1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1999
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) (IRS 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 5, 1999, was
5,668,688.
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
January 31, July 31,
1999 1998
------------ ------------
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $ 395,000 $ --
Receivables, less allowances of
$1,987,000 and $2,045,000, respectively 18,548,000 18,886,000
Inventories (Note 2) 19,508,000 18,538,000
Prepaid expenses 920,000 972,000
Deferred income taxes 1,993,000 3,014,000
------------ ------------
Total current assets 41,364,000 41,410,000
------------ ------------
Property, plant and equipment, less accumulated depreciation
of $18,303,000 and $12,569,000, respectively 14,256,000 14,890,000
Long-term notes receivable 2,185,000 2,201,000
Deferred income taxes 2,238,000 1,865,000
Cash surrender value of life insurance policies 9,008,000 8,657,000
Intangible assets, less accumulated amortization
of $3,099,000 and $2,692,000, respectively 10,548,000 10,705,000
Other assets 1,440,000 1,187,000
------------ ------------
Total assets $ 81,039,000 $ 80,915,000
============ ============
LIABILITIES
Current liabilities:
Short-term bank debt $ 2,033,000 $ --
Long-term debt due within one year 236,000 727,000
Accounts payable 6,505,000 5,982,000
Accrued income taxes 977,000 2,105,000
Accrued liabilities:
Payroll and related costs 3,722,000 4,851,000
Other 4,955,000 6,401,000
------------ ------------
Total current liabilities 18,428,000 20,066,000
------------ ------------
Long-term debt less portion due within one year 12,922,000 13,283,000
Deferred compensation and supplemental retirement benefits 4,887,000 4,667,000
Other liabilities 3,635,000 4,554,000
------------ ------------
Total liabilities $39,872,000 $42,570,000
------------ ------------
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, 8,182,000 and 8,153,000 shares, respectively 1,637,000 1,631,000
Capital in excess of par value 36,546,000 36,061,000
Retained earnings 16,792,000 14,476,000
Translation adjustment 93,000 80,000
Treasury stock at cost, 2,514,000 and 2,546,000 shares, respectively (13,901,000) (13,903,000)
------------ ------------
Total shareholders' equity 41,167,000 38,345,000
============ ============
Total liabilities and shareholders' equity $ 81,039,000 $ 80,915,000
============ ============
* 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,
1999 1998 1999 1998
------------------ ------------------ ------------------- -------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 29,084,000 $ 28,559,000 $ 59,331,000 $ 58,014,000
------------ ------------ ------------ ------------
Cost and expenses:
Cost of products sold 18,999,000 18,128,000 38,423,000 36,782,000
Engineering and product development 1,777,000 1,471,000 3,694,000 3,003,000
Selling, general and administrative 5,282,000 6,115,000 11,068,000 12,741,000
Depreciation and amortization 959,000 770,000 1,923,000 1,499,000
------------ ------------ ------------ ------------
Total cost and expenses 27,017,000 26,484,000 55,108,000 54,025,000
------------ ------------ ------------ ------------
Income from operations 2,067,000 2,075,000 4,223,000 3,989,000
Other income (expense):
Interest income 91,000 54,000 167,000 108,000
Interest expense (217,000) (106,000) (458,000) (181,000)
------------ ------------ ------------ ------------
Income before income taxes 1,941,000 2,023,000 3,932,000 3,916,000
Provision for federal and state income taxes 612,000 798,000 1,390,000 1,509,000
------------ ------------ ------------ ------------
Net income $ 1,329,000 $ 1,225,000 $ 2,542,000 $ 2,407,000
============ ============ ============ ============
Basic net income per common share (a) $ 0.23 $ 0.22 $ 0.45 $ 0.43
============ ============ ============ ============
Diluted net income per common share (a) $ 0.22 $ 0.21 $ 0.43 $ 0.41
============ ============ ============ ============
Shares used in computing basic net income
per common share (a) 5,663,000 5,546,000 5,642,000 5,595,000
Shares used in computing diluted net income
per common share (a) 5,924,000 5,831,000 5,892,000 5,893,000
(a) Presentation reflects the adoption of FASB 128.
See accompanying notes to consolidated financial statements.
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Three-Months Ended Six-Months Ended
January 31, January 31,
1999 1998 1999 1998
----------------- ------------------ ---------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net income $ 1,329,000 $ 1,225,000 $ 2,542,000 $ 2,407,000
Other comprehensive income:
Currency translation adjustment, net of related taxes (105,000) -- 93,000 --
----------- ----------- ----------- -----------
Comprehensive income $ 1,224,000 $ 1,225,000 $ 2,635,000 $ 2,407,000
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Ended January 31,
1999 1998
---------------- ---------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income $ 2,542,000 $ 2,407,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,315,000 1,027,000
Amortization 608,000 471,000
Provisions for losses on accounts receivable (115,000) 11,000
Additions to deferred charges and other assets (426,000) (888,000)
Cash surrender value of life insurance premium (350,000) (267,000)
Deferred compensation and supplemental retirement payments 483,000 603,000
Deferred compensation and supplemental retirement benefit cash payments (274,000) (307,000)
Increase (Decrease) in deferred income taxes (81,000) 819,000
Gain on sale of equipment (11,000) (8,000)
Changes in operating assets and liabilities:
Accounts receivable 549,000 2,069,000
Inventories (886,000) 217,000
Prepaid expenses 70,000 (118,000)
Accounts payable (67,000) (3,060,000)
Other accrued liabilities (3,555,000) 308,000
Income taxes (444,000) (1,033,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (642,000) $ 2,251,000
------------ ------------
INVESTING ACTIVITIES:
Investment in Kreiss Johnson (260,000) --
Disposals of property, plant and equipment 903,000 45,000
Purchases of property, plant and equipment (1,500,000) (1,392,000)
Decrease in notes receivable 15,000 15,000
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES $ (842,000) $ (1,332,000)
------------ ------------
FINANCING ACTIVITIES:
Cash dividends paid (226,000) (221,000)
Proceeds from short-term debt 2,067,000 --
Proceeds from long-term debt 12,458,000 6,950,000
Payments on long-term debt (12,800,000) (4,350,000)
Proceeds from stock options exercised 108,000 833,000
Treasury stock sold (acquired) 385,000 (4,131,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ 1,992,000 $ (919,000)
------------ ------------
Effect of exchange rate changes on cash $ (113,000) $ --
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS $ 395,000 $ --
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR -- --
------------ ------------
CASH AND CASH EQUIVALENTS AT JANUARY 31, $ 395,000 $ --
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 496,000 $ 187,000
Income taxes $ 1,034,000 $ 1,515,000
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, 1999, and July 31, 1998, the results of
operations and comprehensive earnings for the three-month and six-month periods
ended January 31, 1999 and 1998, and the cash flows for the six-month periods
ended January 31, 1999 and 1998. The Consolidated Statements of Comprehensive
Earnings was prepared in conformity with general accepted accounting principles
and was not required for fiscal 1998.
2. Inventories at January 31, 1999, and July 31, 1998, were as follows:
January 31, 1999 July 31, 1998
---------------- -------------
Raw materials $10,776,000 $10,543,000
Work in process 3,682,000 3,611,000
Finished goods 5,050,000 4,384,000
----------- -----------
$19,508,000 $18,538,000
=========== ===========
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
-------------------------------------------------------------------------------------------------
January 31, 1999 January 31, 1998
------------------------------------------------ -------------------------------------------
Basic net income per
common share $1,329,000 5,663,000 $ .23 $1,225,000 5,546,000 $ .22
Effect of dilutive
securities -- 261,000 (.01) -- 285,000 (.01)
---------- --------- ------- ---------- --------- -------
Dilutive net income per
common share $1,329,000 5,924,000 $ .22 $1,225,000 5,831,000 $ .21
========== ========= ======= ========== ========= =======
-------------------------------------------------------------------------------------------------
Six-Months Ended
-------------------------------------------------------------------------------------------------
January 31, 1999 January 31, 1998
------------------------------------------------ -------------------------------------------
Basic net income per
common share $2,542,000 5,642,000 $ .45 $2,407,000 5,595,000 $ .43
Effect of dilutive
securities -- 250,000 (.02) -- 298,000 (.02)
---------- --------- ------- ---------- --------- -------
Dilutive net income per
common share $2,542,000 5,892,000 $ .43 $2,407,000 5,893,000 $ .41
========== ========= ======= ========== ========= =======
For fiscal 1999 and 1998, 60,566 and 25,846 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, 1998, along with any subsequent Form
10-Q's and Form 8-K's. The interim results of operations are not necessary
indicative of future financial results.
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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 six months of fiscal 1999 of
$1,992,000 were provided by financing activities, while operating and investing
activities used cash of $1,484,000. The net cash provided by financing
activities resulted primarily from net debt proceeds of $1,725,000. The net cash
used by operating and investing activities resulted primarily from cash used to
reduce accrued liabilities including bonus payments, purchase manufacturing
equipment, computer hardware, leasehold improvements and inventory, offset, in
part, by net income.
The Registrant's borrowing capacity at January 31, 1999, remained above its use
of outside financing. As of January 31, 1999, the Registrant had $13,226,744
available for use under its $25,000,000 Revolving Credit Agreement since
$727,779 was allocated to outstanding trade letters of credit and $11,045,477
utilized for the acquisition of all of the issued and outstanding shares of
Elektro-Metall Export GmbH ("EME") and working capital requirements. The
available credit facility is subject to commitment fees, but not compensating
balances. The Agreement contains limitations on borrowings and their use,
requires maintenance of specified ratios, with all of which the Registrant is in
compliance, and has a maturity date of October 31, 2001. In addition, EME has
outstanding borrowed funds of $2,032,874 under lines of credit with its banks
that aggregate $4,356,160. Under the terms of its lines of credit, the
subsidiary can borrow for any purpose at interest rates of 3.8% to 7%. No
financial covenants are required. Also, as of January 31, 1999, the Registrant
had $9,007,907 available from the cash surrender value of its life insurance
policies.
During the three-month period ended January 31, 1999, the ratio of current
assets to current liabilities remained constant at 2.2 to 1.
Capital expenditures for the six-month period ended January 31, 1999, amounted
to $1,500,000 and were primarily for purchases of manufacturing equipment,
computer hardware 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.
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, stock repurchases and expenditures for working
capital requirements.
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Results of Operations
FISCAL 1999 COMPARED TO FISCAL 1998
Consolidated net sales for both the three-month and six-month periods ended
January 31, 1999, increased 2%, as compared to the net sales realized during the
corresponding periods a year ago. The increases included the contribution made
by Elecktro-Metall Export GmbH ("EME"), which was acquired in July 1998. If
EME's results were excluded from the current three-month and six-month periods,
net sales decreased 16% and 15%, respectively, as compared to last year.
Decreases resulted primarily as a result of a weakness in the semiconductor
industry, reduced capital investment in many sectors of the economy, and a
general slowdown in electronic sales.
Cost of sales for both the three-month and six-month periods increased 5%, as
compared to last year. If EME's results were excluded from the current
three-month and six-month periods, cost of sales for the three-month and
six-month periods decreased 19% and 16%, respectively, as compared to last year.
This decrease was primarily related to decreased volume and cost control. As a
percentage of net sales, cost of sales for both the current three-month and
six-month periods was 65%, as compared to 64% and 63%, respectively, a year ago.
This reflects the inclusion of EME's results in the current year's three and six
month periods. If EME's results were excluded from the three-month and six-month
periods, cost of sales, as a percentage of net sales, was 62% for both periods.
Engineering and product development expenses for the three-month and six-month
periods increased 21% and 23%, as compared to the same periods last year. If
EME's results were excluded from the current three-month and six-month periods,
engineering and product development expenses increased 7% and 10%, respectively,
as compared to last year. The increases were primarily related to the continuing
development of new power supplies and motion control systems which will give the
Registrant's customers new and more advanced power and data quality solutions,
as well as improve the cost and performance of its existing products. As a
percentage of net sales, engineering and product development expenses for both
the three-month and six-month periods were 6%, as compared to 5%, for both
periods a year ago. If EME's results were excluded from the three-month and
six-month results, engineering and product development expenses, as a percentage
of net sales, were 7% for both periods, as compared to 5%, for both periods a
year ago.
Selling, general and administrative expenses for the three-month and six-month
periods decreased 14% and 13%, as compared to the same periods last year. If
EME's results were excluded from the current three-month and six-month periods,
selling, general and administrative expenses decreased 20% and 21%,
respectively, as compared to last year. As a percentage of net sales, selling,
general and administrative expenses for the three-month and six-month periods
were 18% and 19%, respectively, as compared to 21% and 22%, respectively, a year
ago. If EME's results were excluded from the current three-month and six-month
periods, selling, general and administrative expenses, as a percentage of net
sales, were 21% and 20% for
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both periods, respectively. These decreases were primarily related to the
expiration of a profit sharing agreement, staff reductions and other cost
cutting measures.
Depreciation and amortization expense for the three-month and six-month periods
increased 25% and 28%, respectively, as compared to last year. If EME's expenses
were excluded from the current three-month and six-month results, depreciation
and amortization expense increased 4% and 7%, respectively, as compared to last
year. The increase was primarily related to increased amortization of computer
software.
Interest income for the three-month and six-month periods increased 69% and 55%,
respectively, as compared to last year. The primary reason for the increase was
the inclusion of EME's interest income in current year results. Interest expense
for the three-month and six-month periods increased 105% and 153%, respectively,
as compared to last year. The increase resulted primarily from a higher debt
balance as a result of the EME acquisition.
The effective tax rate for the three-month and six-month periods was 32% and
35%, as compared to 39%, for both periods a year ago. The primary reason for the
decreases were a reversal of tax accruals no longer needed by EME and a
reduction in taxes associated with the Registrant's Mexican operations.
Year 2000
The Year 2000 issue is the result of computer programs using two digits rather
than four to define the applicable year. Computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
leading to disruptions in a company's operations.
The Registrant is continuing to take actions to address and complete the work
associated with the Year 2000 issue. Executive management and information system
employees at each of its business units continue to be contacted regarding their
progress in achieving Year 2000 readiness, either through on-site visits or
intercompany correspondence. Each of its business units and corporate
headquarters have established teams to identify and correct year 2000 issues.
The teams are also charged with investigating the year 2000 capabilities of
suppliers, customers and other external entities, and with developing
contingency plans where necessary. The Company does not expect Year 2000
spending to materially affect consolidated profitability or liquidity. This
expectation assumes that its existing forecast of costs to be incurred
contemplates all significant actions required, and that the Registrant will not
be obligated to incur significant Year 2000 related costs on behalf of its
customers or suppliers.
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PART II - OTHER INFORMATION
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, 1999.
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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, 1999 Owen Farren
------------------------- -----------------------
Owen Farren
President,
Chief Executive Officer
and Chairman of the Board
Dated: March 10, 1999 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).