1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ______ to ______
Commission file number 1-4987
SL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 21-0682685
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
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: 609-727-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common stock, $.20 par value New York Stock Exchange
Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of common stock outstanding as of March 1, 1997, was
5,779,030
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
January 31, 1997 July 31, 1996
---------------- ---------------
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 2,074,000 $ -
Receivables, less allowances of
$1,655,000 and $1,639,000, respectively.............................. 16,837,000 16,428,000
Inventories (Note 2)................................................. 17,487,000 17,339,000
Prepaid expenses..................................................... 994,000 868,000
Deferred income taxes................................................ 2,423,000 2,668,000
------------ ------------
Total current assets............................................. 39,815,000 37,303,000
------------ ------------
Property, plant and equipment, less accumulated depreciation
of $12,668,000 and $11,825,000, respectively.......................... 8,227,000 8,104,000
Long-term notes receivable.............................................. 2,250,000 2,264,000
Deferred income taxes................................................... 2,257,000 1,488,000
Cash surrender value of life insurance policies......................... 7,348,000 7,095,000
Intangible assets, less accumulated amortization
of $1,693,000 and $1,382,000, respectively............................ 7,458,000 7,401,000
Other assets............................................................ 1,252,000 520,000
------------ ------------
Total assets.................................................... $ 68,607,000 $ 64,175,000
============ ============
LIABILITIES
Current liabilities:
Long-term debt due within one year................................... $ 133,000 $ 187,000
Accounts payable..................................................... 6,853,000 5,770,000
Accrued income taxes................................................. 1,595,000 786,000
Accrued liabilities:
Payroll and related costs.......................................... 4,759,000 4,614,000
Other.............................................................. 5,132,000 5,181,000
------------ ------------
Total current liabilities....................................... 18,472,000 16,538,000
------------ ------------
Long-term debt less portion due within one year......................... 11,833,000 13,186,000
Deferred compensation and supplemental retirement benefits.............. 4,030,000 3,723,000
Other liabilities....................................................... 3,713,000 2,048,000
------------ ------------
Total liabilities............................................... $ 38,048,000 $ 35,495,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued $ - $ -
Common stock, $.20 par value; authorized, 25,000,000 shares;
issued, 7,920,000 and 7,899,000 shares, respectively.................. 1,584,000 1,580,000
Capital in excess of par value.......................................... 34,510,000 34,306,000
Retained earnings....................................................... 3,867,000 2,196,000
Treasury stock at cost, 2,141,000 and 2,141,000 shares, respectively.... (9,402,000) (9,402,000)
------------ ------------
Total shareholders' equity...................................... 30,559,000 28,680,000
------------ ------------
Total liabilities and shareholders' equity...................... $ 68,607,000 $ 64,175,000
============ ============
* Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three-Months Ended Six-Months Ended
January 31, January 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales......................................... $29,253,000 $29,635,000 $57,097,000 $58,574,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold........................... 18,865,000 19,459,000 36,715,000 38,437,000
Engineering and product development............. 1,241,000 1,109,000 2,523,000 2,181,000
Selling, general and administrative............. 6,679,000 6,870,000 13,122,000 13,687,000
Depreciation and amortization................... 688,000 693,000 1,371,000 1,356,000
----------- ----------- ----------- -----------
Total cost and expenses........................... 27,473,000 28,131,000 53,731,000 55,661,000
----------- ----------- ----------- -----------
Income from operations............................ 1,780,000 1,504,000 3,366,000 2,913,000
Other income (expense):
Interest income................................. 66,000 18,000 133,000 65,000
Interest expense................................ (227,000) (300,000) (464,000) (596,000)
----------- ----------- ----------- -----------
Income before income taxes........................ 1,619,000 1,222,000 3,035,000 2,382,000
Provision for federal and state income taxes...... 655,000 405,000 1,191,000 808,000
----------- ----------- ----------- -----------
Net income........................................ $ 964,000 $ 817,000 $ 1,844,000 $ 1,574,000
=========== =========== =========== ===========
Net income per common share....................... $ 0.16 $ 0.14 $ 0.31 $ 0.27
=========== =========== =========== ===========
Cash dividend per share........................... $0.03 $0.03 $0.03 $0.03
Shares used in computing net income per share..... 6,010,000 5,943,000 6,027,000 5,936,000
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Ended January 31,
1997 1996
-------------- --------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income............................................................ $ 1,844,000 $ 1,574,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................................... 964,000 1,012,000
Amortization....................................................... 407,000 344,000
Provisions for losses on accounts receivable....................... 29,000 39,000
Additions to deferred charges and other assets..................... (1,197,000) (266,000)
Cash surrender value of life insurance premium..................... (253,000) (220,000)
Deferred compensation and supplemental retirement payments......... 611,000 371,000
Deferred compensation and suppl. retirement benefit cash payments.. (281,000) (223,000)
Increase in deferred income taxes.................................. (524,000) (85,000)
Gain on sale of equipment........................................... (24,000) (18,000)
Changes in operating assets and liabilities:
Accounts receivable.............................................. (438,000) (2,823,000)
Inventories...................................................... (148,000) (744,000)
Prepaid expenses................................................. (126,000) (187,000)
Accounts payable................................................. 1,083,000 404,000
Other accrued liabilities........................................ 1,738,000 1,539,000
Income taxes..................................................... 930,000 (391,000)
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................... $ 4,615,000 $ 326,000
------------- ------------
INVESTING ACTIVITIES:
Disposals of property, plant and equipment............................ 29,000 20,000
Purchases of property, plant and equipment............................ (1,091,000) (972,000)
Decrease in notes receivable.......................................... 14,000 -
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES................................... $ (1,048,000) $ (952,000)
------------- ------------
FINANCING ACTIVITIES:
Cash dividends........................................................ (173,000) (170,000)
Payments on long-term debt............................................ (1,407,000) (53,000)
Proceeds from stock options exercised................................. 87,000 294,000
------------- ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES..................... $ (1,493,000) $ 71,000
------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................. 2,074,000 (555,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.......................... - 577,000
------------- ------------
CASH AND CASH EQUIVALENTS AT JANUARY 31,................................ $ 2,074,000 $ 22,000
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................................ $523,000 $556,000
Income taxes........................................................ $924,000 $1,284,000
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
Notes to Consolidated Financial Statements
1. In the opinion of the Registrant, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) and reclassifications necessary to present fairly the
financial position as of January 31, 1997, and July 31, 1996, the results of
operations for the three-month and six-month periods ended January 31, 1997 and
1996, and the cash flows for the six-month periods ended January 31, 1997 and
1996.
2. Inventories at January 31, 1997, and July 31, 1996, were as follows:
January 31, 1997 July 31, 1996
---------------- -------------
Raw materials $ 8,173,000 $ 8,139,000
Work in process 3,036,000 2,601,000
Finished goods 6,278,000 6,599,000
----------- -----------
$17,487,000 $17,339,000
=========== ===========
3. These statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report To Shareholders and
Form 10-K for the year ended July 31, 1996.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The principal source of cash during the first six months of fiscal 1997 of
$4,615,000 was provided by operating activities, while investing and financing
activities used cash of $1,048,000 and $1,493,000, respectively. The net cash
provided by operating activities included $1,190,000 received from insurance
claims, net of legal costs. The net cash used by investing activities was
primarily for purchases of manufacturing equipment and building and leasehold
improvements, while the net cash used by financing activities was primarily for
repayment of debt.
The Registrant's borrowing capacity at January 31, 1997, remained above its use
of outside financing. As of January 31, 1997, the Registrant had $11,624,000
available for use under its new $25,000,000 Revolving Credit Agreement since
$1,676,000 was allocated to outstanding trade letters of credit and $11,700,000
utilized for acquisitions and working capital requirements was rolled over from
its old $22,000,000 Agreement. The available credit facility is subject to
commitment fees, but not compensating balances. In addition, the Agreement
contains limitations on borrowings and their use, requires maintenance of
specified ratios, with all of which the Registrant is in compliance, and has a
maturity date of October 31, 1999. Also, as of January 31, 1997, the
Registrant had $7,348,000 available from the cash surrender value of its life
insurance policies.
During the three-month period ended January 31, 1997, the ratio of current
assets to current liabilities decreased slightly from 2.3 to 1 to 2.2 to 1, as
compared to October 31, 1996.
Capital expenditures for the six-month period ended January 31, 1997, amounted
to $1,091,000 and, as mentioned above, were primarily for purchases of
manufacturing equipment and building and leasehold improvements. The
Registrant anticipates that future commitments for additional capital
expenditures will be funded primarily by cash generated by operations and, to
the extent necessary, the utilization of borrowings under its new Revolving
Credit Agreement.
The Registrant is not aware of any demands, commitments or uncertainties in the
normal course which are likely to impair its ability to generate or borrow
adequate amounts of cash to meet its future needs, which include payment of
dividends, capital expenditures and expenditures for working capital
requirements.
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Results of Operations
FISCAL 1997 COMPARED TO FISCAL 1996
Consolidated net sales for the three-month and six-month periods ended January
31, 1997, decreased 1% and 3%, respectively, as compared to the net sales
realized during the corresponding period a year ago, which included the net
sales of SL Piping Systems, Inc. ("Piping"). Substantially all of the assets
of Piping were sold on February 20, 1996. If Piping's net sales were excluded
from the three-month and six-month periods of fiscal 1996, current year net
sales would be 3% and 2% higher, respectively. An analysis of net sales by
business segment for the three-month and six-month periods ended January 31,
1997, as compared to the same period of the prior year, is as follows:
Power and Data Quality Segment -
For the three-month and six-month periods, net sales for the Power and Data
Quality segment increased 2% and 1%, respectively, when compared to net sales
of the prior year. For the three-month and six-month periods, sales of surge
protection and uninterruptible power supplies decreased primarily as a result
of reduced demand. For the three-month and six-month periods, sales of standard
and custom AC-DC power supplies increased primarily as a result of increased
demand, sales of precision motor products and custom electrical subsystems
increased primarily as a result of increased volume.
Specialty Products Segment -
For the three-month and six-month periods, net sales for the Specialty Products
segment decreased 19% and 20%, when compared to net sales reported for the
preceding year. If Piping's net sales were excluded from the prior periods
three-month and six-month results, net sales increased 11% and 13%,
respectively, as compared to the same periods last year. For the three-month
and six-month periods, sales of aviation and industrial igniters and chrome
plating services increased. These increases were primarily demand related.
COST OF SALES
Cost of sales for the three-month and six-month periods decreased 3% and 5%, as
compared to last year. If Piping's results were excluded from last year's
three-month and six-month periods, cost of sales for the three-month and
six-month periods increased 2% and 1%, respectively, as compared to last year.
The increase is primarily volume related. As a percentage of net sales, cost
of sales for the three-month and six-month period was 65% and 64%,
respectively, as compared to 66% and 66%, respectively, for the corresponding
periods a year ago. Again, if Piping's results were excluded, cost of sales,
as a percentage of net sales, was 65% and 65%, respectively, for the prior
year. The six-month decrease is primarily due to a favorable product mix and
lower manufacturing costs.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
For the three-month and six-month periods, engineering and product development
expenses increased 12% and 16%, respectively as compared to the same periods
last year. These
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increases were primarily related to the development of new products within the
Power and Data Quality segment. As a percentage of net sales, engineering and
product development expenses for both the three-month and six-month periods of
both years remained constant at 4%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the three-month and six-month periods, selling, general and administrative
expenses decreased 3% and 4%, respectively, as compared to last year and as a
percentage of net sales remained constant at 23%. If Piping's results were
excluded from last year's three-month and six-month periods, selling, general
and administrative expenses decreased 1% and 2%, respectively, as compared to
the same periods last year and as a percentage of net sales, were 23%, as
compared to 24%, respectively. These decreases were primarily related to
decreased administrative expenses.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the three-month and six-month periods
decreased 1% and increased 1%, as compared to last year. If you exclude
Piping's depreciation expense from prior year results, the expense for the
three-month and six-month periods increased 4% and 6%, respectively, as
compared to last year. The increase is primarily related to depreciation and
amortization of computer hardware and software, respectively.
INTEREST
Interest income for the three-month and six-month periods increased $48,000 and
$68,000, respectively, as compared to last year. The primarily reason for the
increase was additional cash available for investment. Interest expense for the
three-month and six-month periods decreased 24% and 22%, as compared to last
year. This decrease resulted primarily from a lower debt balance, as well as
from decreased interest rates.
TAXES
The effective tax rate for the three-month and six-month periods was 40% and
39%, respectively, as compared to 33% and 34%, respectively, a year ago. The
increase was primarily related to taxes associated with the Registrant's
Mexican operations.
PART II - OTHER INFORMATION
Item 5. Other Information
Effective December 12, 1996, SL Modern Hard Chrome, Inc. changed its name
to SL Surface Technologies, Inc. The name change more accurately reflects the
current strategic direction of the business.
On February 24, 1997, the Registrant announced the appointment of Walter
Rickard to the Registrant's Board of Directors. Mr. Rickard has more than
thirty years' experience in the telecommunications industry, which is an
important segment of the Registrant's current and future strategic planning.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The information called for by this section is listed in the Exhibit Index
of this report.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended January 31, 1997.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SL INDUSTRIES, INC.
-------------------
Registrant
Dated: March 12, 1997 Owen Farren
-------------- -----------------------
Owen Farren
President and
Chief Executive Officer
Dated: March 12, 1997 James E. Morris
-------------- -----------------------
James E. Morris
Vice President,
Corporate Controller,
Treasurer and Secretary
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INDEX TO EXHIBITS
The exhibit number, description and sequential page number in the original copy
of this document where exhibits can be found follows:
Exhibit Description Page
- ------- ----------- ----
11 Statement Re Computation of Per Share Earnings Share Earnings 12
27 Financial Data Schedule 13