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, 2001
[ ] 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 incorporation or (I.R.S. Employer Identification No.)
organization)
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: Name of each exchange on which registered
Title of each class New York Stock Exchange
Common stock, $.20 par value 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 7, 2001, were
5,702,080.
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10-Q FOR QUARTER ENDED MARCH 31, 2001
PART I............................................................................................................3
Item 1. Financial Statements..................................................................................3
Notes to Consolidated Financial Statements..................................................................6
Item 2. Management's discussion and analysis of financial condition and results of operations.................8
Liquidity and Capital Resources.............................................................................8
Results of Operations......................................................................................10
Foreign Operations.........................................................................................12
Forward-Looking Information................................................................................12
Item 3. Quantitative and qualitative disclosure about market risk............................................13
PART II - OTHER INFORMATION......................................................................................14
Item 6. Exhibits and Reports on Form 8-K.....................................................................14
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PART I
ITEM 1. FINANCIAL STATEMENTS
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ -- $ 1,189,000
Receivables, less allowances of
$2,499,000 and $2,519,000, respectively ........................................ 30,177,000 22,532,000
Inventories (Note 2) ............................................................ 27,783,000 26,137,000
Prepaid expenses ................................................................ 1,305,000 1,140,000
Deferred income taxes ........................................................... 3,788,000 4,864,000
------------- -------------
Total current assets ........................................................ 63,053,000 55,862,000
Property, plant and equipment, less accumulated depreciation
of $22,553,000 and $22,021,000, respectively ..................................... 20,710,000 20,761,000
Long-term note receivable .......................................................... 2,118,000 2,118,000
Deferred income taxes .............................................................. 1,519,000 1,629,000
Cash surrender value of life insurance policies .................................... 11,807,000 11,486,000
Intangible assets, less accumulated amortization
of $5,666,000 and $5,356,000, respectively ....................................... 20,460,000 20,770,000
Other assets ....................................................................... 803,000 855,000
------------- -------------
Total assets ............................................................... $ 120,470,000 $ 113,481,000
============= =============
LIABILITIES
Current liabilities:
Long-term debt due within one year .............................................. $ 40,129,000 $ 186,000
Accounts payable ................................................................ 12,550,000 11,309,000
Accrued income taxes ............................................................ 1,494,000 724,000
Accrued liabilities:
Payroll and related costs ..................................................... 3,950,000 5,070,000
Other ......................................................................... 8,313,000 7,393,000
------------- -------------
Total current liabilities .................................................. 66,436,000 24,682,000
Long-term debt less portion due within one year .................................... 1,087,000 36,533,000
Deferred compensation and supplemental retirement benefits ......................... 5,901,000 5,892,000
Other liabilities .................................................................. 2,883,000 3,024,000
------------- -------------
Total liabilities .......................................................... $ 76,307,000 $ 70,131,000
------------- -------------
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 ..................................................... 38,816,000 38,455,000
Retained earnings .................................................................. 20,026,000 19,547,000
Accumulated other comprehensive income (loss) ...................................... (7,000) 62,000
Treasury stock at cost, 2,602,000 and 2,639,000 shares, respectively ............... (16,332,000) (16,374,000)
------------- -------------
Total shareholders' equity ................................................. 44,163,000 43,350,000
------------- -------------
Total liabilities and shareholders' equity ................................. $ 120,470,000 $ 113,481,000
============= =============
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended
March 31,
2001 2000
------------ ------------
(Unaudited)
Net sales ........................................................ $ 43,727,000 $ 43,537,000
------------ ------------
Cost and expenses:
Cost of products sold .......................................... 30,844,000 28,474,000
Engineering and product development ............................ 2,457,000 3,091,000
Selling, general and administrative ............................ 7,572,000 8,820,000
Depreciation and amortization .................................. 1,254,000 1,338,000
Restructuring costs ............................................ -- 39,000
------------ ------------
Total cost and expenses .......................................... 42,127,000 41,762,000
------------ ------------
Income from operations ........................................... 1,600,000 1,775,000
Other income (expense):
Interest income ................................................ 72,000 67,000
Interest expense ............................................... (813,000) (761,000)
------------ ------------
Income before income taxes ....................................... 859,000 1,081,000
Provision for income taxes ....................................... 380,000 533,000
------------ ------------
Net income ....................................................... $ 479,000 $ 548,000
============ ============
Basic net income per common share ................................ $ 0.08 $ 0.10
============ ============
Diluted net income per common share .............................. $ 0.08 $ 0.09
============ ============
Shares used in computing basic net income
per common share ............................................... 5,675,000 5,626,000
Shares used in computing diluted net income
per common share ............................................... 5,818,000 5,823,000
See accompanying notes to consolidated financial statements
SL INDUSTRIES, INC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
Three-Months Ended
March 31,
2001 2000
--------- ---------
(Unaudited)
Net income ................................................................ $ 479,000 $ 548,000
Other comprehensive income (loss):
Currency translation adjustment, net of related taxes ................... (69,000) 12,000
--------- ---------
Comprehensive income ...................................................... $ 410,000 $ 560,000
========= =========
See accompanying notes to consolidated financial statements
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended
March 31,
2001 2000
------------ ------------
(Unaudited)
OPERATING ACTIVITIES:
Net income ................................................................... $ 479,000 $ 548,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation .............................................................. 868,000 928,000
Amortization .............................................................. 386,000 410,000
Restructuring charges ..................................................... -- 39,000
Provisions for losses on accounts receivable .............................. (17,000) 344,000
Additions to other assets ................................................. (68,000) (448,000)
Cash surrender value of life insurance premium ............................ (343,000) (12,000)
Deferred compensation and supplemental retirement payments ................ 161,000 176,000
Deferred compensation and supplemental retirement benefit cash payments ... (151,000) (154,000)
Increase in deferred income taxes ......................................... 1,184,000 (131,000)
Gain on sale of equipment ................................................. -- (5,000)
Changes in operating assets and liabilities:
Accounts receivable ..................................................... (7,985,000) 1,932,000
Inventories ............................................................. (1,872,000) 390,000
Prepaid expenses ........................................................ (179,000) (213,000)
Accounts payable ........................................................ 1,219,000 (1,110,000)
Other accrued liabilities ............................................... (323,000) 554,000
Accrued income taxes .................................................... 1,028,000 555,000
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ............................ (5,613,000) 3,803,000
============ ============
INVESTING ACTIVITIES:
Investment in Kreiss Johnson ................................................. 24,000 10,000
Proceeds from disposals of property, plant and equipment ..................... -- 8,000
Purchases of property, plant and equipment ................................... (960,000) (600,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .......................................... (936,000) (582,000)
============ ============
FINANCING ACTIVITIES:
Proceeds from short-term debt ................................................ -- 2,000
Proceeds from long-term debt ................................................. 10,103,000 400,000
Payments on long-term debt ................................................... (5,044,000) (3,963,000)
Proceeds from stock options exercised ........................................ 414,000 220,000
Treasury stock acquired ...................................................... (9,000) (196,000)
------------ ------------
NET CASH (USED IN) FINANCING ACTIVITIES ........................................ 5,464,000 (3,537,000)
------------ ------------
Effect of exchange rate changes on cash ........................................ (104,000) 168,000
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ........................................ (1,189,000) (148,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................. 1,189,000 1,117,000
------------ ------------
CASH AND CASH EQUIVALENTS AT MARCH 31 ......................................... $ -- $ 969,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................................... $ 739,000 $ 708,000
Income taxes ............................................................... $ 232,000 $ 221,000
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 the instructions to
the Quarterly Report on Form 10-Q; therefore, the interim financial information
and statements have been prepared in accordance with generally accepted
accounting principles. In the opinion of the Company, 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, 2001. These financial statements should be read in
conjunction with the Company's audited financial statements and notes thereon
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
2. Inventories at March 31, 2001, and December 31, 2000, were as follows:
(Amounts in thousands) March 31, 2001 December 31, 2000
-------------- -----------------
Raw materials $17,450 $17,052
Work in process 6,519 6,234
Finished goods 3,814 2,851
-------------- -----------------
$27,783 $26,137
============== =================
3. The Company 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 the
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 the 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 computation of basic and diluted net income per
share:
Per Per
Share Share
Income Shares Amount Income Shares Amount
---------------------------------------------------------------------------------------
Three-Months Ended
---------------------------------------------------------------------------------------
March 31, 2001 March 31, 2000
--------------------------------------- ----------------------------------------
Basic net income per common
share $ 479,000 5,675,000 $0.08 $ 548,000 5,626,000 $0.10
Effect of dilutive securities -- 143,000 -- -- 197,000 (.01)
--------------------------------------- ----------------------------------------
Dilutive net income per
common share $ 479,000 5,818,000 $0.08 $ 548,000 5,823,000 $0.09
======================================= =======================================
For the three-month periods ended March 31, 2001 and March 31, 2000, 173,486 and
252,452 common stock options, respectively, were excluded from the dilutive
computation because their effect would be anti-dilutive.
4. During the five months ended December 31, 1999, the Company recorded charges
of $4,273,000 to cover restructuring, inventory writedowns and losses on
commitments recognized by its SL Waber subsidiary. During the year ended
December 31, 2000, an additional $650,000 provision for excess and obsolete
inventory was charged to cost of products sold and an additional $790,000 of
restructuring costs for severance and other payroll related costs were recorded
as a result of the Company's decision to integrate the operations of its SL
Waber and Condor D.C. Power Supplies subsidiaries. At March 31, 2001, the
restructuring costs remaining from the $5,713,000 in charges were as follows:
$274,000 in inventory reserves and $98,000 in accrued liabilities.
5. SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information ("SFAS No. 131"), was adopted by the Company effective July 31,
1999. Under the disclosure requirements of SFAS No. 131, the Company 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.
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Comparative results in thousands for the three-month periods are as follows:
Three Months Ended
March 31,
2001 2000
------- -------
Net sales
Power Supplies ........... $15,931 $16,693
PCDUs .................... 5,871 8,164
Motion Control Systems ... 8,263 5,503
Electric Utility Equipment
Protection Systems ..... 6,077 5,787
Surge Suppressors ........ 6,145 5,972
Other .................... 1,440 1,418
------- -------
Consolidated ............. $43,727 $43,537
======= =======
Three Months Ended
March 31,
2001 2000
------- -------
Operating income (loss)
Power Supplies ........... $ 733 $ 1,505
PCDUs .................... 1,226 1,327
Motion Control Systems ... 834 589
Electric Utility Equipment
Protection Systems ..... 619 674
Surge Suppressors ........ (390) (1,527)
Other .................... (1,422) (754)
------- -------
Subtotal ................. 1,600 1,814
Restructuring costs ..... -- (39)
------- -------
Consolidated ............. $ 1,600 $ 1,775
======= =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and growth primarily
through funds generated from operations and borrowings under its revolving
credit facility. During the three months ended March 31, 2001, the net cash used
by operating activities was $5,613,000, as compared to cash provided of
$3,803,000 during the three months ended March 31, 2000. The decrease, as
compared to same quarter in the prior year, resulted primarily from increased
receivables and inventories, offset, in part, by higher deferred income taxes
and increases of accounts payable. During the quarter, the net cash used in
investing activities of $936,000 was primarily related to capital expenditures.
During the quarter, the net cash provided by financing activities of $5,464,000
was primarily related to the net borrowings of long-term debt.
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As of March 31, 2001, the Company had outstanding $37,529,000 principal amount
under its $40,000,000 Revolving Credit Agreement, and $398,000 allocated to
outstanding trade letters of credit. 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, and has a maturity date of October 31, 2003. In addition,
Electro-Metall Export GmbH (Germany), a wholly-owned subsidiary of the Company,
has approximately $4,264,000 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 7.625% to 8.25%. These lines of credit do not contain any financial
covenants. Also, as of March 31, 2001, the Company had $11,807,000 available
from the cash surrender value of its life insurance policies, which has been
pledged to the Company's lenders to secure its credit facility.
At the end of the first quarter of 2001, the Company was not in compliance with
certain financial covenants in its credit facility. The Company and its lenders
are currently in discussions regarding a grant of a waiver of the covenants. As
these discussions are ongoing, it cannot be determined at this time if the terms
and conditions of a waiver would be acceptable to the Company.
Under the terms of the credit facility, as a result of the Company's default
relating to financial covenants, the lenders are not required to advance
additional funds to the Company and have the right to declare the unpaid
principal amount and interest accrued thereon immediately due and payable. The
lenders have not exercised either of these rights to date. The refusal of the
lenders to advance the Company any additional funds which would otherwise be
available under the credit facility would render the Company unable to fund its
operations during the second half of the year, unless other funds from other
sources become available to the Company on acceptable terms.
The Company's current ratio was 0.95 to 1 at March 31, 2001 and 2.3 to 1 at
December 31, 2000. The March 31, 2001 decrease, as compared to December 31,
2000, resulted primarily from the reclassification of the borrowings under the
Company's credit facility as a current liability during the quarter, as a result
of the Company's non-compliance with certain financial covenants in the credit
facility. If the borrowings under the Company's credit facility were not
classified as a current liability, the current ratio would be 2.4 to 1 at March
31, 2001.
As a percentage of total capitalization, consisting of debt and shareholders'
equity, total borrowings by the Company were 48% at March 31, 2001 and 46% at
December 31, 2000. During the quarter, increases in total borrowings, as
compared to prior year same quarter, were primarily the result of the Company's
increased borrowing on its revolving line of credit as a result of increased
receivables. Receivables increased due to delayed payments by customers and
increased invoicing in March 2001.
Capital expenditures of $960,000 during this quarter primarily included
improvements in process technology and increased production capacity. During the
remaining quarters of 2001, the Company plans to make minimal capital
expenditures in response to the slowdown in certain of the Company's markets.
Capital expenditures, to the extent they are authorized, are expected to be
funded through cash provided by operations.
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During the fourth quarter of 2000 and the first quarter of 2001, the Company
experienced negative operating cash flows at several of its business segments as
a result of a shortage of certain strategic components and a severe economic
slowdown in the telecommunications and semiconductor industries. As a result,
the Company has suspended planned capital expenditures and is taking such
additional actions as it deems appropriate to reduce costs in line with lower
revenue expectations.
Based upon its current forecast, management believes that the Company has
sufficient funds, through its revolving credit facility and cash on-hand, to
fund the Company's operations through year-end. Management's forecast is based
upon the expected stabilization of certain markets in which its products are
sold. If the business downturn in the telecommunications market and
semiconductor industry worsens or continues for a prolonged period of time, the
Company may be required to borrow additional funds over and above the amounts
provided by its current facility to meet its future needs. Additional financing,
if available, may not be available on satisfactory terms. If such additional
financing is required and is not available on terms satisfactory to the Company,
the Company's operations and financial condition would be materially adversely
affected.
With the exception of the Company's surge suppressors, power supplies and the
segment reported as "other", all of the Company's remaining operating segments
are profitable and are expected to remain so. The surge suppressors, power
supplies, and "other" segments' underperformance during this quarter had an
adverse affect on the Company's results, which offset the aggregate favorable
performance of the remaining segments. The underperformance of the surge
suppressors segment was attributable to high manufacturing overhead costs
relative to the level of customer orders. The underperformance of the power
supplies segment is directly related to the economic slowdown in the
telecommunications market. The Company is in the process of restructuring its
power supplies segment to meet the changing environment in the
telecommunications industry. The performance of the "other" business segment is
largely the result of corporate overhead and expenses.
Certain of the Company's inventory on-hand is used or sold specifically for
customers in the semiconductor industry and telecommunications market. Should
the telecommunications market and semiconductor industry continue to
deteriorate, the Company will need to re-assess the carrying value of certain
of its inventory intended for these markets and may be required to record a
write-down of such inventory in future periods.
RESULTS OF OPERATIONS
Quarter ended March 31, 2001 compared with quarter ended March 31, 2000.
Consolidated net sales for the three-month period ended March 31, 2001, remained
consistent as compared to the net sales realized during the corresponding period
a year ago. Net sales in the motion control systems, surge suppressors, and
electric utility equipment protection systems segments increased during the
three-month period ended March 31, 2001. The sales increases in the motion
control systems segment were primarily due to an increase in orders received
from aerospace customers, as well as customers in the distribution channel. The
sales increase in the
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surge suppressors segment during the three-month period ended March 31, 2001,
was a result of a $2,700,000 order from one of the Company's major customers.
The sales increases in the electric utility equipment protection systems segment
were primarily due to increased demand. The sales decreases in the power
supplies segment during the three-month period were primarily due to the
economic slowdown in the telecommunications and electronic sectors. The sales
decreases in the power conditioning distribution units segment were related to
the economic slowdown in the semiconductor testing equipment market through the
first quarter of 2001.
The Company realized operating income of $1,600,000 for the three-month period,
as compared to operating income of $1,775,000, during the corresponding period a
year ago. During the quarter ending June 30, 2001 the Company expects to book
approximately $1,300,000 of restructuring costs as a result of the restructuring
of the power supplies segment. The surge suppressors segment is expected to
continue to realize adverse operating financial results through the second
quarter of 2001 as a result of lower customer orders and shipments relative to
high manufacturing overhead expenses. Losses in this segment will negatively
impact the Company's consolidated operating financial results.
Cost of products sold for the three-month period increased 8% as compared to
last year. As a percentage of net sales, cost of products sold for the
three-month period was 71%, as compared to 65% a year ago. The increase was
primarily related to the surge suppressors segment product mix.
Engineering and product development expenses for the three-month period
decreased 21%, as compared to the same period last year. As a percentage of net
sales, engineering and product development expenses for the three months were
6%, as compared to 7% for last year.
Selling, general and administrative expenses for the three-month period
decreased 14% as compared to the same period last year. As a percentage of net
sales, selling, general and administrative expenses for the three months were
17%, as compared to 20%, a year ago. The three-month decrease was primarily
related to the integration of certain operations and the administration of two
business units (of SL Waber, Inc. and Condor D.C. Power Supplies, Inc.)
Depreciation and amortization expense for the three-month period decreased 6%,
as compared to last year. The decrease was primarily related to reduced
depreciation and amortization of computer hardware and software.
Interest income for the three-month period increased by 7%, as compared to last
year. The reason for the increase was higher interest rates compared to last
year. Interest expense for the three-month period increased by 7%, as compared
to last year primarily from a higher debt balance due to additional borrowings
from the revolving line of credit.
The effective tax rate for the three-month period was 44%, as compared to 49%, a
year ago. The current period effective tax rate reflects a reduced effective
rate associated with the Company's profitable German operation.
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FOREIGN OPERATIONS
In addition to manufacturing operations in California, Minnesota, New Jersey and
Maryland, the Company manufactures substantial quantities of products in leased
premises located in Mexicali, Reynosa, Matamoros and Nogales, Mexico,
Ingolstadt, Germany and Paks, Hungary. These external and foreign sources of
supply present risks of interruption for reasons beyond the Company's control,
including political or economic instability and other uncertainties regarding
Mexico, Germany and Hungary.
Generally, the Company's revenues are priced in United States dollars and German
marks and its costs and expenses are priced in United States dollars, Mexican
pesos, German marks and Hungarian forints. Accordingly, the competitiveness of
the Company's products relative to locally produced products may be affected by
the performance of the United States dollar compared with that of its foreign
customers' currencies. Foreign sales comprised 26% and 21% of revenues for the
quarter ended March 31, 2001 and March 31, 2000, respectively. Additionally, the
Company is exposed to foreign currency transaction and translation losses that
might result from adverse fluctuations in the values of the Mexican peso, German
mark and Hungarian forint. At March 31, 2001, the Company had net liabilities of
$628,000 subject to fluctuations in the value of the Mexican peso and net assets
of $445,000 subject to fluctuations in the value of the German mark.
Fluctuations in the value of the Mexican peso, German mark and Hungarian forint
were not significant in 2000 or the first quarter of 2001. However, there can be
no assurance that the value of the Mexican peso, German mark or Hungarian forint
will continue to remain stable.
FORWARD-LOOKING INFORMATION
From time to time, information provided by the Company, including written or
oral statements made by 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, contain forward-looking
information, particularly statements which address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, such as expansion and growth of the Company's business, future capital
expenditures and the Company's prospects and strategy. 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 previously have been
identified in filings or statements made by or on behalf of the Company.
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 capital
investment and/or consumer spending, competitive factors and other factors
affecting the Company's business in or beyond the Company's control. These
factors include a change in the rate of inflation, a change in state or federal
legislation or regulations, an adverse determination with respect to a claim in
litigation or other claims (including environmental matters), the ability to
recruit and develop employees, the ability to successfully implement new
technology and the stability of product costs. These factors also include, in
particular, whether or not a sale of the Company can be successfully effected
and the timing and
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degree of any business recovery in certain of the Company's markets that are
currently experiencing a cyclical economic downturn.
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 Company 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative market risk
from the disclosure contained in Item 7A of the December 31, 2000, Form 10K
which is incorporated herein by reference.
WE ARE EXPOSED TO GENERAL ECONOMIC CONDITIONS
As a result of recent unfavorable economic conditions and reduced capital
spending, the Company's sales in the United States have declined. In
particular, sales to telecom related businesses, and the manufacturing industry
in the United States were impacted during the second quarter of fiscal 2001. If
the economic conditions in the United States worsen or if a wider or global
economic slowdown occurs, we are likely to experience a further material
adverse impact on our business, operating results, and financial condition.
WE COMPETE IN THE HIGHLY COMPETITIVE TELECOMMUNICATIONS EQUIPMENT MARKET
We compete in the highly competitive telecommunications market with numerous
vendors in each product category. We expect that the overall number of
competitors providing niche product solutions will increase due to the market's
long-term attractive growth.
The businesses are in active competition with domestic and foreign companies,
some with national and international name recognition, offering similar products
or services and with companies producing alternative products appropriate for
the same uses. In addition, the surge suppressor and power supply businesses
have experienced significant off-shore competition for certain products in
certain markets. Currently, the businesses are sourcing many components and
products outside of the United States. The decreasing military market has also
created more competitive conditions in both the military and commercial markets.
The businesses differentiate themselves from their competition by concentrating
on customized products based on customer needs. The businesses seek a
competitive advantage based on quality, service, innovation, delivery and price.
Some of our competitors compete across many of our product lines. Several of our
current and potential competitors have greater financial, marketing, and
technical resources than we do.
WE ARE EXPOSED TO THE CREDIT RISK OF SOME OF OUR CUSTOMERS AND TO CREDIT
EXPOSURES IN WEAKENED MARKETS
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Due to the current slow down in the economy, the credit risks relating to our
customers have increased. Although we monitor all risk, there can be no
assurance that such monitoring will be effective in reducing our credit risks.
Although these losses are minimal, future losses, if incurred, could harm our
business and have a material adverse effect on our operating results and
financial condition.
WE DEPEND UPON THE DEVELOPMENT OF NEW PRODUCTS AND ENHANCEMENTS TO EXISTING
PRODUCTS, AND ARE SUBJECT TO RAPID CHANGES IN TECHNOLOGY AND THE MARKET
Our operating results will depend to a significant extent on our ability to
reduce the costs to produce existing products and to develop and introduce new
products into existing and emerging markets. The success of new products is
dependent on several factors, including proper new product definition, product
cost, timely completion and introduction of new products, differentiation of new
products from those of our competitors, and market acceptance of these products.
There can be no assurance that we will successfully identify new product
opportunities, develop and bring new products to market in a timely manner, and
achieve market acceptance of our products or that products and technologies
developed by others will not render our products or technologies obsolete or
noncompetitive.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On March 22, 2001, the Company filed a Period Report on Form 8-K, which
contained a press release issued by the Registrant on March 19, 2001 announcing
that the Company was exploring a sale (of the Company) in order to maximize
shareholder value.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SL INDUSTRIES, INC.
Company
Dated: May 15, 2001 /s/Owen Farren
--------------
Owen Farren
President,
Chief Executive Officer
and Chairman of the Board
Dated: May 15, 2001 /s/Jacob Cherian
----------------
Jacob Cherian
Vice President, Corporate Controller
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