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 April 30, 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 June 4, 1999, was
5,631,275 .
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1999 1998
---- ----
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 129,000 $ --
Receivables, less allowances of
$1,832,000 and $2,045,000, respectively ........................................ 17,096,000 18,886,000
Inventories (Note 2) ............................................................ 18,502,000 18,538,000
Prepaid expenses ................................................................ 899,000 972,000
Deferred income taxes ........................................................... 2,104,000 3,014,000
------------ ------------
Total current assets ........................................................ 38,730,000 41,410,000
------------ ------------
Property, plant and equipment, less accumulated depreciation
of $18,422,000 and $12,569,000, respectively ..................................... 13,818,000 14,890,000
Long-term notes receivable ......................................................... 2,177,000 2,201,000
Deferred income taxes .............................................................. 2,463,000 1,865,000
Cash surrender value of life insurance policies .................................... 9,212,000 8,657,000
Intangible assets, less accumulated amortization
of $3,302,000 and $2,692,000, respectively ....................................... 10,572,000 10,705,000
Other assets ....................................................................... 1,397,000 1,187,000
------------ ------------
Total assets ............................................................... $ 78,369,000 $ 80,915,000
============ ============
LIABILITIES
Current liabilities:
Short-term bank debt ............................................................ $ 1,082,000 $ --
Long-term debt due within one year .............................................. 205,000 727,000
Accounts payable ................................................................ 6,256,000 5,982,000
Accrued income taxes ............................................................ 1,181,000 2,105,000
Accrued liabilities:
Payroll and related costs ..................................................... 3,999,000 4,851,000
Other ......................................................................... 5,318,000 6,401,000
------------ ------------
Total current liabilities .................................................. 18,041,000 20,066,000
------------ ------------
Long-term debt less portion due within one year .................................... 10,064,000 13,283,000
Deferred compensation and supplemental retirement benefits ......................... 5,141,000 4,667,000
Other liabilities .................................................................. 3,494,000 4,554,000
------------ ------------
Total liabilities .......................................................... $ 36,740,000 $ 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, 8,235,000 and 8,153,000 shares, respectively ............................. 1,647,000 1,631,000
Capital in excess of par value ..................................................... 36,924,000 36,061,000
Retained earnings .................................................................. 18,194,000 14,476,000
Translation adjustment ............................................................. (54,000) 80,000
Treasury stock at cost, 2,606,000 and 2,546,000 shares, respectively ............... (15,082,000) (13,903,000)
------------ ------------
Total shareholders' equity ................................................. 41,629,000 38,345,000
------------ ------------
Total liabilities and shareholders' equity ................................. $ 78,369,000 $ 80,915,000
============ ============
* Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
3
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three-Months Ended Nine-Months Ended
April 30, April 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales .......................................... $ 30,474,000 $ 29,340,000 $ 89,805,000 $ 87,354,000
------------ ------------ ------------ ------------
Cost and expenses:
Cost of products sold ............................ 19,473,000 18,370,000 57,896,000 55,152,000
Engineering and product development .............. 1,885,000 1,639,000 5,578,000 4,642,000
Selling, general and administrative .............. 5,647,000 6,248,000 16,716,000 18,989,000
Depreciation and amortization .................... 963,000 792,000 2,886,000 2,291,000
------------ ------------ ------------ ------------
Total cost and expenses ............................ 27,968,000 27,049,000 83,076,000 81,074,000
------------ ------------ ------------ ------------
Income from operations ............................. 2,506,000 2,291,000 6,729,000 6,280,000
Other income (expense):
Interest income .................................. 53,000 52,000 220,000 160,000
Interest expense ................................. (177,000) (94,000) (635,000) (275,000)
------------ ------------ ------------ ------------
Income before income taxes ......................... 2,382,000 2,249,000 6,314,000 6,165,000
Provision for federal and state income taxes ....... 980,000 844,000 2,370,000 2,353,000
------------ ------------ ------------ ------------
Net income ......................................... $ 1,402,000 $ 1,405,000 $ 3,944,000 $ 3,812,000
------------ ------------ ------------ ------------
Basic net income per common share .................. $ 0.25 $ 0.25 $ 0.70 $ 0.68
------------ ------------ ------------ ------------
Diluted net income per common share ................ $ 0.24 $ 0.24 $ 0.67 $ 0.65
------------ ------------ ------------ ------------
Shares used in computing basic net income
per common share ................................. 5,653,000 5,575,000 5,648,000 5,598,000
Shares used in computing diluted net income
per common share ................................. 5,864,000 5,882,000 5,883,000 5,899,000
See accompanying notes to consolidated financial statements.
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Three-Months Ended Nine-Months Ended
April 30, April 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net income ................................................. $ 1,402,000 $ 1,405,000 $ 3,944,000 $ 3,812,000
Other comprehensive income:
Currency translation adjustment, net of related taxes .... (147,000) -- (54,000) --
----------- ----------- ----------- -----------
Comprehensive income ....................................... $ 1,255,000 $ 1,405,000 $ 3,890,000 $ 3,812,000
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Months Ended April 30,
1999 1998
---- ----
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net income ......................................................................... $ 3,944,000 $ 3,812,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................................... 1,954,000 1,567,000
Amortization .................................................................... 916,000 724,000
Provisions for losses on accounts receivable .................................... (108,000) 31,000
Additions to deferred charges and other assets .................................. (752,000) (1,411,000)
Cash surrender value of life insurance premium .................................. (575,000) (438,000)
Deferred compensation and supplemental retirement payments ...................... 876,000 1,017,000
Deferred compensation and supplemental retirement benefit cash payments ........ (532,000) (439,000)
(Increase) Decrease in deferred income taxes .................................... (255,000) 46,000
Gain on sale of equipment ....................................................... (27,000) (1,000)
Changes in operating assets and liabilities:
Accounts receivable ........................................................... 1,767,000 2,493,000
Inventories ................................................................... (86,000) (412,000)
Prepaid expenses .............................................................. 60,000 (4,000)
Accounts payable .............................................................. (239,000) (3,350,000)
Other accrued liabilities ..................................................... (2,768,000) (505,000)
Income taxes .................................................................. (337,000) (308,000)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................ $ 3,838,000 $ 2,822,000
------------ ------------
INVESTING ACTIVITIES:
Investment in Kreiss Johnson ....................................................... (246,000) --
Disposals of property, plant and equipment ......................................... 919,000 50,000
Purchases of property, plant and equipment ......................................... (1,853,000) (1,993,000)
Decrease in notes receivable ....................................................... 24,000 44,000
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ................................................ $ (1,156,000) $ (1,899,000)
------------ ------------
FINANCING ACTIVITIES:
Cash dividends paid ................................................................ (226,000) (221,000)
Proceeds from short-term debt ...................................................... 3,766,000 --
Proceeds from long-term debt ....................................................... 17,744,000 7,750,000
Payments on short-term debt ........................................................ (2,693,000) --
Payments on long-term debt ......................................................... (20,840,000) (4,983,000)
Proceeds from stock options exercised .............................................. 437,000 983,000
Treasury stock sold ................................................................ (729,000) (4,452,000)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES ................................................ $ (2,541,000) $ (923,000)
------------ ------------
Effect of exchange rate changes on cash .............................................. $ (12,000) $ --
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS .............................................. $ 129,000 $ --
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ....................................... -- --
------------ ------------
CASH AND CASH EQUIVALENTS AT APRIL 30, ............................................... $ 129,000 $ --
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ......................................................................... $ 629,000 $ 275,000
Income taxes ..................................................................... $ 2,250,000 $ 1,736,000
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, 1999, and July 31, 1998, the results of
operations and comprehensive earnings for the three-month and nine-month periods
ended April 30, 1999 and 1998, and the cash flows for the nine-month periods
ended April 30, 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 April 30, 1999, and July 31, 1998, were as follows:
April 30, 1999 July 31, 1998
-------------- -------------
Raw materials $ 9,702,000 $10,543,000
Work in process 4,380,000 3,611,000
Finished goods 4,420,000 4,384,000
--------- ---------
$18,502,000 $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 Share Per Share
Income Shares Amount Income Shares Amount
------------------------------------------------------------------------------------
Three-Months Ended
------------------------------------------------------------------------------------
April 30, 1999 April 30, 1998
--------------------------------------- -----------------------------------------
Basic net income per
common share $1,402,000 5,653,000 $.25 $1405,000 5,575,000 $.25
Effect of dilutive securities -- 211,000 (.01) -- 307,000 (.01)
---------- --------- ---- ---------- --------- ----
Dilutive net income per
common share $1,402,000 5,864,000 $.24 $1,405,000 5,882,000 $.24
========== ========= ==== ========== ========= ====
Nine-Months Ended
------------------------------------------------------------------------------------
April 30, 1999 April 30, 1998
------------------------------------- ---------------------------------------
Basic net income per
common share ........................ $3,944,000 5,648,000 $.70 $3,812,000 5,598,000 $.68
Effect of dilutive securities......... -- 235,000 (.03) -- 301,000 (.03)
---------- --------- ---- ---------- --------- ----
Dilutive net income per
common share ......................... $3,944,000 5,883,000 $.67 $3,812,000 5,899,000 $.65
========== ========= ==== ========== ========= ====
For fiscal 1999 and 1998, 73,076 and 31,161 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 nine months of fiscal 1999 of
$3,838,000 were provided by operating activities, while investing and financing
activities used cash of $3,697,000. 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 accrued liabilities. The net
cash used by investing and financing activities resulted primarily from cash
used to pay down debt and purchase manufacturing equipment, computer hardware
and leasehold improvements.
The Registrant's borrowing capacity at April 30, 1999, remained above its use of
outside financing. As of April 30, 1999, the Registrant had $16,313,694
available for use under its $25,000,000 Revolving Credit Agreement since
$350,595 was allocated to outstanding trade letters of credit and $8,335,711
remained from the acquisition of all of the issued and outstanding shares of
Elektro-Metall Export GmbH ("EME"). 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
$1,081,900 under lines of credit with its banks that aggregate $4,057,124. Under
the terms of its lines of credit, the subsidiary can borrow for any purpose at
interest rates of 3.4% to 7%. No financial covenants are required. Also, as of
April 30, 1999, the Registrant had $9,212,000 available from the cash surrender
value of its life insurance policies.
During the three-month period ended April 30, 1999, the ratio of current assets
to current liabilities decreased slightly from 2.2 to 1 to 2.1 to 1.
Capital expenditures for the nine-month period ended April 30, 1999, amounted to
$1,853,000 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.
On May 26, 1999, the Registrant's Board of Directors declared a $.05 per share
semi-annual cash dividend payable on June 11, 1999, to shareholders of record on
June 4, 1999.
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.
8
Results of Operations
FISCAL 1999 COMPARED TO FISCAL 1998
Consolidated net sales for both the three-month and nine-month periods ended
April 30, 1999, increased 4% and 3%, respectively, 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
nine-month periods, net sales decreased 14% and 15%, respectively, as compared
to last year. The decreases resulted primarily as a result of weaknesses in the
semiconductor industry and in the electronics distribution market, along with
reduced capital investment in many sectors of the economy.
Cost of sales for both the three-month and nine-month periods increased 6% and
5%, respectively, as compared to last year. If EME's results were excluded from
the current three-month and nine-month periods, cost of sales for the
three-month and nine-month periods decreased 15% 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 nine-month periods was 64%, as compared to 63% for both
periods a year ago. This reflects the inclusion of EME's results in the current
year's three and nine month periods. If EME's results were excluded from the
three-month and nine-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 nine-month
periods increased 15% and 20%, as compared to the same periods last year. If
EME's results were excluded from the current three-month and nine-month periods,
engineering and product development expenses increased 4% and 8%, respectively,
as compared to last year. The increases were primarily related to the continuing
development of new power supplies 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
nine-month periods were 6%, as compared to 6% and 5%, respectively, for both
periods a year ago. If EME's results were excluded from the three-month and
nine-month results, engineering and product development expenses, as a
percentage of net sales, were 7% for both periods, as compared to 6% and 5%,
respectively, for both periods a year ago.
Selling, general and administrative expenses for the three-month and nine-month
periods decreased 10% and 12%, as compared to the same periods last year. If
EME's results were excluded from the current three-month and nine-month periods,
selling, general and administrative expenses decreased 15% and 19%,
respectively, as compared to last year. As a percentage of net sales, selling,
general and administrative expenses for both the three-month and nine-month
periods were 19%, as compared to 21% and 22%, respectively, a year ago. If EME's
results were excluded from the current three-month and nine-month periods,
selling,
9
general and administrative expenses, as a percentage of net sales, were 21% for
both periods. These decreases were primarily related to reduced selling
expenses, staff reductions and other cost cutting measures. In addition the
nine-month decrease was also affected by the expiration of a profit sharing
agreement.
Depreciation and amortization expense for the three-month and nine-month periods
increased 22% and 26%, respectively, as compared to last year. If EME's expenses
were excluded from the current three-month and nine-month results, depreciation
and amortization expense increased 2% and 5%, respectively, as compared to last
year. The increase was primarily related to increased amortization of computer
software.
Interest income for the three-month and nine-month periods increased 2% and 38%,
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 nine-month periods increased 88% and 131%, 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 nine-month periods was 41% and
38%, as compared to 38%, for both periods a year ago. The three-month increase
included the impact of a higher effective tax rate at EME.
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.
10
PART II - OTHER INFORMATION
Item 5. Other Information
On May 11, 1999, the Registrant acquired 100% of the stock of RFL Electronics
Inc. for $12 million in cash, and a contingent payment of an additional $1
million in cash. This contingent payment was made based upon the financial
performance of RFL for its fiscal year ended March 31, 1999. RFL Electronics
Inc. is a leading supplier of teleprotection and specialized communications
equipment.
On May 26, 1999, Richard Caruso was appointed as a member of SL's Board of
Directors. Mr. Caruso is Vice President at IBM Digital Media Projects, Media and
Entertainment Industries, based in Piscataway, New Jersey.
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 April 30, 1999.
11
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 11, 1999 Owen Farren
--------------------------
Owen Farren
President,
Chief Executive Officer
and Chairman of the Board
Dated: June 11, 1999 James E. Morris
---------------------------
James E. Morris
Vice President,
Corporate Controller,
and Treasurer
12
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).