<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JULY 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period ______ to ______
Commission file number 1-4987
SL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEW JERSEY 21-0682685
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
520 FELLOWSHIP ROAD, SUITE 306C, MT. LAUREL, NJ 08054
(Address of principal executive offices) (Zip Code)
</TABLE>
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
--- ----
Indicate by check mark if disclosure of delinquent filers to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K./X/
On October 13, 1995, the aggregate market value of SL common stock was
approximately $43,875,000. The number of shares of common stock outstanding as
of October 13, 1995, was 5,661,312.
DOCUMENTS INCORPORATED BY REFERENCE:
Part I, II, IV - Annual Report to Shareholders for the fiscal year ended July
31, 1995 Part III - Proxy Statement dated October 12, 1995
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
On March 29, 1956, the Registrant was incorporated as G-L Electronics
Company in the state of New Jersey. Its name was changed to G-L Industries,
Inc., in November 1963, SGL Industries, Inc., in November 1970 and then to the
present name of SL Industries Inc., in September 1984. The Registrant and its
subsidiaries design, manufacture and distribute a broad range of innovative
engineered products for industrial and consumer niche markets, as well as
customized components and other products for a wide range of original equipment
manufacturers ("OEM"). The Registrant currently defines its operations in two
business segments: Power and Data Quality and Specialty Products. The products
of the Registrant and its subsidiaries either become components of other
industrial or consumer products or are sold through distribution for general
retail or commercial use.
For the most part, the Registrant and its subsidiaries concentrate on
specialty markets believed to offer higher profit margins and greater potential
for growth than industrial commodities. Sales between segments are not
material. No single customer accounts for more than 10% of consolidated net
sales nor are export sales material thereto.
On May 1, 1995, the Registrant acquired substantially all of the
assets and liabilities of Teal Electronics Corporation ("Teal"). Teal was
founded in 1985 and is based in San Diego, California. Teal designs,
manufactures and distributes custom AC power subsystems for OEM. Teal serves a
variety of niche markets, which include medical, telecommunications, printing
and test equipment. This strategic acquisition enhances the Registrant's
reputation for supplying superior power and data quality products.
On May 24, 1995, the Registrant distributed all of the shares of its
wholly-owned subsidiary, SL LUBE/systems, Inc., in a tax free distribution, in
exchange for 400,000 shares of its common stock owned by Vesper Corporation.
(b) Financial Segment Information
Financial information about the Registrant's business segments is
incorporated herein by reference to Note 13 in the Annual Report to
Shareholders for the fiscal year ended July 31, 1995.
<PAGE> 3
(c) Narrative Description of Business
The following narrative reflects the reclassification of the aviation
and industrial igniter and spark plug product line from the Power and Data
Quality segment to the Specialty Products segment because its products no
longer fit the definition of power and data quality.
Power and Data Quality Segment:
Products
The products of SL Waber, Inc. ("Waber"), consist of over 200 models
and configurations of multiple outlet strips, surge suppressors, voltage
regulators, power conditioners, and uninterruptible and standby power supplies.
These products are sold by independent sales representatives and company sales
personnel to distributors and dealers of electronics and electrical supplies;
retailers and wholesalers of office, computer and consumer products; and to
OEM. The products include those sold under the trademarks of
"POWERMASTER(R)", "DATAGARD(R)", "SURGE SENTRY(TM)", "MEDGARD(TM)",
"POWERHOUSE(R)", "CLIPSTRIP(R)" and "LINEBACKER(TM)". In fiscal 1994, Waber
introduced a new line of satellite network surge protectors and significantly
increased its penetration in the private label OEM business market. For the
years ended July 31, 1995, 1994, and 1993, net sales, as a percentage of
consolidated net sales, were 46%, 45% and 46%, respectively.
Condor D.C. Power Supplies, Inc. ("Condor"), designs, manufactures and
markets standard and custom AC-DC power supplies in both linear and switching
configurations. These products range in power from 10-400 watts and are
manufactured in either commercial or medical configurations. Condor power
supplies closely regulate and monitor power outputs, using patented filter and
other technologies, resulting in little or no electrical interference. These
products are sold through manufacturers sales representatives and electronic
distributors to customers in the medical, industrial, telecommunications and
instrumentation markets. Medical customers use Condor's products to supply
power in devices such as heart and respiration monitors, infusion pumps,
pacemaker programmers and other critical patient-connected applications, all of
which depend upon precise, low-voltage power outputs. For the years ended July
31, 1995, 1994 and 1993, net sales, as a percentage of consolidated net sales,
were 23%, 22% and 14%, respectively.
SL Montevideo Technology, Inc. ("MTI"), is continuing its recent
growth as a technological leader in the design and manufacture of intelligent,
high power density, precision motors. MTI has been capitalizing on its new
motor and (patent pending) motor control technologies to win important programs
in both traditional and new market areas. MTI has been validating its
<PAGE> 4
new technologies through customer applications ranging from the Windows(R)
based computer driven Digital Signal Process motion control package, which has
enabled highly efficient oil field exploration, to an advanced hybrid chip
motor controller that has allowed a more compact and reliable brushless DC
motor for aerospace actuators. Contributing equally as well over the past year
was MTI's effort to provide "Customer Delight" in designing new solutions for
older problems using advanced technology, and responding with samples and
production with ever decreasing lead and cycle times. Recent program successes
include high volume iron gyro upgrades and pickoff assemblies for actuation.
Its defense markets continue strong, despite further program cutbacks, with
recent successes in drone unmanned reconnaissance aircraft, and the newest
missile programs. Negotiations are continuing with customers on advanced
designs for numerous programs including Flywheel Energy Storage Systems, high
performance missile guidance motors, and medical/surgical drills and saws. The
aerospace and industrial markets are served by both internal company sales
personnel and manufacturers' representatives. For the years ended July 31,
1995, 1994 and 1993, net sales, as a percentage of consolidated net sales, were
9%, 10% and 12%, respectively.
Teal develops and manufactures custom electrical subsystems for OEM of
semiconductor, medical imaging, printing and telecommunication systems.
Outsourcing the AC power system to Teal helps the customers reduce cost and
time to market, while increasing system performance and customer satisfaction.
Custom products are often called "Power Conditioning and Distribution Units,"
which provide voltage conversion and stabilization, system control, power
distribution, and agency approvals for systems such as CT and MRI scanners,
chip testers and cellular radio systems. Most of Teal's products are sold
direct to its OEM customers who include it with their systems, which are sold
to the end user.
Raw Materials
Raw materials are supplied by various domestic and international
vendors and availability for materials other than platinum and specialty metals
is not foreseen to be a problem. Certain electronic components, platinum and
specialty metals are subject to long lead times and limited availability.
Seasonality
Generally, seasonality is not a factor in this segment.
<PAGE> 5
Significant Customers
No business has a customer which accounts for 10% or more of
consolidated net sales.
Backlog
Backlog at September 3, 1995, and September 4, 1994, was $25,197,000
and $15,166,000, respectively. The increase is primarily related to increased
bookings and the acquisition of Teal.
Competitive Conditions
The businesses in this segment are in active competition with domestic
companies, some with national name recognition, offering similar products or
services and with companies producing alternative products appropriate for the
same uses. In addition, Waber and Condor have experienced significant
off-shore competition, for certain products in certain markets. Currently, the
businesses are sourcing many components and products outside the United States.
The decreasing military market has also created more competitive conditions in
both the military and commercial markets. Methods of competition are primarily
quality, service, delivery and price.
Specialty Products Segment:
Products
SL Auburn, Inc. ("Auburn"), is one of the world's major producers of
aviation spark plugs and igniters, under "Spitfire(TM)" and "auburn(TM)"
trademarks; and the world's largest producer of custom engineered industrial
spark ignition plugs, under the "Auburn(TM)" and "Durafire(TM)" trademarks.
These products convert or transfer electrical power in devices that include
aircraft engines (turbine and piston), furnaces and ovens for industrial
processes, motors and transformers for air conditioning, and liquid level
sensors for boilers and chemical processing. New products developed for
introduction in fiscal 1995 included "DuraFire(TM)" industrial spark plugs
which are based on new licensed technology and certified leak-proof feed
throughs which meet more stringent requirements for extreme temperatures,
pressures and environmental mandates. Auburn's customers are categorized as
OEM, distributors, government and end users. Auburn's products are sold by
company sales representatives, warehouse distributors and independent sales
representatives throughout the world. For the years ended July 31, 1995, 1994
and 1993, net sales, as a percentage of consolidated net sales, were 10%, 11%
and 14%, respectively.
<PAGE> 6
SL Piping Systems, Inc., is an acknowledged leader in the shop
fabrication of a wide variety of metallic piping systems used in the chemical
process industry. The company also works closely with many industrial and
mechanical contractors. In addition to the company's reputation with its
customers for providing high quality precision welding, the application of the
company's cost effective and quality enhancing pipe bending and forming
techniques are preferred. The company is highly regarded for its experience in
fabricating high alloy materials such as titanium, aluminum, stainless steel
and the nickel alloys. Products and services include the fabrication of piping
systems, jacketed piping, ASME code pressure vessels, pipe coils, modular
skidded systems and specialty fabrications. Sales are made by company sales
personnel and manufacturers' representatives and distributors. SL Piping
Systems, Inc.'s facility is one of the largest of its type on the east coast.
SL Modern Hard Chrome, Inc. ("MHC"), provides chromium plating
services for the steel, paper and automotive industries. The company is a
major supplier of these services in the Delaware Valley region, and has
recently developed a presence in Western Europe. A new product, Nuchrome(TM),
was introduced during 1995 and is intended for use primarily by the paper
industry. Sales are made by appropriate company technical personnel.
Raw Materials
Raw materials are supplied by various domestic vendors and
availability is not foreseen to be a problem. Generally, longer lead times and
price increases are becoming evident.
Seasonality
Seasonality is not a factor in this segment.
Significant Customers
No business has a customer which accounts for 10% or more of
consolidated net sales. MHC has four customers which make up approximately
seventy-five percent of its sales.
Backlog
Backlog at September 3, 1995, and September 4, 1994, was $4,146,000
and $2,588,000, respectively. The increase is primarily related to increased
bookings for future deliveries of feed throughs and aviation igniters.
<PAGE> 7
Competitive Conditions
The businesses in this segment compete primarily with companies
offering similar services or products. The aviation ignition and service parts
markets are global and highly competitive. There are numerous competitors in
pipe fabrication which are classified according to scope and type of
fabrication, location, materials and degree of difficulty. MHC competes on
technology, as well as service.
Environmental
The Registrant (together with the industries in which it operates or
has operated) is subject to United States and Mexican environmental laws and
regulations concerning emissions to the air, discharges to surface and
subsurface waters, and the generation, handling, storage, transportation,
treatment and disposal of waste materials. The Registrant and the industries
are also subject to other federal, state, and local environmental laws and
regulations, including those that require the Registrant to remediate or
mitigate the effects of the disposal or release of certain chemical substances
at various sites, including some where it has ceased operations. It is
impossible to predict precisely what effect these laws and regulations will
have on the Registrant in the future. However, it is not expected that the
Registrant will be affected differently from others in its industries.
It is the Registrant's policy to comply with all environmental, health
and safety regulations, as well as industry standards for maintenance. The
Registrant's domestic competitors are subject to the same environmental, health
and safety laws and regulations, and the Registrant believes that the
compliance issues and potential expenditures of its operating subsidiaries are
comparable to those faced by their major domestic competitors. Environmental
liabilities and related costs are believed to have been adequately provided for
in the consolidated financial statements. Capital expenditures for these
purposes for fiscal year 1995 were immaterial and are estimated to be
immaterial for fiscal 1996. For additional information related to
environmental issues, see Note 10 to the consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report to Shareholders for the fiscal year ended July
31, 1995.
<PAGE> 8
Employees
As of September 3, 1995, the Registrant had a total of 1,639
employees. Of the total 1,639 employees, 144 employees are subject to
collective bargaining agreements.
Additional Information
For the purposes of providing additional information regarding the
development of the Registrant's businesses in fiscal 1995, the "Operations
Review" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Annual Report to Shareholders for the fiscal year
ended July 31, 1995, are incorporated by reference.
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
Approx. Owned or Leased
Square And
Location General Character Footage Expiration Date
- - -------- ----------------- ------- ---------------
<S> <C> <C>
Power and Data Quality:
Montevideo, Manufacture of 26,200 Owned
MN precision avionic
products
Matamoros, Manufacture of 8,600 Leased
Mexico precision avionic 11/05/97
products
Nogales, Manufacture of 43,500 Leased
Mexico power protection 04/30/96
products
Nogales, Manufacture and 51,500 Leased
AZ distribution of 07/31/96
power protection
products
Mt. Laurel, Corporate Office - 15,900 Leased
NJ power protection 11/30/99
products
Oxnard, Manufacture of 36,000 Leased
CA power supply products 02/28/03
Mexicali, Manufacture and Leased
Mexico distribution of 50,000 06/01/98
power supply products 11,000 08/31/00
San Diego, Manufacture of 31,200 Leased
CA AC power subsystems 03/22/00
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Approx. Owned or Leased
Square And
Location General Character Footage Expiration Date
- - -------- ----------------- ------- ---------------
<S> <C> <C> <C>
Specialty Products:
Auburn, Manufacture of 55,000 Owned
NY specialty spark
plugs and igniters
Newport, Manufacture of 32,500 Leased
DE fabricated piping 11/30/98
systems
Camden, Industrial chrome 15,800 Owned
NJ plating
Pennsauken, Industrial chrome 6,000 Owned
NJ plating warehouse
Other:
Mt. Laurel, Corporate Office 4,200 Leased
NJ 11/30/99
</TABLE>
All manufacturing facilities are adequate for current production
requirements. The Registrant believes that its facilities are sufficient for
future operations, maintained in good operating condition and adequately
insured. Of the owned properties, none are subject to a major encumbrance
material to the operations of the Registrant.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Registrant is subject to
loss contingencies pursuant to federal, state and local governmental laws and
regulations and is also party to certain legal actions, most frequently
complaints by terminated employees. It is management's opinion that the impact
of these legal actions will not have a material effect on the financial
position or results of operations of the Registrant. There are no legal
proceedings to which any Director or Officer of the Registrant, or any
associate of any Director or Officer, is a party or has a material interest
adverse to the Registrant's interest. There are no material proceedings with
environmental issues, which involve penalties or sanctions. Additional
information pertaining to legal proceedings is found in Note 10 to the
consolidated financial statements, and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Annual Report to
Shareholders for the fiscal year ended July 31, 1995, and is incorporated
herein by reference.
<PAGE> 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter ended July 31, 1995, there were no matters
submitted to a vote of security holders, through a solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
------------- -------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Stock Prices
1st Quarter 4 1/2 3 7/8 4 1/4 3
2nd Quarter 5 4 4 3
3rd Quarter 5 1/4 4 1/2 5 3 1/2
4th Quarter 6 1/4 4 3/4 4 5/8 3 5/8
Dividends
Cash - November $.03 $.03
Cash - June $.03 $.03
</TABLE>
As of September 15, 1995, there were approximately 1,900 registered
shareholders. A semi-annual cash dividend of $.03 per share was declared on
September 21, 1995, which is payable on November 30, 1995, to shareholders of
record on November 15, 1995. No stock dividend was possible, due to the
deficit earnings balance at July 31, 1995. Payments of cash dividends are
restricted to $600,000 per fiscal year under the Registrant's revolving credit
agreement with its participating banks.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by
reference to the material captioned "Selected Financial Data" in the Annual
Report to Shareholders for the fiscal year ended July 31, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is incorporated herein by
reference to the material captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report to
Shareholders for the fiscal year ended July 31, 1995.
<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by
reference to the consolidated financial statements and the notes thereto and
the material captioned "Report of Independent Public Accountants" and "Selected
Quarterly Financial Data(Unaudited)" in the Annual Report to Shareholders for
the fiscal year ended July 31, 1995.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
This item is not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, except for the ages and
positions held with the Registrant of the executive officers, is incorporated
herein by reference to the material captioned "Election of Directors" on pages
3 through 5 of the proxy statement dated October 12, 1995. The ages of the
executive officers are as follows: Owen Farren, age 44, Ted D. Taubeneck, age
68, and James E. Morris, age 58. The capacities in which each served are as
follows: O. Farren, President and Chief Executive Officer since April 1991 and
prior thereto Executive Vice President since 1990; T.D. Taubeneck, Executive
Vice President, Secretary and Treasurer since July 1988; and J.E. Morris, Vice
President and Corporate Controller since September 1991 and a financial
executive since 1978.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the material captioned "The Board Of Directors" and "Executive
Officer Compensation" on pages 6 through 10 of the proxy statement dated
October 12, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein by
reference to the material captioned "Principal Shareholders of the Company",
"Share Ownership of Directors and Officers" and "Election of Directors" on
pages 3 through 5 of the proxy statement dated October 12, 1995.
<PAGE> 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the material captioned "Executive Officer Compensation" on pages 7
through 9 of the proxy statement dated October 12, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements, related notes to
consolidated financial statements and the report of independent public
accountants appearing in the portions of the Registrant's Annual Report to
Shareholders, filed as Exhibit 13, for the fiscal year ended July 31, 1995, are
incorporated herein by reference:
Consolidated Statements of Earnings -
Years ended July 31, 1995, 1994 and 1993
Consolidated Balance Sheets - July 31, 1995 and 1994
Consolidated Statements of Shareholders' Equity -
Years ended July 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows -
Years ended July 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(a) (2) Financial Statement Schedules
The following financial statement schedules for the years 1995, 1994
and 1993 are submitted herewith:
Report of Independent Public Accountants -
Arthur Andersen LLP
Report of Independent Accountants -
Coopers & Lybrand
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because (a) the required information
is shown elsewhere in the Annual Report, or (b) they are inapplicable, or (c)
they are not required.
<PAGE> 13
(a) (3) Exhibits
The information called for by this section is listed in the Exhibit
Index of this report.
(b) Reports on Form 8-K
On May 22, 1995, the Registrant filed a report on Form 8-K covering
the May 1, 1995, acquisition of Teal Electronics Corporation.
On June 8, 1995, the Registrant filed a report on Form 8-K covering
the May 24, 1995, disposition of its wholly-owned subsidiary, SL LUBE\systems,
Inc.
On July 24, 1995, the Registrant filed a report on Form 8-K/A to
submit financial statements and pro forma financial information for the Teal
Electronics Corporation acquisition and the SL LUBE\systems, Inc. disposition.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ Owen Farren
-----------------
Owen Farren, President
October 25, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been `signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
/s/ Owen Farren /s/ J. Dwane Baumgardner
- - ----------------- ------------------------
Owen Farren J. Dwane Baumgardner
President and Chief Director
Executive Officer October 20, 1995
October 25, 1995
/s/ James E. Morris /s/ Dr. Edward A. Gaugler
- - ------------------- -------------------------
James E. Morris Dr. Edward A. Gaugler
Vice President and Director
Corporate Controller October 23, 1995
October 25, 1995
/s/ Salvatore J. Nuzzo /s/ George R. Hornig
- - ---------------------- --------------------
Salvatore J. Nuzzo George R. Hornig
Chairman of the Board Director
October 20, 1995 October 20, 1995
/s/ Warren G. Lichtenstein
--------------------------
Warren G. Lichtenstein
Director
October 24, 1995
/s/ Robert J. Sanator
---------------------
Robert J. Sanator
Director
October 23, 1995
<PAGE> 15
COMMISSION FILE NO. 1-4987
================================================================================
SL INDUSTRIES, INC. AND SUBSIDIARIES
SUPPORTING SCHEDULES
FOR
ANNUAL REPORT
(Form 10-K)
TO
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SL Industries, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements for the years ended July 31, 1995 and 1994
included in SL Industries, Inc.'s annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated September
15, 1995. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the index at Item 14
(a)(2) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
September 15, 1995
<PAGE> 17
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
SL Industries, Inc.:
We have audited the consolidated balance sheet of SL Industries, Inc. and
subsidiaries as of July 31, 1993, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the period ended July 31,
1993 that are incorporated by reference in this Form 10-K from the 1995 Annual
Report to Shareholders of SL Industries, Inc. In connection with our audit of
such consolidated financial statements, we have also audited the related
consolidated financial statement schedule listed in Item 14(a) of this Form
10-K. These financial statements and consolidated financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and consolidated
financial statement schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the consolidated financial position of SL
Industries, Inc. and subsidiaries as of July 31, 1993, and the consolidated
results of their operations and their cash flows for the period ended July 31,
1995 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND
---------------------
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 20, 1993
<PAGE> 18
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993
(In Thousands)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR 1995
Allowance for:
doubtful accounts $256 $ 175 $ 63 $ 41(b) $ 453
==== ====== ==== ====== ======
customer credits $528 $2,701 $--- $1,862(c) $1,367
==== ====== ==== ====== ======
YEAR 1994
Allowance for:
doubtful accounts $258 $ 50 $111 $ 163(b) $256
==== ====== ==== ====== ====
customer credits $305 $2,200 $--- $1,977(c) $528
==== ====== ==== ====== ====
YEAR 1993
Allowance for:
doubtful accounts $241 $ 83 $ 25(a) $ 91(b) $258
==== ====== ==== ====== ====
customer credits $656 $1,330 $--- $1,681(c) $305
==== ====== ==== ====== ====
</TABLE>
- - ----------------
(a) Due to acquisitions.
(b) Accounts receivable written off, net of recoveries.
(c) Primarily for customer advertising programs.
<PAGE> 19
INDEX TO EXHIBITS
The exhibit number, description and sequential page number in the
original copy of this document where exhibits can be found follows:
<TABLE>
<CAPTION>
Exhibit # Description
- - --------- -----------
<S> <C>
3.1 Articles of Incorporation. Incorporated by
reference to Exhibit 3-A to the Registrant's
report on Form 10-K for the fiscal years ended
July 31, 1985, July 31, 1986, July 31, 1987,
and July 31, 1988.
3.2 By-Laws. Incorporated by reference to Exhibit
3 to the Registrant's report on Form 10-Q
dated October 31, 1994.
10.1 Supplemental Compensation Agreement for the
Benefit of Byrne Litschgi. Incorporated by
reference to Exhibit 10.1 to the Registrants
report on Form 8 dated November 9, 1990.
10.2 Chairman's Executive Severance Agreement.
Incorporated by reference to Exhibit 10.2
to the Registrant's report on Form 8 dated
November 9, 1990.
10.3 First Amendment to Chairman's Executive
Severance Agreement and to Supplemental
Compensation Agreement. Incorporated by
reference to Exhibit 10.3.1 to the Registrant's
report on Form 8 dated November 9, 1990.
10.4 Second Amendment to Chairman's Executive
Severance Agreement and to Supplemental
Compensation Agreement. Incorporated by
reference to Exhibit 10.3.2 to the Registrant's
report on Form 8 dated November 9, 1990.
10.5 Third Amendment to Chairman's Executive
Severance Agreement and to Supplemental
Compensation Agreement. Incorporated by
reference to Exhibit 10.3.3 to the Registrant's
report on Form 8 dated November 9, 1990.
10.6 Fourth Amendment to Chairman's Executive
Severance Agreement and to Supplemental
Compensation Agreement. Incorporated by
reference to Exhibit 10.3.2 to the Registrant's
report on Form 8 dated November 9, 1990.
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
Exhibit # Description
- - --------- -----------
<S> <C>
10.7 Deferred Supplemental Compensation Agreement
with Grant Heilman. Incorporated by reference
to Exhibit 10.4.5 to the Registrant's report
on Form 8 dated November 9, 1990.
10.8 Deferred Supplemental Compensation Agreement
with William Hess. Incorporated by reference
to Exhibit 10.4.6 to the Registrant's report
on Form 8 dated November 9, 1990.
10.9 Supplemental Compensation Agreement for
the Benefit of Donald J. Lloyd-Jones.
Incorporated by reference to Exhibit 10.5.1
to the Registrant's report on Form 8 dated
November 9, 1990.
10.10 Supplemental Compensation Agreement for the
Benefit of Salvatore J. Nuzzo. Incorporated by
reference to Exhibit 10.5.3 to the Registrant's
report on Form 8 dated November 9, 1990.
10.11 Supplemental Compensation Agreement for the
Benefit of Marlin Miller, Jr. Incorporated by
reference to Exhibit 10.5.4 to the Registrant's
report on Form 8 dated November 9, 1990.
10.12 Supplemental Compensation Agreement for the
Benefit of Grant Heilman. Incorporated by
reference to Exhibit 10.5.5 to the Registrant's
report on Form 8 dated November 9, 1990.
10.13 Supplemental Compensation Agreement for the
Benefit of William M. Hess. Incorporated by
reference to Exhibit 10.5.6 to the Registrant's
report on Form 8 dated November 9, 1990.
10.14 1988 Deferred Compensation Agreement with a
Certain Officer. Incorporated by reference to
Exhibit 10.6 to the Registrant's report on
Form 8 dated November 9, 1990.
10.15 Death Benefit Arrangement with Certain
Officers adopted by Board Resolution dated
September 18, 1975. Incorporated by reference
to Exhibit 10.7 to the Registrant's report on
Form 8 dated November 9, 1990.
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit # Description
- - --------- -----------
<S> <C>
10.16 Non-Qualified Stock Option Agreement dated
June 19, 1991. Incorporated by reference to
Exhibit 10-A to the Registrant's report on
Form 10-K for the fiscal year ended July 31, 1991.
10.17 Non-Qualified Stock Option Agreement dated
September 25, 1991. Incorporated by reference
to Exhibit 10-B to the Registrant's report on
Form 10-K for the fiscal year ended July 31, 1991.
10.18 Severance Pay Agreement with Owen Farren.
Incorporated by reference to Exhibit 10-C to
the Registrant's report on Form 10-K for the
fiscal year ended July 31, 1991.
10.19 Severance Pay Agreement with Ted D. Taubeneck.
Incorporated by reference to Exhibit 10-D to the
Registrant's report on Form 10-K for the fiscal
year ended July 31, 1991.
10.20 Deferred Compensation Agreement with James E.
Morris. Incorporated by reference to Exhibit
10-E to the Registrant's report on Form 10-K
for the fiscal year ended July 31, 1991.
10.21 1991 Long Term Incentive Plan of SL Industries,
Inc. Incorporated by reference to Exhibit 4.1
to Registration Statement No. 33-53274, filed
October 14, 1992.
10.22 SL Industries, Inc. Non-Employee Director
Non-Qualified Stock Option Plan. Incorporated by
reference to Exhibit 4.3 to Registration Statement
No. 33-63681, filed October 25, 1995.
10.23 Capital Accumulation Plan.
11 Statement Re Computation of Per Share Earnings
(transmitted herewith).
13 Portions of Annual Report to Shareholders
for the fiscal year ended July 31, 1995
(transmitted herewith).
17 Letter Re Director Resignation. Incorporated
by reference to the Registrant's report on
Form 8-K filed on October 20, 1992.
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit # Description
- - --------- -----------
<S> <C>
22 Subsidiaries of the Registrant (transmitted
herewith).
24 Consent of Independent Public Accountants -
Arthur Andersen LLP (transmitted herewith).
24A Consent of Independent Accountants -
Coopers & Lybrand L.L.P. (transmitted herewith).
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-K, or otherwise subject to the
liabilities of Section 18 of the Securities
Exchange Act of 1934).
28 Annual Report on Form 11-K (to be filed by
by amendment).
</TABLE>
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended July 31,
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE
- - -----------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $3,677 $2,554 $1,454
====== ====== ======
Weighted average number of common
shares outstanding during the year . . . . . . . . . . . . 5,940 6,152 6,500
===== ===== =====
Net income per common share . . . . . . . . . . . . . . . . $.62 $.42 $.22
==== ==== ====
PRIMARY
- - -----------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $3,677 $2,554 $1,454
====== ====== ======
Weighted average number of common
shares outstanding during the year . . . . . . . . . . . . 5,940 6,152 6,500
Add: shares of common stock
equivalents . . . . . . . . . . . . . . . . . . . . . . . . 102 38 14
----- ----- -----
Weighted average number of shares
used in calculation of primary
income per share . . . . . . . . . . . . . . . . . . . . . 6,042 6,190 6,514
===== ===== =====
Primary income per
common share . . . . . . . . . . . . . . . . . . . . . . . $.61 $.41 $.22
==== ==== ====
FULLY DILUTED
- - -----------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $3,677 $2,554 $1,454
====== ====== ======
Weighted average number of common
shares outstanding as adjusted above.. . . . . . . . . . . 6,042 6,190 6,514
Add: incremental shares of common
stock equivalents . . . . . . . . . . . . . . . . . . . . . 20 9 2
----- ----- -----
Weighted average number of shares
used in calculation of fully
diluted income per share . . . . . . . . . . . . . . . . . 6,062 6,199 6,516
===== ===== =====
Fully diluted income per
common share . . . . . . . . . . . . . . . . . . . . . . . $.61 $.41 $.22
==== ==== ====
</TABLE>
<PAGE> 1
EXHIBIT 13
OPERATIONS REVIEW SL INDUSTRIES, INC. AND SUBSIDIARIES
PARTNERSHIPS WITH CUSTOMERS FUEL GROWTH
At SL Industries, we work in partnership with our customers to develop creative
solutions for their Power and Data Quality problems. We have re-engineered our
work flow and manufacturing processes to enable us to produce, in a timely and
cost-effective fashion, individual products or entire product lines,
custom-designed to meet the specific needs of our customers -- a process we
call "mass customization."
Each of our businesses form dedicated task forces across departmental lines --
including marketing, manufacturing, distribution, design and engineering
employees -- to address our customers' unique product requirements. Each team
of highly skilled employees works together, from design and prototype through
final delivery of a product, in partnership with our customers.
This focus on partnership adds value to SL Industries' products, as reflected
in our third consecutive year of increased market share in our core businesses.
The following is a summary of the progress each of our subsidiaries has made
and their plans for the future:
SL WABER, a designer and producer of over 200 models and configurations of
multiple outlet strips, surge suppressors, voltage regulators, power
conditioners and uninterruptible and standby power supplies, enjoyed its
greatest sales success during fiscal 1995. This success is a result of the
subsidiary's efforts in three major areas -- continued expansion of Waber's
markets, improvement in operational capabilities and intensive new product
development.
Already serving a wide range of OEMs, electronics and electrical supply
distributors and dealers, and office and computer product dealers, Waber
continued to increase its sales base through the expansion of business with
current customers, as well as through expansion into new distribution channels.
During fiscal 1995, Waber added Computer City, Montgomery Ward, MCM
Electronics, Digital Equipment and Sprint to its growing number of impressive
customers.
By improving manufacturing operations and by reconfiguring its manufacturing
floor, Waber was able to increase its total number of production lines by 40
percent. These improvements resulted in greater efficiency and flexibility,
allowing Waber to exploit, more fully, its ability to offer custom solutions to
customers.
Waber's new line of low-cost uninterruptible power supply (UPS) products,
enable it to be competitive with all of the major manufacturers in the industry
and, early in fiscal 1996, Waber will introduce a new line of plastic and metal
UPS products. The new Datagard line combines superior technology with
competitive prices and includes the industry's only solid-state phone line
protection. The Satellite protection product line continues to expand and now
includes Digital Satellite (DSS), as well as many other variations which are
rapidly gaining popularity. Later in fiscal 1996, Waber will introduce a new
under-the-monitor power center and a patented save-and-restore system for data
protection. In addition, Waber was chosen as a supplier to Steelcase, who
provides work centers for Marriott hotel rooms worldwide. Waber's power strip
is currently incorporated into these work centers.
By broadening its product line and expanding its manufacturing capabilities,
Waber is positioned to identify new and innovative opportunities to better
serve its customers.
3
<PAGE> 2
OPERATIONS REVIEW SL INDUSTRIES, INC. AND SUBSIDIARIES
TEAL, the newest member of SL's Power and Data Quality group, is taking
advantage of the continued trend toward outsourcing. By working in partnership
with world-class OEM customers, Teal helps them reduce costs and
time-to-market, as well as increase system performance and customer
satisfaction.
Teal's custom products, known as Power Conditioning and Distribution Units,
provide voltage conversion and stabilization, system control and power
distribution and help with federal agency approvals for computerized systems,
such as MRI scanners, chip testers and cellular radio systems. Customers in the
printing, semiconductor, medical imaging and telecommunications industries look
to Teal's unique capabilities which allow for the rapid development of custom
products which are incorporated into their own systems.
By focusing on select vertical markets that exhibit growth potential and
capitalize on Teal's capabilities, SL's newest subsidiary is positioning itself
as a leading supplier of AC power systems. Teal's strong position in the
semiconductor and medical imaging markets fueled most of its growth in fiscal
1995. In addition, Teal entered the printing and telecommunications markets
during the year and will focus on further developing its presence in these
markets during fiscal 1996.
Through the expansion of its extensive library of 3-D drawings and the use of
computerized design tools, such as 3-D "virtual prototyping," Teal will
continue to work in partnership with its customers to develop new quality
custom power system solutions.
CONDOR, a designer and manufacturer of standard and custom AC-DC power
supplies, also works closely with its customers and has continued to increase
its share of the expanding medical device market through its reputation and
commitment to providing customers with technical excellence, the ability to
meet demanding specifications, and a thorough understanding of the industry's
significant regulatory issues.
In addition to serving the medical industry, Condor also serves the industrial,
instrumentation, and computer peripheral markets, and has had recent success
in targeting select areas within the massive telecommunications market, which
contributed to growth in fiscal 1995 and will continue to contribute to future
growth.
Condor has increased its presence in the marketplace by introducing a new line
of low-cost, low-power units specifically targeted for sale through
distributors who typically serve smaller OEMs. In addition, Condor continues
to expand the market for its Rainbow series of standard mid-range power
supplies, first introduced during fiscal 1994.
Condor's dedication to continuous improvement in manufacturing processes
yielded a 15 percent increase in productivity in fiscal 1995 and will remain a
primary focus of the subsidiary in fiscal 1996 and beyond.
Working closely with its customers in a highly technical, creative and
innovative manner, Condor has achieved considerable success and it has targeted
selective niche areas in the telecommunications industry to help drive future
growth.
SL MONTEVIDEO TECHNOLOGY, a technological leader in manufacturing intelligent,
high power density, precision motors, is capitalizing on new motor and motor
control technologies to win important programs in both traditional (defense and
defense-related aerospace) and new (commercial aerospace and industrial)
markets.
4
<PAGE> 3
OPERATIONS REVIEW SL INDUSTRIES, INC. AND SUBSIDIARIES
Through a new program called "Customer Delight," MTI has focused its efforts on
working closely with customers to design new solutions, using its advanced
technology to solve old problems. The program includes dramatically shortening
both quotation and lead times and allows customers to receive early, working
prototypes for their application using MTI's line of motors and motor controls,
which were introduced last year.
In fiscal 1995, MTI received orders for such applications as a
Windows-based(TM), computer driven, Digital Signal Process motion control
package, which will enable highly efficient oil field exploration and an
advanced hybrid chip motor controller, that has provided a more compact and
reliable brushless DC motor for actuators in un-manned reconnaissance aircraft.
MTI has received a patent for its new "sensorless controller" and is currently
developing significant enhancements to this technology. Over the next 12
months, MTI expects to receive additional patents and will file two other
patent applications, as new technologies are developed to fulfill its
customer's needs. In addition, through customer evaluation, MTI has discovered
that a number of its high precision, high reliability industrial applications
are progressing well, and although it is still too early to make predictions,
MTI is optimistic about the opportunities that exist in these markets.
SL'S SPECIALTY PRODUCTS subsidiaries cater to niche markets in which they also
have the ability to work in partnership with their customers.
SL AUBURN, one of the largest producers of spark plugs and igniters for
aircraft and of custom-engineered industrial applications, accelerated lead
time reductions, promoted quality improvements and extended product lines
during fiscal 1995. Growth, during fiscal 1995, can be attributed to increased
market penetration, as well as new product introductions. In response to its
customers' need for more environmentally "friendly" air conditioning
refrigerants, Auburn developed and introduced a feed-through connector assembly
used in commercial air conditioning units resulting in increased demand.
Auburn's newest igniter, manufactured for use by aviation engine builders,
resulted in record aviation igniter sales in fiscal 1995, because of
technological improvements which extend the igniter's service life by a factor
of up to six times over the prior technology. In addition, Auburn has
developed an entire ignition system in partnership with certain industrial
customers, and the initial response has been very encouraging.
SL MODERN HARD CHROME, which provides chromium electroplating and surface
finishing for the steel, paper and construction industries has enhanced its
brand identity by working with OEM customers to tailor products specific to the
end user's requirements. "NUchrome(TM)", a coating which increases the usable
life of corrugating rolls, is an important example of a new product introduced
in 1995 to meet the needs of the corrugated box industry.
Also, in fiscal 1995, SL-MHC licensed certain technology to two surface
finishers outside of North America to support our OEM customers globally.
SL PIPING SYSTEMS, a leader in the fabrication of metallic piping systems, used
principally by the Chemical Process and Power Generation industry, has targeted
new high-growth OEM users within these market segments, where it can capitalize
upon its technological expertise in forming, joining, and assembling of a wide
range of products and materials.
6
<PAGE> 4
SELECTED FINANCIAL DATA
SL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1995 1994 1993 1992 1991
- - -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,125 $ 76,593 $ 58,529 $ 50,941 $ 54,777
Income (Loss) from continuing operations (1) . . . . . . . . $ 3,677 $ 1,951 $ 954 $ 1,506 $ (9,757)
Income from discontinued operations . . . . . . . . . . . . --- --- --- --- 1,008
-------------------------------------------------------------------
Income (Loss) before extraordinary item and cumulative
effect of changes in acccounting principles . . . . . . . 3,677 1,951 954 1,506 (8,749)
Extraordinary item - utilization of the federal tax benefit
of a net operating loss carryforward . . . . . . . . . . . --- --- 500 620 ---
Cumulative effect of change in accounting for
postretirement benefits other than pensions . . . . . . . --- --- --- --- (137)
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . . --- 603 --- --- ---
-------------------------------------------------------------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ 3,677 $ 2,554 $ 1,454 $ 2,126 $ (8,886)
===================================================================
Net income (loss) per common share:
Income (Loss) from continuing operations (1) . . . . . . . . $ .62 $ .32 $ .15 $ .23 $ (1.47)
Income from discontinued operations . . . . . . . . . . . . --- --- --- --- .15
-------------------------------------------------------------------
Income (Loss) before extraordinary item and cumulative
effect of changes in acccounting principles . . . . . . . .62 .32 .15 .23 (1.32)
Extraordinary item - utilization of the federal tax benefit
of a net operating loss carryforward . . . . . . . . . . . --- --- .07 .09 ---
Cumulative effect of change in accounting for
postretirement benefits other than pensions . . . . . . . --- --- --- --- (.02)
Cumulative effect of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . . --- .10 --- --- ---
-------------------------------------------------------------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ .62 $ .42 $ .22 $ .32 $ (1.34)
===================================================================
Cash dividend per common share (2) . . . . . . . . . . . . . $ .06 $ .06 $ .09 $ .03 $ .16
Stock dividend per common share . . . . . . . . . . . . . . --- --- --- --- 6%
YEAR-END FINANCIAL POSITION
Working capital . . . . . . . . . . . . . . . . . . . . . . $ 21,929 $ 21,125 $ 18,995 $ 14,912 $ 14,012
Current ratio (5). . . . . . . . . . . . . . . . . . . . . . 2.5 2.9 2.8 2.8 2.2
Total assets (5) . . . . . . . . . . . . . . . . . . . . . . $ 62,156 $ 52,397 $ 49,831 $ 39,000 $ 41,650
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 17,373 $ 11,918 $ 9,218 $ 844 $ 1,028
Shareholders' equity . . . . . . . . . . . . . . . . . . . . $ 24,930 $ 23,577 $ 23,431 $ 22,558 $ 20,832
Book value per share . . . . . . . . . . . . . . . . . . . . $ 4.43 $ 3.93 $ 3.60 $ 3.47 $ 3.18
OTHER
Capital expenditures (4) . . . . . . . . . . . . . . . . . . $ 1,736 $ 1,446 $ 1,191 $ 1,048 $ 1,070
Depreciation and amortization (3). . . . . . . . . . . . . . $ 2,108 $ 1,868 $ 1,674 $ 1,452 $ 2,418
Weighted average shares outstanding (2) . . . . . . . . . . 5,940 6,152 6,500 6,552 6,641
===================================================================
</TABLE>
(1) Fiscal 1995 includes pre-tax gain, net of severance, legal and other costs,
on disposition of subsidiary of $818,000, increasing net income by
$1,100,000, or $.19 per common share. Fiscal 1991 includes provision for
losses of discontinued product line, net of income taxes, of $8,171,000,
or $(1.23) per common share.
(2) Restated to reflect subsequent stock dividends.
(3) Excludes discontinued operations.
(4) Excludes discontinued operations and assets acquired in business
combinations.
(5) Restated to conform with current years' presentation.
7
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS SL INDUSTRIES, INC. AND SUBSIDIARIES
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1995, the net cash provided by operating activities was
$3,307,000, as compared to $1,329,000 provided in fiscal 1994 and $2,820,000
used in fiscal 1993. The fiscal 1995 increase, as compared to fiscal 1994,
resulted primarily from increased net income from operations and accrued
liabilities, offset, in part, by increased inventories. The fiscal 1994
increase, as compared to fiscal 1993, resulted primarily from increased net
income from operations and decreased inventories, offset, in part, by increased
receivables. During fiscal 1995, 1994 and 1993, the net cash used by
investing activities of $8,126,000, $1,423,000 and $7,517,000, respectively,
was primarily related to capital expenditures for all three years, the
acquisition of substantially all of the net assets of Teal Electronics
Corporation ("Teal") in May 1995, and the acquisition of all the stock of
Condor D.C. Power Supplies, Inc. ("Condor") and all of the assets of its
Mexican affiliate in February 1993. During fiscal 1995, 1994 and 1993, the net
cash provided by financing activities of $5,199,000, $291,000 and $7,296,000,
respectively, was primarily related to the use of the Company's revolving line
of credit for the fiscal 1995 Teal acquisition, the fiscal 1994 purchase of
507, 000 shares of common stock held by two former directors, the fiscal 1993
Condor acquisition and for fiscal 1994 and 1993 capital expenditures and
working capital requirements.
The Company maintains a strong working capital position with a current ratio of
2.5 to 1 at July 31, 1995, 2.9 to 1 at July 31, 1994, and 2.8 to 1 at July 31,
1993. The fiscal 1995 decrease, as compared to fiscal 1994, resulted from a
38% increase in current liabilities, as compared to a 16% increase in current
assets. The fiscal 1994 increase, as compared to fiscal 1993, resulted from a
9% increase in current assets, as compared to a 4% increase in current
liabilities.
As a percentage of total capitalization, consisting of long-term debt and
shareholders' equity, total borrowings by the Company were 41% at July 31,
1995, 34% at July 31, 1994, and 29% at July 31, 1993. The fiscal 1995 and 1994
increases in total borrowings, as compared to fiscal 1994 and 1993, were
primarily a result of the use of the Company's revolving line of credit for the
above purposes. During fiscal 1995, the Company amended its revolving credit
agreement to increase the amount from $15,000,000 to $22,000,000. At July 31,
1995, the Company had $4,738,000, net of outstanding trade letters of credit of
$262,000, of its revolving line of credit available for use. See Note 8 to the
consolidated financial statements for additional information. The Company's
borrowing capacity at July 31, 1995, remained considerably above its use of
outside financing.
Capital expenditures were $1,736,000 in 1995, as compared with $1,446,000 in
1994, and $1,191,000 in 1993. Expenditures during the three-year period have
primarily included investments in new process technology, increased production
capacity and pollution control equipment. Fiscal 1996 capital expenditures are
planned to be approximately $1,200,000, and the Company expects to fund the
expenditures with cash provided by operations.
The Company is not aware of any demands, commitments, trends or uncertainties,
which are reasonably likely, in the normal course, to impair its ability to
generate or obtain adequate amounts of cash to meet its future needs.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Fiscal 1995 consolidated net sales of $91,125,000 increased approximately 19%
($14,500,000), as compared to fiscal 1994 consolidated net sales. Fiscal 1995
net income was $3,677,000, or $.62 per share, as compared to fiscal 1994 net
income of $2,554,000, or $.42 per share. Fiscal 1995 net income consisted of
income from operations of $2,577,000, or $.43 per share, and a gain, net of
severance, legal and other costs, from the disposition of SL LUBE/systems,
Inc., ("LUBE") of $1,100,000, or $.19 per share. Fiscal 1994 net income
consisted of income from operations of $1,951,000, or $.32 per share, and
income from the cumulative effect of a change in accounting for income taxes of
$603,000, or $.10 per share. If the gain is excluded from fiscal 1995 net
income and income from the cumulative effect is excluded from fiscal 1994 net
income, income from operations increased approximately 32% ($600,000), as
compared to fiscal 1994 income from operations. Fiscal 1995 net sales and
operating income by industry segment, as compared to fiscal 1994, reflect the
reclassification of the net sales and operating income of the aviation and
industrial igniter and spark plug product line from the power and data quality
segment to the specialty products segment because its products no longer fit
the definition of power and data quality.
The power and data quality segment's fiscal 1995 net sales and operating income
increased approximately 24% ($14,300,000) and 62% ($2,200,000), respectively,
as compared to fiscal 1994 net sales and operating income.
8
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS SL INDUSTRIES, INC. AND SUBSIDIARIES
Contributing to these increases were increased net sales of linear and
switching power supplies, power surge protectors and uninterruptible power
supplies, which resulted from the introduction of new products, as well as from
increased market share, and increased net sales of precision avionic products
which resulted from the introduction of new products. In addition, fiscal
1995 included the net sales and operating income contributed by Teal, the
amounts of which were not material to the results of this segment. Also, an
approximately 3% increase in this segment's gross margin, as a percentage of
net sales, contributed to increased operating income. The increase in gross
margin percentage resulted from increased volume and production efficiency
improvements.
The specialty products segment's fiscal 1995 net sales and operating income
increased approximately 1% ($300,000), and decreased approximately 19%
($400,000), respectively, as compared to fiscal 1994 net sales and operating
income. During fiscal 1995, net sales of aviation and industrial igniters,
and pipe fabrication products increased, while net sales of aviation and
industrial spark plugs and chrome plating services decreased. The increases in
net sales were a result of increased demand, while the decrease in net sales of
aviation and industrial spark plugs was the result of reduced demand, and the
decrease in net sales of chrome plating services was the result of corrugated
paper machinery manufacturers switching to alternative coatings, which extend
the life of corrugated rolls. However, the Company has developed an improved,
less expensive alternative coating: "NUchromeTM", which will also significantly
extend the life of corrugated rolls. The principal factors affecting the
decrease in the operating income of this segment were approximately 3%
decreases in gross margins, as a percentage of net sales, realized by the
aviation and industrial igniters and spark plugs, and pipe fabrication product
lines. These margin decreases were a result of product mix. The May 1995
disposal of LUBE had no material impact on the year-to-year net sales and
operating income comparison of this segment.
COST OF SALES
As a percent of net sales, fiscal 1995 cost of products sold was approximately
65%, as compared to approximately 67% in fiscal 1994. The percentage decrease
was a direct result of the improvements contributed by the power and data
quality segment's product lines, offset, in part, by the decreases experienced
by the specialty products segment's product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1995 selling, general and administrative expenses of $24,836,000
increased approximately 27% ($5,200,000), as compared to fiscal 1994. The
fiscal 1995 increase was primarily related to increased selling and marketing,
and engineering and product development expenses. As a percentage of net
sales, fiscal 1995 selling, general and administrative expense were
approximately 27%, as compared to approximately 26% in fiscal 1994. As a
percentage of net sales, the fiscal 1995 increase was primarily related to
increased engineering and product development expenses.
DEPRECIATION AND AMORTIZATION EXPENSE
Fiscal 1995 depreciation and amortization expense of $2,108,000 increased
approximately 13% ($240,000), as compared to fiscal 1994. The fiscal 1995
increase was primarily related to the depreciation of equipment within the
power and data quality segment.
OTHER INCOME (EXPENSE)
Fiscal 1995 other income (expense) included the gain on the disposition of
LUBE, as well as a net increase in interest expense, as compared to fiscal 1994
other income (expense). The fiscal 1995 net increase in interest expense
primarily resulted from increased interest rates and the use of the Company's
revolving line of credit for the May 1995 Teal acquisition.
TAXES
The fiscal 1995 effective tax rate on pre-tax income was 26%, as compared to
38% in fiscal 1994. This decrease was directly related to the May 1995 tax
free disposition of LUBE.
FISCAL 1994 COMPARED TO FISCAL 1993
Fiscal 1994 consolidated net sales of $76,593,000 increased approximately 31%
($18,100,000), as compared to fiscal 1993 consolidated net sales. Fiscal 1994
net income was $2,554,000, or $.42 per share, as compared to fiscal 1993 net
income of $1,454,000, or $.22 per share. Fiscal 1994 net income consisted of
income from operations of $1,951,000, or $.32 per share, and income from the
cumulative effect of a change in accounting for income taxes of $603,000, or
$.10 per share. Fiscal 1993 net income consisted of income from operations of
$954,000, or $.15 per share, and income from the utilization of the federal tax
benefit of a net operating loss carryforward of $500,000, or $.07 per share.
If the income from the cumulative effect is excluded from fiscal 1994 net
income and income
9
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS SL INDUSTRIES, INC. AND SUBSIDIARIES
from utilization of the federal tax benefit is excluded from fiscal 1993 net
income, income from operations increased approximately 105% ($1,000,000), as
compared to fiscal 1993 income from operations. Fiscal 1994 net sales and
operating income by industry segment, as compared to fiscal 1993, reflect the
reclassification of the net sales and operating income of the aviation and
industrial igniter and spark plug product line from the power and data quality
segment to the specialty products segment because its products no longer fit
the definition of power and data quality.
The power and data quality segment's fiscal 1994 net sales increased
approximately 41% ($17,200,000), as compared to fiscal 1993 net sales. The
segment's fiscal 1994 net sales included a full year of Condor's net sales, as
compared to a partial year in fiscal 1993. If the net sales of Condor are
excluded from both fiscal 1994 and 1993, the segment's net sales increased
approximately 25% ($8,200,000), as compared to fiscal 1993. Contributing to
this increase were increased net sales of surge protectors and uninterruptible
power supplies, which primarily resulted from increased market share and the
sale of new products, and increased net sales of precision avionic products
which resulted from increased volume, offset, in part, by reduced defense
spending. The power and data quality segment's fiscal 1994 operating income
increased approximately 53% ($1,200,000), as compared to fiscal 1993. If the
operating income of Condor is excluded from both fiscal 1994 and 1993, the
segment's operating income increased approximately 15% ($200,000), as compared
to fiscal 1993. The primary reason for the increase in fiscal 1994 operating
income was increased gross margins of surge protection and uninterruptible
power supply products because of increased volume, offset, in part, by
decreased gross margins of precision avionic products because of product mix.
The specialty products segment's fiscal 1994 net sales increased approximately
5% ($900,000), as compared to fiscal 1993 net sales. The net sales increase
was primarily related to increased sales of aviation spark plugs and industrial
igniters and spark plugs, chrome plating services and automatic grease feeders,
offset, in part, by decreased sales of aviation igniters and pipe fabrication
products. The increases in sales of aviation spark plugs, and industrial
igniters and spark plugs were primarily a result of increased market share and
increased demand, respectively. The decrease in sales of aviation igniters was
primarily a result of decreased demand because of softness in the commercial,
military and general aviation markets. The increases in sales of chrome
plating services and automatic grease feeders were demand related, while the
decrease in sales of pipe fabrication products was primarily related to
competitive pricing pressures. The specialty products segment's fiscal 1994
operating income increased approximately 8% ($160,000), as compared to fiscal
1993. The increase in fiscal 1994 operating income was primarily due to
increased volume.
COST OF SALES
As a percent of net sales, fiscal 1994 costs of products sold was approximately
67%, as compared to approximately 65% in fiscal 1993. The percentage increase
was a direct result of product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1994 selling, general and administrative expenses of $19,622,000
increased approximately 18% ($2,900,000), as compared to fiscal 1993. If the
expenses of Condor are excluded from both fiscal 1994 and 1993, selling,
general and administrative expenses increased approximately 8% ($1,200,000), as
compared to 1993. The fiscal 1994 increase was primarily related to increased
marketing expenses, as well as $438,000 in costs associated with the Board's
ongoing effort to enhance shareholder value. As a percentage of net sales,
fiscal 1994 selling, general and administrative expenses were approximately
26%, as compared to 29% in fiscal 1993. If the expenses and net sales of
Condor are excluded from both 1994 and 1993, the expenses, as a percent of net
sales, were approximately 28% and 30%, respectively.
DEPRECIATION AND AMORTIZATION EXPENSE
Fiscal 1994 depreciation and amortization expense of $1,868,000 increased
approximately 12% ($190,000), as compared to fiscal 1993. If the expenses of
Condor are excluded from both fiscal 1994 and 1993, depreciation and
amortization expense decreased approximately 5% ($80,000).
OTHER INCOME (EXPENSE)
Fiscal 1994 and fiscal 1993 other income (expense) consisted entirely of
interest income and expense. Fiscal 1994 interest income decreased, as
compared to fiscal 1993, as a result of less cash available for investment.
Fiscal 1994 interest expense increased, as compared to fiscal 1993, primarily
because of borrowing under the Company's revolving line of
10
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS SL INDUSTRIES, INC. AND SUBSIDIARIES
credit to purchase the previously mentioned shares of common stock held by two
former directors, and to finance the 1993 acquisition of Condor and its Mexican
affiliate.
TAXES
The fiscal 1994 effective tax rate on pre-tax income was 38%, as compared to
42% in fiscal 1993. The decrease in the effective tax rate in 1994, as
compared to 1993, was primarily related to a lower effective net state tax
rate. Effective August 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes (SFAS 109)," which was issued by the Financial Accounting Standards Board
in February 1992. The cumulative effect to August 1, 1993, of the change was
$603,000. See Note 1 to the consolidated financial statements for additional
information.
ENVIRONMENTAL
During fiscal 1995, 1994 and 1993, investigation or remediation activities, or
both, were undertaken at 18 sites owned, leased or previously utilized by the
Company. During fiscal 1995, the New Jersey Department of Environmental
Protection ("NJDEP") required the Company to begin additional investigation of
the extent of off-site contamination at its former facility in Wayne, New
Jersey, where remediation has been underway for several years. Additional
expenses at this location are now likely, but cannot be estimated at this time.
In a November 1991, Administrative Directive, NJDEP alleged that SL Modern Hard
Chrome ("MHC") and 20 other respondents are responsible for a contaminent plume
which has affected the Puchack Wellfield in Pennsauken, New Jersey (which
supplies Camden, New Jersey), and are, therefore, jointly and severally
obligated to pay for the construction and operation of a potable water
treatment system there. Three other actions have been initiated from the
underlying directive. The first is Supplemental Directive No. 1 issued by
NJDEP to the same parties in May, 1992, which seeks a cost reimbursement of
$8,655,000 for the construction of a treatment system at the Puchack site and
an annual payment of $611,000 for ongoing operation and maintenance of the
treatment system. The second matter is a lawsuit initiated by one of the
parties named in the original directive seeking to have the remainder of those
parties and more than 600 others pay some or all of that party's cost of
compliance with the directive and any other costs associated with its site.
The third matter is a Spill Act Directive by NJDEP to MHC alone, regarding
similar matters at its site. The state has not initiated enforcement action
regarding any of its three Directives, and the court where the lawsuit is
pending has ordered a "stay" of those proceedings, as to the Company and MHC,
as well as others. There also exists an outstanding enforcement issue
regarding the Company's compliance with ECRA at the same site.
With regard to the $8,655,000 amount, in the Company's view it is not
appropriate to consider that amount as "potential cost reimbursements" or
"material" at this time. The MHC site, which is the subject of these actions,
has undergone remedial activities under NJDEP's supervision since 1983. The
Company believes that it has a significant defense against all or any part of
the $8,655,000 claim since technical data generated as part of previous
remedial activities indicate that there is no offsite migration of contaminants
at the Company's MHC site. Based on this and other technical factors, the
Company has been advised by its outside technical consultant, with the
concurrence of its outside counsel, that it has a significant defense to the
Cost Reimbursement Directive.
It is management's opinion that future costs for these environmental matters
are not expected to have a material impact on the results of operations of the
Company. If there is a change in management's position, it will be indicated
in future filings. See Note 10 to the consolidated financial statements for
additional information.
TRENDS AND PROSPECTS
At the present time, both of the Company's industry segments are profitable and
are expected to remain so, and it is anticipated that the Company's fiscal year
1996 consolidated financial results will continue to show improvements.
11
<PAGE> 9
CONSOLIDATED STATEMENTS OF EARNINGS
SL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,125,000 $ 76,593,000 $ 58,529,000
---------------------------------------------------
Cost and expenses:
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . 59,249,000 51,385,000 38,404,000
Selling, general and administrative expenses . . . . . . . . . . . . . . . 24,836,000 19,622,000 16,684,000
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 2,108,000 1,868,000 1,674,000
---------------------------------------------------
Total cost and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 86,193,000 72,875,000 56,762,000
---------------------------------------------------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,932,000 3,718,000 1,767,000
Other income (expense):
Gain on disposition of subsidiary. . . . . . . . . . . . . . . . . . . . . 818,000 --- ---
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,000 50,000 82,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (859,000) (606,000) (208,000)
---------------------------------------------------
Income before income taxes, extraordinary item and cumulative effect
of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,945,000 3,162,000 1,641,000
Provision for federal and state income taxes . . . . . . . . . . . . . . . . 1,268,000 1,211,000 687,000
---------------------------------------------------
Income before extraordinary item and cumulative effect of
accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,677,000 1,951,000 954,000
Extraordinary item - utilization of the federal tax benefit of a net
operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . --- --- 500,000
Cumulative effect to August 1, 1993, of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 603,000 ---
---------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,677,000 $ 2,554,000 $ 1,454,000
===================================================
Net income per common share:
Income before extraordinary item and cumulative effect of
accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .62 $ .32 $ .15
Extraordinary item - utilization of the federal tax benefit of a net
operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . --- --- .07
Cumulative effect to August 1, 1993, of change in accounting for
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- .10 ---
---------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .62 $ .42 $ .22
===================================================
Weighted average shares outstanding. . . . . . . . . . . . . . . . . . . . . 5,940,000 6,152,000 6,500,000
===================================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
SL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
July 31, 1995 1994*
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 577,000 $ 197,000
Receivables, less allowances
of $1,820,000 and $784,000, respectively . . . . . . . . . . . . . . 12,442,000 12,961,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,622,000 16,719,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 890,000 797,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 2,457,000 1,327,000
----------------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 36,988,000 32,001,000
----------------------------------------
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . 6,933,000 6,252,000
Assets held for future sale . . . . . . . . . . . . . . . . . . . . . . . 3,240,000 3,430,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 551,000 982,000
Cash surrender value of life insurance policies . . . . . . . . . . . . . 6,595,000 5,934,000
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . 7,468,000 3,415,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381,000 383,000
----------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,156,000 $ 52,397,000
========================================
LIABILITIES
Current liabilities:
Long-term debt due within one year . . . . . . . . . . . . . . . . . . $ 187,000 $ 168,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,658,000 4,818,000
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 1,140,000 821,000
Accrued liabilities:
Payroll and related costs . . . . . . . . . . . . . . . . . . . . . . 3,938,000 2,208,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,136,000 2,861,000
----------------------------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 15,059,000 10,876,000
----------------------------------------
Long-term debt less portion due within one year . . . . . . . . . . . . . 17,373,000 11,918,000
Deferred compensation and supplemental retirement benefits . . . . . . . 3,322,000 3,488,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,472,000 2,538,000
----------------------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,226,000 $ 28,820,000
----------------------------------------
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, 1995 - 7,773,000 shares, 1994 - 7,739,000 shares . . . . . . . 1,555,000 1,548,000
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . 33,735,000 33,620,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (958,000) (4,239,000)
Treasury stock at cost, 1995 - 2,141,000 shares, 1994 - 1,741,000 shares (9,402,000) (7,352,000)
----------------------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . $ 24,930,000 $ 23,577,000
----------------------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . $ 62,156,000 $ 52,397,000
========================================
</TABLE>
*Reclassified to conform with current year's presentation.
See accompanying notes to consolidated financial statements.
13
<PAGE> 11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------------
Issued Held In Treasury Capital in
---------------------------------------------------------- Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance August 1, 1992 . . . . . . . 7,733,000 $ 1,547,000 (1,234,000) $ (5,303,000) $ 33,603,000 $ (7,289,000)
Net income . . . . . . . . . . . . . 1,454,000
Cash dividends, $.09 per share . . . (585,000)
Other, including exercise of
employee stock options . . . . . . 1,000 3,000 1,000
--------------------------------------------------------------------------------------------
Balance July 31, 1993 . . . . . . . 7,734,000 1,547,000 (1,234,000) (5,303,000) 33,606,000 (6,419,000)
Net income . . . . . . . . . . . . . 2,554,000
Cash dividends, $.06 per share . . . (375,000)
Other, including exercise of
employee stock options . . . . . . 5,000 1,000 14,000 1,000
Treasury stock purchased . . . . . . (507,000) (2,049,000)
--------------------------------------------------------------------------------------------
Balance July 31, 1994 . . . . . . . 7,739,000 1,548,000 (1,741,000) (7,352,000) 33,620,000 (4,239,000)
Net income . . . . . . . . . . . . . 3,677,000
Cash dividends, $.06 per share . . . (349,000)
Rights redemption, $.0079 per share. (48,000)
Other, including exercise of
employee stock options . . . . . . 34,000 7,000 115,000 1,000
Treasury stock received from tax
free distribution . . . . . . . . (400,000) (2,050,000)
--------------------------------------------------------------------------------------------
BALANCE JULY 31, 1995 . . . . . . . 7,773,000 $ 1,555,000 (2,141,000) $ (9,402,000) $ 33,735,000 $ (958,000)
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS
SL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1995 1994* 1993*
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,677,000 $ 2,554,000 $ 1,454,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Cumulative effect of change in accounting for income taxes . . . . . . --- (603,000) ---
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,687,000 1,384,000 1,253,000
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421,000 484,000 421,000
Provisions for losses on accounts receivable . . . . . . . . . . . . . 175,000 50,000 83,000
Additions to other assets . . . . . . . . . . . . . . . . . . . . . . (95,000) (208,000) (67,000)
Cash surrender value of life insurance premiums . . . . . . . . . . . (661,000) (759,000) (721,000)
Deferred compensation and supplemental retirement benefits . . . . . . 521,000 606,000 309,000
Deferred compensation and supplemental retirement benefit payments . . (691,000) (449,000) (503,000)
(Increase) decrease in deferred income taxes . . . . . . . . . . . . . (724,000) 281,000 193,000
Loss on the sale of equipment . . . . . . . . . . . . . . . . . . . . 13,000 8,000 2,000
Discontinued product line expenses . . . . . . . . . . . . . . . . . . (172,000) (416,000) (699,000)
Gain on disposition of subsidiary . . . . . . . . . . . . . . . . . . (818,000) --- ---
Changes in operating assets and liabilities, net of the effect
of acquisitions and dispositions:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . (356,000) (2,411,000) (1,452,000)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,318,000) 44,000 (4,466,000)
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (57,000) (34,000) (384,000)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 872,000 937,000 903,000
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 2,526,000 (830,000) (1,031,000)
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . 307,000 691,000 1,885,000
---------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . $ 3,307,000 $ 1,329,000 $ (2,820,000)
---------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of equipment . . . . . . . . . . . . . . . . . . . . . 14,000 6,000 5,000
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . (1,736,000) (1,446,000) (1,191,000)
Proceeds from long-term notes receivable . . . . . . . . . . . . . . . . . --- 17,000 13,000
Payments for acquisitions, net of cash acquired . . . . . . . . . . . . . (6,404,000) --- (6,344,000)
---------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . $ (8,126,000) $ (1,423,000) $ (7,517,000)
---------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (349,000) (375,000) (585,000)
Rights redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,000) --- ---
Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . --- (2,049,000) ---
Proceeds from life insurance policy loans . . . . . . . . . . . . . . . . --- --- 164,000
Payments on life insurance policy loans . . . . . . . . . . . . . . . . . --- --- (324,000)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . 9,000,000 6,600,000 9,100,000
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (3,526,000) (3,900,000) (1,062,000)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . 122,000 15,000 3,000
---------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . $ 5,199,000 $ 291,000 $ 7,296,000
---------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . 380,000 197,000 (3,041,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . 197,000 --- 3,041,000
---------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END . . . . . . . . . . . . . . . . . . . $ 577,000 $ 197,000 $ ---
===================================================
</TABLE>
*Reclassified to conform with current year's presentation.
See accompanying notes to consolidated financial statements.
15
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT POLICIES
Consolidation: The consolidated financial statements include the accounts of SL
Industries, Inc. and its wholly-owned subsidiaries ("the Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
Revenue recognition: Sales are recognized upon shipment of products.
Inventories: Inventories are valued at the lower of cost or market. Cost is
primarily determined using the first-in, first-out ("FIFO") method. Cost for
certain inventories is determined using the last-in, first-out ("LIFO")
method.
Property, plant and equipment: Property, plant and equipment are carried at
cost and include expenditures for new facilities and major renewals and
betterments. Maintenance, repairs and minor renewals are charged to expense as
incurred. When assets are sold or otherwise disposed of, any gain or loss is
recognized currently. Depreciation is provided primarily using the
straight-line method over the estimated useful lives of the assets, which range
from 25 to 40 years for buildings, 3 to 10 years for equipment and other
property and the lease term for leasehold improvements.
Intangible assets: Intangible assets consist primarily of goodwill,
trademarks, covenants not to compete and patents. The goodwill and trademarks
resulting from the May 1995 acquisition are being amortized over 25 years.
Goodwill resulting from acquisitions made prior to November 1, 1970, of
$955,000, is considered to have continuing value over an indefinite period, and
is not being amortized. Covenants are amortized over their stated terms and
patents are amortized over their remaining lives. Subsequent to its
acquisitions, the Company continually evaluates whether later events or
circumstances have occurred that would indicate that the remaining estimated
useful life of an intangible asset may warrant revision or that the remaining
balance may not be recoverable.
Research and development costs: Research and development costs are expensed as
incurred. For the fiscal years ended July 31, 1995, 1994 and 1993, these costs
were $985,000, $670,000 and $1,507,000, respectively.
Income taxes: Deferred income taxes are provided to reflect the tax effect of
temporary differences in reporting income and deductions for tax and financial
statement purposes. Effective August 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes ("SFAS 109")." SFAS 109 provides for income tax accounting
under the asset/liability method, which includes a requirement for adjustment
of deferred tax balances for income tax rate changes and an assessment as to
whether a valuation allowance should be established for deferred tax assets.
Future years' net income will be subject to increased volatility depending upon
the frequency of tax rate changes. Adoption of SFAS 109 had no significant
effect on the 1994 provision for income taxes.
As shown in the fiscal 1994 consolidated statement of earnings, the cumulative
effect to August 1, 1993, of the change was $603,000, or $.10 per common share.
Prior year financial statements have not been restated to apply the provisions
of SFAS 109.
Net income per common share: Net income per common share is calculated based on
weighted average shares outstanding. The effect of outstanding stock options
is not material for fiscal 1995 and is antidilutive for 1994 and 1993. These
stock options have not been included in the calculation.
Reclassification: Certain reclassifications have been made to the prior year
financial statements to conform with current year presentation.
2. ACQUISITIONS AND DISPOSITION
On February 16, 1993, the Company acquired all of the stock of Condor D.C.
Power Supplies, Inc. ("Condor"), and all of the assets of its Mexican
affiliate, Electronica Condor de Mexico, S.A. de C.V. ("Electronica") for an
aggregate of $6,344,000, net of cash acquired. Condor designs and manufactures
linear and switching power supplies in the low to medium power range.
The acquisitions were accounted for using the purchase method of accounting.
Therefore, the aggregate purchase price has been allocated to the assets and
liabilities acquired based on their respective fair values at date of
acquisition. A total of $2,870,000 of the aggregate purchase price has been
allocated to a covenant not to compete and is being amortized on a
straight-line basis over ten years. The results of
16
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES
operations of Condor and Electronica, since the acquisition date, are included
in the accompanying consolidated financial statements.
On May 1, 1995, the Company acquired substantially all of the assets and
liabilities of Teal Electronics Corporation ("Teal"), for an aggregate of
$6,404,000, net of cash acquired. In addition, the asset purchase agreement
includes a provision to pay additional purchase price equal to 50% of the
annual net profits of the acquired business in excess of $1,100,000 for each of
the five twelve-month periods beginning May 1, 1995. Teal designs and
manufactures custom low impedance power conditioners which are primarily sold
to OEM's and are used to protect medical imaging systems, semiconductor
production equipment, telecommunications systems, printing presses and other
special purpose computerized systems.
The acquisition has been accounted for using the purchase method of
accounting. Therefore, the aggregate purchase price has been allocated to the
assets and liabilities acquired based on their respective fair values at date
of acquisition. A total of $3,056,000 of the aggregate purchase price has been
allocated to goodwill and trademarks and is being amortized on a straight-line
basis over twenty-five years. Additional purchase price will be allocated to
goodwill as amounts become determinable. The results of operations of Teal,
since the acquisition date, are included in the accompanying consolidated
financial statements.
Unaudited pro forma consolidated results of operations, as though the
Company acquired Condor and Electronica on August 1, 1992, and Teal on August
1, 1993, are as follows:
<TABLE>
<CAPTION>
---------------------------------
1995 1994 1993
---------------------------------
(In thousands,
except per share data)
<S> <C> <C> <C>
Net sales. . . . . . . . . . . $98,307 $83,332 $67,656
Net income . . . . . . . . . . $ 3,992 $ 1,970 $ 1,532
Net income per common share. . $ .67 $ .32 $ .24
</TABLE>
The unaudited pro forma consolidated results of operations include the
amortization of goodwill, covenant not to compete and other intangible assets,
and additional interest and depreciation expense as if these acquisition
related expenses had been incurred since the August 1st dates. The unaudited
pro forma results are not necessarily indicative of the actual results of
operations that would have occurred had the purchases actually been made at the
August 1st dates, or of results which may occur in the future.
On May 24, 1995, the Company distributed all of the shares of its wholly-owned
subsidiary, SL LUBE/systems, Inc., in a tax free distribution, in exchange for
400,000 shares of its common stock owned by Vesper Corporation. For financial
reporting purposes, the distribution resulted in a pre-tax gain, net of
severance, legal and other costs, of $818,000, increasing net income by
$1,100,000, or $.19 per common share.
3. INCOME TAXES
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
--------------------------------
1995 1994 1993
--------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . $1,607 $ 731 $(136)
State. . . . . . . . . . . . 361 203 117
Deferred . . . . . . . . . . . (700) 277 206
Charge equivalent in lieu
of income taxes related to
benefit of net operating
loss carryforward. . . . . . --- --- 500
-------------------------------
$1,268 $1,211 $ 687
===============================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities at
July 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION> ------------------
1995 1994
------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Deferred compensation. . . . $1,359 $1,453
Liabilities related to
discontinued product line. 505 578
Liabilities related to
environmental matters. . . 115 407
Inventory valuation. . . . . 573 331
Prepaid and accrued expenses 1,587 670
Other. . . . . . . . . . . . 1 62
------------------
4,140 3,501
Deferred tax liabilities:
Accelerated depreciation and
amortization . . . . . . . 1,132 1,192
------------------
$3,008 $2,309
==================
</TABLE>
17
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES
Following is a reconciliation between the amount of income tax expense at the
applicable federal statutory rate and the effective rates:
<TABLE>
<CAPTION>
---------------------------------------
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
Federal statutory rate . . . . 34% 34% 34%
Adjustment related to
disposal of subsidiary . . . (12) - -
Tax rate differential on
Foreign Sales Corporation
earnings . . . . . . . . . . (1) (1) (1)
State income taxes, net
of federal income tax
benefit . . . . . . . . . . 5 4 7
Other . . . . . . . . . . . . - 1 2
-------------------------------------
26% 38% 42%
=====================================
</TABLE>
4. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high
credit quality financial institutions. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
industries and geographic regions.
5. INVENTORIES
Inventories at July 31, 1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
------------------------
1995 1994
------------------------
(In thousands)
<S> <C> <C>
Raw materials. . . . . . . . . . $ 9,060 $ 8,406
Work in process. . . . . . . . . 3,259 2,419
Finished goods . . . . . . . . . 8,303 5,894
------------------------
$20,622 $16,719
========================
</TABLE>
The above includes certain inventories, which are valued using the LIFO method,
which aggregated $1,066,000 and $748,000 at July 31, 1995 and 1994,
respectively. The excess of FIFO cost over LIFO cost at July 31, 1995 and
1994, was approximately $518,000 and $503,000, respectively.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
------------------------
1995 1994
------------------------
(In thousands)
<S> <C> <C>
Land . . . . . . . . . . . . . . . . $ 79 $ 79
Buildings and leasehold
improvements . . . . . . . . . . . 3,465 3,172
Equipment and other property . . . . 14,478 13,117
------------------------
18,022 16,368
Less accumulated depreciation. . . . 11,089 10,116
------------------------
$ 6,933 $ 6,252
========================
</TABLE>
"Assets held for future sale" at July 31, 1995 and 1994, are not included above
and relate to assets remaining after the 1989 relocation of a power and data
quality operation and the 1988 consolidation of the Company's two plastics
operations into one, which was subsequently sold. These assets consist
primarily of land, buildings and building improvements which are being leased
to third parties. The buildings and building improvements are being
depreciated and accounted for as an operating lease. Aggregate accumulated
depreciation for the buildings and building improvements at July 31, 1995 and
1994, was $1,379,000 and $1,189,000, respectively. Aggregate minimum rental
income for fiscal 1995 and 1994, was $259,000 and $250,000, respectively.
Aggregate minimum rental income for the remaining lease periods will be
$204,000 in 1996, and $70,000 in 1997. The net book values of these assets are
less than the estimated net realizable value based on market surveys received
from independent third parties.
7. INTANGIBLE ASSETS
Intangible assets at July 31, 1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
--------------------------
1995 1994
--------------------------
(In thousands)
<S> <C> <C>
Patents . . . . . . . . . . . . . . . $ 873 $ 293
Covenants not to compete. . . . . . . 2,980 4,070
Goodwill . . . . . . . . . . . . 3,091 955
Trademarks . . . . . . . . . . . . . 920 ---
Other . . . . . . . . . . . . . . . . 386 ---
--------------------------
8,250 5,318
Less accumulated amortization . . . . 782 1,903
--------------------------
$7,468 $3,415
==========================
</TABLE>
18
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES
8. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
-------------------------
1995 1994
-------------------------
(In thousands)
<S> <C> <C>
Revolving line of credit.............. $17,000 $11,300
Industrial revenue bonds payable in
various principal amounts
through 1998....................... 560 786
-------------------------
17,560 12,086
Less portion due within one year...... 187 168
-------------------------
$17,373 $11,918
=========================
</TABLE>
On December 27, 1994, the Company amended its revolving credit agreement to
increase the amount from $15,000,000 to $22,000,000, the participating banks
from two to four and to extend the maturity date to December 31, 1997. Under
the terms of this agreement, the Company can borrow for acquisitions, working
capital and, for other purposes, at either a "CD or LIBOR rate," as defined, or
prime interest rate. The agreement, as amended, contains limitations on
borrowings; restricts the payment of cash dividends to $600,000 per fiscal
year; and requires maintenance of specified ratios, the most restrictive of
which are the ratio of consolidated total liabilities to consolidated tangible
net worth and the ratio of consolidated cash flow to consolidated financing
requirements, as defined. At July 31, 1995, the Company is in compliance with
the above covenants. In lieu of compensating balances, the Company pays
commitment fees as defined under the agreement.
Under the terms of the industrial revenue bond installment loan agreements,
interest is payable quarterly on the outstanding principal at 65% of the
prevailing prime rate, adjusted monthly. Generally the banks have the right and
option to call each loan, at specified dates, if certain levels of
shareholders' equity, as defined, are not maintained.
Principal maturities of long-term debt in the next three years are $187,000 in
1996 and 1997, and $17,186,000 in 1998.
9. RETIREMENT PLANS AND DEFERRED COMPENSATION
The Company and its aviation igniter and power conditioner subsidiaries have
noncontributory defined contribution pension plans covering substantially all
employees. The Company's contribution to its plan is based on a percentage of
employee elective contributions and calendar year gross wages, as defined in
the plan. The aviation igniter subsidiary's contribution to its plan is based
on a percentage of salary, as defined in the plan. The power conditioner
subsidiary's contribution to its plan is based on a percentage of employee
elective contributions. Costs accrued under the plans for fiscal 1995, 1994
and 1993 amounted to approximately $416,000, $387,000 and $349,000,
respectively. It is the Company's and subsidiaries' policies to fund accrued
retirement income costs.
In addition, the Company makes contributions, based on rates per hour, as
specified in two union agreements, to two union administered defined benefit
multi-employer pension plans. Contributions to these plans amounted to $50,000,
$50,000 and $45,000 in 1995, 1994 and 1993, respectively. Under the
Multi-employer Pension Plan Amendments Act of 1980, an employer is liable upon
withdrawal from or termination of a multi-employer plan for its proportionate
share of the plan's unfunded vested benefits liability. The Company's share of
the unfunded vested benefits liabilities of the union plans to which it
contributes is not material.
The Company has agreements with certain active and retired directors, officers
and key employees providing for deferred compensation and supplemental
retirement benefits. In August 1992, a director rescinded his deferred
compensation agreement and was paid $72,000 which covered his deferred
directors' fees plus interest of 8% per annum, compounded quarterly. The
liability for deferred compensation and supplemental retirement benefits is
based on the most recent mortality tables available and discount rates of 8%,
10% and 12%. The amount charged to income in connection with these agreements
amounted to $509,000, $606,000 and $309,000 in 1995, 1994 and 1993,
respectively.
The Company is the owner and beneficiary of insurance policies on the lives of
a majority of the participants having a deferred compensation or supplemental
retirement agreement. At July 31, 1995, the aggregate death benefit totaled
$12,453,000 with the corresponding cash surrender value totaling $6,595,000.
At July 31, 1995, certain agreements may restrict the Company from utilizing
cash surrender value totaling $1,636,000 for purposes other than satisfaction
of the specific underlying deferred compensation agreements, if benefits are
not paid by the Company. The Company nets the increase
19
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES
in the cash surrender value of the policies with premium expense. Net amounts
included in income in connection with the policies amounted to $217,000,
$155,000 and $149,000 in 1995, 1994 and 1993, respectively.
10. COMMITMENTS AND CONTINGENCIES
For the fiscal years ended July 31, 1995, 1994 and 1993, rental expense
applicable to continuing operations aggregated $1,743,000, $1,389,000 and
$1,117,000, respectively. These expenses are primarily for facilities and
vehicles. The minimum rental commitments as of July 31, 1995, are as follows:
<TABLE>
<S> <C>
(In thousands)
1996. . . . . . . . $1,283
1997. . . . . . . . 863
1998. . . . . . . . 809
1999. . . . . . . . 589
2000. . . . . . . . 388
Thereafter. . . . . 531
------
$4,463
======
</TABLE>
At July 31, 1995, the Company was contingently liable for $272,000, under
outstanding letters of credit issued primarily for inventory purchases from
foreign suppliers and product liability insurance.
In the ordinary course of its business, the Company is subject to loss
contingencies pursuant to federal, state and local governmental laws and
regulations and is also party to certain legal actions, most frequently
complaints by terminated employees. It is management's opinion that the impact
of these legal actions will not have a material effect on the financial
position or results of operations of the Company.
Included in these categories are potential obligations to investigate and
eliminate or mitigate the effects on the environment of the disposal or release
of certain chemical substances at various sites, such as Superfund sites and
other facilities, whether or not they are currently in operation. The Company
is currently participating in environmental assessments and cleanups at a
number of sites under these laws and may in the future be involved in
additional environmental assessments and cleanups. Based upon investigations
completed by the Company and its independent engineering consulting firm to
date, management has provided an estimated cost for all known contingencies of
this sort believed to be probable. However, it is in the nature of
environmental contingencies that other circumstances might arise, the costs of
which are indeterminable at this time. For example, during the latter part of
fiscal year 1995, the New Jersey Department of Environmental Protection
required the Company to begin additional investigation of the extent of
off-site contamination at its former facility in Wayne, New Jersey, where
remediation has been underway for years, so that additional expenses there are
now likely but cannot yet be estimated with any accuracy. The amount of such
future cost is indeterminable due to such factors as changing government
regulations and tougher standards, the unknown magnitude of defense and cleanup
costs, the unknown timing and extent of the remedial actions that may be
required, the determination of the Company's liability in proportion to other
responsible parties, and the extent, if any, to which such costs are
recoverable from other parties or from insurance. Although these contingencies
could result in additional expenses or judgments, or off-sets thereto, at
present such expenses or judgments are not expected to have a material effect
on the Company's consolidated financial position.
In the fourth quarter of fiscal year 1990, the Company made a provision of
$3,500,000 to cover various such environmental costs for six locations, based
upon estimates prepared at that time by the independent engineering consulting
firm. In fiscal 1991, the Company made additional provisions of $480,000 based
upon new estimates. During fiscal years 1993, 1994 and 1995, the Company paid
or incurred expenses at all of those six locations and twelve others, in
addition to environment-related capital expenditures of approximately $363,000.
The Company has filed claims with its insurers seeking reimbursement for many
of these costs, and believes that some recovery is likely. It is too early,
however, to assess the extent of recovery that might be obtained under the
various insurance policies from the insurers involved. Accordingly, no such
recoveries have been recognized in the consolidated financial statements. At
July 31, 1995 and 1994, the remaining accrual was $619,000 and $1,325,000,
respectively, of which $334,000 and $425,000, respectively, have been included
in "Accrued Liabilities" and $285,000 and $900,000, respectively, in "Other
Liabilities" in the accompanying consolidated balance sheets. In the opinion
of management, the remaining accrual at July 31, 1995, is adequate to cover
cleanup costs, the amounts of which are known to be probable at this time.
11. STOCK OPTIONS AND CAPITAL STOCK
At the Company's 1993 Annual Meeting, the shareholders approved a Nonemployee
Director Nonqualified Stock Option Plan (the "Director Plan"), which was
effective June 1, 1993. The Director Plan
20
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES
provides for the granting of nonqualified options to purchase up to 250,000
shares of the Company's Common Stock to nonemployee directors of the Company in
lieu of paying quarterly retainer fees and regular quarterly meeting attendance
fees, when elected. The Director Plan enables the Company to grant options,
with an exercise price per share not less than fair market value of the
Company's Common Stock on the date of grant, which are exercisable at any time.
Each option granted under the Director Plan expires no later than ten years
from date of grant and no options can be granted under the Director Plan after
its May 31, 2003, expiration date. Information for the years 1994 and 1995
with respect to the Plan is as follows:
<TABLE>
<CAPTION>
-----------------------------
Shares Option Price
-----------------------------
(In thousands,
except for option price)
<S> <C> <C>
Granted, outstanding and exercisable
at July 31, 1994. . . . . . . . . . 17 $3.5625 to $4.25
Granted . . . . . . . . . . . . . . . 34 $4.1875 to $5.125
Outstanding and exercisable
at July 31, 1995. . . . . . . . . . 51 $3.5625 to $5.125
</TABLE>
As of July 31, 1995 and 1994, the number of shares available for grant were
199,000 and 233,000, respectively.
At the Company's 1991 Annual Meeting, the shareholders approved the adoption of
a Long Term Incentive Plan (the "1991 Plan") which provides for the granting of
options to officers and key employees of the Company to purchase up to 500,000
shares of the Company's Common Stock. The 1991 Plan enables the Company to
grant either nonqualified options, with an exercise price per share established
by the Board's Compensation Committee, or incentive stock options, with an
exercise price per share not less than the fair market value of the Company's
Common Stock on the date of grant, which are exercisable at any time. Each
option granted under the 1991 Plan expires no later than ten years from date of
grant and no options can be granted under the 1991 Plan after its September 25,
2001, expiration date. Information for the years 1993, 1994 and 1995 with
respect to the Plan is as follows:
<TABLE>
<CAPTION>
----------------------------
Shares Option Price
----------------------------
(In thousands,
except for option price)
<S> <C> <C>
Outstanding and exercisable
at August 1, 1992 . . . . . . . . 86 $3.25
Granted . . . . . . . . . . . . . . . 116 $3.25 to $3.75
Exercised . . . . . . . . . . . . . . (1) $3.25
Cancelled . . . . . . . . . . . . . . (19) $3.25
Outstanding and exercisable
at July 31, 1993 . . . . . . . . . 182 $3.25 to $3.75
Granted . . . . . . . . . . . . . . . 103 $3.50 to $3.625
Exercised . . . . . . . . . . . . . . (5) $3.25 to $3.50
Cancelled . . . . . . . . . . . . . . (14) $3.25
Outstanding and exercisable
at July 31, 1994 . . . . . . . . . 266 $3.25 to $3.75
Granted . . . . . . . . . . . . . . . 70 $4.25 to $4.50
Exercised . . . . . . . . . . . . . . (34) $3.25 to $3.75
Cancelled . . . . . . . . . . . . . . (1) $3.25 to $3.50
Outstanding and exercisable
at July 31, 1995 . . . . . . . . . 301 $3.25 to $4.50
</TABLE>
As of July 31, 1995, 1994, and 1993, the number of shares available for grant
were 159,000, 228,000, and 317,000, respectively.
The Company's 1981 Incentive Stock Option Plan for officers and employees
expired on July 31, 1991. The Plan provided that option prices were equivalent
to 100% of market value at date of grant. All options granted under the Plan
are exercisable three years from date of grant and expire five years after date
of grant. Information for the years 1993, 1994 and 1995 with respect to the
Plan is as follows:
<TABLE>
<CAPTION>
----------------------------
Shares Option Price
----------------------------
(In thousands,
except for option price)
<S> <C> <C>
Outstanding at August 1, 1992 . . . . 105 $5.90 to $7.90
Expired . . . . . . . . . . . . . . . (36) $6.84
Cancelled . . . . . . . . . . . . . . (14) $5.90 to $7.90
Outstanding at July 31, 1993. . . . . 55 $5.90 to $7.90
Expired . . . . . . . . . . . . . . . (17) $7.03
Cancelled . . . . . . . . . . . . . . (3) $5.90 to $7.90
Outstanding and exercisable
at July 31, 1994. . . . . . . . . . 35 $5.90 to $7.90
Expired . . . . . . . . . . . . . . . (16) $7.90
Cancelled . . . . . . . . . . . . . . (2) $5.90 to $7.90
Outstanding and exercisable
at July 31, 1995. . . . . . . . . . 17 $5.90
</TABLE>
21
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES
During fiscal 1991, the Board of Directors approved the granting of
nonqualified stock options to purchase 110,000 shares at an option price of
$4.13, and 15,000 shares at an option price of $5.25 to the Chief Executive
Officer of the Company and a subsidiary president, respectively. In fiscal
1992, an option to purchase 50,000 shares was granted to another officer of the
Company at an option price of $3.25. The option for 15,000 shares was
exercised on August 8, 1995. The remaining options are exercisable at any time
after the date of grant with no expiration date, except in the event of
termination, disability or death, and all of the option prices are equivalent
to 100% of market value at date of grant.
The above data have been adjusted to reflect subsequent stock dividends.
In November 1987, the Board of Directors authorized a dividend of one preferred
share purchase right ("Right") on each outstanding share of Common Stock of the
Company to holders of record on December 13, 1987, and authorized the issuance
of one Right for each share of Common Stock issued after December 13, 1987. By
action dated October 30, 1992, the Board irrevocably redeemed the Rights on
November 14, 1994, at a price of $.0079209 per Right.
12. CASH FLOW INFORMATION
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments, purchased with an original maturity of
three months or less, to be cash equivalents.
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
--------------------------------
1995 1994 1993
--------------------------------
(In thousands)
<S> <C> <C> <C>
Interest paid . . . . . . . . . $790 $594 $246
Income taxes paid . . . . . . . $1,667 $528 $189
</TABLE>
Excluded from the consolidated statements of cash flows for fiscal 1995 and
1993 are certain noncash investing and financing activities relating to
acquisitions which result in the item reflected under investing activities
"Payments for acquisitions, net of cash acquired $6,404,000 and $6,344,000,"
respectively:
<TABLE>
<CAPTION>
-------------------------------
1995 1993
-------------------------------
(In thousands)
<S> <C> <C>
Fair value of assets acquired,
net of cash . . . . . . . . . $6,969 $8,363
Liabilities assumed . . . . . . $565 $2,019
</TABLE>
13. INDUSTRY SEGMENTS
The Company's operations are conducted through domestic subsidiaries within two
major industry segments. Sales between segments are not material. No single
customer accounts for more than 10% of consolidated sales nor are export sales
material thereto.
<TABLE>
<CAPTION>
-----------------------------------------------------
1995 1994(1) 1993(1)
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C>
NET SALES
Power and data quality . . . . $73,183 $58,911 $41,739
Specialty products . . . . . . 17,942 17,682 16,790
-----------------------------------------------------
Consolidated . . . . . . . . $91,125 $76,593 $58,529
=====================================================
OPERATING INCOME
Power and data quality . . . . $ 5,758 $ 3,551 $ 2,316
Specialty products . . . . . . 1,760 2,184 2,024
Corporate. . . . . . . . . . . (2,586) (2,017) (2,573)
-----------------------------------------------------
Total. . . . . . . . . . . . 4,932 3,718 1,767
Gain on disposition. . . . . . 818 -- --
Interest income. . . . . . . . 54 50 82
Interest expense . . . . . . . (859) (606) (208)
-----------------------------------------------------
Consolidated income
before income taxes. . . . $ 4,945 $ 3,162 $ 1,641
=====================================================
IDENTIFIABLE ASSETS
Power and data quality . . . . $38,653 $29,782 $29,311
Specialty products . . . . . . 9,582 9,767 8,937
-----------------------------------------------------
Consolidated segment totals. . 48,235 39,549 38,248
Corporate. . . . . . . . . . . 13,921 12,848 11,583
-----------------------------------------------------
Consolidated assets. . . . . $62,156 $52,397 $49,831
=====================================================
CAPITAL EXPENDITURES(2)
Power and data quality . . . . $ 1,113 $ 603 $ 729
Specialty products . . . . . . 614 798 408
Corporate. . . . . . . . . . . 9 45 54
-----------------------------------------------------
Total. . . . . . . . . . . . $ 1,736 $ 1,446 $ 1,191
=====================================================
DEPRECIATION AND AMORTIZATION
Power and data quality . . . . $ 1,255 $ 1,067 $ 908
Specialty products . . . . . . 627 572 531
Corporate. . . . . . . . . . . 226 229 235
-----------------------------------------------------
Total. . . . . . . . . . . . $ 2,108 $ 1,868 $ 1,674
=====================================================
</TABLE>
(1) SL Auburn, Inc. was transferred from the Power and Data Quality Segment to
the Specialty Products Segment because its products no longer fit the Power
and Data Quality definition. Prior years have been restated to reflect
this change.
(2) Excludes assets acquired in business combinations.
22
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SL INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheets of SL Industries,
Inc. and subsidiaries as of July 31, 1995 and 1994, and related consolidated
statements of earnings, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of SL Industries,
Inc. for the year ended July 31, 1993, were audited by other auditors whose
report dated September 20, 1993, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SL Industries, Inc. and
subsidiaries as of July 31, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
August 1, 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes."
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
September 15, 1995
23
<PAGE> 21
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
SL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
---------------------------------------
Quarter Ended
---------------------------------------
October 31, January 31,
----------------- ------------------
1994 1993 1995 1994
---------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,428 $ 17,640 $ 21,777 $ 18,319
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,543 $ 5,400 $ 7,023 $ 5,697
Income before income taxes and cumulative effect . . . . . . . $ 811 $ 742 $ 781 $ 307
Income before cumulative effect . . . . . . . . . . . . . . . $ 517 $ 467 $ 480 $ 168
Cumulative effect to August 1, 1993, of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . . $ --- $ 603 $ --- $ ---
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 517 $ 1,070 $ 480 $ 168
Net income per common share:(1)
Income before cumulative effect . . . . . . . . . . . . . . . $ .09 $ .07 $ .08 $ .03
Cumulative effect to August 1, 1993, of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . $ --- $ .09 $ --- $ ---
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ .09 $ .16 $ .08 $ .03
---------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------
Quarter Ended
-----------------------------------------
April 30, July 31,
------------------ -------------------
1995 1994 1995(2) 1994
-----------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,938 $ 19,147 $26,982 $ 21,487
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,035 $ 6,378 $ 9,047 $ 6,719
Income before income taxes and cumulative effect . . . . . . . $ 1,231 $ 1,023 $ 2,122 $ 1,090
Income before cumulative effect . . . . . . . . . . . . . . . $ 778 $ 640 $ 1,902 $ 676
Cumulative effect to August 1, 1993, of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $ --- $ ---
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 778 $ 640 $ 1,902 $ 676
Net income per common share:(1)
Income before cumulative effect . . . . . . . . . . . . . . . $ .13 $ .11 $ .33 $ .11
Cumulative effect to August 1, 1993, of change in accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $ --- $ ---
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ .13 $ .11 $ .33 $ .11
-----------------------------------------
</TABLE>
(1) Quarterly earnings per share are based on weighted average shares
outstanding for each quarter, and as a result, fiscal 1995 and 1994 do not
add to the annual amount, which is based on weighted average shares
outstanding during the year.
(2) Includes pre-tax gain, net of severance, legal and other costs, on
disposition of subsidiary of $818,000, increasing net income by
$1,100,000, or $.19 per common share. See Note 2 to consolidated
financial statements.
24
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or other
Jurisdiction of
Subsidiaries Incorporation
------------ -------------
<S> <C>
Cedar Corporation Nevada
Cedro de Mexico, S.A. De C.V. Mexico
Condor D.C. Power Supplies, Inc. California
Industrias SL, S.A. de C.V Mexico
PDQ Corporation New Jersey
SL Ameritech Plastics, Inc. New York
SL Auburn, Inc. New York
SL Delaware, Inc. Delaware
SL International (FSC), Inc. U.S. Virgin Islands
SL LUBE/systems, Inc.(a) New Jersey
SL Modern Hard Chrome, Inc. New Jersey
SL Montevideo Technology, Inc. Minnesota
SL Piping Systems, Inc. Delaware
SL Waber, Inc. New Jersey
Teal Electronics Corporation California
Waber de Mexico, S.A. De C.V. Mexico
Waber Power, LTD(b) Connecticut
</TABLE>
All of the registrant's subsidiaries are included in the consolidated
financial statements for the year ended July 31, 1995.
- - -------------------
(a) Disposed on May 24, 1995.
(b) Formerly SL Electrostatic Technology, Inc.
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports incorporated by reference or included in this Form 10-K, into the
Company's previously filed Registration Statement File Nos. 33-31805, 33-53274
and 33-63681.
ARTHUR ANDERSEN LLP
Philadelphia, PA
October 30, 1995
<PAGE> 1
EXHIBIT 24A
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of SL Industries, Inc. on Form S-8 (File No.'s 33-31805, 33-53274, and
33-63681) of our report dated September 20, 1993, on our audit of the
consolidated financial statements and financial statement schedule of SL
Industries, Inc. as of July 31, 1993 and for the year ended July 31, 1993 which
report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND LLP
- - --------------------------
2400 Eleven Penn Center
Philadelphia, PA
October 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF EARNINGS, CONSOLIDATED BALANCE SHEET; CONSOLIDATED CASH FLOWS;
NOTES TO FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-K - YEAR ENDED JULY 31, 1995
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<EXCHANGE-RATE> 1
<CASH> 577
<SECURITIES> 0
<RECEIVABLES> 14,262
<ALLOWANCES> 1,820
<INVENTORY> 20,622
<CURRENT-ASSETS> 36,988
<PP&E> 18,022
<DEPRECIATION> 11,089
<TOTAL-ASSETS> 62,156
<CURRENT-LIABILITIES> 15,059
<BONDS> 0
<COMMON> 1,555
0
0
<OTHER-SE> 23,375
<TOTAL-LIABILITY-AND-EQUITY> 62,156
<SALES> 91,125
<TOTAL-REVENUES> 91,125
<CGS> 59,249
<TOTAL-COSTS> 86,193
<OTHER-EXPENSES> 859
<LOSS-PROVISION> 175
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,945
<INCOME-TAX> 1,268
<INCOME-CONTINUING> 3,677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,677
<EPS-PRIMARY> .62
<EPS-DILUTED> 0
</TABLE>
