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, 2002
[ ] 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 Identification No.)
incorporation or 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 15, 2002 was
5,906,125.
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001............ 1
Consolidated Statements of Operations
Three Months Ended March 31, 2002 and 2001...... 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2002 and 2001..... 3
Notes to Consolidated Financial Statements.......... 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 13
PART II. OTHER INFORMATION.................................... 18
SIGNATURES..................................................... 21
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 5,518,000 $ 6,577,000
Receivables, net .................................................... 23,870,000 36,041,000
Inventories ......................................................... 20,211,000 20,497,000
Prepaid expenses .................................................... 889,000 815,000
Deferred income taxes ............................................... 5,863,000 6,300,000
------------ ------------
Total current assets ............................................ 56,351,000 70,230,000
Property, plant and equipment, less accumulated depreciation
of $19,544,000 and $18,941,000, respectively ......................... 18,350,000 18,829,000
Deferred income taxes .................................................. 2,139,000 2,014,000
Cash surrender value of life insurance policies ........................ 866,000 1,323,000
Intangible assets, less accumulated amortization
of $6,118,000 and $6,017,000, respectively ........................... 14,699,000 14,799,000
Other assets ........................................................... 473,000 563,000
------------ ------------
Total assets ................................................... $ 92,878,000 $107,758,000
------------ ------------
LIABILITIES
Current liabilities:
Short-term bank debt ................................................ $ 1,337,000 $ 1,367,000
Long-term debt due within one year .................................. 26,303,000 35,829,000
Accounts payable .................................................... 6,011,000 8,149,000
Accrued income taxes ................................................ 1,866,000 2,019,000
Accrued liabilities:
Payroll and related costs ......................................... 5,729,000 7,609,000
Other ............................................................. 10,432,000 11,781,000
------------ ------------
Total current liabilities ...................................... 51,678,000 66,754,000
Long-term debt less portion due within one year ........................ 966,000 1,009,000
Deferred compensation and supplemental retirement benefits ............. 4,193,000 4,268,000
Other liabilities ...................................................... 2,467,000 2,523,000
------------ ------------
Total liabilities .............................................. 59,304,000 74,554,000
------------ ------------
Commitments and contingencies (Note 8)
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 ......................................... 38,853,000 39,025,000
Retained earnings ...................................................... 8,520,000 8,897,000
Accumulated other comprehensive income (loss) .......................... 8,000 (5,000)
Treasury stock at cost, 2,437,000 and 2,587,000 shares, respectively ... (15,467,000) (16,373,000)
------------ ------------
Total shareholders' equity ..................................... 33,574,000 33,204,000
------------ ------------
Total liabilities and shareholders' equity ..................... $ 92,878,000 $107,758,000
------------ ------------
See accompanying notes to consolidated financial statements.
1
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended
March 31,
2002 2001
----------- -----------
(Unaudited)
Net sales .................................................. $32,947,000 $37,582,000
----------- -----------
Cost and expenses:
Cost of products sold .................................... 21,333,000 25,288,000
Engineering and product development ...................... 2,216,000 2,328,000
Selling, general and administrative ...................... 7,286,000 6,830,000
Depreciation and amortization ............................ 874,000 1,146,000
Special charges .......................................... 1,825,000 --
Restructuring costs ...................................... 225,000 --
----------- -----------
Total cost and expenses .................................... 33,759,000 35,592,000
----------- -----------
Operating income (loss) from continuing operations ......... (812,000) 1,990,000
----------- -----------
Other income (expense):
Interest income .......................................... 78,000 72,000
Interest expense ......................................... (554,000) (703,000)
----------- -----------
Income (loss) from continuing operations before income taxes (1,288,000) 1,359,000
Income tax provision (benefit) ............................. (599,000) 848,000
----------- -----------
Net income (loss) from continuing operations ............... (689,000) 511,000
Income (loss) from discontinued operations (net of tax) .... 313,000 (32,000)
----------- -----------
Net income (loss) .......................................... $ (376,000) $ 479,000
=========== ===========
Basic net income (loss) per common share ...................
Income (loss) from continuing operations ............... $ (0.12) $ 0.09
Income (loss) from discontinued operations (net of tax) 0.05 (0.01)
----------- -----------
Net income (loss) ..................................... $ (0.07) $ 0.08
=========== ===========
Diluted net income (loss) per common share
Income (loss) from continuing operations ............... $ (0.12) $ 0.09
Income (loss) from discontinued operations (net of tax) 0.05 (0.01)
----------- -----------
Net income (loss) ...................................... $ (0.07) $ 0.08
=========== ===========
Shares used in computing basic net income (loss)
per common share ......................................... 5,783,000 5,675,000
Shares used in computing diluted net income (loss)
per common share ......................................... 5,783,000 5,818,000
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
Three-Months Ended
March 31,
2002 2001
--------- --------
(Unaudited)
Net income (loss) ..................................... $(376,000) $ 479,000
Other comprehensive income (loss):
Currency translation adjustment, net of related taxes 13,000 (69,000)
--------- --------
Comprehensive income (loss) ........................... $(363,000) $ 410,000
========= ========
See accompanying notes to consolidated financial statements.
2
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended
March 31,
2002 2001
------------ -----------
(Unaudited)
OPERATING ACTIVITIES:
Net income (loss) from continuing operations ............................................. $ (689,000) $ 511,000
Adjustments to reconcile net income (loss) from continuing operations
to net cash used in operating activities:
Depreciation .......................................................................... 710,000 760,000
Amortization .......................................................................... 164,000 386,000
Restructuring costs ................................................................... 225,000 --
Provisions for losses on accounts receivable .......................................... 12,000 (17,000)
Deletions (additions) to other assets ................................................. 62,000 (68,000)
Cash surrender value of life insurance premiums ....................................... (9,000) (343,000)
Deferred compensation and supplemental retirement benefits ............................ 106,000 161,000
Deferred compensation and supplemental retirement benefit payments .................... (1,696,000) (151,000)
Decrease in deferred income taxes ..................................................... 843,000 617,000
Gain on sale of equipment ............................................................. (9,000) --
Changes in operating assets and liabilities, excluding effects of business disposition:
Accounts receivable ................................................................. 1,873,000 (4,439,000)
Inventories ......................................................................... 197,000 (1,730,000)
Prepaid expenses .................................................................... (76,000) (183,000)
Accounts payable .................................................................... (1,891,000) (3,616,000)
Other accrued liabilities ........................................................... (2,715,000) (57,000)
Accrued income taxes ................................................................ 319,000 2,315,000
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES ..................................................... (2,574,000) (5,854,000)
------------ -----------
INVESTING ACTIVITIES:
Investment in Kreiss Johnson ............................................................. -- 24,000
Proceeds from sales of equipment ......................................................... 9,000 --
Purchases of property, plant and equipment ............................................... (312,000) (932,000)
Proceeds from cash surrender life insurance policies ..................................... 10,676,000 --
------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ........................................ 10,373,000 (908,000)
------------ -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt ............................................................. 8,400,000 10,103,000
Payments on long-term debt ............................................................... (18,045,000) (5,044,000)
Proceeds from stock options exercised .................................................... 436,000 414,000
Treasury stock (acquired) sold ........................................................... 298,000 (9,000)
------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ........................................ (8,911,000) 5,464,000
------------ -----------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS ............................................... 53,000 213,000
------------ -----------
Effect of exchange rate changes on cash .................................................... -- (104,000)
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................................................... (1,059,000) (1,189,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................................... 6,577,000 1,189,000
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................................. $ 5,518,000 $ --
============ ===========
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest ............................................................................... $579,000 $739,000
Income taxes ........................................................................... $158,000 $232,000
See accompanying notes to consolidated financial statements
3
SL INDUSTRIES, INC.
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered 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, 2002. 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, 2001. The statements of operations and cash flows for the first quarter of
2001 have been restated to reflect the effect of discontinued operations.
LIQUIDITY AND GOING CONCERN: The Company is party to a Second Amended and
Restated Credit Agreement, dated December 13, 2001, as amended (the "Revolving
Credit Facility"), that allows the Company to borrow for working capital and
other purposes. The Revolving Credit Facility contains certain financial and
non-financial covenants, including requirements for certain minimum levels of
net income and a minimum fixed charge coverage ratio, as defined therein, on a
quarterly basis. As of December 31, 2001, the Company was in violation of the
net income covenant for the fourth quarter of 2001, and as of March 31, 2002,
the Company was in violation of the net income covenant for the first quarter of
2002. In addition, on March 1, 2002, the Company was notified that it was in
default under the Revolving Credit Facility due to its failure to meet the
previously scheduled debt reduction to $25,500,000 on March 1, 2002.
As a result of these covenant violations, the lender has all of the rights and
remedies available under the Revolving Credit Facility, including the ability to
demand immediate repayment of the outstanding balance. Management is negotiating
a waiver of default and amendments to the violated financial covenants, so that
the Company will be in full compliance with the Revolving Credit Facility. There
can be no assurance that the lender will not demand immediate repayment of the
outstanding balance under the Revolving Credit Facility or that the Company will
be able to obtain waivers of default or amend the required financial covenants.
The Company is currently seeking to refinance the Revolving Credit Facility. The
Revolving Credit Facility matures on December 31, 2002 and provides for the
payment of a facility fee of $780,000 in the event that the Revolving Credit
Facility is not repaid by October 31, 2002. There can be no assurance that the
Company will be able to refinance the Revolving Credit Facility prior to October
31, 2002 or that the Revolving Credit Facility will be refinanced successfully.
For more information regarding the Revolving Credit Facility, see Note 6, as
well as "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this Quarterly Report on Form 10-Q.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be unable
to continue as a going concern.
4
2. RECEIVABLES
Receivables at March 31, 2002 and December 31, 2001 consisted of the following:
March 31, December 31,
2002 2001
-------- ------------
(in thousands)
Trade receivables ..................... $19,597 $20,189
Less allowances for doubtful accounts . (360) (568)
------- -------
19,237 19,621
Receivables for life insurance policies
surrendered ........................... -- 10,229
Recoverable income taxes .............. 4,415 4,355
Other ................................. 218 1,836
------- -------
$23,870 $36,041
======= =======
3. INVENTORIES
Inventories at March 31, 2002 and December 31, 2001 consisted of the following:
March 31, December 31,
2002 2001
--------- ------------
(in thousands)
Raw materials ................................. $15,398 $15,341
Work in process ............................... 6,557 5,261
Finished goods ................................ 1,582 3,401
------- -------
23,537 24,003
Less allowances ............................... (3,326) (3,506)
------- -------
$20,211 $20,497
======= =======
4. INCOME (LOSS) PER SHARE
The Company has presented net income (loss) per common share pursuant to the
Financial Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." Basic net income (loss) per common share
is computed by dividing reported net income (loss) available to common
shareholders by the weighted average number of 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.
5
The table below sets forth the computation of basic and diluted net income
(loss) per share:
Three Months Ended March 31,
2002 2001
------------------------- --------------------------
(in thousands, except per share amounts)
Net Per Share Net Per Share
(Loss) Shares Amount Income Shares Amount
------ ------ -------- ------ ------ ---------
Basic net income (loss)
per common share $(376) 5,783 $(0.07) $479 5,675 $.08
Effect of dilutive
securities -- -- -- -- 143 --
Diluted net income (loss)
------ ------ ------- ----- ----- ----
per common share $(376) 5,783 $(0.07) $479 5,818 $.08
====== ====== ======= ===== ===== ====
For the three-month period ended March 31, 2002, common stock options of 657,279
were outstanding but were excluded from the diluted computation because the
Company incurred a net loss and the effect of including the options would be
anti-dilutive.
For the three-month periods ended March 31, 2002 and March 31, 2001, common
stock options of 1,394,431 and 173,486, respectively, were excluded from the
diluted computation because the option exercise prices were greater than the
average market price of the Company's common stock during these periods.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 141, "Business Combinations" ("SFAS No.
141"), which requires all business combinations initiated after June 30, 2001 to
be accounted for using the purchase method of accounting. As a result, use of
the pooling-of-interests method is prohibited for business combinations
initiated thereafter. SFAS No. 141 also establishes criteria for the separate
recognition of intangible assets acquired in a business combination. In 2001,
the Company adopted this statement, which did not have any impact on its
consolidated financial position or results of operations.
In June 2001, the FASB issued Statement of Financial Accounting Standard No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which requires
that goodwill and certain other intangible assets having indefinite lives no
longer be amortized to earnings, but instead be subject to periodic testing for
impairment. Intangible assets determined to have definitive lives will continue
to be amortized over their estimated useful lives. This statement is effective
for the Company's 2002 fiscal year. Effective January 1, 2002, the Company
adopted SFAS No. 142 and implemented certain provisions, specifically the
discontinuation of goodwill amortization, and will implement the remaining
provisions during 2002. The Company will conduct its initial test for impairment
in the second quarter of 2002. Thereafter, the Company anticipates testing for
impairment after the annual forecasting process is completed or as impairment
indicators arise.
6
The following table reflects the adjustment to exclude goodwill amortization
expense (including related tax effects) recognized in the prior period as
presented (in thousands, except per share amounts):
Three Months Ended March 31,
2002 2001
-------- -------
Reported net income (loss) $(376) $ 479
Add back goodwill amortization -- 83
-------- -------
Adjusted net income (loss) $(376) $ 562
======== =======
Income (loss) per share - basic
Reported net income (loss) $(0.07) $0.08
Goodwill amortization -- 0.02
-------- -------
Adjusted net income (loss) $(0.07) $0.10
======== =======
Income (loss) per share - diluted
Reported net income (loss) $(0.07) $0.08
Goodwill amortization -- 0.02
-------- -------
Adjusted net income (loss) $(0.07) $0.10
======== =======
In October 2001, the FASB issued Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), which excludes from the definition of long-lived assets goodwill and
other intangibles that are not amortized in accordance with SFAS No. 142. SFAS
No. 144 requires that long-lived assets to be disposed of by sale be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. SFAS No. 144 also
expands the reporting of discontinued operations to include components of an
entity that have been or will be disposed of rather than limiting such
discontinuance to a segment of a business. This statement is effective for the
Company's 2002 fiscal year. Effective January 1, 2002, the Company adopted this
Statement, which did not have an impact on its consolidated financial position
or results of operations.
6. DEBT
Debt consists of the following:
March 31, December 31,
2002 2001
--------- ------------
(in thousands)
Short-term bank debt $ 1,337 $ 1,367
-------- --------
Revolving lines of credit $ 26,189 $ 35,689
Mortgages payable 1,080 1,149
-------- --------
27,269 36,838
Less portion due within one year (26,303) (35,829)
-------- --------
Long-term bank debt $ 966 $ 1,009
======== ========
7
Under the terms of the Revolving Credit Facility, the Company can borrow for
working capital and other purposes at the prime interest rate plus two percent.
Borrowings are collateralized by substantially all of the Company's assets. The
Revolving Credit Facility contains limitations on borrowings and requires
maintenance of certain financial and non-financial covenants, the most
restrictive of which require certain levels of quarterly net income and a
quarterly minimum fixed charge coverage ratio, which is the ratio of earnings
before interest, taxes, depreciation and amortization, plus operating rent to
the sum of operating rent, capital expenditures and interest charges. In
addition, the Company is prohibited from paying dividends. The Revolving Credit
Facility matures on December 31, 2002 and provides for the payment of a fee of
approximately $780,000 in the event that the facility is not retired on or
before October 31, 2002.
As of March 31, 2002, outstanding borrowings under the Company's Revolving
Credit Facility were $26,189,000. There were no available borrowings under the
Company's Revolving Credit Facility as of March 31, 2002. During the first
quarter of 2002, $9,500,000 was paid against the Revolving Credit Facility.
The Company is currently in default related to certain financial and other
covenants under the Revolving Credit Facility (See Note 1).
7. ACCRUED LIABILITIES OTHER
Accrued liabilities other at March 31, 2002 and December 31, 2001 consisted of
the following:
March 31, December 31,
2002 2001
--------- ------------
(in thousands)
Taxes other than income.......... $ 882 $ 902
Insurance ....................... 500 479
Advertising and promotions....... 64 79
Interest ........................ 255 280
Commissions ..................... 692 543
Royalties ....................... 66 64
Professional fees ............... 851 1,389
Reserves for fees and services... 1,431 1,374
Deferred revenue................. 3,552 3,760
Other ........................... 2,139 2,911
------- -------
$10,432 $11,781
======= =======
Included in the above accruals is a restructuring reserve of $594,000 at March
31, 2002 and $1,163,000 at December 31, 2001. During the first quarter of 2002,
$569,000 was charged against the reserve, all of which were cash items. The
reserve was established during the year ended December 31, 2001 primarily in
response to a significant reduction in the demand for products by
telecommunication equipment manufacturers.
8
8. COMMITMENTS AND CONTINGENCIES
LITIGATION: In the ordinary course of business, the Company is subject to loss
contingencies pursuant to foreign and domestic federal, state, and local
governmental laws and regulations and is also party to certain legal actions. It
is management's opinion that the impact of these legal actions will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
The Company's subsidiary, SL Montevideo Technology, Inc. (SL-MTI), is currently
defending a cause of action, brought against it in the fall of 2000 in the
federal district court for the western district of Michigan. The lawsuit was
filed by Eaton Aerospace LLC, alleging breach of contract and warranty in the
defective design and manufacture of a high precision motor. The high precision
motor was developed for use in an aircraft actuation system intended for use by
Vickers Corporation. The complaint seeks compensatory damages of approximately
$3,900,000. The Company believes it has strong defenses to these claims and
intends to defend them vigorously. Trial is currently scheduled for June 10,
2002.
ENVIRONMENTAL: Loss contingencies include potential obligations to investigate
and eliminate or mitigate the effects on the environment of the disposal or
release of certain chemical substances at various sites, such as Superfund sites
and other facilities, whether or not they are currently in operation. The
Company is currently participating in environmental assessments and cleanups at
a number of sites under these laws and may in the future be involved in
additional environmental assessments and cleanups. Based upon investigations
completed by the Company and its independent engineering consulting firm to
date, management has provided an estimated accrual for all known costs believed
to be probable. However, it is in the nature of environmental contingencies that
other circumstances might arise, the costs of which are indeterminable at this
time due to such factors as changing government regulations and stricter
standards, the unknown magnitude of defense and cleanup costs, the unknown
timing and extent of the remedial actions that may be required, the
determination of the Company's liability in proportion to other responsible
parties, and the extent, if any, to which such costs are recoverable from other
parties or from insurance. Although these contingencies could result in
additional expenses or judgments, or offsets thereto, at present such expenses
or judgments are not expected to have a material effect on the consolidated
financial position or results of operations of the Company.
In the fourth quarter of fiscal year 1990, the Company made a provision of
$3,500,000 to cover various environmental costs for six locations, based upon
estimates prepared at that time by an independent engineering consulting firm.
In fiscal 1991, 1996 and 1999, based upon estimates, the Company made additional
provisions of $480,000, $900,000 and $375,000, respectively. The fiscal 1996
provision was necessary since, during the latter part of fiscal 1995, the New
Jersey Department of Environmental Protection required the Company to begin
additional investigation of the extent of off-site contamination at its former
facility in Wayne, New Jersey, where remediation had been underway. Based on the
results of that investigation, which were received in fiscal 1996, the Company
determined that additional remediation costs of approximately $1,000,000 were
probable.
The Company filed claims with its insurers seeking reimbursement for many of
these costs, and received $900,000 from one insurer during fiscal year 1996 and
a commitment to pay 15% of the environmental costs associated with one location
up to an aggregate of $300,000. During fiscal 1997, the Company received
$1,500,000 from three additional insurers and from two of those insurers,
commitments to pay 15% and 20% of the environmental costs associated with the
same location up to an aggregate of $150,000 and $400,000, respectively.
9
In addition, the Company received $100,000 during 2001, 2000, and fiscal 1999,
as stipulated in the settlement agreement negotiated with one of the three
insurers. During 2000, the Company reversed a separate accrual for a potential
environmental penalty after being advised by legal counsel that there was only a
remote chance such penalty would be enforced.
The Company is the subject of various other lawsuits and actions relating to
environmental issues, including administrative action in connection with Surf
Tech's Pennsauken facility, which could subject the Company to, among other
things, $9,266,000 in collective reimbursements (with other parties) to the New
Jersey Department of Environmental Protection. The Company believes that it has
a significant defense against all or any part of the claim and that any material
impact is unlikely.
In May 2000, the Company discovered evidence of possible soil contamination at
its facility in Auburn, New York. The New York State Department of Environmental
Conservation had been contacted and investigated the site. On April 9, 2002, the
New York State Department of Environmental Conservation issued a statement that
no remediation is necessary at this time.
In December 2001, the Company received notice from the Connecticut Department of
Environmental Protection of an administrative hearing to determine
responsibility for contamination at a former industrial site located in New
Haven, Connecticut. The Company has requested an extension of time to determine
the nature of the alleged contamination and the extent of the Company's
responsibility. It is still very early in the investigation; however, based upon
the preliminary investigations, management does not believe that remediation of
this site will have a material adverse effect on its business or operations.
The Company is investigating a ground water contamination with respect to its
property in Camden, New Jersey. While a final determination of the extent of the
contamination has not been made, the Company has been informed that the cost to
remediate the property should not exceed $500,000. The Company recorded a
provision for this amount during the three months ended March 31, 2002.
As of March 31, 2002 and December 31, 2001, the remaining environmental accrual
was $810,000 and $290,000, respectively.
EMPLOYMENT AGREEMENTS: The Company entered into severance agreements with
certain key employees in 2001 and in prior years, that provide for one-time
payments in the event of a change of control, as defined, if the employee is
terminated within 12 months of the change. These payments range from 3 to 24
months of the employee's base salary as of the termination date, as defined. All
senior divisional management teams are continuing in their positions.
9. SPECIAL CHARGES
In 2001, the Company entered into change-of-control agreements with certain
officers of the Company. On January 22, 2002, the Company held its annual
meeting of shareholders for 2001. At the annual meeting, all eight members of
the Board of Directors stood for re-election. In
10
addition, five nominees from a committee comprised of representatives of two
institutional shareholders (such committee, the "RORID Committee") stood for
election to the Board of Directors. Upon the certification of the election
results on January 24, 2002, the five nominees of the RORID Committee were
elected and three incumbent directors were re-elected. Following the election of
the five new directors, the Company made payments (which included related
benefits) to such officers under these change-of-control agreements totaling
approximately $1,631,000 in the first quarter of 2002 and incurred additional
proxy and legal costs of approximately $194,000.
10. NEW ACCOUNTING PRONOUNCEMENT NOT YET ADOPTED
In August 2001, the FASB issued Statement of Financial Accounting Standard No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which
provides the accounting requirements for retirement obligations associated with
tangible long-lived assets. This statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. This statement will be effective for the Company's 2003 year.
The adoption of SFAS No. 143 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.
11. SEGMENT INFORMATION
Under the disclosure requirements of Statement of Financial Accounting Standard
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
the Company classifies its operations into the following six operating business
units: Condor D.C. Power Supplies, Inc. ("Condor") produces a wide range of
standard and custom power supply products that convert AC or DC power to direct
electrical current to be used in customers' end products. Power supplies closely
regulate and monitor power outputs, using patented filter and other
technologies, resulting in little or no electrical interference. Teal
Electronics Corporation ("Teal") is a leader in the design and manufacture of
customized power conditioning and power distribution units. Teal products are
developed and manufactured for custom electrical subsystems for original
equipment manufacturers of semiconductor, medical imaging, graphics, and
telecommunications systems. SL Montevideo Technology, Inc. ("SL-MTI") is a
technological leader in the design and manufacture of intelligent, high power
density precision motors. New motor and motion controls are used in numerous
applications, including aerospace, medical, and industrial products.
Elektro-Metall Export GmbH ("EME") is a leader in electromechanical actuation
systems, power drive units, and complex wire harness systems for use in the
aerospace and automobile industries. RFL Electronics Inc. ("RFL") designs and
manufactures teleprotection products/systems that are used to protect utility
transmission lines and apparatus by isolating faulty transmission lines from a
transmission grid. RFL provides customer service and maintenance for all
electric utility equipment protection systems. SL Surface Technologies, Inc.
("Surf Tech") produces industrial coatings and platings for equipment in the
corrugated paper and telecommunications industries. The "Other" segment includes
corporate related items not allocated to reportable segments and the results of
insignificant operations. The Company's reportable business units are managed
separately because each offers different products and services and requires
different marketing strategies.
11
The unaudited comparative results for the three-month periods are as follows:
Three Months Ended
March 31, *
2002 2001
------- -------
(in thousands)
Net sales from continuing operations:
Condor $ 7,740 $15,931
Teal 4,704 3,478
SL-MTI 5,709 4,079
EME 5,414 7,210
RFL 8,766 6,077
Surf Tech 614 807
Other -- --
------- -------
Consolidated $32,947 $37,582
======= =======
Three Months Ended
March 31, *
2002 2001
------- -------
(in thousands)
Operating income (loss) from
continuing operations:
Condor $ 261 $ 733
Teal 469 530
SL-MTI 504 359
EME 334 1,119
RFL 1,338 619
Surf Tech (307) 7
Other (3,411) (1,377)
------- -------
Consolidated $ (812) $ 1,990
======= =======
*Reclassified for comparative purposes
Included in "Other" for the three months ended March 31, 2002 were special
charges of $1,825,000 related to change-of-control and proxy costs (see Note 9),
a $500,000 addition to the reserve for environmental matters, professional fees
of $300,000, and other expenses not allocated to the reportable business units.
March 31, December 31,
2002 2001
--------- ------------
(in thousands)
Identifiable assets:
Condor $19,363 $ 20,740
Teal 10,357 9,834
SL-MTI 10,447 11,637
EME 22,750 23,524
RFL 16,665 17,445
Surf Tech 3,565 3,929
Other 9,731 20,649
------- --------
Consolidated $92,878 $107,758
======= ========
12
12. DISCONTINUED OPERATIONS
In July 2001, the Board of Directors authorized the disposition of the Company's
SL Waber, Inc. ("SL Waber") subsidiary. Effective August 27, 2001, substantially
all of the assets of SL Waber and the stock of Waber de Mexico S.A. de C.V. were
sold. As part of this transaction, the purchaser acquired the rights to the SL
Waber name and assumed certain liabilities and obligations of SL Waber.
Subsequent to the sale, the Company changed the name of the SL Waber subsidiary
to SLW Holdings, Inc. ("SLW Holdings"). The net income or losses of this
subsidiary are included in the consolidated statements of operations under
discontinued operations for all periods presented. During the three months ended
March 31, 2002, the Company, based upon a review of liabilities, reduced the
accrual for the liabilities (excluding accrued income taxes) related to SLW
Holdings by $450,000. As of March 31, 2002, the Company had $1,000,000 accrued
for remaining liabilities (excluding accrued income taxes) related to SLW
Holdings, compared to $1,519,000 at December 31, 2001.
13. SALE OF BUSINESS
On March 22, 2001, the Company announced, among other things, that the Board of
Directors had completed a previously announced review of strategic alternatives
and had determined that it would explore a sale of the Company in order to
maximize its value for shareholders. Credit Suisse First Boston assisted the
Company's Board of Directors in its review and has been engaged to lead this
process, which is ongoing.
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 the Revolving
Credit Facility, as such term is defined in Note 1 in the Notes to Consolidated
Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
During the three months ended March 31, 2002, the net cash used in operating
activities was $2.6 million, as compared to $5.9 million during the three months
ended March 31, 2001. The decrease, as compared to the same quarter in the prior
year, resulted primarily from significant reductions in inventory and
collections of receivables, partially offset by the reductions in accrued
liabilities and the pay down of accounts payable. The Company is currently not
permitted to borrow any additional amounts under the Revolving Credit Facility.
During the three months ended March 31, 2002, the net cash provided by investing
activities was $10.4 million. This was primarily related to the proceeds from
life insurance policies of $10.7 million received during the quarter. In the
prior year quarter, the Company used $0.9 million, principally related to the
purchase of equipment.
During the three months ended March 31, 2002, the net cash used by financing
activities was $8.9 million, primarily related to the pay down of the Revolving
Credit Facility in the net amount of $9.5 million. In the prior year, financing
activities provided cash of $5.5 million principally due to net borrowings from
the Revolving Credit Facility.
13
As of March 31, 2002, the Company had principal debt outstanding of $26.2
million under the Revolving Credit Facility, as compared to $35.7 million at
December 31, 2001. The Revolving Credit Facility provides for the Company to
borrow up to $25.5 million, subject to commitment fees, but not compensating
balances. The Revolving Credit Facility contains limitations on borrowings and
requires maintenance of certain levels of quarterly net income and a minimum
fixed charge covering ratio, which is the ratio of earnings before interest,
taxes, depreciation and amortization, plus operating rent, to the sum of
operating rent, capital expenditures and interest charges. The Company is also
prohibited from paying dividends under the Revolving Credit Facility.
The Company is currently seeking to refinance the Revolving Credit Facility. The
Revolving Credit Facility matures on December 31, 2002 and provides for the
payment of a facility fee of $780,000 in the event that the Revolving Credit
Facility is not repaid by October 31, 2002. There can be no assurance that the
Company will be able to refinance the Revolving Credit Facility prior to October
31, 2002 or that the Revolving Credit Facility will be refinanced successfully.
See Note 1 in the Notes to Consolidated Financial Statements included in Item 1
of this Quarterly Report on Form 10-Q for a discussion of the Company's default
of certain financial covenants under the Revolving Credit Facility.
The Company's German subsidiary, EME, also has $4,024,000 in lines of credit
with its banks in Germany that expire at various times during 2002. Under the
terms of its lines of credit, EME can borrow for any purpose at interest rates
ranging from 7.125% to 8.25%. No financial covenants are required.
The Company's current ratio was 1.1 to 1 at both March 31, 2002 and December 31,
2001. This ratio was maintained for the quarter ended March 31, 2002, primarily
due to the receipt of life insurance proceeds of $10,676,000 used to pay down
current debt, principally the Revolving Credit Facility, which has been
classified as current debt. If the borrowings under the Revolving Credit
Facility were not classified as a current liability, the current ratio would
have been 2.2 to 1 at March 31, 2002 and 2.3 to 1 at December 31, 2001.
As a percentage of total capitalization, consisting of debt and shareholders'
equity, total borrowings by the Company were 46% at March 31, 2002 and 54% at
December 31, 2001. During the quarter, total borrowings decreased by $9,599,000.
Capital expenditures of $312,000 made during the first quarter of 2002 primarily
included improvements in process technology. During the remaining quarters of
2002, the Company plans to spend approximately $2,800,000 in capital
expenditures. This amount is subject to change depending on certain market
conditions within the Company's business segments and availability of financing.
The Company has been able to generate adequate amounts of cash to meet its
operating needs. During the first quarter of 2002, the Company experienced
negative cash flows at Condor and Surf Tech. Condor's cash flow was negatively
impacted by payments made against its restructuring reserve ($516,000) and
deferred compensation payments ($1,200,000). Without these cash payments, Condor
would have been cash flow positive. Surf Tech's negative cash flow
14
was $246,000. All other continuing business segments showed significant
increases in cash flows as compared to the prior year quarter.
With the exception of Surf Tech and the segment reported as "Other" (which
consists primarily of corporate office expenses), all of the Company's operating
segments were profitable at the operating level in the quarter ended March 31,
2002. Surf Tech's operating loss was ($307,000). Surf Tech is facing
historically low demand in its marketplace and its operations have been
consolidated into one facility. Included in "Other" are special charges for the
three months ended March 31, 2002 of $1,825,0000 related to the
change-of-control and proxy costs (see Note 9). Also in "Other" are a $500,000
addition to the reserve for environmental matters, professional fees of
$300,000, and other expenses not allocated to the reportable business units.
Assuming no further significant slowdown of economic activity in the markets in
which the Company conducts business, management believes that projected cash
from operations, expected tax refunds from the United States and Germany, and
funds expected to be available under the Revolving Credit Facility will be
sufficient to fund the Company's operations and working capital requirements.
EUROPEAN MONETARY UNIT ("EURO")
In 1999, most member countries of the European Union established fixed
conversion rates between their existing sovereign currencies and the European
Union's new currency, the euro. This conversion permitted transactions to be
conducted in either the euro or the participating countries' national
currencies. By February 28, 2002, all member countries were expected to have
permanently withdrawn their national currencies as legal tender and replaced
their currencies with euro notes and coins.
The euro conversion may have a favorable impact on cross-border competition by
eliminating the effects of foreign currency translations, thereby creating price
transparency. The Company is continuing to evaluate the accounting, tax, legal
and regulatory requirements associated with the euro introduction. The Company
does not expect the conversion to the euro to have a material adverse effect on
its consolidated financial position, results of operations, or cash flows.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2002 COMPARED WITH QUARTER ENDED MARCH 31, 2001
The table below shows the comparison of net sales from continuing operations for
the quarter ended March 31, 2002, and the quarter ended March 31, 2001:
15
Increase/ Increase/ Three Months Three Months
(Decrease) over (Decrease)over ended ended
same quarter same quarter March 31, March 31,
last year last year 2002 2001
--------------- -------------- ------------ ------------
Percent Amount Amount Amount
--------------- -------------- ------------ ------------
(in thousands)
Condor (51.4) $(8,191) $ 7,740 $15,931
Teal 35.2 1,226 4,704 3,478
SL-MTI 40.0 1,630 5,709 4,079
EME (24.9) (1,796) 5,414 7,210
RFL 44.3 2,689 8,766 6,077
Surf Tech (24.0) (193) 614 807
----- ------- ------- -------
TOTAL (12.3) $(4,635) $32,947 $37,582
===== ======= ======= =======
Consolidated net sales from continuing operations for the three-month period
ended March 31, 2002 decreased by $4.6 million, or 12.3%, compared to the same
quarter last year. This decrease was due mainly to decreases at Condor of $8.2
million, or 51.4%, and at EME of $1.8 million, or 24.9%. These decreases were
partially offset by relatively strong performances by the other business
segments except Surf Tech, which represents only 2% of consolidated sales.
Condor operates in the telecommunications, medical and industrial
instrumentation markets and was principally affected by the slow pace of
recovery in these markets. EME's sales were principally affected by lower sales
in the European aerospace market.
The Company realized an operating loss of $812,000 for the three-month period
ended March 31, 2002, as compared to operating income of $1,990,000 for the
corresponding prior year period. During the quarter ended March 31, 2002, the
Company recorded (a) a charge of $225,000 as a result of the restructuring
charges recorded at Condor, (b) special charges of $1,825,000 related to
change-of-control and proxy costs and (c) a $500,000 addition to the reserve for
environmental matters. Included in "Other" are the special charges, the
environmental charge, additional costs for professional fees and other costs
incurred, which are corporate related costs not allocated to continuing
operations. The current quarter's operating loss was positively affected by the
implementation of SFAS No. 142, which required the discontinuation of goodwill
amortization effective January 1, 2002 (see Note 5).
Cost of products sold for the three-month period decreased by 16%, as compared
to the same period last year. As a percentage of net sales, cost of products
sold for the three-month period was 65%, as compared to 67% during the same
period last year. Condor's cost of sales decreased from 74% in 2001 to 62% in
2002, primarily related to the withdrawal of several telecommunication products
from the market resulting in a favorable product mix. The remaining business
segments' cost of sales remained constant or experienced some modest increase as
a percentage of sales, as compared to the prior year quarter.
Engineering and product development expenses for the three-month period
decreased 5%, as compared to the same period last year, due primarily to the
consolidation of engineering facilities at Condor. As a percentage of net sales,
engineering and product development expenses for the three months ended March
31, 2002 were 7%, as compared to 6% for the same period last year.
16
Selling, general and administrative expenses for the three-month period
increased 7%, as compared to the same period last year. As a percentage of net
sales, selling, general and administrative expenses for the three months ended
March 31, 2002 were 22%, as compared to 18% for the same period last year. The
percentage increase was primarily due to lower sales and a $500,000 addition to
the reserve for environmental matters. Without the $500,000 addition to the
environmental reserve, selling, general and administrative expenses would have
been 21% of net sales.
Depreciation and amortization expenses for the current three-month period
decreased by $272,000, or 24%, due to the reduced fixed asset base and
intangible impairment write-offs at Condor in 2001. Also effective January 1,
2002, the Company adopted SFAS No. 142 and implemented certain provisions of
this statement, specifically the discontinuance of goodwill amortization (see
Note 5).
Interest income for the three-month period increased by $6,000, as compared to
the same period last year. Interest expense for the three-month period decreased
by $149,000, or 21%, due primarily to the significant reduction of debt as
compared to the prior year quarter.
The effective tax rate benefit for the three-month period was 47%, as compared
to a charge of 62% for the same period last year. The effective tax rate charge
primarily relates to the effect of removing certain tax benefits associated with
discontinued operations.
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 all or part of the Company's business can
be successfully effected and the timing and degree of any business recovery in
certain of the Company's markets that are currently experiencing a cyclical
economic downturn.
17
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.
Future factors include the effectiveness of cost reduction actions undertaken by
the Company; the timing and degree of any business recovery in certain of the
Company's markets that are currently experiencing economic uncertainty;
increasing price, products and services competition by U.S. and non-U.S.
competitors, including new entrants; rapid technological developments and
changes and the Company's ability to continue to introduce and develop
competitive new products and services on a timely, cost-effective basis;
availability of manufacturing capacity, components and materials; credit
concerns and the potential for deterioration of the credit quality of customers;
customer demand for the Company's products and services; ability of the Company
to refinance its debt on satisfactory terms; U.S. and non-U.S. governmental and
public policy changes that may affect the level of new investments and purchases
made by customers; changes in environmental and other U.S. and non-U.S.
governmental regulations; protection and validity of patent and other
intellectual property rights; compliance with the covenants and restrictions of
bank credit facilities; and outcome of pending and future litigation and
governmental proceedings. These are representative of the future factors that
could affect the outcome of the forward-looking statements. In addition, such
statements could be affected by general industry and market conditions and
growth rates, general U.S. and non-U.S. economic conditions, including increased
economic uncertainty and instability following the terrorist attacks in the
United States on September 11, 2001, the global economic slowdown and interest
rate and currency exchange rate fluctuations and other future factors.
For a further description of future factors that could cause actual results to
differ materially from such forward-looking statements, see the discussion in
the Company's Annual Report on Form 10-K for the year ended December 31, 2001,
Part I, Item 1 - Risk Factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative market risk
from the disclosure contained in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2001, which is incorporated herein by
reference.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no material change to the information previously reported in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001. See
Part I, Item 3 - Legal Proceedings of such Annual Report for additional
information on these matters.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On March 1, 2002, the Company was notified that it was in default under the
Revolving Credit Facility due to its failure to meet the previously scheduled
debt reduction to $25,500,000 on
18
March 1, 2002. See Notes 1 and 6 in the Notes to Consolidated Financial
Statements included in Part I of this Quarterly Report on Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders on January 22, 2002, the
Company's shareholders elected five new members to the Company's eight-member
Board of Directors. The five new directors (James Henderson, Glen Kassan, Warren
Lichtenstein, Mark Schwarz and Steven Wolosky) were nominees of the RORID
Committee, a committee comprised of representatives of two institutional
shareholders. Three incumbent directors were also re-elected to the Board of
Directors (J. Dwane Baumgardner, Charles T. Hopkins and J. Edward Odegaard).
The votes cast for all nominees were as follows:
Company Nominees For
----------------
J. Dwane Baumgardner 1,287,270
Richard E. Caruso 1,283,312
Owen Farren 1,278,982
Charles T. Hopkins 1,287,444
Judith A. Maynes 1,284,934
J. Edward Odegaard 1,286,858
Walter I. Rickard 1,284,277
Robert J. Sanator 1,286,684
RORID Nominees
--------------
James Henderson 3,241,334
Glen Kassan 3,241,334
Warren Lichtenstein 3,241,334
Mark Schwarz 3,241,334
Steven Wolosky 3,241,334
Shortly after the meeting, Messrs. Hopkins and Odegaard resigned. On March 8,
2002, Richard Smith was elected to the Board of Directors, filling one of the
two vacant directorships.
The votes cast for, against, and withheld for the ratification of the
appointment of Arthur Andersen LLP as the Company's independent auditors for the
fiscal year ending December 31, 2002 were as follows:
For 4,511,445 Against 61,807 Withheld 23,624
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
19
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Company during the quarter
ended March 31, 2002:
On January 10, 2002, the Company filed a Current Report on Form 8-K, which
contained a letter to the shareholders from the then-Chairman of the Board, Owen
Farren, regarding the ongoing proxy contest.
On January 15, 2002, the Company filed a Current Report on Form 8-K, which
contained a press release issued by the Company on the date thereof announcing
certain information regarding its financial performance for the fourth quarter
ended December 31, 2001.
On January 22, 2002, the Company filed a Current Report on Form 8-K, which
described certain actions taken by the Company relating to the change in control
agreements entered into by the Company with three of its executives.
On January 23, 2002, the Company filed a Current Report on Form 8-K, which
described certain actions taken by the Company relating to the change in control
agreements entered into by the Company with three of its executives and the
establishment of a trust to fund payments under such agreements.
On March 11, 2002, the Company filed a Current Report on Form 8-K, which
contained a press release issued by the Company on March 8, 2002, announcing the
Company's receipt of a notice of default under its Revolving Credit Facility.
20
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.
Date: May 20 , 2002 SL INDUSTRIES, INC.
-------------------
(Company)
Date: May 20, 2002 By: /s/Warren Lichtenstein
---------------------------
Warren Lichtenstein
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: May 20, 2002 By: /s/David R. Nuzzo
---------------------------
David R. Nuzzo
Chief Financial Officer
(Principal Accounting Officer)
21