262 | ||||||
SL-MTI | 1 | 5 | ||||||
RFL | 5,444 | 5,480 | ||||||
Consolidated | $ | 28,600 | $ | 28,747 | ||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands) | ||||||||||||
Capital expenditures | ||||||||||||
Power Electronics Group: | ||||||||||||
SLPE | $ | 1,020 | $ | 1,193 | $ | 2,207 | ||||||
High Power Group | 756 | 7 | 113 | |||||||||
Total | 1,776 | 1,200 | 2,320 | |||||||||
SL-MTI | 432 | 174 | 307 | |||||||||
RFL | 182 | 294 | 428 | |||||||||
Other | 36 | 74 | — | |||||||||
Consolidated | $ | 2,426 | $ | 1,742 | $ | 3,055 | ||||||
F-33
Table of Contents
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands) | ||||||||||||
Depreciation and amortization | ||||||||||||
Power Electronics Group: | ||||||||||||
SLPE | $ | 1,820 | $ | 1,730 | $ | 1,268 | ||||||
High Power Group | 854 | 845 | 309 | |||||||||
Total | 2,674 | 2,575 | 1,577 | |||||||||
SL-MTI | 388 | 382 | 382 | |||||||||
RFL | 550 | 621 | 610 | |||||||||
Other | 40 | 22 | 36 | |||||||||
Consolidated | $ | 3,652 | $ | 3,600 | $ | 2,605 | ||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in thousands) | ||||||||||||
Net sales(1) | ||||||||||||
United States | $ | 155,002 | $ | 168,427 | $ | 147,263 | ||||||
Foreign | 30,952 | 32,436 | 29,510 | |||||||||
Consolidated | $ | 185,954 | $ | 200,863 | $ | 176,773 | ||||||
Long-lived assets(2) | ||||||||||||
United States | $ | 7,411 | $ | 8,117 | $ | 9,019 | ||||||
Foreign | 3,237 | 2,930 | 3,113 | |||||||||
Consolidated | $ | 10,648 | $ | 11,047 | $ | 12,132 | ||||||
(1) | Net sales are attributed to countries based on location of customer. | |
(2) | Includes net tangible assets excluding goodwill and intangibles. |
F-34
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F-35
Table of Contents
Three Months | Three Months | |||||||||||||||
Three Months | Three Months | Ended | Ended | |||||||||||||
Ended | Ended | September 30, | December 31, | |||||||||||||
March 31, 2008 | June 30, 2008 | 2008 | 2008 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Net sales | $ | 45,361 | $ | 48,734 | $ | 46,242 | $ | 45,617 | ||||||||
Gross margin | $ | 14,789 | $ | 15,037 | $ | 14,190 | $ | 12,465 | ||||||||
Income from continuing operations before income taxes | $ | 2,028 | $ | 2,921 | $ | 1,275 | $ | 803 | ||||||||
Net income (loss)(a) | $ | 1,134 | $ | 1,758 | $ | (324 | ) | $ | (234 | ) | ||||||
Diluted net income (loss) per common share | $ | 0.19 | $ | 0.30 | $ | (0.05 | ) | $ | (0.04 | ) | ||||||
(a) Includes (loss) from discontinued operations, net of tax | $ | (212 | ) | $ | (241 | ) | $ | (1,196 | )(b) | $ | (653 | ) |
(b) | The Company recorded an additional loss of approximately $919,000, net of tax, pertaining to estimated environmental remediation costs related to the Company’s Camden site. |
Three Months | Three Months | |||||||||||||||
Three Months | Three Months | Ended | Ended | |||||||||||||
Ended | Ended | September 30, | December 31, | |||||||||||||
March 31, 2007 | June 30, 2007 | 2007 | 2007 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Net sales | $ | 48,327 | $ | 52,730 | $ | 50,652 | $ | 49,154 | ||||||||
Gross margin | $ | 15,955 | $ | 17,947 | $ | 16,232 | $ | 16,335 | ||||||||
Income from continuing operations before income taxes | $ | 2,983 | $ | 4,435 | $ | 3,747 | $ | 3,958 | ||||||||
Net income(a) | $ | 1,667 | $ | 2,818 | $ | 2,151 | $ | 1,775 | ||||||||
Diluted net income per common share | $ | 0.29 | $ | 0.49 | $ | 0.36 | $ | 0.30 | ||||||||
(a) Includes (loss) from discontinued operations, net of tax | $ | (370 | ) | $ | (418 | ) | $ | (316 | ) | $ | (759 | ) |
F-36
Table of Contents
Balance at | Additions | |||||||||||||||||||
Beginning of | Charged to Costs | Charged to Other | Balance at End of | |||||||||||||||||
Description | Period | and Expenses | Accounts | Deductions | Period | |||||||||||||||
(in thousands) | ||||||||||||||||||||
YEAR ENDED DECEMBER 31, 2008 | ||||||||||||||||||||
Allowance for: | ||||||||||||||||||||
Doubtful accounts | $ | 865 | $ | (57 | ) | $ | 0 | $ | 187 | $ | 621 | |||||||||
YEAR ENDED DECEMBER 31, 2007 | ||||||||||||||||||||
Allowance for: | ||||||||||||||||||||
Doubtful accounts | $ | 830 | $ | 81 | $ | 1 | $ | 46 | $ | 865 | ||||||||||
YEAR ENDED DECEMBER 31, 2006 | ||||||||||||||||||||
Allowance for: | ||||||||||||||||||||
Doubtful accounts | $ | 569 | $ | 96 | $ | 853 | $ | 688 | $ | 830 |
F-37
Table of Contents
Exhibit # | Description | |||
2.1 | Securities Purchase Agreement by and among SL Industries, Inc., SL Industries Vertrieb GmbH, and DCX-Chol Holding GmbH, DCX-Chol Enterprises, Inc. and Chol Enterprises, Inc. dated as of January 3, 2003. Incorporated by reference to Exhibit 2.1 to the Company’s report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2003. | |||
2.2 | Agreement and Plan of Merger, dated December 16, 2005, by and among SL Industries, Inc., Lakers Acquisition Corp. and Ault Incorporated. Incorporated by reference to Exhibit 2.1 to the Company’s report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2005. | |||
2.3 | Stock Purchase Agreement, dated October 31, 2006 by and among SL Industries, Inc., Norbert D. Miller, Revocable Living Trust of Fred A. Lewis and Margaret Lange-Lewis U/A dated January 28, 1993, as Amended and Restated as of October 31, 2001 and the Einhorn Family Foundation. Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K/A filed with the Securities and Exchange Commission on December 21, 2006. | |||
3.1 | Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2000. | |||
3.2 | Restated By-Laws. Incorporated by reference to Exhibit 3.2 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2000. | |||
10.1 | * | Supplemental Compensation Agreement for the Benefit of Byrne Litschgi. Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K dated November 9, 1990. | ||
10.2 | * | 1988 Deferred Compensation Agreement with a Certain Officer. Incorporated by reference to Exhibit 10.6 to the Company’s report on Form 8-K dated November 9, 1990. | ||
10.3 | * | 1991 Long Term Incentive Plan of SL Industries, Inc., as amended, is incorporated by reference to Appendix to the Company’s Proxy Statement for its 1995 Annual Meeting held November 17, 1995, previously filed with the Securities and Exchange Commission. | ||
10.4 | * | Capital Accumulation Plan. Incorporated by reference to the Company’s report on Form 10K/A for the fiscal period ended July 31, 1994. | ||
10.5 | * | Change-in-Control Agreement, dated May 1, 2001, between the Teal Electronics Corporation and James C. Taylor. Incorporated by reference to Exhibit 10.9 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2003. | ||
10.6 | * | Amendment to Change-in-Control Agreement, dated December 22, 2008, to the Change-in-Control Agreement, dated May 1, 2001, between the Teal Electronics Corporation and James C. Taylor (transmitted herewith). | ||
10.7 | * | Bonus Agreement dated August 5, 2002 between the Company and James C. Taylor. Incorporated by reference to Exhibit 10.10 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2003. | ||
10.8 | * | Management Agreement dated as of January 23, 2002 between the Company and Steel Partners, Ltd. Incorporated by reference to Exhibit 10.12 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2003. |
Table of Contents
Exhibit # | Description | |||
10.9 | Amended And Restated Revolving Credit Agreement dated as of October 23, 2008, among Bank of America, N.A., as Agent, various financial institutions party hereto from time to time, as Lenders, SL Industries, Inc., as the parent borrower and, SL Delaware, Inc., SL Delaware Holdings, Inc., MTE Corporation, RFL Electronics Inc., SL Montevideo Technology, Inc., Cedar Corporation, Teal Electronics Corporation, MEX Holdings LLC, SL Power Electronics Corporation, SLGC Holdings, Inc., SLW Holdings, Inc., SL Auburn, Inc., and SL Surface Technologies, Inc. as subsidiary borrowers. Incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q dated November 10, 2008. | |||
14 | Code of Conduct and Ethics. Incorporated by reference to Exhibit 14 to the Company’s report on Form 10-K for the fiscal year ended December 31, 2003. | |||
21 | Subsidiaries of the Company (transmitted herewith). | |||
23 | Consent of Independent Registered Public Accounting Firm (transmitted herewith). | |||
31.1 | Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted herewith). | |||
31.2 | Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted herewith). | |||
32 | Certification by Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (transmitted herewith). |
* | Indicates a management contract or compensatory plan or arrangement. |