1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-4987
SL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 21-0682685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ 08054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 856-727-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common stock, $.20 par value New York Stock Exchange
Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
_ ____
The number of shares of common stock outstanding as of May 4, 2000, was
5,629,264.
2
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
------------- -------------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 969,000 $ 1,117,000
Receivables, less allowances of
$2,241,000 and $1,899,000, respectively ............................ 23,031,000 25,471,000
Inventories (Note 2) ................................................ 27,543,000 28,083,000
Prepaid expenses .................................................... 1,525,000 1,317,000
Deferred income taxes ............................................... 4,170,000 4,075,000
------------- -------------
Total current assets ............................................ 57,238,000 60,063,000
------------- -------------
Property, plant and equipment, less accumulated depreciation
of $20,843,000 and $20,434,000, respectively ......................... 21,595,000 22,027,000
Long-term note receivable .............................................. 2,148,000 2,149,000
Deferred income taxes .................................................. 1,985,000 1,950,000
Cash surrender value of life insurance policies ........................ 9,927,000 9,923,000
Intangible assets, less accumulated amortization
of $4,400,000 and $4,080,000, respectively ........................... 19,817,000 19,785,000
Other assets ........................................................... 1,130,000 1,153,000
------------- -------------
Total assets ................................................... $ 113,840,000 $ 117,050,000
============= =============
LIABILITIES
Current liabilities:
Short-term bank debt ................................................ $ 733,000 $ 772,000
Long-term debt due within one year .................................. 182,000 190,000
Accounts payable .................................................... 11,947,000 13,104,000
Accrued income taxes ................................................ 967,000 411,000
Accrued liabilities:
Payroll and related costs ......................................... 4,822,000 4,377,000
Other ............................................................. 8,265,000 8,167,000
------------- -------------
Total current liabilities ...................................... 26,916,000 27,021,000
------------- -------------
Long-term debt less portion due within one year ........................ 35,605,000 39,245,000
Deferred compensation and supplemental retirement benefits ............. 5,671,000 5,650,000
Other liabilities ...................................................... 2,992,000 3,062,000
------------- -------------
Total liabilities .............................................. $ 71,184,000 $ 74,978,000
------------- -------------
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, 8,288,000 and 8,272,000 shares, respectively ................. 1,658,000 1,654,000
Capital in excess of par value ......................................... 37,988,000 37,771,000
Retained earnings ...................................................... 18,957,000 18,410,000
Accumulated other comprehensive income ................................. 65,000 53,000
Treasury stock at cost, 2,659,000 and 2,650,000 shares, respectively ... (16,012,000) (15,816,000)
------------- -------------
Total shareholders' equity ..................................... 42,656,000 42,072,000
------------- -------------
Total liabilities and shareholders' equity ..................... $ 113,840,000 $ 117,050,000
============= =============
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three-Months Ended
March 31,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Net sales ................................. $ 43,537,000 $ 30,067,000
------------ ------------
Cost and expenses:
Cost of products sold ................... 28,474,000 18,955,000
Engineering and product development ..... 3,091,000 1,955,000
Selling, general and administrative ..... 8,820,000 5,491,000
Depreciation and amortization ........... 1,338,000 986,000
Restructuring costs ..................... 39,000 --
------------ ------------
Total cost and expenses ................... 41,762,000 27,387,000
------------ ------------
Income from operations .................... 1,775,000 2,680,000
Other income (expense):
Interest income ......................... 67,000 71,000
Interest expense ........................ (761,000) (186,000)
============ ============
Income before income taxes ................ 1,081,000 2,565,000
Provision for income taxes ................ 533,000 1,041,000
------------ ------------
Net income ................................ $ 548,000 $ 1,524,000
============ ============
Basic net income per common share ......... $ 0.10 $ 0.27
============ ============
Diluted net income per common share ....... $ 0.09 $ 0.26
============ ============
Shares used in computing basic net income
per common share ........................ 5,626,000 5,662,000
Shares used in computing diluted net income
per common share ........................ 5,823,000 5,905,000
See accompanying notes to consolidated financial statements.
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Three-Months Ended
March 31,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Net income ................................ $ 548,000 $ 1,524,000
Other comprehensive income (loss):
Currency translation adjustment, net of
related taxes 12,000 (170,000)
------------ ------------
Comprehensive income ...................... $ 560,000 $ 1,354,000
============ ============
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended
March 31,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income ............................................................... $ 548,000 $ 1,524,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .......................................................... 928,000 678,000
Amortization .......................................................... 410,000 308,000
Restructuring charges ................................................. 39,000 --
Provisions for losses on accounts receivable .......................... 344,000 (143,000)
Additions to other assets ............................................. (448,000) (193,000)
Cash surrender value of life insurance premiums ....................... (12,000) (102,000)
Deferred compensation and supplemental retirement benefits ............ 176,000 349,000
Deferred compensation and supplemental retirement benefit payments ... (154,000) (214,000)
Increase in deferred income taxes ..................................... (131,000) (480,000)
Gain on sales of equipment ............................................ (5,000) (16,000)
Changes in operating assets and liabilities:
Accounts receivable ................................................. 1,932,000 310,000
Inventories ......................................................... 390,000 (161,000)
Prepaid expenses .................................................... (213,000) (259,000)
Accounts payable .................................................... (1,110,000) (139,000)
Other accrued liabilities ........................................... 554,000 480,000
Accrued income taxes ................................................ 555,000 730,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................. $ 3,803,000 $ 2,675,000
----------- -----------
INVESTING ACTIVITIES:
Investment in Kreiss Johnson ............................................. 10,000 --
Proceeds from sales of equipment ......................................... 8,000 16,000
Purchases of property, plant and equipment ............................... (600,000) (385,000)
Increase in notes receivable ............................................. -- (4,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ...................................... $ (582,000) $ (373,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from short-term debt ............................................ 2,000 2,749,000
Proceeds from long-term debt ............................................. 400,000 1,135,000
Payments on short-term debt .............................................. -- (2,266,000)
Payments on long-term debt ............................................... (3,963,000) (2,683,000)
Proceeds from stock options exercised .................................... 220,000 329,000
Treasury stock acquired .................................................. (196,000) (481,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES ...................................... $(3,537,000) $(1,217,000)
----------- -----------
Effect of exchange rate changes on cash .................................... $ 168,000 $ 115,000
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................................... $ (148,000) $ 1,201,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................. 1,117,000 --
----------- -----------
CASH AND CASH EQUIVALENTS AT MARCH 31, .................................... $ 969,000 $ 1,201,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................................... $ 708,000 $ 166,000
Income taxes ........................................................... $ 221,000 $ 444,000
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
Notes to Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with Article 10 of Regulation S-X and, accordingly, do
not include all the information and footnotes required by generally accepted
accounting principles. In the opinion of the Registrant, the accompanying
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. These financial statements
should be read in conjunction with the Registrant's audited financial statements
and notes thereon included in the Registrant's Annual Report to Shareholders and
Form 10-K for the year ended July 31, 1999, along with any subsequent Form 10-Qs
and Form 8-Ks.
2. Inventories at March 31, 2000, and December 31, 1999, were as follows:
March 31, 2000 December 31, 1999
-------------- -----------------
Raw materials ......................................... $20,115,000 $20,678,000
Work in process ....................................... 4,333,000 3,959,000
Finished goods ........................................ 3,095,000 3,446,000
----------- -----------
$27,543,000 $28,083,000
=========== ===========
3. The Registrant has presented net income per common share pursuant to the
Financial Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." Basic net income per common share is
computed by dividing reported net income available to common shareholders by
weighted average shares outstanding for the period. Diluted net income per
common share is computed by dividing reported net income available to common
shareholders by weighted average shares outstanding for the period, adjusted for
the dilutive effect of common stock equivalents, which consist of stock options,
using the treasury stock method.
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The table below sets forth the reconciliation of the numerators and denominators
of the basic and diluted net income per common share computations:
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
------------------------------------------------------------------------------------
Three-Months Ended
------------------------------------------------------------------------------------
March 31, 2000 March 31, 1999
---------------------------------------- -----------------------------------------
Basic net income per common
share $ 548,000 5,626,000 $ .10 $1,524,000 5,662,000 $ .27
Effect of dilutive securities
-- 197,000 (.01) -- 243,000 (.01)
---------- --------- ------- ---------- --------- -------
Dilutive net income per
common share $ 548,000 5,823,000 $ .09 $1,524,000 5,905,000 $ .26
========== ========== ======= ========== ========== =======
For the three-month periods ended March 31, 2000 and 1999, 252,452 and 48,076
common stock options, respectively, were excluded from the dilutive computation
because their effect would be anti-dilutive.
4. During the five-month transition period ended December 31, 1999, the
Registrant recorded charges of $4,273,000 to cover restructuring, inventory
writedowns and losses on commitments recognized by its SL Waber subsidiary. An
additional $39,000 of restructuring costs was charged to expense in the
three-month period ended March 31, 2000. In addition, approximately $200,000 of
additional restructuring costs will be recognized during the three-month period
ended June 30, 2000. The Registrant anticipates that substantially all of the
charges will be paid or incurred by the end of the second quarter of calendar
year 2000. At March 31, 2000, the restructuring costs, inventory writedowns and
losses on commitments remaining from the $4,312,000 in charges was as follows:
$1,164,000 in inventory reserves, $146,000 in accrued liabilities, and $789,000
in accounts payable.
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5. Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131"), was adopted by the
Registrant effective July 31, 1999. Under the disclosure requirements of SFAS
131, the Registrant classifies its operations into the following six business
segments: Power Supplies, Power Conditioning and Distribution Units ("PCDUs"),
Motion Control Systems, Electric Utility Equipment Protection Systems, Surge
Suppressors and Other. Comparative results in thousands for the three-month
period are as follows:
Three Months Ended
March 31,
2000 1999
-------- --------
Net sales
Power Supplies ........... $ 16,693 $ 8,540
PCDUs .................... 8,164 6,278
Motion Control Systems ... 5,503 6,295
Electric Utility Equipment
Protection Systems ..... 5,787 --
Surge Suppressors ........ 5,972 7,583
Other .................... 1,418 1,371
-------- --------
Consolidated ............. $ 43,537 $ 30,067
======== ========
Operating income (loss)
Power Supplies ........... $ 1,505 $ 1,557
PCDUs .................... 1,327 986
Motion Control Systems ... 589 938
Electric Utility Equipment
Protection Systems ..... 674 --
Surge Suppressors ........ (1,527) (210)
Other .................... (754) (591)
-------- --------
Subtotal ................. 1,814 2,680
Restructuring costs ...... (39) --
-------- --------
Consolidated ............. $ 1,775 $ 2,680
======== ========
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The principal source of cash during the Registrant's three-month period ending
March 31, 2000, of $3,803,000, net, was provided by operating activities, while
investing and financing activities used cash of $582,000, net, and $3,537,000,
net, respectively. The net cash provided by operating activities resulted
primarily from positive changes in operating assets and liabilities. The net
cash used in investing activities resulted primarily from purchases of tooling,
production equipment and computer and telephone equipment. The net cash used in
financing activities resulted primarily from repayment of long-term debt.
The Registrant's borrowing capacity at March 31, 2000, remained above its use of
outside financing. As of March 31, 2000, the Registrant had $5,629,000 available
for use under its $40,000,000 Revolving Credit Agreement since $142,000 was
allocated to outstanding trade letters of credit, $5,929,000 remained from the
acquisition of all of the issued and outstanding shares of Elektro-Metall Export
GmbH ("EME"), $12,000,000 remained from the acquisition of all the issued and
outstanding common shares of RFL Electronics Inc. ("RFL"), $7,200,000 was
utilized for the acquisition of certain net operating assets of Todd Products
Corporation and Todd Power Corporation (together, "Todd Products") and
$9,100,000 was utilized for working capital requirements. The available credit
facility is subject to commitment fees, but not compensating balances. The
Agreement contains limitations on borrowings and their use, requires maintenance
of specified ratios, as amended, with all of which the Registrant is in
compliance, and has a maturity date of October 31, 2001. In addition, EME has
approximately $4,644,000 in lines of credit with its banks. Under the terms of
its lines of credit, the subsidiary can borrow for any purpose at interest rates
of 3.7% to 6.95%. No financial covenants are required. Also, as of March 31,
2000, the Registrant had $9,927,000 available from the cash surrender value of
its life insurance policies.
During the three-month period ended March 31, 2000, the ratio of current assets
to current liabilities decreased from 2.2 to 1 to 2.1 to 1. The decrease was
primarily related to a 5% decrease in current assets, while current liabilities
remained constant.
Capital expenditures for the three-month period ended March 31, 2000, amounted
to $600,000 and were primarily for purchases of tooling, production equipment
and computer and telephone equipment. The Registrant anticipates that future
commitments for additional capital expenditures will be funded primarily by cash
generated by operations and, to the extent necessary, the utilization of
borrowings under its Revolving Credit Agreement.
9
The Registrant is not aware of any demands, commitments or uncertainties in the
normal course which are likely to impair its ability to generate or borrow
adequate amounts of cash to meet its future needs, which include payment of
dividends, capital expenditures and expenditures for working capital
requirements.
Results of Operations
Calendar 2000 Compared to Calendar 1999
Consolidated net sales for the three-month period ended March 31, 2000,
increased 45%, as compared to the net sales realized during the corresponding
periods a year ago. The sales increase included the net sales realized by RFL
and the net sales realized from the Todd Products' product lines, which were
acquired in May 1999 and July 1999, respectively. If the net sales of the RFL
and Todd Products' product lines were excluded from the current three-month
period, net sales remained constant, as compared to last year. Sales increases
in the power conditioning and distribution units and power supplies segments
were offset by sales decreases in the motion control systems and surge
suppressors segments. The sales increase in the power conditioning and
distribution units segment was a result of both strong demand and a weak
semiconductor market, a year ago. The sales increase in the power supplies
segment was primarily due to an increase in orders received from customers in
the distribution channel. The motion control systems segment's sales decreased
due to customers' rescheduling their orders for precision motor products and the
affect of the strong dollar on its European business. Sales in the surge
suppressors segment decreased because of continued delays in the introduction of
new surge protection products, competitors' aggressive pricing initiatives and
the nonpursuit of unprofitable business. The business within this segment has
refocused its efforts on higher margin opportunities to supply power protection
systems to major service providers and equipment manufacturers.
The Registrant also realized operating income of $1,775,000 for the three-month
period, as compared to operating income of $2,680,000, during the corresponding
period a year ago. The operating income for the three-month period ended March
31, 2000, included restructuring costs of $39,000 that were recognized by the
Registrant's SL Waber subsidiary. In addition, approximately $200,000 of
additional restructuring costs will be recognized during the second quarter of
calendar year 2000. These charges are a result of actions taken to restructure
SL Waber's operations and to recognize unprofitable commitments. As a result of
a review of its business and operations, a plan is in place to place greater
emphasis on markets and channels of distribution where SL Waber has a record of
sustained profitability. This plan also includes the scheduled consolidation of
many of SL Waber's operations at its manufacturing facility in Nogales, Mexico.
We anticipate that SL Waber will continue to realize adverse operating financial
results through the first half of Calendar 2000, which will continue to
negatively impact the Company's consolidated operating financial results. The
decreased operating income in the surge suppressors, power supplies and motion
control systems segments was offset, in part, by
10
increases in the power conditioning and distribution units segment, and the
addition of the electric utility equipment protection systems segment. The
decreased operating income in the power supplies segment was primarily due to
the incremental costs associated with the integration of the Todd Products'
product lines. The decreased operating income in the surge suppressors and
motion controls systems segment was primarily due to lower sales volume. The
increased operating income in the power conditioning and distribution units
segment was primarily due to higher sales volume and lower operating costs,
while the addition of the electric utility equipment protection system segment
is the result of the acquisition of RFL Electronics Inc.
Cost of products sold for the three-month period increased 50%, as compared to
last year. If the results of RFL and Todd Products' product lines were excluded
from the current three-month period, cost of sales increased 6%, as compared to
last year. As a percentage of net sales, cost of sales for the current
three-month period was 65%, as compared to 63%, a year ago. If the results of
RFL and Todd Products' product lines were excluded, cost of sales, as a
percentage of net sales, for the current three-month period was 67%, as compared
to 63%, a year ago. These increases were primarily related to product mix.
Engineering and product development expenses for the three-month period
increased 58%, as compared to the same period last year. If the results of RFL
and Todd Products' product lines were excluded from the current three-month
period, engineering and product development expenses increased 7%, as compared
to last year. As a percentage of net sales, engineering and product development
expenses were 7% for both years. If the results of RFL and Todd Products'
product lines were excluded, engineering and product development expenses, as a
percentage of net sales, were 7% for both periods.
Selling, general and administrative expenses for the three-month period
increased 61%, as compared to last year. If the results of RFL and the costs
associated with the Todd Products' product lines were excluded from the current
three-month period, selling, general and administrative expenses increased
approximately 13%, as compared to last year. As a percentage of net sales,
selling, general and administrative expenses for the three-month period were
20%, as compared to 18%, a year ago. If the results of RFL and the costs
associated with the Todd Products' product lines were excluded from the current
three-month period, selling, general and administrative expenses, as a
percentage of net sales, were 21%, as compared to 18%, a year ago. These
increases were primarily related to increased administrative and selling
expenses, offset, in part, by decreased delivery expenses.
Depreciation and amortization expense for the three-month period increased 36%,
as compared to last year. If the results of RFL and Todd Products' product lines
were excluded from the current three-month results, depreciation and
amortization expense decreased 3%, as compared to last year. The decreases were
primarily related to reduced depreciation and amortization of computer hardware
and software, respectively.
11
Interest income for the three-month period decreased 6%, as compared to last
year. The reason for the decrease was less cash available for investment.
Interest expense for the three-month period increased 309%, as compared to last
year. The increase resulted primarily from a higher debt balance as a result of
the RFL and Todd Products' product lines acquisitions.
The effective tax rate for the three-month period was 49%, as compared to 41% a
year ago. The current period effective tax rate reflects the higher effective
tax rate associated with the Registrant's profitable German operation.
Forward-Looking Information
From time to time, information provided by the Registrant, including written or
oral statements made by its representatives, may contain forward-looking
information as defined in the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, which address
activities, events or developments that the Registrant expects or anticipates
will or may occur in the future, including such things as expansion and growth
of the Registrant's business, future capital expenditures and the Registrant's
prospects, contain forward-looking information. In reviewing such information,
it should be kept in mind that actual results may differ materially from those
projected or suggested in such forward-looking information. This forward-looking
information is based on various factors and was derived utilizing numerous
assumptions. Many of these factors have been previously been identified in
filings or statements made by or on behalf of the Registrant.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in the general economy, changes in consumer
spending, competitive factors and other factors affecting the Company's business
in or beyond the Company's control. These factors include changes in the rate of
inflation, changes in state or federal legislation or regulation, adverse
determinations with respect to litigation or other claims (including
environmental matters), the Company's ability to recruit and develop employees,
its ability to successfully implement new technology and the stability of
product costs. These factors also include, in particular, whether, and the
extent to which, certain of the Registrant's markets which had experienced a
slowdown recover or continue to recover. The Registrant's financial results will
also depend on the extent to which management is able to successfully address
the operating issues in the Registrant's surge suppressors segment and in the
uninterruptible power supplies portion of its power supplies segment.
Other factors and assumptions not identified above could also cause actual
results to differ materially from those set forth in the forward-looking
information. The Registrant does not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
information.
12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The information called for by this section is listed in the Exhibit
Index of this report.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
three-month period ended March 31, 2000.
13
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SL INDUSTRIES, INC.
-------------------
Registrant
Dated: May 11, 2000 Owen Farren
------------ ------------------------
Owen Farren
President,
Chief Executive Officer
and Chairman of the Board
Dated: May 11, 2000 James E. Morris
------------- ------------------------
James E. Morris
Vice President,
Corporate Controller,
and Treasurer
14
INDEX TO EXHIBITS
The exhibit number, description and sequential page number in the original copy
of this document where exhibits can be found follows:
Exhibit Description
------- -----------
27 Financial Data Schedule (Schedule is furnished for the
information of the Securities and Exchange Commission and is
not to be deemed "filed" as part of Form 10-Q, or otherwise
subject to the liabilities of Section 18 of the Securities
Exchange Act of 1934).