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 APRIL 30, 1998
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 June 5, 1998, was
5,581,276.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1998 1997
------------ ------------
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ - $ -
Receivables, less allowances of
$2,081,000 and $1,790,000, respectively .............................. 15,596,000 18,141,000
Inventories (Note 2) .................................................. 16,917,000 16,505,000
Prepaid expenses ...................................................... 716,000 712,000
Deferred income taxes ................................................. 2,361,000 3,168,000
------------ ------------
Total current assets .............................................. 35,590,000 38,526,000
------------ ------------
Property, plant and equipment, less accumulated depreciation
of $12,364,000 and $12,358,000, respectively ........................... 7,202,000 7,254,000
Long-term notes receivable ............................................... 2,211,000 2,234,000
Deferred income taxes .................................................... 2,457,000 2,442,000
Cash surrender value of life insurance policies .......................... 8,065,000 7,627,000
Intangible assets, less accumulated amortization
of $2,516,000 and $2,012,000, respectively ............................. 8,087,000 7,594,000
Other assets ............................................................. 1,321,000 1,127,000
------------ ------------
Total assets ..................................................... $64,933,000 $66,804,000
============ ============
LIABILITIES
Current liabilities:
Long-term debt due within one year .................................... $ - $ 133,000
Accounts payable ...................................................... 5,489,000 8,839,000
Accrued income taxes .................................................. 462,000 770,000
Accrued liabilities:
Payroll and related costs ........................................... 4,068,000 5,331,000
Other ............................................................... 6,395,000 6,054,000
------------ ------------
Total current liabilities ........................................ 16,414,000 21,127,000
------------ ------------
Long-term debt less portion due within one year .......................... 3,600,000 700,000
Deferred compensation and supplemental retirement benefits ............... 4,699,000 4,133,000
Other liabilities ........................................................ 3,606,000 4,352,000
------------ ------------
Total liabilities ................................................ $28,319,000 $30,312,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued . $ - $ -
Common stock, $ .20 par value; authorized, 25,000,000 shares;
issued, 8,123,000 and 7,958,000 shares, respectively ................... 1,625,000 1,592,000
Capital in excess of par value ........................................... 35,645,000 34,695,000
Retained earnings ........................................................ 13,198,000 9,607,000
Treasury stock at cost, 2,542,000 and 2,141,000 shares, respectively ..... (13,854,000) (9,402,000)
------------ ------------
Total shareholders' equity ....................................... 36,614,000 36,492,000
------------ ------------
Total liabilities and shareholders' equity ....................... $64,933,000 $66,804,000
============ ============
* 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 Nine-Months Ended
April 30, April 30,
1998 1997(a) 1998 1997(b)
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales ........................................... $29,340,000 $29,773,000 $87,354,000 $86,870,000
------------ ------------ ------------ ------------
Cost and expenses:
Cost of products sold ............................. 18,370,000 19,339,000 55,152,000 56,054,000
Engineering and product development ............... 1,639,000 1,289,000 4,642,000 3,812,000
Selling, general and administrative ............... 6,248,000 6,667,000 18,989,000 19,789,000
Depreciation and amortization ..................... 792,000 720,000 2,291,000 2,091,000
------------ ------------ ------------ ------------
Total cost and expenses ............................. 27,049,000 28,015,000 81,074,000 81,746,000
------------ ------------ ------------ ------------
Income from operations .............................. 2,291,000 1,758,000 6,280,000 5,124,000
Other income (expense):
Gain on disposition of subsidiary ................. - 5,888,000 - 5,888,000
Interest income ................................... 52,000 71,000 160,000 204,000
Interest expense .................................. (94,000) (191,000) (275,000) (655,000)
------------ ------------ ------------ ------------
Income before income taxes .......................... 2,249,000 7,526,000 6,165,000 10,561,000
Provision for federal and state income taxes ........ 844,000 2,954,000 2,353,000 4,145,000
------------ ------------ ------------ ------------
Net income .......................................... $ 1,405,000 $ 4,572,000 $ 3,812,000 $ 6,416,000
============ ============ ============ ============
Basic net income per common share (Note 3)(c) ...... $ 0.25 $ 0.79 $ 0.68 $ 1.11
============ ============ ============ ============
Diluted net income per common share (Note 3)(c) ... $ 0.24 $ 0.77 $ 0.65 $ 1.07
============ ============ ============ ============
(a) Fiscal 1997 third quarter results include net operating income and net sales
of $24,000 and $2,882,000, respectively from SL Auburn, Inc., and an after-tax
gain of $3,556,000 from the sale of substantially all of its assets on May 1,
1997.
(b) Fiscal 1997 nine-month results include net operating income and net sales of
$311,000 and $8,489,000, respectively from SL Auburn, Inc., and an after-tax
gain of $3,556,000 from the sale of substantially all of its assets on May 1,
1997.
(c) Fiscal 1997 restated to conform with current year's presentation.
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Months Ended April 30,
1998 1997
---------------- ----------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income ......................................................................... $ 3,812,000 $ 6,416,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................................... 1,567,000 1,492,000
Amortization .................................................................... 724,000 599,000
Provisions for losses on accounts receivable .................................... 31,000 26,000
Additions to deferred charges and other assets .................................. (1,411,000) (1,380,000)
Cash surrender value of life insurance premium .................................. (438,000) (373,000)
Deferred compensation and supplemental retirement payments ...................... 1,017,000 778,000
Deferred compensation and supplemental retirement benefit cash payments ........ (439,000) (411,000)
Increase in deferred income taxes ............................................... 46,000 (524,000)
Gain on sale of equipment ........................................................ (1,000) (30,000)
Gain on disposition of subsidiary ................................................ - (5,888,000)
Changes in operating assets and liabilities:
Accounts receivable ........................................................... 2,493,000 (238,000)
Inventories ................................................................... (412,000) (481,000)
Prepaid expenses .............................................................. (4,000) (43,000)
Accounts payable .............................................................. (3,350,000) (878,000)
Other accrued liabilities ..................................................... (505,000) 1,094,000
Income taxes .................................................................. (308,000) 2,993,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................ $ 2,822,000 $ 3,152,000
------------ ------------
INVESTING ACTIVITIES:
Disposals of property, plant and equipment ......................................... 50,000 35,000
Purchases of property, plant and equipment ......................................... (1,993,000) (1,532,000)
Decrease in notes receivable ....................................................... 44,000 21,000
Proceeds from disposition of subsidiary ............................................ - 12,029,000
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .................................. $ (1,899,000) $ 10,553,000
------------ ------------
FINANCING ACTIVITIES:
Cash dividends paid ................................................................ (221,000) (173,000)
Proceeds from long-term debt ....................................................... 7,750,000 -
Payments on long-term debt ......................................................... (4,983,000) (13,240,000)
Proceeds from stock options exercised .............................................. 983,000 87,000
Treasury stock acquired ............................................................ (4,452,000) -
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES ................................................ $ (923,000) $(13,326,000)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS .............................................. - 379,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ....................................... - -
------------ ------------
CASH AND CASH EQUIVALENTS AT APRIL 30, ............................................... $ - $ 379,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ......................................................................... $275,000 $715,000
Income taxes ..................................................................... $1,736,000 $1,799,000
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 April 30, 1998, and July 31, 1997, the results of
operations for the three-month and nine-month periods ended April 30, 1998
and 1997, and the cash flows for the nine-month periods ended April 30,
1998 and 1997.
2. Inventories at April 30, 1998, and July 31, 1997, were as follows:
April 30, 1998 July 31, 1997
-------------- -------------
Raw materials $ 9,053,000 $ 7,691,000
Work in process 2,958,000 2,283,000
Finished goods 4,906,000 6,531,000
----------- -----------
$16,917,000 $16,505,000
=========== ===========
3. In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which the Registrant adopted effective December 15,
1997. This statement establishes new standards for computing and
presenting earnings per share and requires the restatement of prior year
amounts.
SFAS No. 128 simplifies the Earnings per Share ("EPS") calculation by
replacing primary EPS with basic EPS. Basic EPS is computed by dividing
reported earnings available to common shareholders by weighted average
shares outstanding for the period. Fully diluted EPS, now called diluted
EPS is computed by dividing reported earnings available to common
shareholders by weighted average shares outstanding for the period,
adjusted for the dilutive effect of common stock equivalents, which consist
of stock options, using the treasury stock method.
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The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per common share
computations:
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
----------------------------------------------------------------------------------
Three-Months Ended
----------------------------------------------------------------------------------
April 30, 1998 April 30, 1997
-------------------------------------- --------------------------------------
Basic net income per
common share $1,405,000 5,575,000 $.25 $4,572,000 5,779,000 $.79
==== ====
Effect of dilutive
securities - 307,000 - 180,000
---------- --------- ---------- ---------
Diluted net income
per common share $1,405,000 5,882,000 $.24 $4,572,000 5,959,000 $.77
========== ========= ==== ========== ========= ====
----------------------------------------------------------------------------------
Nine-Months Ended
----------------------------------------------------------------------------------
April 30, 1998 April 30, 1997
-------------------------------------- --------------------------------------
Basic net income per
common share $3,812,000 5,598,000 $.68 $6,416,000 5,773,000 $1.11
==== ====
Effect of dilutive
securities - 301,000 - 223,000
---------- --------- ---------- ---------
Diluted net income
per common share $3,812,000 5,899,000 $.65 $6,416,000 5,996,000 $1.07
========== ========= ==== ========== ========= ====
For fiscal 1998 and 1997, 31,161 and 223,919 common stock options,
respectively, were excluded from the dilutive computation because their
effect would be anti-dilutive.
4. 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, 1997, along with any
subsequent Form 10-Q's and Form 8-K's.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The principal sources of cash during the first nine months of fiscal 1998
of $2,822,000 were provided by operating activities, while investing and
financing activities used cash of $1,899,000 and $923,000, respectively.
The net cash provided by operating activities resulted primarily from net
income and the collection of accounts receivable offset, in part, by cash
used to reduce accounts payable. The net cash used in investing activities
resulted primarily from purchases of manufacturing equipment, computer
hardware and software and leasehold improvements. The net cash used in
financing activities included $4,131,000 used for the purchase of 375,500
shares of the Registrant's common stock, offset in part, by net debt
proceeds of $2,767,000.
The Registrant's borrowing capacity at April 30, 1998, remained above its
use of outside financing. As of April 30, 1998, the Registrant had
$20,900,428 available for use under its $25,000,000 Revolving Credit
Agreement since $499,572 was allocated to outstanding trade letters of
credit and $3,600,000 was utilized for the above stock repurchase and
working capital requirements. 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 April 30, 1998, the
Registrant had $8,065,000 available from the cash surrender value of its
life insurance policies.
During the three-month period ended April 30, 1998, the ratio of current
assets to current liabilities increased from 1.9 to 1 to 2.2 to 1,
primarily because of a reduction in current liabilities.
Capital expenditures for the nine-month period ended April 30, 1998,
amounted to $1,993,000 and were primarily for purchases of manufacturing
equipment, computer hardware and software 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 Revolving
Credit Agreement.
On May 29, 1998, the Registrant's Board of Directors declared a $.04 per
share semi-annual cash dividend payable on June 12, 1998, to shareholders
of record on June 5, 1998.
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 1998 COMPARED TO FISCAL 1997
NET SALES
Consolidated net sales for the three-month and nine-month periods ended
April 30, 1998, decreased 2% and increased 1%, respectively, as compared to
the net sales realized during the corresponding periods a year ago, which
included the net sales of SL Auburn, Inc. ("Auburn"). Substantially all of
the assets, excluding real property of Auburn, were sold on May 1, 1997.
If Auburn's net sales were excluded from the three-month and nine-month
periods of fiscal 1997, current year net sales would have increased 9% and
11%, respectively. The increases were primarily related to increased
demand for sales of power conditioning and distribution units, motion
control systems and power supplies.
COST OF SALES
Cost of sales for the three-month and nine-month periods decreased 5% and
2%, respectively, as compared to last year. If Auburn's results were
excluded from last year's three-month and nine-month periods, cost of sales
would have increased 8% and 11%, respectively, as compared to last year.
The increases were primarily related to increased volume and training
costs. As a percentage of net sales, cost of sales for the three-month and
nine-month periods was 63%, as compared to 65%, for both periods a year
ago. If Auburn's results were excluded from the prior periods, cost of
sales, as a percentage of net sales, would have been 63%, for both periods
a year ago.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Engineering and product development expenses for the three-month and
nine-month periods, increased 27% and 22%, as compared to the same periods
last year. If Auburn's results were excluded from last year's three-month
and nine-month periods, engineering and product development expenses
increased 36% and 28%, respectively, as compared to last year. The
increases were primarily related to the development of new power supplies
and motion control systems which will give our customers new and more
advanced power and data quality solutions, as well as improve the cost and
performance of our existing products. As a percentage of net sales,
engineering and product development expenses for the current three-month
and nine-month periods were 6% and 5%, as compared to 4%, for both periods
a year ago. If Auburn's results were excluded from prior periods,
engineering and product development expenses, as a percentage of net sales,
would have been 5% for both periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the three-month and nine-month periods, selling, general and
administrative expenses decreased 6% and 4%, respectively, as compared to
last year. If Auburn's results were excluded from last year's three-month
and nine-month periods, selling, general and administrative expenses
decreased 2% and increased 2%, as compared to the same periods last year.
The three-month period decrease was primarily related to the expiration of
a profit sharing
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agreement during the second quarter of fiscal 1998. The nine-month
period increase was primarily related to additional sales volume. As a
percentage of net sales, selling, general and administrative expenses for the
three-month and nine-month periods were 21% and 22%, respectively, as compared
to 22% and 23%, respectively, a year ago. If Auburn's results were excluded
from last year's three-month and nine-month periods, selling, general and
administrative expenses, as a percentage of net sales, were 24% for both
periods. The three-month and nine-month period decreases, as a percentage of
net sales, were primarily related to decreased sales and marketing expenses.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for both the three-month and
nine-month periods increased 10%, as compared to last year. If you exclude
Auburn's expense from prior year results, depreciation and amortization
expense increased 19% for the three-month period and 21% for the nine-month
period. The increases were primarily related to depreciation and
amortization of computer hardware and software, respectively.
INTEREST
Interest income for the three-month and nine-month periods decreased 27%
and 22%, respectively, as compared to last year. The primary reason for
the decreases was less cash available for investment. Interest expense for
the three-month and nine-month periods decreased 51% and 58%, respectively,
as compared to last year. The decreases resulted primarily from a lower
debt balance.
TAXES
The effective tax rate for both the three-month and nine-month periods was
38%, as compared to 39% for both periods, a year ago. The higher rates, a
year ago were primarily related to taxes associated with the Registrant's
Mexican operations and the gain realized from the Auburn disposition.
PART II - OTHER INFORMATION
Item 5. Other Information
On May 28, 1998, the Board of Directors established September 21, 1998, as
the record date for voting at the 1998 Annual Meeting.
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.
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(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended April 30, 1998.
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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: June 9, 1998 /s/ Owen Farren
----------------- ---------------------
Owen Farren
President,
Chief Executive Officer
and Chairman of the Board
Dated: June 9, 1998 /s/ James E. Morris
----------------- ---------------------
James E. Morris
Vice President,
Corporate Controller,
and Treasurer
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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
27 Financial Data Schedule (Schedule is
furnished for the information of the
Securities and Exchange Commission and is
not to be deemed "filed" as part of Form
10-Q, or otherwise subject to the
liabilities of Section 18 of the
Securities Exchange Act of 1934).
27.1 Financial Data Schedule - Restated
(Schedule is furnished for the
information of the Securities and
Exchange Commission and is not to be
deemed "filed" as part of Form 10-Q, or
otherwise subject to the liabilities of
Section 18 of the Securities Exchange Act
of 1934).