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, 2007
OR
[ ] 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 (I.R.S. Employer
or organization) Identification No.)
520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ 08054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 856-727-1500
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter 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
----- -----
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act).
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes No X
----- -----
The number of shares of common stock outstanding as of May 4, 2007 was
5,629,763.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2007 (Unaudited) and December 31, 2006........... 1
Consolidated Statements of Income and Comprehensive Income
Three Months Ended March 31, 2007 and 2006 (Unaudited)..... 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2007 and 2006 (Unaudited)..... 3
Notes to Consolidated Financial Statements (Unaudited)........ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 28
Item 4. Controls and Procedures.......................................... 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...... 29
Item 5. Other Information................................................ 29
Item 6. Exhibits......................................................... 30
SIGNATURES............................................................... 31
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2007 2006
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 757,000
Receivables, net 29,525,000 30,621,000
Note receivable 563,000 563,000
Inventories, net 21,614,000 21,090,000
Prepaid expenses 1,627,000 1,576,000
Deferred income taxes, net 2,486,000 2,190,000
------------ ------------
Total current assets 55,815,000 56,797,000
------------ ------------
Property, plant and equipment, net 11,533,000 12,132,000
Deferred income taxes, net 6,372,000 6,340,000
Goodwill 21,709,000 22,548,000
Other intangible assets, net 7,515,000 7,472,000
Other assets and deferred charges 1,460,000 1,254,000
------------ ------------
Total assets $104,404,000 $106,543,000
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 14,809,000 $ 13,902,000
Accrued income taxes 1,404,000 1,347,000
Accrued liabilities:
Payroll and related costs 5,808,000 6,742,000
Other 7,257,000 7,295,000
------------ ------------
Total current liabilities 29,278,000 29,286,000
------------ ------------
Debt 16,120,000 19,800,000
Deferred compensation and supplemental retirement
benefits 2,861,000 2,884,000
Other liabilities 4,139,000 4,154,000
------------ ------------
Total liabilities 52,398,000 56,124,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized,
6,000,000 shares; none issued $ -- $ --
Common stock, $0.20 par value; authorized,
25,000,000 shares; issued, 8,298,000 shares 1,660,000 1,660,000
Capital in excess of par value 41,295,000 40,889,000
Retained earnings 30,057,000 28,390,000
Accumulated other comprehensive (loss) (54,000) (29,000)
Treasury stock at cost, 2,661,000 and 2,658,000
shares, respectively (20,952,000) (20,491,000)
------------ ------------
Total shareholders' equity 52,006,000 50,419,000
------------ ------------
Total liabilities and shareholders' equity $104,404,000 $106,543,000
============ ============
See accompanying notes to consolidated financial statements.
1
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
---------------------------
2007 2006
----------- -----------
Net sales $48,327,000 $39,285,000
Cost and expenses:
Cost of products sold 32,371,000 26,133,000
Engineering and product development 3,195,000 3,079,000
Selling, general and administrative 8,544,000 7,557,000
Depreciation and amortization 906,000 591,000
----------- -----------
Total cost and expenses 45,016,000 37,360,000
----------- -----------
Income from operations 3,311,000 1,925,000
Other income (expense):
Amortization of deferred financing costs (22,000) (22,000)
Interest income 17,000 28,000
Interest expense (323,000) (129,000)
----------- -----------
Income from continuing operations before income
taxes 2,983,000 1,802,000
Income tax provision 945,000 569,000
----------- -----------
Income from continuing operations 2,038,000 1,233,000
(Loss) from discontinued operations (net of tax) (371,000) (112,000)
----------- -----------
Net income $ 1,667,000 $ 1,121,000
=========== ===========
BASIC NET INCOME (LOSS) PER COMMON SHARE
Income from continuing operations $ 0.36 $ 0.22
(Loss) from discontinued operations
(net of tax) (0.07) (0.02)
----------- -----------
Net income $ 0.30 * $ 0.20
=========== ===========
DILUTED NET INCOME (LOSS) PER COMMON SHARE
Income from continuing operations $ 0.35 $ 0.21
(Loss) from discontinued operations
(net of tax) (0.06) (0.02)
----------- -----------
Net income $ 0.29 $ 0.19
=========== ===========
Shares used in computing basic net income (loss)
per common share 5,641,000 5,608,000
Shares used in computing diluted net income
(loss) per common share 5,768,000 5,788,000
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
---------------------------
2007 2006
----------- -----------
Net income $ 1,667,000 $ 1,121,000
Other comprehensive income (net of tax):
Foreign currency translation (17,000) 6,000
Investments available for sale -- (67,000)
----------- -----------
Comprehensive income $ 1,650,000 $ 1,060,000
=========== ===========
* Earnings per share does not total due to rounding.
See accompanying notes to consolidated financial statements.
2
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2007 2006
----------- ------------
OPERATING ACTIVITIES
Net income $ 1,667,000 $ 1,121,000
Adjustment for losses from discontinued
operations 371,000 112,000
----------- ------------
Income from continuing operations 2,038,000 1,233,000
----------- ------------
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities:
Depreciation 574,000 495,000
Amortization 332,000 96,000
Amortization of deferred financing costs 22,000 22,000
Non-cash compensation (benefit) expense (180,000) 64,000
Stock-based compensation -- 16,000
Recovery (provisions) for losses on accounts
receivable (22,000) 10,000
Deferred compensation and supplemental
retirement benefits 105,000 134,000
Deferred compensation and supplemental
retirement benefit payments (127,000) (196,000)
Deferred income taxes 87,000 138,000
Changes in operating assets and liabilities,
excluding effects of business
acquisition:
Accounts receivable 1,117,000 (448,000)
Inventories (524,000) (1,825,000)
Prepaid expenses (51,000) (324,000)
Other assets 18,000 (41,000)
Accounts payable 907,000 (443,000)
Accrued liabilities (920,000) (1,095,000)
Accrued income taxes 270,000 495,000
----------- ------------
Net cash provided by (used in) operating
activities from continuing operations 3,646,000 (1,669,000)
Net cash (used in) operating activities from
discontinued operations (333,000) (6,000)
----------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 3,313,000 (1,675,000)
----------- ------------
INVESTING ACTIVITIES
Acquisition of a business, net of cash acquired -- (15,951,000)
Purchases of property, plant and equipment (309,000) (577,000)
----------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES (309,000) (16,528,000)
----------- ------------
FINANCING ACTIVITIES
Proceeds from Revolving Credit Facility 4,290,000 16,063,000
Payments of Revolving Credit Facility (7,970,000) (8,090,000)
Proceeds from stock options exercised 44,000 167,000
Tax benefit from exercise of stock options 14,000 25,000
Issuance of common stock options -- 16,000
Treasury stock (purchases) sales (114,000) 31,000
----------- ------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (3,736,000) 8,212,000
----------- ------------
Effect of exchange rate changes on cash (25,000) 6,000
----------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (757,000) (9,985,000)
----------- ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 757,000 9,985,000
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ --
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 340,000 $ 84,000
Income taxes $ 443,000 $ 61,000
See accompanying notes to consolidated financial statements.
3
SL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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, 2007. 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, 2006.
2. RECEIVABLES
Receivables consist of the following:
March 31, December 31,
2007 2006
--------- ------------
(in thousands)
Trade receivables $29,675 $31,044
Less: allowance for doubtful accounts (808) (830)
------- -------
28,867 30,214
Other 658 407
------- -------
$29,525 $30,621
======= =======
3. INVENTORIES
Inventories consist of the following:
March 31, December 31,
2007 2006
--------- ------------
(in thousands)
Raw materials $14,793 $15,307
Work in process 5,255 4,213
Finished goods 4,532 4,442
------- -------
24,580 23,962
Less allowances (2,966) (2,872)
------- -------
$21,614 $21,090
======= =======
4. INCOME PER SHARE
The Company has presented net income per common share pursuant to the Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standard
No. 128, "Earnings per Share." Basic net income per common share is computed by
dividing reported net income
4
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.
The table below sets forth the computation of basic and diluted net income per
share:
Three Months Ended March 31,
---------------------------------------------------------
2007 2006
--------------------------- ---------------------------
(in thousands, except per share amounts)
---------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
Basic net income per
common share $1,667 5,641 $ 0.30 $1,121 5,608 $ 0.20
Effect of dilutive
securities -- 127 (0.01) -- 180 (0.01)
------ ----- ------ ------ ----- ------
Diluted net income per
common share $1,667 5,768 $ 0.29 $1,121 5,788 $ 0.19
====== ===== ====== ====== ===== ======
For the three-month periods ended March 31, 2007 and March 31, 2006, 2,658 and
6,250 stock options, respectively, were excluded from the dilutive computations
because the option exercise prices were greater than the average market price of
the Company's common stock.
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standard No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)"), using the
modified prospective application method. Prior to adopting SFAS No. 123(R), the
Company followed the intrinsic value method of accounting for stock-based
employee compensation in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
The Company maintains two shareholder approved stock option plans: the
Non-Employee Director Nonqualified Stock Option Plan (the "Director Plan") and
the Long-Term Incentive Plan (the "1991 Incentive Plan"). Both plans have
expired; however, stock options issued under each plan remain outstanding.
The Director Plan provided for the granting of nonqualified options to purchase
up to 250,000 shares of the Company's common stock to non-employee directors of
the Company in lieu of paying quarterly retainer fees and regular quarterly
meeting attendance fees, when elected. The Director Plan enabled the Company to
grant options, with an exercise price per share not less than fair market value
of the Company's common stock on the date of grant, which are exercisable at any
time. Each option granted under the Director Plan expires no later than ten
years from date of grant. The expiration date of the Director Plan was May 31,
2003. The 1991 Incentive Plan enabled the Company to grant either nonqualified
options, with an exercise price
5
per share established by the Board's Compensation Committee, or incentive stock
options, with an exercise price per share not less than the fair market value of
the Company's common stock on the date of grant, which are exercisable at any
time. Each option granted under the 1991 Incentive Plan expires no later than
ten years from date of grant. The Plan expired on September 25, 2001 and no
future options can be granted under the Plan.
During 2005, the Company issued, to a newly retained executive, 25,000 incentive
stock options in accordance with the rules and regulations of the Securities and
Exchange Commission. At December 31, 2006, approximately 12,000 of these options
were vested. These options were forfeited, unexercised, in March 2007.
For the three months ended March 31, 2007, the Company did not recognize any
stock-based employee compensation expense under the provisions of the SFAS No.
123(R). For the three months ended March 31, 2006, the Company recognized
stock-based employee compensation expense of $16,000, less a related income tax
benefit of approximately $6,000 under the provisions of the SFAS No. 123(R).
Under this standard, excess income tax benefits related to share-based
compensation expense that must be recognized directly in equity are treated as
cash flow from financing rather than operating activities. Also, the Company has
recognized a benefit of approximately $180,000 and an expense of approximately
$64,000 in the three-month periods ended March 31, 2007 and March 31, 2006,
respectively, related to certain stock-based compensation arrangements.
The following table summarizes stock option activity for all plans:
Outstanding Weighted Average Weighted Average Aggregate Intrinsic
Options Exercise Price Remaining Life Value
-------------- ---------------- ---------------- -------------------
(in thousands) (in thousands)
Outstanding as of December 31, 2006 528 $10.30 3.80
Granted -- --
Exercised (5) $ 8.60
Forfeited (12) $17.01
Expired -- --
--- ------ ---- ------
Outstanding as of March 31, 2007 511 $10.15 3.44 $2,473
=== ====== ==== ======
Exercisable as of March 31, 2007 511 $10.15 3.44 $2,473
=== ====== ==== ======
During the three month periods ended March 31, 2007 and March 31, 2006, the
total intrinsic value of options exercised was $37,000 and $79,000,
respectively, and the actual tax benefit realized for the tax deduction from
these option exercises was $14,000 and $25,000, respectively. During the three
months ended March 31, 2007, options to purchase approximately 5,000 shares of
common stock with an aggregate exercise price of $44,000 were exercised by
option holders. During the three months ended March 31, 2006, options to
purchase approximately 16,000 shares of common stock with an aggregate exercise
price of $167,000 were exercised by option holders.
There were no options granted during the three month periods ended March 31,
2007 and March 31, 2006.
6
5. INCOME TAX
In June 2006, the FASB issued Interpretation 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" ("SFAS 109"). This Interpretation defines the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. FIN 48 was effective for fiscal years beginning after
December 15, 2006.
On January 1, 2007, the Company adopted the provisions of FIN 48. At the
adoption date, the Company applied the provisions of FIN 48 to all tax positions
for which the statute of limitations remained open. Any cumulative effect of the
change from this accounting principle is to be recorded in the opening balance
in retained earnings. As a result of the implementation of FIN 48, the Company
did not recognize any change in its unrecognized tax benefits and did not adjust
the January 1, 2007 balance of retained earnings. The amount of unrecognized tax
benefits as of January 1, 2007, was $2,749,000, excluding interest and
penalties. This amount includes $2,726,000 of unrecognized tax benefits which,
if ultimately recognized, will reduce the Company's effective tax rate.
The Company is subject to federal and state income taxes in the United States,
as well as income taxes in certain foreign jurisdictions. Tax regulations within
each jurisdiction are subject to the interpretation of the related tax laws and
regulations and require significant judgment to apply. With few exceptions, the
Company is not subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for the years before 2003.
The Company is currently under examination by United States and Chinese taxing
authorities for years subsequent to 2003. The Company expects these examinations
to be concluded and settled within the next twelve months. The Company has
recorded unrecognized benefits of $402,000, $23,000 and $27,000 for federal,
foreign and state taxes primarily related to expenses in those jurisdictions. It
is reasonably possible that the resolution of these issues could result in
payments of tax ranging from $23,000 to $452,000.
In adopting FIN 48, the Company classifies interest and penalties related to
unrecognized tax benefits as income tax expense. Previously, these items were
classified as interest and income tax expense. The Company had accrued
approximately $169,000 for the payment of interest and penalties at January 1,
2007. An additional $17,000 of additional accrued interest and penalties was
accrued during the first quarter of 2007.
7
The following is a reconciliation of income tax expense (benefit) at the
applicable federal statutory rate and the effective rates from continuing
operations:
Three Months Ended
March 31,
------------------
2007 2006
---- ----
Statutory rate 34% 34%
Tax rate differential on extraterritorial
income exclusion benefit earnings -- (1)
Tax rate differential on domestic
manufacturing deduction (1) (1)
International rate differences (1) 3
State income taxes, net of federal income
tax benefit 4 3
Research and development credits (4) (6)
Foreign tax credits -- --
Other -- --
--- ---
32% 32%
=== ===
During the quarter ended March 31, 2007, the Company recorded additional
benefits from research and development tax credits of $105,000. As of March 31,
2007, the Company's gross research and development tax credit carryforwards
totaled approximately $1,614,000. Of these credits, approximately $1,199,000 can
be carried forward for fifteen years and will expire between 2013 and 2022,
while $415,000 can be carried forward indefinitely.
As of March 31, 2007, the Company's gross foreign tax credits totaled
approximately $1,346,000. These credits can be carried forward for ten years and
will expire between 2009 and 2017.
6. RECENT AND PROPOSED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Accounting Standard
No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. The
statement does not require new fair value measurements, but is applied to the
extent that other accounting pronouncements require or permit fair value
measurements. The statement emphasizes that fair value is a market-based
measurement that should be determined based on the assumptions that market
participants would use in pricing an asset or liability. Companies will be
required to disclose the extent to which fair value is used to measure assets
and liabilities, the inputs used to develop the measurements, and the effect of
certain of the measurements on earnings (or changes in net assets) for the
period. SFAS 157 is effective for fiscal years beginning after November 15,
2007. The Company is evaluating the potential effects that SFAS 157 will have on
its financial position, results of operations or debt covenants.
In February 2007, the FASB issued Statement of Financial Accounting Standard No.
159 "The Fair Value Option for Financial Assets and Financial Liabilities,"
("SFAS 159"). The Statement provides companies an option to report certain
financial assets and liabilities at fair value. The intent of SFAS 159 is to
reduce the complexity in accounting for financial instruments and the
8
volatility in earnings caused by measuring related assets and liabilities
differently. SFAS 159 is effective for financial statements issued for fiscal
years after November 15, 2007. The Company is evaluating the impact this new
standard will have on its financial position, results of operations or debt
covenants.
7. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following:
March 31, 2007 December 31, 2006
-------------------------------------- --------------------------------------
Accumulated Accumulated
Gross Value Amortization Net Value Gross Value Amortization Net Value
----------- ------------ --------- ----------- ------------ ---------
(in thousands)
Goodwill $21,709 $ 0 $21,709 $22,548 $ 0 $22,548
------- ------ ------- ------- ------ -------
Other intangible assets:
Customer relationships 3,700 171 3,529 3,300 45 3,255
Patents 1,219 835 384 1,219 805 414
Trademarks 1,672 -- 1,672 1,772 -- 1,772
Developed technology 1,700 106 1,594 1,700 30 1,670
Licensing fees 355 98 257 355 89 266
Covenant-not-to-compete 100 30 70 100 15 85
Other 51 42 9 51 41 10
------- ------ ------- ------- ------ -------
Total other intangible assets 8,797 1,282 7,515 8,497 1,025 7,472
------- ------ ------- ------- ------ -------
$30,506 $1,282 $29,224 $31,045 $1,025 $30,020
======= ====== ======= ======= ====== =======
The other intangible assets that have definite lives are all amortizable and
have original estimated useful lives as follows: customer relationships are
amortized over approximately six years and eight years; patents are amortized
over approximately 13 years, seven years or five years; developed technology is
amortized over approximately five years and six years; licensing fees over
approximately 10 years; covenants-not-to-compete are amortized over
approximately one and two-thirds years. Trademarks are not amortized.
Amortization expense for intangible assets for each of the three-month periods
ended March 31, 2007 and March 31, 2006 was $257,000 and $28,000, respectively.
Amortization expense for intangible assets subject to amortization in each of
the next five fiscal years is estimated to be: $1,030,000 in 2007, $951,000 in
2008, $898,000 in each of 2009 and 2010 and $863,000 in 2011. Intangible assets
subject to amortization have a weighted average life of approximately seven
years.
During the three months ended March 31, 2007, the Company reduced goodwill
related to the acquisition of Ault Incorporated ("Ault") in the amount of
$657,000. The change in the carrying amount of goodwill (in thousands) for the
quarter ended March 31, 2007 is as follows:
Balance as of December 31, 2006 $3,999
Deferred tax assets (657)
------
Balance as of March 31, 2007 $3,342
======
The Company reduced goodwill during the period due to a change in the estimated
expected tax rate applied to the Company's deferred tax assets, primarily
related to net operating losses, recorded at acquisition.
9
During the three months ended March 31, 2007, the Company reduced goodwill
related to the acquisition of MTE Corporation ("MTE"), which was acquired on
October 31, 2006, in the amount of $182,000. The change in the carrying amount
of goodwill (in thousands) for the quarter ended March 31, 2007 is as follows:
Balance as of December 31, 2006 $8,245
Intangible assets (300)
Deferred tax assets 118
Acquisition costs --
------
Balance as of March 31, 2007 $8,063
======
Upon closing an acquisition, the Company, with the assistance of a third party
appraiser estimates the fair values of assets and liabilities acquired and
consolidates the acquisition as quickly as possible. The adjustments made during
the three month period ended March 31, 2007 relate to revisions made to the
initial fair values of intangible assets and the related deferred taxes recorded
at acquisition. The adjustments were a decrease in the value of trademarks of
$100,000, an increase in the value of customer relationships of $400,000 and a
reduction of $118,000 to deferred taxes related to the above adjustments. The
Company may further adjust its initial estimates in subsequent periods.
8. DEBT
Debt consists of the following:
March 31, December 31,
2007 2006
--------- ------------
(in thousands)
Prime rate loan $ 1,820 $ 0
LIBOR rate loan 14,300 19,800
------- -------
16,120 19,800
Less current portion -- --
------- -------
Total long-term debt $16,120 $19,800
======= =======
On August 3, 2005, the Company entered into a revolving credit facility (the
"Revolving Credit Facility") with Bank of America, N.A. ("Bank of America") to
replace its former senior credit facility. The Revolving Credit Facility (with a
standby and commercial letter of credit sub-limit of $5,000,000) provides for
borrowings up to $30,000,000. The Revolving Credit Facility expires on June 30,
2008. Borrowings under the Revolving Credit Facility bear interest, at the
Company's option, at the London interbank offering rate ("LIBOR") plus a margin
rate ranging from 0.9% to 1.9%, or the higher of a Base Rate plus a margin rate
ranging from 0% to 0.5%. The Base Rate is equal to the higher of (i) the Federal
Funds Rate plus 0.5%, or (ii) Bank of America's publicly announced prime rate.
The margin rates are based on certain leverage ratios, as defined. The Company
is subject to compliance with certain financial covenants set forth in the
Revolving Credit Facility, including but not limited to, capital expenditures,
consolidated net worth and certain interest and leverage ratios, as defined. As
of March 31, 2007, the Company had outstanding balances under its Revolving
Credit Facility of $1,820,000 at the Bank of America prime rate, which bore
interest at 8.25%, and $14,300,000 at the LIBOR rate, which bore interest at
6.22%. As of December 31, 2006, the Company had an outstanding balance
10
under the Revolving Credit Facility of $19,800,000 at the LIBOR rate, which bore
interest at 6.25%.
9. ACCRUED LIABILITIES - OTHER
Accrued liabilities - other consist of the following:
March 31, December 31,
2007 2006
--------- ------------
(in thousands)
Taxes (other than income) and insurance $ 136 $ 430
Commissions 768 892
Litigation and legal fees 655 476
Other professional fees 574 741
Environmental 1,452 1,455
Warranty 1,185 1,197
Deferred revenue 640 690
Other 1,847 1,414
------ ------
$7,257 $7,295
====== ======
A summary of the Company's warranty reserve is as follows:
Three Months Ended
March 31, 2007
------------------
(in thousands)
Liability, beginning of year $1,197
Expense for new warranties issued 54
Expense related to accrual revisions for prior year 12
Warranty claims (78)
------
Liability, end of period $1,185
======
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
In the ordinary course of its 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,
which may occur in the normal operations of the Company's business.
The Company, through its wholly-owned subsidiary SLW Holdings, Inc., has been a
party to an arbitration proceeding brought by Niles Audio, Inc. SLW Holdings,
Inc., formerly known as SL Waber, Inc., sold all of its assets in August 2001.
Niles Audio, Inc. was a former customer of SLW Holdings. The parties are
currently in discussions to settle this dispute. The Company believes that
neither the results of arbitration nor the terms of a potential settlement, as
the case may be, will have a material adverse impact on its consolidated
financial position or results of operations of the Company.
11
On June 12, 2002, the Company and SL Surface Technologies, Inc. ("SurfTech") (a
wholly owned subsidiary, the operating assets of which were sold in November
2003), were served with a class action complaint by twelve individual plaintiffs
(the "Complaint") filed in Superior Court of New Jersey for Camden County (the
"Private Action"). The Company and SurfTech are currently two of approximately
39 defendants named in the Private Action. The Complaint alleges, among other
things, that the plaintiffs may suffer personal injuries as a result of
consuming water distributed from the Puchack Wellfield located in Pennsauken
Township, New Jersey (which supplied Camden, New Jersey).
The Private Action arises from similar factual circumstances as current
environmental litigation and administrative actions involving the Pennsauken
Landfill and Puchack Wellfield, with respect to which the Company has been
identified as a potentially responsible party. These actions and the Private
Action both allege that SurfTech and other defendants contaminated ground water
through the disposal of hazardous substances at facilities in the area. SurfTech
once operated a chrome-plating facility in Pennsauken Township, New Jersey.
These actions are discussed below.
With respect to the Private Action, the Superior Court denied class
certification in June 2006. In early 2007, the Superior Court dismissed the
claims of eleven plaintiffs on statute of limitations grounds. The Superior
Court is scheduled to hear arguments for the remaining plaintiff.
It is management's opinion that the impact of legal actions brought against the
Company and its operations will not have a material adverse effect on its
consolidated financial position or results of operations. However, the ultimate
outcome of these matters, as with litigation generally, is inherently uncertain,
and it is possible that some of these matters may be resolved adversely to the
Company. The adverse resolution of any one or more of these matters could have a
material adverse effect on the business, operating results, financial condition
or cash flows of the Company.
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 firms to date, management
has provided an estimated accrual for all known costs believed to be probable in
the amount of $5,185,000, of which $3,733,000 is included as other long-term
liabilities. However, it is 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,
judgments or offsets thereto, at the present time such expenses or judgments are
not expected to have a material adverse effect on the Company's consolidated
financial position or results of operations, beyond the amount already reserved.
Most of the Company's environmental costs relate to discontinued operations and
such costs have been recorded in discontinued operations.
12
There are two sites on which the Company may incur material environmental costs
in the future as a result of past activities of SurfTech. These sites are the
Company's properties located in Pennsauken Township, New Jersey (the "Pennsauken
Site"), and in Camden, New Jersey (the "Camden Site"). With respect to the
Pennsauken Site, the Company is the subject of various lawsuits and
administrative actions relating to environmental issues concerning the
Pennsauken Landfill and the Puchack Wellfield. In 1991 and 1992, the New Jersey
Department of Environmental Protection (the "NJDEP") served directives that
would subject the Company to, among other things, $9,266,000 in collective
reimbursements (with other parties) for the remediation of the Puchack
Wellfield. In addition, in 2006 the United States Environmental Protection
Agency (the "EPA") named the Company as a potential responsible party (a "PRP")
in connection with the remediation of the Puchack Wellfield, which it designated
a Superfund Site. The EPA has estimated that it will cost approximately
$17,600,000 to remediate the Puchack Wellfield. The Company believes the recent
action by the EPA has effectively superseded the NJDEP directives.
Notwithstanding these assertions, based on discussions with its attorneys and
consultants, the Company believes the EPA analytical effort is far from
complete. Further, technical data has not established that offsite migration of
hazardous substances from the Pennsauken Site contributed to the contamination
of the Puchack Wellfield. In any event, the evidence establishes that hazardous
substances from the Pennsauken Site could have contributed only a portion of the
total contamination delineated at the Puchack Wellfield. There are other
technical factors and defenses that indicate that the remediation proposed by
the EPA is technically flawed. Based on the foregoing, the Company believes that
it has significant defenses against all or part of the EPA claim and that other
PRPs should be identified to support the ultimate cost of remediation.
Nevertheless, the Company's attorneys have advised that it is likely that it
will incur some liability in this matter. Based on the information so far, the
Company has estimated remediation liability for this matter of $4,000,000
($2,480,000, net of tax), which has been reserved and recorded as part of
discontinued operations in the fourth quarter of 2006.
The Company has reported a ground water contamination plume at the Camden Site.
In March 2007, the Company submitted to the NJDEP a Preliminary Assessment
Report/Remedial Investigation Report to address requests and directives of the
NJDEP with respect to potential areas of concern for the Camden Site. This
Report is currently under review. Based on the information so far, the Company
believes that the cost to remediate the Camden Site should not exceed $560,000,
which has been fully reserved. These costs have been recorded as a component of
discontinued operations in previous years.
The Company is investigating soil and ground water contamination at the facility
of SL Montevideo Technology, Inc. ("SL-MTI") located in Montevideo, Minnesota.
SL-MTI has conducted analysis of the contamination and performed remediation at
the site. Further remediation efforts will be required and the Company is
engaged in discussions with the Minnesota Pollution Control Agency to develop a
remediation plan. Based on the current information, the Company believes it will
incur remediation costs at this site of approximately $185,000, which has been
accrued at March 31, 2007. These costs are recorded as a component of continuing
operations.
The Company filed claims with several of its insurers seeking reimbursement for
past and future environmental costs. In settlement of its claims, the Company
received aggregate cash payments
13
of $2,800,000 prior to fiscal 2001 and contingent commitments from three
insurers to pay a portion of environmental costs associated with the SurfTech
Site equal to: 15% of costs up to $300,000, 15% of costs up to $150,000 and 20%
of costs up to $400,000, respectively. The Company has received from these three
insurers a total of $821,000 as payment of their contingent commitments through
2006. These payments have been recorded as income, net of tax, in discontinued
operations.
As of March 31, 2007 and December 31, 2006, the Company recorded environmental
accruals of $5,185,000 and $5,188,000, respectively.
11. SEGMENT INFORMATION
The Company currently operates under four business segments: SL Power
Electronics Corp. ("SLPE"), the High Power Group, SL-MTI and RFL Electronics
Inc. ("RFL"). Following its acquisition of Ault on January 26, 2006, the Company
consolidated the operations of Ault and its subsidiary, Condor D.C. Power
Supplies, Inc. ("Condor"), into SLPE. In accordance with the guidance provided
in Statement of Financial Accounting Standard No. 131, "Disclosures about
Segments of an Enterprise and Related Information," ("SFAS No. 131") this
subsidiary is reported as one business segment. Following the acquisition of MTE
on October 31, 2006, the Company combined MTE with its subsidiary, Teal
Electronics Corp. ("Teal"), into one business segment, which is reported as the
High Power Group. Management has combined SLPE and the High Power Group into one
business unit classified as the Power Electronics Group. The Company aggregates
operating business subsidiaries into a single segment for financial reporting
purposes if aggregation is consistent with the objectives of SFAS No. 131 and if
the segments have similar characteristics in each of the following areas:
- nature of products and services
- nature of production process
- type or class of customer
- methods of distribution
SLPE produces a wide range of custom and standard internal and external 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. SLPE, which sells products under two brand names
(Condor and Ault), is a major supplier to original equipment manufacturers
("OEMs") of medical equipment, wireless and wire line communications
infrastructure, computer peripherals, handheld devices and industrial equipment.
Teal designs and manufactures custom power conditioning and power distribution
units. Products are developed and manufactured for custom electrical subsystems
for OEMs of semiconductor, medical imaging, graphics and telecommunication
systems. MTE designs and manufactures power quality electromagnetic products
used to protect equipment from power surges, bring harmonics into compliance and
improve the efficiency of variable speed motor drives. SL-MTI designs and
manufactures high power density precision motors. New motor and motion controls
are used in numerous applications, including military and commercial aerospace
equipment, medical devices and industrial products. RFL designs and manufactures
communication and power protection products/systems that are used to protect
utility transmission lines and apparatus by isolating faulty transmission lines
from a transmission grid. The Other segment includes corporate related items,
financing activities and other costs not allocated to reportable segments, which
includes
14
but is not limited to certain legal, litigation and public reporting charges and
the results of insignificant operations.
The unaudited comparative results for the three month periods ended March 31,
2007 and March 31, 2006 are as follows:
Three Months Ended
March 31,
------------------
2007 2006*
------- --------
(in thousands)
NET SALES
Power Electronics Group:
SLPE $21,461 $18,241
High Power Group 14,535 9,119
------- -------
Total 35,996 27,360
------- -------
SL-MTI 6,813 6,590
RFL 5,518 5,335
------- -------
Consolidated $48,327 $39,285
======= =======
Three Months Ended
March 31,
------------------
2007 2006*
------- --------
(in thousands)
INCOME FROM OPERATIONS
Power Electronics Group:
SLPE $ 1,285 $ 827
High Power Group 2,199 1,617
------- -------
Total 3,484 2,444
------- -------
SL-MTI 873 356
RFL 406 349
Other (1,452) (1,224)
------- -------
Consolidated $ 3,311 $ 1,925
======= =======
* SLPE includes net sales and income from operations of Ault from the
acquisition date, January 26, 2006 to March 31, 2006. The High Power Group
does not include net sales and income from operations of MTE, since the
acquisition was not completed until October 31, 2006.
15
March 31, December 31,
2007 2006
--------- ------------
(in thousands)
TOTAL ASSETS
Power Electronics Group:
SLPE $ 39,975 $ 41,809
High Power Group 30,474 29,606
-------- --------
Total $ 70,449 $ 71,415
-------- --------
SL-MTI 11,492 12,035
RFL 16,612 16,271
Other 5,851 6,822
-------- --------
Consolidated $104,404 $106,543
======== ========
March 31, December 31,
2007 2006
--------- ------------
(in thousands)
INTANGIBLE ASSETS, NET
Power Electronics Group:
SLPE $ 5,538 $ 6,298
High Power Group 18,171 18,197
------- -------
Total $23,709 $24,495
------- -------
SL-MTI 9 10
RFL 5,506 5,515
------- -------
Consolidated $29,224 $30,020
======= =======
12. RETIREMENT PLANS AND DEFERRED COMPENSATION
The Company maintained two defined contribution pension plans covering all of
its full-time, U.S. employees. The Company's contributions to these plans are
based on a percentage of employee contributions and/or plan year gross wages, as
defined, in each plan year. Both plans provide for contributions based on a
percentage of employee contributions. The plan that covers employees of SLPE,
Teal, SL-MTI and the corporate office also provides profit sharing contributions
annually, based on plan year gross wages. Costs incurred under existing plans
amounted to $248,000 during the three-month period ended March 31, 2007 and
$234,000 for the three month period ended March 31,2006. During 2006, the
Company maintained five separate plans, which were merged into one plan on
January 2, 2007. On May 1, 2007, the plan covering employees of MTE was merged
into the existing plan.
The Company has agreements with certain active and retired directors, officers
and key employees providing for supplemental retirement benefits. The liability
for supplemental retirement benefits is based on the most recent mortality
tables available and discount rates of 6% to 12%. The amount charged to income
in connection with these agreements amounted to $96,000 and $109,000 for the
three-month periods ended March 31, 2007 and March 31, 2006, respectively.
16
13. RELATED PARTY TRANSACTIONS
RFL has an investment of $15,000 in RFL Communications PLC, ("RFL
Communications"), representing 4.5% of the outstanding equity thereof. RFL
Communications is a distributor of teleprotection and communication equipment
located in the United Kingdom. It is authorized to sell RFL products in
accordance with an international sales agreement. Sales to RFL Communications
for each of the three-month periods ended March 31, 2007 and March 31, 2006 were
$211,000 and $241,000, respectively. Accounts receivable due from RFL
Communications at March 31, 2007 were $125,000.
As a result of certain services being provided to the Company by Steel Partners,
Ltd. ("SPL"), a company controlled by Warren Lichtenstein, the Chairman of the
Board of the Company, the Compensation Committee has approved fees for services
provided by SPL. These fees are the only consideration for the services of Mr.
Lichtenstein and the Company's Vice Chairman, Glen Kassan, and other assistance
from SPL. The services provided include management and advisory services with
respect to operations, strategic planning, finance and accounting, merger, sale
and acquisition activities and other aspects of the businesses of the Company.
Fees of $119,000 were expensed by the Company for SPL's services for each of the
three month periods ended March 31, 2007 and March 31, 2006 pursuant to a
Management Agreement dated as of January 23, 2002 by and between the Company and
SPL. Approximately $40,000 was payable at March 31, 2007.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company, through its subsidiaries, designs, manufactures and markets power
electronics, motion control, power protection, power quality electromagnetic and
specialized communication equipment that is used in a variety of commercial and
military aerospace, computer, datacom, industrial, medical, telecom,
transportation and utility equipment applications. The Company is comprised of
four domestic business segments, three of which have significant manufacturing
operations in Mexico. With the acquisition of Ault on January 26, 2006, the
Company added manufacturing, engineering and sales capability in the People's
Republic of China. Most of the Company's sales are made to customers who are
based in the United States. However, over the years the Company has increased
its presence in international markets. The Company places an emphasis on high
quality, well-built, dependable products and continues its dedication to product
enhancement and innovations.
The Company's business strategy has been to enhance the growth and profitability
of each of its businesses through the penetration of attractive new market
niches, further improvement of operations and expansion of global capabilities.
The Company expects to achieve these goals through organic growth and strategic
acquisitions. The Company also continues to pursue strategic alternatives to
maximize the value of its businesses. Some of these alternatives have included,
and will continue to include, selective acquisitions, divestitures and sales of
certain assets. The Company has provided, and may from time to time in the
future provide, information to interested parties regarding portions of its
businesses for such purposes.
In the sections that follow, statements with respect to 2007 or the quarter
ended 2007 refer to the three month period ending March 31, 2007. Statements
with respect to 2006 or the quarter ended 2006 refer to the three month period
ending March 31, 2006.
17
CRITICAL ACCOUNTING POLICIES
The Company's Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States. These
generally accepted accounting principles require management to make estimates
and assumptions that affect the amounts of reported and contingent assets and
liabilities at the date of the Consolidated Financial Statements and the amounts
of reported net sales and expenses during the reporting period.
In December 2001, the Securities and Exchange Commission (the "SEC") issued
disclosure guidance for "critical accounting policies." The SEC defines
"critical accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.
The Company's significant accounting policies are described in Note 1 in the
Notes to Consolidated Financial Statements included in Part IV of the Company's
Annual Report on Form 10-K. Not all of these significant accounting policies
require management to make difficult, subjective or complex judgments or
estimates. However, the following policies are deemed to be critical within the
SEC definition. The Company's senior management has reviewed these critical
accounting policies and estimates and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations with the Audit
Committee of the Board of Directors.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time the product is shipped,
with provisions established for estimated product returns and returns related to
one business segment's stock scrap program with distributors. Upon shipment, the
Company provides for the estimated cost that may be incurred for product
warranties. Rebates and other sales incentives offered by the Company are
recorded as a reduction of sales at the time of shipment. Revenue recognition is
significant because net sales are a key component of results of operations. In
addition, revenue recognition determines the timing of certain expenses, such as
commissions and royalties. The Company follows generally accepted guidelines in
measuring revenue. Revenue is recorded in accordance with Staff Accounting
Bulletin ("SAB") No. 104 and in certain circumstances in accordance with the
guidance provided by the Emerging Issues Task Force ("EITF") "Revenue
Arrangements with Multiple Deliverables" 00-21. However, certain judgments
affect the application of its revenue policy. For a discussion of the Company's
revenue recognition policies, see Note 1 in the Notes to Consolidated Financial
Statements included in Part IV in the Company's Annual Report on Form 10-K.
Revenue results are difficult to predict, and any shortfall in revenue or delay
in recognizing revenue could cause operating results to vary significantly from
quarter to quarter and could result in future operating losses.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company's estimate for the allowance for doubtful accounts related to trade
receivables is based on two methods. The amounts calculated from each of these
methods are combined to determine the total amount reserved. First, the Company
evaluates specific accounts where it has information that the customer may have
an inability to meet its financial obligations (e.g., bankruptcy or insolvency).
In these cases, the Company uses its judgment, based on the best available facts
and circumstances, and records a specific reserve for that customer against
amounts due to reduce the receivable to the amount that is expected to be
collected. These specific reserves are reevaluated and adjusted as additional
information is received that impacts
18
the amount reserved. Second, a general reserve is established for all customers
based on several factors, including historical write-offs as a percentage of
sales. If circumstances change (e.g., higher than expected defaults or an
unexpected material adverse change in a major customer's ability to meet its
financial obligation), the Company's estimates of the recoverability of amounts
due could be reduced by a material amount.
INVENTORIES
The Company values inventory at the lower of cost or market, and continually
reviews the book value of discontinued product lines to determine if these items
are properly valued. The Company identifies these items and assesses the ability
to dispose of them at a price greater than cost. If it is determined that cost
is less than market value, then cost is used for inventory valuation. If market
value is less than cost, then related inventory is adjusted to market value.
If a write down to the current market value is necessary, the market value
cannot be greater than the net realizable value, which is defined as selling
price less costs to complete and dispose, and cannot be lower than the net
realizable value less a normal profit margin. The Company also continually
evaluates the composition of its inventory and identifies slow-moving and excess
inventories. Inventory items identified as slow-moving or excess are evaluated
to determine if reserves are required. If the Company were not able to achieve
its expectations of the net realizable value of the inventory at current market
value, it would have to adjust its reserves accordingly.
ACCOUNTING FOR INCOME TAXES
On January 1, 2007, the Company adopted the provisions of FIN 48. At the
adoption date, the Company applied the provisions of FIN 48 to all tax positions
for which the statute of limitations remained open. As required, the cumulative
effect of the change from the adoption of FIN 48 will be recorded in the opening
balance as retained earnings. As a result of the implementation of FIN 48, the
Company did not recognize any change in its unrecognized tax benefits and did
not adjust the January 1, 2007 balance of retained earnings. The amount of
unrecognized tax benefits as of January 1, 2007 was $2,749,000 excluding
interest and penalties. This amount includes $2,726,000 of unrecognized tax
benefits, which, if ultimately recognized, will reduce the Company's effective
tax rate.
Significant management judgment is required in determining the provision for
income taxes, the deferred tax assets and liabilities and any valuation
allowance recorded against deferred tax assets. As of March 31, 2007 and
December 31, 2006, the Company had recorded total valuation allowances of
$2,832,000 and $2,157,000, respectively. Such valuation allowances were
attributable to uncertainties related to the Company's ability to utilize
certain deferred tax assets prior to expiration. These deferred tax assets
primarily consist of loss carryforwards and foreign tax credits. The valuation
allowance is based on estimates of taxable income, expenses and credits by the
jurisdictions in which the Company operates and the period over which deferred
tax assets will be recoverable. In the event that actual results differ from
these estimates or these estimates are adjusted in future periods, the Company
may need to establish an additional valuation allowance that could materially
impact its consolidated financial position and results of operations.
The net deferred tax assets as of March 31, 2007 and December 31, 2006 were
$8,858,000 and $8,530,000, respectively, net of valuation allowances of
$2,832,000 and $2,157,000, respectively. The carrying value of the Company's net
deferred tax assets assumes that the
19
Company will be able to generate sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions to utilize these assets. If
these estimates and related assumptions change in the future, the Company may be
required to record additional valuation allowances against its deferred tax
assets resulting in additional income tax expense in the consolidated statement
of income. Each quarter, management evaluates the ability to realize the
deferred tax assets and assesses the need for additional valuation allowances.
LEGAL CONTINGENCIES
The Company is currently involved in certain legal proceedings. As discussed in
Note 10 in the Notes to the Consolidated Financial Statements included in Part I
to this Quarterly Report on Form 10-Q, the Company has accrued an estimate of
the probable costs for the resolution of these claims. This estimate has been
developed after investigation and is based upon an analysis of potential
results, assuming a combination of litigation and settlement strategies.
Management does not believe these proceedings will have a further material
adverse effect on the Company's consolidated financial position. It is possible,
however, that future results of operations for any particular quarterly or
annual period could be materially affected by changes in these assumptions, or
the effectiveness of these strategies, related to these proceedings.
GOODWILL
The purchase method of accounting for business combinations requires the use of
estimates and judgments to allocate the purchase price paid for acquisitions to
the fair value of the net tangible and identifiable intangible assets. Goodwill
represents the excess of the aggregate purchase price over the fair value of net
assets acquired in business combinations and is separately disclosed in the
Company's consolidated balance sheets. As of March 31, 2007 and December 31,
2006, goodwill totaled $21,709,000 and $22,548,000, respectively, representing
21% of total assets.
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
The Company's long-lived and intangible assets primarily consist of fixed
assets, goodwill and other intangible assets. SFAS No. 142 "Goodwill and Other
Intangible Assets" requires that goodwill be tested for impairment at the
reporting unit level (operating segment or one level below an operating segment)
on an annual basis and between annual tests in certain circumstances.
Application of the goodwill impairment test requires judgment, including the
identification of reporting units, assigning assets and liabilities to reporting
units, assigning goodwill to reporting units and determining the fair value of
each reporting unit. Significant judgments required to estimate the fair value
of reporting units include estimating future cash flows, determining appropriate
discount rates and other assumptions. Changes in these estimates and assumptions
could materially affect the determination of fair value for each reporting unit.
The Company periodically reviews the carrying value of its long-lived assets
held and used, other than goodwill and intangible assets with indefinite lives,
and assets to be disposed of whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company assesses the
recoverability of the asset by estimated cash flows and at times by independent
appraisals. It compares estimated cash flows expected to be generated from the
related assets, or the appraised value of the asset, to the carrying amounts to
determine whether impairment has occurred. If the estimate of cash flows
expected to be generated changes in the future, the Company may be required to
record impairment charges that were not previously recorded for these assets. If
the carrying value of a long-lived asset is considered impaired, an impairment
charge is recorded for the amount by which the carrying value of the
20
long-lived asset exceeds its fair value. Asset impairment evaluations are by
nature highly subjective. There were no asset impairment changes for the periods
presented.
ENVIRONMENTAL EXPENDITURES
The Company is subject to United States, Mexican and Chinese environmental laws
and regulations concerning emissions to the air, discharges to surface and
subsurface waters, and generation, handling, storage, transportation, treatment
and disposal of waste materials. The Company is also subject to other federal,
state and local environmental laws and regulations, including those that require
it to remediate or mitigate the effects of the disposal or release of certain
chemical substances at various sites, including some where the Company has
ceased operations. It is impossible to predict precisely what effect these laws
and regulations will have in the future.
Expenditures that relate to current operations are charged to expense or
capitalized, as appropriate. Expenditures that relate to an existing condition
caused by formerly owned operations are expensed and recorded as part of
discontinued operations. Expenditures include costs of remediation and legal
fees to defend against claims for environmental liability. Liabilities are
recorded when remedial efforts are probable and the costs can be reasonably
estimated. The liability for remediation expenditures includes, as appropriate,
elements of costs such as site investigations, consultants' fees, feasibility
studies, outside contractor expenses and monitoring expenses. Estimates are not
discounted and they are not reduced by potential claims for recovery from
insurance carriers. The liability is periodically reviewed and adjusted to
reflect current remediation progress, prospective estimates of required activity
and other relevant factors, including changes in technology or regulations.
During the fourth quarter of fiscal 2006, the Company recorded a $4,000,000
reserve in response to an EPA letter related to remediation of a designated
Superfund Site. Additional information pertaining to environmental matters is
found in the Notes to the Consolidated Financial Statements included in Part IV
of the Company's Annual Report on Form 10-K.
The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternatives would not produce a materially different result. See the Company's
audited Consolidated Financial Statements and Notes thereto included in Part IV
of the Company's Annual Report on Form 10-K, which contain accounting policies
and other disclosures required by generally accepted accounting principles.
LIQUIDITY AND CAPITAL RESOURCES
March 31, December 31,
2007 2006 $ Variance % Variance
--------- ------------ ---------- ----------
(in thousands)
Cash and cash equivalents $ 0 $ 757 ($757) (100%)
Bank debt $16,120 $19,800 ($3,680) (19%)
Working capital (less cash) $26,537 $26,754 ($217) (1%)
Shareholders' equity $52,006 $50,419 $ 1,587 3%
21
During the three-month period ended March 31, 2007, the net cash provided by
continuing operations was $3,646,000, as compared to net cash used in continuing
operations of $1,669,000 during the three-month period ended March 31, 2006. The
primary sources of cash from operating activities for the three-month period
ended March 31, 2007 were net income from continuing operations of $2,038,000
and net collections of receivables of $1,117,000. During the three-month period
ended March 31, 2006, the net cash used in operating activities from continuing
operations was $1,669,000. The primary uses of cash from operating activities
for the three-month period ended March 31, 2006 were an increase in inventory of
$1,825,000 and a reduction of accrued liabilities of $1,095,000. These uses of
cash were partially offset by income from continuing operations of $1,233,000.
All of the operating entities had increases in their levels of inventory.
Condor's inventory level increased by $689,000, which was caused by an increase
in current period bookings and a shift in existing orders. SL-MTI's inventory
level increased by $510,000, primarily due to a customer deferral of a large
order and, to a lesser extent, a customer redesign of a product. RFL's inventory
increased as a result of a large international order that was shipped in April
2006. Teal's inventory increased by $212,000, primarily due to its relatively
high backlog. The decrease in accrued liabilities is primarily due to the
payment of legal and other professional fees related to the acquisition of Ault
and the payment of the Company's executive and middle management bonuses before
the end of March 2006.
During the three-month period ended March 31, 2007, net cash used in investing
activities was $309,000. This use of cash in investing activities during the
period was related to the purchase of machinery and equipment. During the
three-month period ended March 31, 2006, net cash used in investing activities
was $16,528,000. The primary uses of cash in investing activities during the
period were related to the purchase of Ault on January 26, 2006 in the amount of
$15,951,000, net of cash acquired, (cash in the amount of $1,034,000 was used in
2005. In addition, the Company purchased machinery and equipment in the amount
of $577,000.
During the three-month period ended March 31, 2007, net cash used by financing
activities was $3,736,000. This use of cash was principally related to the
repayment of debt under the Revolving Credit Facility in the amount of
$7,970,000 offset by borrowings of $4,290,000. During the three-month period
ended March 31, 2006, net cash provided by financing activities was $8,212,000.
This source of cash was principally related to net proceeds from the Company's
Revolving Credit Facility in the net amount of $7,973,000. Of this amount
approximately $5,900,000 was used in the acquisition of Ault. Also, $167,000 was
received as proceeds from the exercise of stock options.
The Company's current ratio was 1.91 to 1 at March 31, 2007 and 1.94 to 1 at
December 31, 2006. Current assets decreased by $982,000 from December 31, 2006,
while current liabilities decreased by $8,000 during the same period. The
decrease in current assets is primarily due to a significant decrease in
accounts receivable resulting from strong collections in the first quarter of
2007.
Total borrowings by the Company, as a percentage of total capitalization,
consisting of debt and shareholders' equity were 23.7% at March 31, 2007 and
28.2% at December 31, 2006. During the first three months of 2007, total debt
decreased by $3,680,000.
Capital expenditures of $309,000 were made during the first three months of
2007. These expenditures primarily related to computer equipment and factory
machinery and equipment.
22
Capital expenditures for the period represent a decrease of $268,000 from the
comparable period in 2006.
The Company has been able to generate adequate amounts of cash to meet its
operating needs and expects to do so in the future.
With the exception of the segment reported as "Other" (which consists primarily
of corporate office expenses, financing activities, public reporting costs and
accruals not specifically allocated to the reportable business segments) all of
the Company's operating segments recorded income from operations for the periods
presented.
CONTRACTUAL OBLIGATIONS
The following is a summary of the Company's contractual obligations at March 31,
2007 for the periods indicated:
Less Than 1 to 3 4 to 5 After
1 Year Years Years 5 Years Total
--------- ------- ------ ------- -------
(in thousands)
Operating Leases $1,678 $ 2,298 $1,199 $388 $ 5,563
Debt -- 16,120 -- -- 16,120
Capital Leases -- -- -- -- --
Other Obligations 56 189 147 70 462
------ ------- ------ ---- -------
$1,734 $18,607 $1,346 $458 $22,145
====== ======= ====== ==== =======
Other obligations include the Company's withdrawal liability to a
union-administered defined benefit multi-employer pension plan to which SurfTech
had made contributions.
OFF-BALANCE SHEET ARRANGEMENTS
It is not the Company's usual business practice to enter into off-balance sheet
arrangements such as guarantees on loans and financial commitments,
indemnification arrangements and retained interests in assets transferred to an
unconsolidated entity for securitization purposes. Consequently, the Company has
no off-balance sheet arrangements, except for operating lease commitments
disclosed in the table above, which have, or are reasonably likely to have, a
material current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007, COMPARED WITH THREE MONTHS ENDED MARCH 31,
2006
The tables below show the comparisons of net sales and income from operations
for the quarter ended March 31, 2007 ("2007") and the quarter ended March 31,
2006 ("2006"). For 2007, Ault and MTE's sales and income from operations are
included for the full three month period. Ault is included as part of SLPE,
while MTE is recorded within the High Power Group. For 2006, Ault's sales and
income from operations are reflected from the date of acquisition, January 26,
2006. MTE's sales and income from operations are not reflected for 2006, as the
acquisition was completed on October 31, 2006.
23
Three Months Three Months $ Variance % Variance
Ended Ended Over Over
March 31, March 31, Same Quarter Same Quarter
2007 2006 Last Year Last Year
------------ ------------ ------------ ------------
(in thousands)
Power Electronics Group:
SLPE $21,461 $18,241 $3,220 18%
High Power Group 14,535 9,119 5,416 59%
------- ------- ------ ---
Total 35,996 27,360 8,636 32%
------- ------- ------ ---
SL-MTI 6,813 6,590 223 3%
RFL 5,518 5,335 183 3%
------- ------- ------ ---
Total $48,327 $39,285 $9,042 23%
======= ======= ====== ===
The table below shows the comparison of income from operations for 2007 and
2006:
Three Months Three Months $ Variance % Variance
Ended Ended Over Over
March 31, March 31, Same Quarter Same Quarter
2007 2006 Last Year Last Year
------------ ------------ ------------ ------------
(in thousands)
Power Electronics Group:
SLPE $ 1,285 $ 827 $ 458 55%
High Power Group 2,199 1,617 582 36%
------- ------- ------ ---
Total 3,484 2,444 1,040 43%
------- ------- ------ ---
SL-MTI 873 356 517 145%
RFL 406 349 57 16%
Other (1,452) (1,224) (228) (19%)
------- ------- ------ ---
Total $ 3,311 $ 1,925 $1,386 72%
======= ======= ====== ===
Consolidated net sales for 2007 increased by $9,042,000, or 23%, compared to the
same period in 2006. Without the sales of MTE recorded in 2007, consolidated
sales increased by $4,538,000, or 12%. All of the operating entities reported
increases in sales and income from operations in 2007, compared to 2006.
The Company recorded income from operations of $3,311,000 for 2007, compared to
income from operations of $1,925,000 for the corresponding period last year, an
increase of $1,386,000, or 72%. Without MTE, the increase would be $875,000, or
45%.
Income from continuing operations was $2,038,000, or $0.35 per diluted share, in
the first quarter of 2007, compared to $1,233,000, or $0.21 per diluted share,
for the same period in 2006. Income from continuing operations was approximately
4% of sales in 2007, compared to 3% of sales in 2006.The Company's business
segments and the components of operating expenses are discussed more fully in
the following sections.
The Power Electronics Group, which is now comprised of SLPE (a combination of
Condor and Ault) and the High Power Group (a combination of Teal and MTE)
recorded a sales increase of $8,636,000, or 32%, when comparing the first
quarter of 2007 to the first quarter of 2006.
24
Without the MTE acquisition, sales would have increased by $4,132,000, or 15%.
Income from operations increased by $1,040,000, or 43%, due to increases at SLPE
of $458,000 (which included the Ault product line for a full quarter in 2007),
increased income from operations at Teal of $71,000 and income from operations
from MTE of $511,000.
As a percentage of SLPE's revenue, income from operations was 6% in 2007,
compared to 5% in 2006. The High Power Group recorded income from operations as
a percentage of revenue of 15%, compared to 18% in 2006. This slight decline was
the result of including MTE in 2007, which recorded income from operations as a
percentage of sales equal to 11%. Teal experienced a sales increase of $912,000,
or 10%, and an increase in income from operations of $71,000, or 4%, compared to
prior year. Teal's sales increase was primarily due to increased demand from
medical imaging equipment manufacturers. Teal's income from operations benefited
by the sales increase, partially offset by increased cost of products sold.
Operating cost remained relatively constant during 2007, compared to 2006.
SL-MTI's sales increased $223,000, or 3%, while income from operations increased
by $517,000, or 145%, when comparing the first quarter of 2007 to the first
quarter of 2006. The sales increase was driven by a $424,000 increase in sales
to customers in the defense and commercial aerospace industries. This increase
was partially offset by a decrease in sales to medical equipment manufacturers.
The increase in income from operations is primarily due to two factors: (1) A 4%
increase in gross margin due to higher volume, favorable product mix and greater
manufacturing efficiencies. In 2006, MTI took several steps to reduce its direct
labor costs, which positively impacted 2007 results. (2) A $205,000 decrease of
engineering and product development costs due to fewer development programs and
greater customer funded programs. SL-MTI experienced a 4% increase in selling,
general and administrative expenses over the comparable periods.
RFL's sales increased by $183,000, or 3%, in the first quarter of 2007, compared
to the first quarter of 2006. Income from operations increased by $57,000, or
16%, for the comparable periods. Sales of RFL's protection products increased by
$680,000, or 30%, while sales of its carrier communications product line
decreased by $461,000, or 16%, for the comparable periods. RFL's other product
line decreased by $36,000. Domestic sales increased by $248,000, or 7%, while
international sales decreased by $65,000, or 4%. The increase in income from
operations is primarily related to increased sales, partially offset by a 5%
increase in selling, general and administrative expenses. Cost of products sold
remained relatively constant for the comparable periods.
COST OF PRODUCTS SOLD
As a percentage of net sales, cost of products sold for the first quarter of
2007 and for the first quarter of 2006 was approximately 67%. Without the MTE
operations, the comparable percentages remained the same. SLPE's cost of
products sold percentage increased to 69% from 68%, primarily as a result of
higher raw materials costs and freight costs. Teal's cost of products sold
percentage increased by approximately 3%, primarily due to increased copper
costs, unfavorable product mix, manufacturing inefficiencies and increased
prototype volume. In 2007, SL-MTI experienced a 4% decrease in its cost of
products sold, compared to the same period last year. This decrease is primarily
related to favorable product mix and greater manufacturing efficiencies, as
discussed above. RFL's cost of products sold, as a percentage of sales, remained
relatively constant.
25
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Engineering and product development expenses were approximately 7% of net sales
in 2007, compared to 8% in 2006. Engineering and product development expenses in
2007 increased by $116,000, or 4%. Without the MTE acquisition, engineering and
product development expenses decreased $89,000, or 3%. This decrease was
primarily attributable to a 29% decrease at SL-MTI, due to fewer ongoing
development jobs and greater customer funded programs. RFL and Teal also
experienced relatively minor decreases in 2007, compared to 2006. SLPE
experienced an increase of $159,000, or 11%, partially due to the inclusion of
the Ault product line for a full quarter in 2007, compared to 2006. MTE's
engineering and product development expenses for the first quarter of 2007 were
$205,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, as a percentage of net sales, for
2007 and 2006 were 18% and 19%, respectively. These expenses increased by
$987,000, or 13%, with MTE contributing $748,000 of the increase. Selling,
general and administrative expenses, without MTE, increased by $239,000, or 3%,
for the comparable periods. RFL recorded an increase of 5%, on increased sales
of 3% and SL-MTI reported an increase of 4%, on increased sales of 3%. Corporate
and Other expenses increased by $228,000, or 19%, primarily due to increased
litigation fees, consulting cost for compliance reviews and tax advice,
principally related to international tax issues and planning. These increases
were partially offset by a decrease in non-cash charges of approximately
$210,000 related to certain stock based compensation arrangements recorded in
Corporate and Other. SLPE decreased selling, general and administrative expenses
by 2%, on increased sales of 18%. Teal decreased selling, general and
administrative expenses by 2%, on increased sales of 10%.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased by $315,000, or 53%, primarily
related to the amortization of intangibles of $127,000 and $102,000 related to
the MTE and Ault acquisitions, respectively. Depreciation and amortization
expense for each of 2007 and 2006 was approximately 2% of net sales.
AMORTIZATION OF DEFERRED FINANCING COSTS
In connection with entering into the Revolving Credit Facility on August 3,
2005, the Company incurred costs of approximately $258,000. These costs have
been deferred and are being amortized over the three-year term of the Revolving
Credit Facility. For the first quarter of 2007 and for the first quarter of
2006, amortization of deferred financing costs was $22,000, all of which related
to the Revolving Credit Facility.
INTEREST INCOME (EXPENSE)
Interest income for the first quarter of 2007 was $17,000, compared to $28,000
for the same period last year. Interest expense was $323,000 for the first
quarter of 2007, compared to $129,000 for the first quarter of 2006. The
increase in interest expense for 2007 is primarily related to increased debt
levels to finance the acquisitions of Ault and MTE.
26
TAXES
The effective tax rate for continuing operations for the first quarter of 2007
and 2006 was approximately 32%. The effective tax rate reflects the statutory
rate after adjustments for state and international tax provisions and the
recording of benefits primarily related to research and development tax credits.
DISCONTINUED OPERATIONS
For the first quarter of 2007 and for the first quarter of 2006, the Company
recorded losses from discontinued operations, net of tax, of $371,000 and
$112,000, respectively. These amounts represent legal and environmental charges
related to 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 the
timing and 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.
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 prices, products and services offered 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; 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.
27
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 economic
instability in the event of a future terrorist attack or sharp increases in the
cost of energy 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
Part I, Item 1A - Risk Factors in the Company's Annual Report on Form 10-K for
the year ended December 31, 2006.
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, 2006, which is incorporated herein by
reference.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES: The Company, under the
supervision and with the participation of its management, including the Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the design and operation of the Company's "disclosure controls and
procedures," as such term is defined in Rules 13a-15e and 15d-15e promulgated
under the Securities Exchange Act of 1934, as amended, (the "Exchange Act").
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures
were effective as of the end of the period covered by this Quarterly Report on
Form 10-Q, and provide reasonable assurance that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.
CHANGES IN INTERNAL CONTROLS: During the first quarter of 2007, there were no
changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
It should be noted that any control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please see Note 12 to the Consolidated Financial Statements and the Company's
Annual Report on Form 10-K for the year ended December 31, 2006, which is
incorporated herein by reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 26, 2007, the Company announced that its Board of Directors had
authorized the repurchase of up to 560,000 shares of the Company's common stock.
Any repurchases pursuant to the Company's stock repurchase program would be made
if and when management considers appropriate and in the open market or in
negotiated transactions. For the three months ended March 31, 2007, the Company
did not purchase any shares pursuant to the repurchase program. However, for the
three month periods ended March 31, 2007 and March 31, 2006, the Company did
purchase 60,189 and 6,200 shares, respectively, through its deferred
compensation plans.
Total Number Maximum Number
of Shares of Shares That May
Total Purchased as Part Yet Be Purchased
Number of Average of Publicly under Publicly
Shares Price Paid Announced Plans Announced Plans or
Period Purchased per Share or Programs Programs (2)
- ------ --------- ---------- ----------------- -------------------
January 2007 14,460(1) $16.25 -- --
February 2007 42,049(1) $15.30 -- --
March 2007 3,680(1) $13.12 -- 560,000
------ ------ -------
Total 60,189 $15.40 -- 560,000
1. The Company purchased these shares other than through a publicly announced
plan or program.
2. The Company had a previously authorized repurchase plan, of which 48,024
shares have yet to be purchased.
ITEM 5. OTHER INFORMATION
Pursuant to Section 10A(i)(2) of the Exchange Act, the Company is responsible
for listing the non-audit services performed by Grant Thornton, the Company's
external auditor, in the first three months of 2007, as approved by its Audit
Committee. During the first three months of 2007, there were no non-audit
services performed by Grant Thornton.
29
ITEM 6. EXHIBITS
31.1 Certification by Principal Executive Officer pursuant to Rule 13a-15(e) or
15(d)-15(e) of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted
herewith).
31.2 Certification by Principal Financial Officer pursuant to Rule 13a-15(e) or
15(d)-15(e) of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted
herewith).
32.1 Certification by Principal Executive Officer pursuant to Rule 13a or 15(d)
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (transmitted herewith).
32.2 Certification by Principal Financial Officer pursuant to Rule 13a or 15(d)
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (transmitted herewith).
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 10, 2007 SL INDUSTRIES, INC.
(Registrant)
By: /s/ James C. Taylor
------------------------------------
James C. Taylor
Chief Executive Officer
(Principal Executive Officer)
By: /s/ David R. Nuzzo
------------------------------------
David R. Nuzzo
Chief Financial Officer
(Principal Accounting Officer)
31