<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, 1996
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)
NEW JERSEY 21-0682685
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ 08054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 609-727-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common stock, $.20 par value New York Stock Exchange
Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
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 15, 1996, the aggregate market value of SL common stock was
approximately $53,370,000. The number of shares of common stock outstanding as
of October 15, 1996, was 5,769,780.
DOCUMENTS INCORPORATED BY REFERENCE:
Part I, II, IV - Annual Report to Shareholders for the fiscal year ended July
31, 1996 Part III - Proxy Statement dated October 11, 1996
<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 February 20, 1996, the Company sold substantially all the assets of its
wholly-owned subsidiary, SL Piping Systems, Inc., for $1,354,000 and the
assumption of certain liabilities. The sales had no material impact on the
Company's consolidated financial position or income from operations.
(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, 1996.
<PAGE> 3
(c) Narrative Description of Business
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 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)", "UPStart(TM)" and "CLIPSTRIP(R)".
For the years ended July 31, 1996, 1995, and 1994, net sales, as a percentage of
consolidated net sales, were 42%, 46% and 45%, respectively.
Condor D.C. Power Supplies, Inc. ("Condor"), designs, manufactures and
markets standard and custom AC-DC and DC-DC power supplies in both linear and
switching configurations. These products range in power from 5 to 600 watts and
are manufactured in either commercial or medical configurations. Condor's 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. Condor is a leading manufacturer of power supplies for
the medical industry. 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,
1996, 1995 and 1994, net sales, as a percentage of consolidated net sales, were
23%, 23% and 22%, 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
(patented and patent pending) motor control technologies to win important
programs in both traditional and new market areas. MTI has been validating its
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"
<PAGE> 4
in designing new solutions for older problems using advanced technology with
ever decreasing lead and cycle times for samples and products. 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' sales representatives. For the years
ended July 31, 1996, 1995 and 1994, net sales, as a percentage of consolidated
net sales, were 8%, 9% and 10%, respectively.
Teal Electronics Corporation ("Teal") develops and manufactures custom
electrical subsystems for OEM of semiconductor, medical imaging, graphics and
telecommunication systems. Outsourcing the AC power system to Teal helps its
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 them with their
systems, which are sold to the end user. For the year ended July 31, 1996, net
sales, as a percentage of consolidated net sales, were 12%.
Raw Materials
Raw materials are supplied by various domestic and international vendors
and availability for materials is not foreseen to be a problem. Average lead
times run from immediate availability to eight weeks.
Seasonality
Generally, 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.
<PAGE> 5
Backlog
Backlog at September 8, 1996, and September 3, 1995, was $22,709,000 and
$25,197,000, respectively. The decrease is primarily related to a slowdown in
the electronics and semiconductor industries.
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 of the United States. The
decreasing military market has also created more competitive conditions in both
the military and commercial markets. The businesses in this segment
differentiate themselves from their competitor by concentrating on customized
products based on customer needs. Methods of competition are primarily quality,
service, innovation, 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 1996 included several higher-temperature igniters for
turbine engines and improved technology and certified leak-proof feed throughs
which meet more stringent requirements for extreme temperatures, pressures and
environmental mandates in air-conditioning markets. 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, 1996, 1995 and 1994, net sales, as a percentage of consolidated net sales,
were 9%, 10% and 11%, respectively.
SL Modern Hard Chrome, Inc. ("MHC"), provides chromium electroplated,
specialty engineered surfaces to the paper,
<PAGE> 6
plastics, steel, nuclear and construction industries. Examples include its
specifically designed, wear resistant, NUchrome(TM) (introduced in FY 1995)
coating for rolls used in the manufacture of corrugated paper board, controlled
gloss surfaces for plastic laminate press plates and containment resistant
barrier surfaces for vinyl flooring stencils. The company is a major supplier of
these services in the Delaware Valley region, and has recently developed a
presence in Western Europe. 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. In most cases, viable multiple sources are
maintained for flexibility and competitive leverage.
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 8, 1996, and September 3, 1995, was $3,927,000 and
$4,146,000, respectively. The decrease is related to the disposition of Piping.
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. 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
<PAGE> 7
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 1996 were immaterial and are estimated to be immaterial for fiscal
1997. For additional information related to environmental issues, see Note 10 to
the consolidated financial statements and "Management Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report to
Shareholders for the fiscal year ended July 31, 1996, and is incorporated herein
by reference.
Employees
As of September 8, 1996, the Registrant had a total of 1,547 employees. Of
the total 1,547 employees, 133 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 1996, the "Operations
Review" and "Management Discussion and Analysis of Financial Condition and
Results of Operations" in the Annual Report to Shareholders for the fiscal year
ended July 31, 1996, are incorporated by reference.
<PAGE> 8
ITEM 2. PROPERTIES
Approx. Owned or Leased
Square And
Location General Character Footage Expiration Date
- -------- ----------------- ------- ---------------
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 10/30/96
products
Nogales, Manufacture and 51,500 Leased
AZ distribution of 07/31/97
power protection
products
Mt. Laurel, Corporate Office - 15,900 Leased
NJ power protection 11/30/99
products
Oxnard, Manufacture and 36,000 Leased
CA distribution of 02/28/03
power supply products
Mexicali, Manufacture of Leased
Mexico power supply products 40,000 06/01/98
21,150 08/31/00
San Diego, Manufacture of 31,200 Leased
CA AC power subsystems 03/22/00
Specialty Products:
Auburn, Manufacture of 55,000 Owned
NY specialty spark
plugs and igniters
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
<PAGE> 9
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. In addition, the manufacturer of
power protection products located in Nogales, Mexico will be moving into a new
leased facility in December 1996. The approximate square footage of this
facility is 65,000 square feet and the expiration date is November 30, 2002.
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 Discussion and Analysis of Financial Condition
and Results of Operations" in the Annual Report to Shareholders for the fiscal
year ended July 31, 1996, and is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter ended July 31, 1996, 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 1996 FISCAL 1995
------------------ ----------------
HIGH LOW HIGH LOW
------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Stock Prices
1st Quarter 8 3/8 5 5/8 4 1/2 3 7/8
2nd Quarter 9 3/8 6 5/8 5 4
3rd Quarter 8 1/2 6 5/8 5 1/4 4 1/2
4th Quarter 11 3/8 7 7/8 6 1/4 4 3/4
Dividends
Cash - November $.03 $.03
Cash - June $.03 $.03
</TABLE>
<PAGE> 10
As of September 13, 1996, there were approximately 1,700 registered
shareholders. A semi-annual cash dividend of $.03 per share was declared on
September 20, 1996, which is payable on November 26, 1996, to shareholders of
record on November 4, 1996. 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, 1996.
ITEM 7. MANAGEMENT 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 Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report to Shareholders for
the fiscal year ended July 31, 1996.
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, 1996.
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 4 through 5
of the proxy statement dated October 11, 1996 The ages of the executive officers
are as follows: Owen Farren, age 45, and James E. Morris, age 59. 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;
and J.E. Morris, Vice President and Corporate Controller since September 1991,
Secretary and Treasurer since November 1995 and a financial executive since
1978.
<PAGE> 11
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 11,
1996.
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 "Security Ownership of Principal Shareholders and
Management" on page 3 of the proxy statement dated October 11, 1996.
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 8
of the proxy statement dated October 11, 1996.
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, 1996, are
incorporated herein by reference:
Consolidated Statements of Earnings -
Years ended July 31, 1996, 1995 and 1994
Consolidated Balance Sheets - July 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity Years ended July 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows Years ended July 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
<PAGE> 12
(a) (2) Financial Statement Schedules
The following financial statement schedules for the years 1996, 1995 and
1994 are submitted herewith:
Report of Independent Public Accountants -
Arthur Andersen LLP
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.
(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
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended July 31, 1996.
<PAGE> 13
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, 1996
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 23, 1996
October 25, 1996
/s/ James E. Morris /s/ Edward A. Gaugler
- -------------------------- ---------------------------------
James E. Morris Edward A. Gaugler
Vice President, Director
Corporate Controller, October 25, 1996
Treasurer and Secretary
October 25, 1996
/s/ Salvatore J. Nuzzo /s/ George R. Hornig
- -------------------------- ---------------------------------
Salvatore J. Nuzzo George R. Hornig
Chairman of the Board Director
October 23, 1996 October 23, 1996
/s/ Warren G. Lichtenstein
---------------------------------
Warren G. Lichtenstein
Director
October 23, 1996
/s/ Robert J. Sanator
---------------------------------
Robert J. Sanator
Director
October 23, 1996
<PAGE> 14
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> 15
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SL Industries, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements 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 13, 1996. 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 13, 1996
<PAGE> 16
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1996, 1995 AND 1994
(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 1996
Allowance for:
doubtful accounts $ 453 $ 151 $ 41 $ 217(a) $ 428
====== ====== ===== ====== ======
customer credits $1,367 $1,888 $ -- $2,043(b) $1,212
====== ====== ===== ====== ======
YEAR 1995 Allowance for:
doubtful accounts $ 256 $ 175 $ 63 $ 41(a) $ 453
====== ====== ===== ====== ======
customer credits $ 528 $2,701 $ -- $1,862(b) $1,367
====== ====== ===== ====== ======
YEAR 1994 Allowance for:
doubtful accounts $ 258 $ 50 $ 111 $ 163(a) $ 256
====== ====== ===== ====== ======
customer credits $ 305 $2,200 $ -- $1,977(b) $ 528
====== ====== ===== ====== ======
</TABLE>
(a) Accounts receivable written off, net of recoveries.
(b) Primarily for customer advertising programs.
<PAGE> 17
INDEX TO EXHIBITS
The exhibit number, description and sequential page number in the original
copy of this document where exhibits can be found follows:
Exhibit # Description
- --------- -----------
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.
<PAGE> 18
Exhibit # Description
- --------- -----------
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.
<PAGE> 19
Exhibit # Description
- --------- -----------
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., as amended, is
incorporated by reference to Appendix to the Registrant's Proxy
Statement for its 1995 Annual Meeting held November 17, 1995,
previously filed with the Securities and Exchange Commission.
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. Incorporated by reference to the
Registrant's report on Form 10K/A for the fiscal year ended July
31, 1994.
10.24 Amendment No. 1 to Non-Qualified Stock Option Agreement dated
September 25, 1991, is incorporated herein by reference to Exhibit
4.5 to Registration Statement on Form S-8/A (No. 33-53274) filed
with the Securities and Exchange Commission on June 18, 1996.
10.25 Non-Qualified Stock Option Agreement Incorporated by reference to
Exhibit 4.3 to Registration Statement No. 33-65445, filed December
28, 1995.
11 Statement Re Computation of Per Share Earnings (transmitted
herewith).
<PAGE> 20
Exhibit # Description
- --------- -----------
13 Portions of Annual Report to Shareholders for the fiscal year ended
July 31, 1996 (transmitted herewith).
17 Letter Re Director Resignation. Incorporated by reference to the
Registrant's report on Form 8-K filed on October 20, 1992.
22 Subsidiaries of the Registrant (transmitted herewith).
24 Consent of Independent Public Accountants - Arthur Andersen LLP
(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).
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended July 31,
------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE
Net income...................................... $3,498 $3,677 $2,554
====== ====== ======
Weighted average number of common
shares outstanding during the year.............. 5,701 5,940 6,152
====== ====== ======
Net income per common share..................... $ .61 $ .62 $ .42
====== ====== ======
PRIMARY
Net income...................................... $3,498 $3,677 $2,554
====== ====== ======
Weighted average number of common
shares outstanding during the year.............. 5,701 5,940 6,152
Add: shares of common stock
equivalents..................................... 249 102 38
------ ------ ------
Weighted average number of shares
used in calculation of primary
income per share................................ 5,950 6,042 6,190
====== ====== ======
Primary income per
common share.................................... $ .59 $ .61 $ .41
====== ====== ======
FULLY DILUTED
Net income...................................... $3,498 $3,677 $2,554
====== ====== ======
Weighted average number of common
shares outstanding as adjusted above............ 5,950 6,042 6,190
Add: incremental shares of common
stock equivalents............................... 18 20 9
------ ------ ------
Weighted average number of shares
used in calculation of fully
diluted income per share........................ 5,968 6,062 6,199
====== ====== ======
Fully diluted income per
common share.................................... $ .59 $ .61 $ .41
====== ====== ======
</TABLE>
<PAGE> 1
OPERATIONS REVIEW
SL INDUSTRIES, INC.
Thoughout SL Industries, Inc., teams of SL employees partner with customers to
develop creative solutions to their Power and Data Quality problems and other
challenges. Our highly skilled teams work with customers from design through
production to satisfy their requirements.
Following is a summary of our subsidiaries' fiscal 1996 progress, with an
overview of their plans for the future.
CONDOR D.C. POWER SUPPLIES, INC.
Condor designs and manufactures standard and custom AC-DC power supplies,
including power supplies with battery back-up capabilities. Condor works
directly with Original Equipment Manufacturers [OEMs] to produce power supplies
in the medical, telecommunications, industrial and instrumentation markets. The
Company sells through OEM sales representatives and industrial distributors
domestically, and sales agents internationally.
Condor obtained ISO 9000 certification in fiscal 1996. This achievement,
coupled with the Company's reputation for engineering products to meet
virtually all international standards for safety and quality should enhance
Condor's international growth.
Also in fiscal 1996, Condor significantly expanded its share of the medical and
telecommunications markets, with OEMs and expanded distribution. Condor's
product line and the number of challenging applications for which Condor has
generated solutions has increased to a marked degree.
The most notable advance in fiscal 1996 was the introduction of compact
higher-density power density products incorporating surface mount technology,
and the installation of Condor's first surface mount production line for the
manufacturing of these products.
SL MONTEVIDEO TECHNOLOGY [SL-MTI]
SL MONTEVIDEO TECHNOLOGY [SL-MTI] is an industry leader that provides
technological solutions for intelligent high-power-density precision motors,
motor controls and motor control systems. SL- MTI capitalizes on its new motor
and motor control technologies to win important programs in its traditional
markets [defense aerospace], as well as its new markets (commercial aerospace,
industrial and medical).
<PAGE> 2
OPERATIONS REVIEW
SL INDUSTRIES, INC.
Through its "Customer Delight" program, SL-MTI has utilized advanced technology
to solve customers' motion control and related power electronics' problems. The
SL-MTI program combines advanced technology motion control solutions with
prompt quotations and rapid prototype delivery, so that customers can
incorporate these innovations early in their product development efforts, for
maximum benefits.
In FY96, SL-MTI provided major customers with delivery of a 35-kilowatt
Windows-based [Digital Signal Processor] (DSP) motion control system for highly
efficient oil field mapping and exploration. This successful development
demonstrates SL-MTI's expanding ability to design and develop significantly
larger and higher powered motion control systems. Also, in FY96, SL-MTI
received orders to build prototype flywheel energy storage systems for a
telecommunication application, and a 3-horsepower motor for an electric motor
scooter.
Customer confidence in SL-MTI's ability to solve ever more challenging power
and motion control problems is evidenced by its successes. These developments
are propelling SL-MTI into solid growth markets and strengthening SL-MTI's
capabilities in its current markets.
SL WABER, INC.
SL Waber continued its market leadership in designing, manufacturing and
marketing an extensive line of power and data quality solutions. SL Waber's
brands protect sensitive electronic devices and data from power surges, power
outages and electronic noise. The Company's products are sold to OEMs,
industrial customers and professional offices, as well as to home offices and
homeowners. SL Waber sells its products through many distribution channels,
that include electronic and electrical distributors, office supply dealers and
computer resellers. A significant portion of sales occurs through retail
channels, such as computer and office products stores, hardware stores, home
centers and mass market superstores.
In FY96, SL Waber introduced a new generation of surge suppressors:
Datagard(R). This brand incorporates the latest and most effective designs and
technology to protect computers and modem lines connected to the Internet and
other on-line services. During 1996, SL Waber was recognized by independent
research as the largest surge suppressor company in the United States.
<PAGE> 3
OPERATIONS REVIEW
SL INDUSTRIES, INC.
UPSTART(TM), a revolutionary Uninterruptible Power Source [UPS] was introduced
to critical acclaim of individual customers and computer publications. This
product received a coveted Windows Magazine recommendation in FY96.
UPSTART(TM), the first and only 5-in-1 Uninterruptible Power Center with
exclusive save-and-restore software, provides casual computer owners with
automatic unattended shut-down and start-up capability, ensuring that they save
valuable files. Several key industrial customers and major retailers, such as
Computer City, Staples, the Office Depot and CompUSA, distribute this
breakthrough product.
In FY97, SL Waber will continue to expand its surge suppressor and UPS lines,
incorporating even greater capabilities to protect customers' data and
electronic products. Technology and market research will continue to be
utilized to better identify, target and fulfill industrial and individual
consumer needs.
In addition, in FY97, SL Waber will introduce several new products, including
its recently acquired Day Sequerra line of high technology FM receivers,
antennas and power protection products for current distribution and export to
the audio/visual market. These products are an outgrowth of SL Waber's
expanding market knowledge of the wired and wireless computer and
communications fields. SL Waber's growing reputation and its respected
technology have established the Company as an industry leader.
TEAL ELECTRONICS CORPORATION
OEMs outsource their design, development and manufacturing of power systems to
Teal Electronics, thereby reducing their time-to-market and leveraging their
core competencies. Teal's customers can then concentrate on what they do best.
Teal's subsystems are often referred to as Power Conditioning and Distribution
Units [PCDU's]. They enhance the quality and reliability of the OEM's system
by providing required voltage conversion, control and distribution. Teal's
PCDUs condition and stabilize power, while domestic and international agency
standards. Teal is currently developing systems to integrate AC-DC
conversions.
Teal's capabilities were significantly enhanced during FY96 by the addition of
powerful new solid modeling computers, which allow even closer partnerships
with customers during new product development. 'Virtual prototypes' are now
being created, viewed and
<PAGE> 4
OPERATIONS REVIEW
SL INDUSTRIES, INC.
remotely exchanged between Teal and its customers. This appeals to customers
because it effectively eliminates one design iteration, shaving weeks to months
from their critical path-to-market. In FY96, Teal continued building its
extensive library of component models from which new custom designs can be
quickly created.
This was a year of significant growth for Teal, as the Company focused on
expanding its capacity to keep pace with exploding markets for
telecommunications systems and semiconductor production equipment. Every
Pentium(TM) chip made has been evaluated on Schlumberger testers powered by a
Teal PCDU. Rapidly growing demand for computer and telecommunication chips has
fueled demand for Teal-powered production equipment. Teal interfaces greatly
improve the long-term stability of Ericsson's wireless communications systems,
now being installed in Third World countries, where power quality can be very
low.
During this fiscal year, new OEM customers and programs were also added in
Teal's other core markets of medical imaging and digital graphics. Teal is now
an OEM supplier to each of the top six medical imaging OEMs, supplying custom
PCDUs for MR, CT, X-ray, nuclear medicine and radiation therapy equipment.
Teal continues to pioneer the art of 'mass customization', supplying custom
solutions to OEMs in small batches. They employ 'JIT' [Just-In-Time] operation
systems to this end. The Company's ability to remain fast, flexible and
repeatable is facilitated by its state-of-the-art on-line documentation system.
This system was moved from pilot to production status during FY96, enabling
Teal to achieve ISO 9000 certification without loss of flexibility or speed.
The Internet also presents new opportunities, upon which Teal will begin to
capitalize during FY97. Using its new world-wide web site, '(@teal.com)', Teal
will further serve its customers by facilitating easy viewing and exchange of
solid models and applications information.
<PAGE> 5
OPERATIONS REVIEW
SL INDUSTRIES, INC.
SL AUBURN, INC.
SL Auburn designs, manufactures and markets spark plugs, igniters and other
products that send, isolate or serve electric energy under extreme conditions
of voltage, pressure and/or temperature. SL Auburn sells to OEMs and to the
after-market, through distribution. Sales growth during the fiscal year was
driven, in part, by improvement in the aerospace industry. Concurrently, there
was increased demand for SL Auburn's products which move electric currents
through containment vessels where environmentally sensitive gases and liquids
are in use. SL Auburn also introduced its new electronic ignition system in
FY96. The Company is currently working with a strategic partner to develop a
line of spark plugs for the natural gas engine market. These new products, and
others under development for introduction in FY97, should contribute to growth
in that year and beyond.
SL MODERN HARD CHROME, INC. (SL-MHC)
SL-MHC is a global provider of high precision hard chromium electroplating and
surface finishing for the steel, paper, automobile and construction industries.
SL-MHC has licensed its technology to surface finishers in other geographic
areas to better serve our global customers. The Company has aggressive
communicated its capabilities, utilizing targeted marketing campaigns. This
strategy significantly enhanced our reputation for meeting the needs of
demanding OEMs. NUchrome(TM), a product developed specifically for the
corrugated paper industry, has been enthusiastically embraced by OEMs and
end-users. The Company is dedicated to serving the needs of targeted niche
industries. Encouraged by NUchrome's first-year sales, SL-MHC is expanding its
new product research and development to improve its current processes, as well
as developing new surface coatings to meet industry needs.
<PAGE> 6
SELECTED FINANCIAL DATA
SL INDUSTRIES, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $117,313 $91,125 $76,593 $58,529 $50,941
Income before extraordinary item and cumulative
effect of changes in accounting principles (1) . . . . . . . $ 3,498 $ 3,677 $ 1,951 $ 954 $ 1,506
Extraordinary item - utilization of the federal tax benefit
of a net operating loss carryforward. . . . . . . . . . . . . -- -- -- 500 620
Cumulative effect of change in accounting for income taxes. . . -- -- 603 -- --
----------------------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,498 $ 3,677 $ 2,554 $ 1,454 $ 2,126
==========================================================
Net income per common share:
Income before extraordinary item and cumulative
effect of changes in accounting principles (1) . . . . . . . $ .59 $ .62 $ .32 $ .15 $ .23
Extraordinary item - utilization of the federal tax benefit
of a net operating loss carryforward . . . . . . . . . . . . -- -- -- .07 .09
Cumulative effect of change in accounting for income taxes -- -- .10 -- --
----------------------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ .59 $ .62 $ .42 $ .22 $ .32
==========================================================
Shares used in computing net income per common share (2). . . . 5,950 5,940 6,152 6,500 6,552
Cash dividend per common share. . . . . . . . . . . . . . . . . $ .06 $ .06 $ .06 $ .09 $ .03
YEAR-END FINANCIAL POSITION
Working capital . . . . . . . . . . . . . . . . . . . . . . . . $ 20,765 $21,929 $21,125 $18,995 $14,912
Current ratio . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 2.5 2.9 2.8 2.8
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,175 $62,156 $52,397 $49,831 $39,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . $ 13,186 $17,373 $11,918 $ 9,218 $ 844
Shareholders' equity. . . . . . . . . . . . . . . . . . . . . . $ 28,680 $24,930 $23,577 $23,431 $22,558
Book value per share. . . . . . . . . . . . . . . . . . . . . . $ 4.98 $ 4.43 $ 3.93 $ 3.60 $ 3.47
OTHER
Capital expenditures (3) . . . . . . . . . . . . . . . . . . . $ 2,219 $ 1,736 $ 1,446 $ 1,191 $ 1,048
Depreciation and amortization . . . . . . . . . . . . . . . . . $ 2,584 $ 2,108 $ 1,868 $ 1,674 $ 1,452
==========================================================
</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.
(2) Fiscal 1996 includes the affect of outstanding dilutive stock options.
(3) Excludes assets acquired in business combinations.
8
<PAGE> 7
MANAGEMENT DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SL INDUSTRIES, INC.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the net cash provided by operating activities was
$4,687,000, as compared to $3,307,000 and $1,329,000 provided in fiscal 1995
and 1994, respectively. The fiscal 1996 increase, as compared to fiscal 1995,
resulted primarily from increased net income from operations and decreased
inventories, offset, in part, by increased receivables. 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. During fiscal 1996, 1995 and 1994, the net cash used in
investing activities of $1,240,000, $8,126,000 and $1,423,000, 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, offset, in part, by the fiscal 1996
disposition of substantially all of the assets of SL Piping Systems, Inc.
("Piping"), net of certain liabilities. During fiscal 1996, the net cash used
in financing activities of $4,024,000 was primarily related to payments made to
reduce the Company's long-term debt obligation. During fiscal 1995 and 1994,
the net cash provided by financing activities of $5,199,000, and $291,000,
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 and for fiscal 1994
capital expenditures and working capital requirements.
The Company maintains a strong working capital position with a current ratio of
2.3 to 1 at July 31, 1996, 2.5 to 1 at July 31, 1995, and 2.9 to 1 at July 31,
1994. The fiscal 1996 decrease, as compared to fiscal 1995, resulted from a
10% increase in current liabilities, as compared to a 1% increase in current
assets. 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.
As a percentage of total capitalization, consisting of long-term debt and
shareholders' equity, total borrowings by the Company were 32% at July 31,
1996, 41% at July 31, 1995, and 34% at July 31, 1994. The fiscal 1996 decrease
in total borrowings, as compared to fiscal 1995, was primarily a result of
payments made to reduce the outstanding balance of the Company's revolving line
of credit. The fiscal 1995 increase in total borrowings, as compared to fiscal
1994, was 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, 1996, the Company had $8,002,000, net of outstanding
trade letters of credit of $998,000, of its revolving line of credit available
for use. On September 13, 1996, the Company received approval from three banks
to enter into a new revolving credit agreement in the amount of $25,000,000.
The Company expects to close on this new agreement during the first quarter of
fiscal 1997. At closing, the new agreement will replace the current agreement.
See Note 8 to the consolidated financial statements for additional information.
The Company's borrowing capacity at July 31, 1996, remained considerably above
its use of outside financing.
Capital expenditures were $2,219,000 in 1996, as compared to $1,736,000 in 1995
and $1,446,000 in 1994. Expenditures during the three-year period have
primarily included investments in new process technology and increased
production capacity. Fiscal 1997 capital expenditures are planned to be
approximately $2,838,000, 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 1996 COMPARED TO FISCAL 1995
Fiscal 1996 consolidated net sales of $117,313,000 increased approximately 29%
($26,188,000), as compared to fiscal 1995 consolidated net sales. Fiscal 1996
net income was $3,498,000, or $.59 per share, as compared to fiscal 1995 net
income of $3,677,000, or $.62 per share. Fiscal 1995 net income included 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. If the gain is
excluded from fiscal 1995 net income, fiscal 1996 net income increased
approximately 36% ($921,000).
The power and data quality segment's fiscal 1996 net sales increased
approximately 37% ($27,136,000), as compared to fiscal 1995 net sales. The
segment's fiscal 1996 net sales included a full year of Teal's net sales, as
compared to a partial year in fiscal 1995. If the net sales of Teal are
excluded from both fiscal 1996 and 1995, the segment's net sales increased
approximately 23% ($15,946,000), as compared to fiscal 1995. 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, increased net sales of AC-DC power supplies, which
resulted from new customer programs and increased demand 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 1996 operating income increased approximately 54%
($3,095,000), as compared to fiscal 1995. If the operating income of Teal is
excluded from both fiscal 1996 and 1995, the segment's operating income
increased approximately 25% ($1,408,000), as compared to fiscal 1995. The
increase in fiscal 1996 operating income resulted from the increased net sales
realized by the businesses within this segment.
The specialty products segment's fiscal 1996 net sales decreased approximately
5% ($948,000), as compared to fiscal 1995 net sales. The net sales decrease
was related to the divestiture of Piping and LUBE in February 1996 and May
1995, respectively. If the net sales of Piping are excluded from both fiscal
1996 and 1995 and the net sales of LUBE are excluded from fiscal 1995, the
segment's net sales increased approximately 16% ($1,968,000), as compared to
fiscal 1995. Contributing to this increase were increased sales of aviation
and industrial igniters, and chrome plating services, offset, in part, by
decreased sales of aviation spark plugs. The increases in sales of aviation
and industrial igniters, and chrome plating services were primarily a result of
increased demand. The decrease in sales of aviation spark plugs was primarily
a result of decreased demand because of softness in the general aviation
market. The specialty products segment's fiscal 1996 operating income
decreased approximately 63% ($1,100,000), as compared to fiscal 1995. If the
operating losses of Piping are excluded from both fiscal 1996 and 1995 and the
operating income of LUBE is excluded from fiscal 1995, the segment's operating
income decreased approximately 27% ($387,000), as compared to 1995. This
decrease resulted primarily from decreased gross margins realized by the
businesses within this segment.
9
<PAGE> 8
COST OF SALES
As a percentage of net sales, fiscal 1996 and 1995 costs of products sold were
approximately 65%. Investments are being made to improve operational
efficiencies that should reduce cost of products sold as a percentage of net
sales.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Fiscal 1996 engineering and product development expenses of $4,713,000
increased approximately 39% ($1,319,000), as compared to fiscal 1995. If the
expenses of Teal are excluded from both fiscal 1996 and 1995, engineering and
product development expenses increased approximately 21% ($678,000), as
compared to 1995. The fiscal 1996 increase was primarily related to
investments made by the businesses within the power and data quality segment.
As a percentage of net sales, fiscal 1996 and 1995 engineering and product
development expenses were approximately 4%. If the expenses and net sales of
Teal are excluded from both fiscal 1996 and 1995, the expenses, as a
percentage of net sales, remain the same.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1996 selling, general and administrative expenses of $26,884,000
increased approximately 25% ($5,442,000), as compared to fiscal 1995. If the
expenses of Teal are excluded from both fiscal 1996 and 1995, selling, general
and administrative expenses increased approximately 16% ($3,351,000), as
compared to 1995. The fiscal 1996 increase was primarily related to increased
marketing expenses. As a percentage of net sales, fiscal 1996 selling, general
and administrative expenses were approximately 23%, as compared to 24% in
fiscal 1995. If the expenses and net sales of Teal are excluded from both
fiscal 1996 and 1995, the expenses, as a percent of net sales, remain the same.
DEPRECIATION AND AMORTIZATION EXPENSE
Fiscal 1996 depreciation and amortization expense of $2,584,000 increased
approximately 23% ($476,000), as compared to fiscal 1995. If the expenses of
Teal are excluded from both fiscal 1996 and 1995, depreciation and amortization
expense increased approximately 2% ($37,000).
OTHER INCOME (EXPENSE)
Fiscal 1996 other income (expense) consisted entirely of interest income and
expense. Fiscal 1995 other income (expense) included the gain on the
disposition of LUBE, as well as interest income and expense. Fiscal 1996
interest expense increased, as compared to fiscal 1995, primarily because of
higher interest rates and the use of the Company's revolving line of credit for
the May 1995 Teal acquisition. Fiscal 1996 interest income increased, as
compared to fiscal 1995, because of higher interest rates and additional cash
available for investment.
TAXES
The fiscal 1996 effective tax rate on pre-tax income was 35%, as compared to
26% in fiscal 1995. The fiscal 1996 effective tax rate included the affect of
prior year state income tax refunds. The fiscal 1995 effective tax rate
included the affect of the May 1995 tax free disposition of LUBE.
FISCAL 1995 COMPARED TO FISCAL 1994
Fiscal 1995 consolidated net sales of $91,125,000 increased approximately 19%
($14,532,000), 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 included a
gain, net of severance, legal and other costs, from the disposition of LUBE of
$1,100,000, or $.19 per share. Fiscal 1994 net income included 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, net
income increased approximately 32% ($626,000). 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% ($14,272,000) and 62% ($2,207,000), respectively,
as compared to fiscal 1994 net sales and operating income. 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% ($260,000), and decreased approximately 19%
($424,000), 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 percentage 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.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Fiscal 1995 engineering and product development expenses of $3,394,000
increased approximately 40% ($971,000), as compared to fiscal 1994. As a
percentage of net sales, fiscal 1995 engineering and product development
expenses were 4%, as compared to 3% in fiscal 1994. The fiscal 1995 increases
were primarily related to investments made by the businesses within the power
and data quality segment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1995 selling, general and administrative expenses of $21,442,000
increased approximately 25% ($4,243,000), as compared to fiscal 1994. As a
percentage of net sales, fiscal 1995 selling, general and administrative
expense were approximately 24%, as compared to approximately 22% in fiscal
1994. The fiscal 1995 increases were primarily related to increased selling
and marketing expenses.
10
<PAGE> 9
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 higher 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.
ENVIRONMENTAL
During fiscal 1996, 1995 and 1994, investigation or remediation activities, or
both, were undertaken at 18 sites owned, leased or previously utilized by the
Company. During the latter part of 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,
and based on the results of that investigation, which were received in fiscal
1996, the Company determined that additional remediation costs of approximately
$1,000,000 are probable; therefore, in fiscal 1996, the Company made an
additional provision of $900,000.
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. 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". 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 and any
material exposure is remote.
Although these contingencies could result in additional expenses or judgments,
or offsets, thereto, at present such expenses or judgments are not expected to
have a material affect on the Company's consolidated financial position or
results of earnings.
The Company filed claims with its insurers seeking reimbursement for past and
future environmental costs and received $900,000 from one insurer during fiscal
1996 and a commitment to pay 15% of the environmental costs associated with the
MHC site up to an aggregate of $300,000. The $900,000 received was recorded as
a credit against the fiscal 1996 provision. Subsequent to July 31, 1996, the
Company also settled one additional insurance claim.
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
1997 consolidated financial results will continue to show improvements.
11
<PAGE> 10
CONSOLIDATED STATEMENTS OF EARNINGS
SL INDUSTRIES, INC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1996 1995 * 1994 *
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . $117,313,000 $91,125,000 $76,593,000
Cost and expenses:
Cost of products sold . . . . . . . . . . . . . . . . 76,773,000 59,249,000 51,385,000
Engineering and product development . . . . . . . . . 4,713,000 3,394,000 2,423,000
Selling, general and administrative expenses. . . . . 26,884,000 21,442,000 17,199,000
Depreciation and amortization . . . . . . . . . . . . 2,584,000 2,108,000 1,868,000
--------------------------------------------------------
Total cost and expenses . . . . . . . . . . . . . . . . 110,954,000 86,193,000 72,875,000
--------------------------------------------------------
Income from operations. . . . . . . . . . . . . . . . . 6,359,000 4,932,000 3,718,000
Other income (expense):
Gain on disposition of subsidiary . . . . . . . . . . -- 818,000 --
Interest income . . . . . . . . . . . . . . . . . . . 159,000 54,000 50,000
Interest expense. . . . . . . . . . . . . . . . . . . (1,123,000) (859,000) (606,000)
--------------------------------------------------------
Income before income taxes and cumulative effect
of accounting change. . . . . . . . . . . . . . . . . 5,395,000 4,945,000 3,162,000
Provision for federal and state income taxes. . . . . . 1,897,000 1,268,000 1,211,000
--------------------------------------------------------
Income before cumulative effect of accounting change. . 3,498,000 3,677,000 1,951,000
Cumulative effect to August 1, 1993, of change in
accounting for income taxes . . . . . . . . . . . . . -- -- 603,000
--------------------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 3,498,000 $ 3,677,000 $ 2,554,000
========================================================
Net income per common share:
Income before cumulative effect of accounting change. $ .59 $ .62 $ .32
Cumulative effect to August 1, 1993, of change in
accounting for income taxes . . . . . . . . . . . . -- -- .10
--------------------------------------------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . $ .59 $ .62 $ .42
========================================================
Shares used in computing net income per common share. . 5,950,000 5,940,000 6,152,000
========================================================
</TABLE>
* Reclassified to conform with current year's presentation.
See accompanying notes to consolidated financial statements.
12
<PAGE> 11
CONSOLIDATED BALANCE SHEETS
SL INDUSTRIES, INC.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
July 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 577,000
Receivables, less allowances
of $1,639,000 and $1,820,000, respectively. . . . . . . . . . . . . . . 16,428,000 12,442,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,339,000 20,622,000
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 868,000 890,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 2,668,000 2,457,000
--------------------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . 37,303,000 36,988,000
--------------------------------
Property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . . 7,119,000 6,933,000
Assets held for future sale . . . . . . . . . . . . . . . . . . . . . . . . 985,000 3,240,000
Long-term note receivable . . . . . . . . . . . . . . . . . . . . . . . . . 2,264,000 --
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,488,000 551,000
Cash surrender value of life insurance policies . . . . . . . . . . . . . . 7,095,000 6,595,000
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,401,000 7,468,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,000 381,000
--------------------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,175,000 $62,156,000
================================
LIABILITIES
Current liabilities:
Long-term debt due within one year. . . . . . . . . . . . . . . . . . . . $ 187,000 $ 187,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,770,000 5,658,000
Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 786,000 1,140,000
Accrued liabilities:
Payroll and related costs . . . . . . . . . . . . . . . . . . . . . . . 4,614,000 3,938,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,181,000 4,136,000
--------------------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 16,538,000 15,059,000
--------------------------------
Long-term debt less portion due within one year . . . . . . . . . . . . . . 13,186,000 17,373,000
Deferred compensation and supplemental retirement benefits. . . . . . . . . 3,723,000 3,322,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,048,000 1,472,000
--------------------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $35,495,000 $37,226,000
--------------------------------
Commitments and contingencies (Note 10)
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, 1996 - 7,899,000 shares, 1995 - 7,773,000 shares. . . . . . . . . 1,580,000 1,555,000
Capital in excess of par value. . . . . . . . . . . . . . . . . . . . . . . 34,306,000 33,735,000
Retained earnings (accumulated deficit) . . . . . . . . . . . . . . . . . . 2,196,000 (958,000)
Treasury stock at cost, 1996 - 2,141,000 shares, 1995 - 2,141,000 shares. . (9,402,000) (9,402,000)
--------------------------------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . $28,680,000 $24,930,000
--------------------------------
Total liabilities and shareholders' equity. . . . . . . . . . . . . $64,175,000 $62,156,000
================================
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 12
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SL INDUSTRIES, INC.
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------------- Retained
Issued Held In Treasury Capital in Earnings
---------------------------------------------------------- Excess of (Accumulated
Shares Amount Shares Amount Par Value Deficit)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance August 1, 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)
Net income . . . . . . . . . . . . 3,498,000
Cash dividends, $.06 per share . . (343,000)
Other, including exercise of
employee stock options and
related income tax benefits. . . 126,000 25,000 571,000 (1,000)
----------------------------------------------------------------------------------------
BALANCE JULY 31, 1996. . . . . . . 7,899,000 $1,580,000 (2,141,000) $(9,402,000) $34,306,000 $2,196,000
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
SL INDUSTRIES, INC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,498,000 $ 3,677,000 $ 2,554,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting for income taxes. . . . . . . -- -- (603,000)
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,869,000 1,687,000 1,384,000
Amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 715,000 421,000 484,000
Provisions for losses on accounts receivable. . . . . . . . . . . . . . 151,000 175,000 50,000
Additions to other assets . . . . . . . . . . . . . . . . . . . . . . . (259,000) (95,000) (208,000)
Cash surrender value of life insurance premiums . . . . . . . . . . . . (499,000) (661,000) (759,000)
Deferred compensation and supplemental retirement benefits. . . . . . . 863,000 521,000 606,000
Deferred compensation and supplemental retirement benefit payments. . . (449,000) (691,000) (449,000)
(Increase) decrease in deferred income taxes. . . . . . . . . . . . . . (1,148,000) (724,000) 281,000
(Gain) loss on the sale of equipment. . . . . . . . . . . . . . . . . . (5,000) 13,000 8,000
Discontinued product line expenses. . . . . . . . . . . . . . . . . . . (246,000) (172,000) (416,000)
Gain on disposition of subsidiary . . . . . . . . . . . . . . . . . . . -- (818,000) --
Changes in operating assets and liabilities, net of the effect
of acquisitions and dispositions:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,000,000) (356,000) (2,411,000)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,682,000 (3,318,000) 44,000
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 (57,000) (34,000)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 444,000 872,000 937,000
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 2,325,000 2,526,000 (830,000)
Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . . . . (265,000) 307,000 691,000
-------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . $4,687,000 $ 3,307,000 $ 1,329,000
-------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment. . . . . . . . . . . . 151,000 14,000 6,000
Purchases of property, plant and equipment. . . . . . . . . . . . . . . . . (2,219,000) (1,736,000) (1,446,000)
Proceeds from notes receivable. . . . . . . . . . . . . . . . . . . . . . . 7,000 -- 17,000
Payments for acquisitions, net of cash acquired . . . . . . . . . . . . . . (533,000) (6,404,000) --
Proceeds from disposition of subsidiary . . . . . . . . . . . . . . . . . . 1,354,000 -- --
-------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . $(1,240,000) $(8,126,000) $(1,423,000)
-------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (343,000) (349,000) (375,000)
Rights redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (48,000) --
Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (2,049,000)
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 600,000 9,000,000 6,600,000
Payments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . (4,786,000) (3,526,000) (3,900,000)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . 505,000 122,000 15,000
-------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . . . . . . . . . $(4,024,000) $ 5,199,000 $291,000
-------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . (577,000) 380,000 197,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR. . . . . . . . . . . . . . . . 577,000 197,000 --
-------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END . . . . . . . . . . . . . . . . . . . . $ -- $577,000 $197,000
=================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 14
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
SL INDUSTRIES, INC.
1. Summary of significant accounting 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 or
less. 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. When factors indicate that intangible assets
should be evaluated for possible impairment, the Company uses an estimate of
the related undiscounted cash flows over the remaining life of the intangible
asset to measure recoverability.
Environmental expenditures: Expenditures that relate to current operations are
charged to expense or capitalized, as appropriate. Expenditures that relate to
an existing condition caused by past operations, which do not contribute to
future revenues, are charged to expense. Liabilities are recorded when
remedial efforts are probable and the costs can be reasonably estimated. The
liability for remediation expenditures includes, as appropriate, elements of
costs such as site investigations, consultants' fees, feasibility studies,
outside contractor expenses and monitoring expenses. Estimates are not
discounted, nor are they reduced by potential claims for recovery from the
Company's insurance carriers. The liability is periodically reviewed and
adjusted to reflect current remediation progress, prospective estimates of
required activity and other relevant factors including changes in technology or
regulations.
Product warranty costs: The Company offers various warranties on its products.
The Company provides for its estimated future warranty obligations in the
period in which the related sales are recognized.
Advertising costs: Advertising costs are expensed as incurred. For the fiscal
years ended July 31, 1996, 1995 and 1994, these costs were $2,322,000,
$2,085,000 and $1,766,000, respectively.
Research and development costs: Research and development costs are expensed as
incurred. For the fiscal years ended July 31, 1996, 1995 and 1994, these costs
were $1,245,000, $985,000 and $670,000, 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
affect on the 1994 provision for income taxes.
As shown in the fiscal 1994 consolidated statements of earnings, the cumulative
effect to August 1, 1993, of the adoption of SFAS 109 was $603,000, or $.10 per
common share.
Foreign currency conversion: The balance sheets and statements of earnings of
the Company's foreign subsidiaries are converted at the year-end rate of
exchange and the monthly weighted average rate of exchange, respectively,
except for those items requiring conversion at historical rates of exchange, as
the foreign subsidiaries' functional currency is U.S. dollars. Gains or losses
resulting from foreign currency conversions are included in the accompanying
consolidated statements of earnings.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant areas which require the use of management estimates relate to
product warranty costs, allowance for inventory obsolescence and environmental
costs.
Net income per common share: Net income per common share for fiscal 1996 is
calculated using weighted average shares outstanding plus the affect of
outstanding dilutive stock options, using the treasury stock method. Fully
diluted net income per common share is not materially different than the net
income per common share presented.
The affect of outstanding dilutive stock options is not material for fiscal
1995 and is antidilutive for fiscal 1994; therefore, they are not included in
the calculations for these years.
New accounting pronouncement: In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of ("SFAS No. 121")." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill. The Company is required to adopt SFAS No. 121
effective August 1, 1996. The adoption of SFAS No. 121 will not have any
affect on the Company's financial condition or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation
("SFAS No. 123")." SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. The Company is required to adopt
SFAS No. 123 effective August 1, 1996. The Company has elected to adopt the
disclosure requirement of this Statement.
Reclassifications: Reclassifications, when applicable, are made to the prior
year consolidated financial statements to conform with current year
presentation.
16
<PAGE> 15
2. Acquisitions and dispositions
On May 1, 1995, the Company acquired substantially all of the assets and
liabilities of Teal Electronics Corporation ("Teal"), for $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. For the twelve month period ended April 30,
1996, additional purchase price of $423,000 was paid and during fiscal 1996, an
additional $110,000 was accrued. 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 $3,403,000 of the aggregate purchase price has been
allocated to goodwill and trademarks. 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 statements of earnings.
Unaudited pro forma consolidated results of operations, as though the Company
acquired Teal on August 1, 1993, are as follows:
<TABLE>
<CAPTION>
--------------------------------------
1995 1994
--------------------------------------
(In thousands,except per share data)
<S> <C> <C>
Net sales. . . . . . . . . . . $98,307 $83,332
Net income . . . . . . . . . . $ 3,992 $ 1,970
Net income per common share. . $ .67 $ .32
</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 date. The unaudited
pro forma results are not necessarily indicative of the actual results of
operations that would have occurred had the purchase actually been made at the
August 1st date, 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.
On February 20, 1996, the Company sold substantially all the assets of its
wholly-owned subsidiary, SL Piping Systems, Inc., for $1,354,000 and the
assumption of certain liabilities. The sale had no material impact on the
Company's consolidated financial position or income from operations.
3. Income Taxes
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
---------------------------------------
1996 1995 1994
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . $2,584 $1,607 $ 731
State. . . . . . . . . . . 461 361 203
Deferred:
Federal . . . . . . . . . . (1,038) (587) 267
State . . . . . . . . . . . (110) (113) 10
---------------------------------------
$1,897 $1,268 $1,211
=======================================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities at
July 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
-------------------------
1996 1995
-------------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Deferred compensation. . . . $1,516 $1,359
Liabilities related to
discontinued product line. 422 505
Liabilities related to
environmental matters. . . 453 115
Inventory valuation. . . . . 692 573
Prepaid and accrued expenses 1,830 1,587
Other. . . . . . . . . . . . 2 1
-------------------------
4,915 4,140
Deferred tax liabilities:
Accelerated depreciation and
amortization . . . . . . . 759 1,132
-------------------------
4,156 $3,008
=========================
</TABLE>
Following is a reconciliation between the amount of income tax
expense at the applicable federal statutory rate and the effective
rates:
<TABLE>
<CAPTION>
--------------------------------------
1996 1995 1994
--------------------------------------
<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 . . . . . . . . . . . 4 5 4
Other. . . . . . . . . . . . . (2) - 1
--------------------------------------
35% 26% 38%
======================================
</TABLE>
17
<PAGE> 16
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
SL INDUSTRIES, INC.
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 consist of the following:
<TABLE>
<CAPTION>
----------------------------
1996 1995
----------------------------
(In thousands)
<S> <C> <C>
Raw materials. . . . . . . . . . $ 8,139 $ 9,060
Work in process. . . . . . . . . 2,601 3,259
Finished goods . . . . . . . . . 6,599 8,303
----------------------------
$17,339 $20,622
============================
</TABLE>
The above includes certain inventories, which are valued using the LIFO method,
which aggregated $1,019,000 and $1,066,000 at July 31, 1996 and 1995,
respectively. The excess of FIFO cost over LIFO cost at July 31, 1996 and
1995, was approximately $608,000 and $518,000 respectively.
6. Property, plant and equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
------------------------
1996 1995
------------------------
(In thousands)
<S> <C> <C>
Land . . . . . . . . . . . . . . . $ 79 $ 79
Buildings and leasehold
improvements . . . . . . . . . . 3,688 3,465
Equipment and other property . . . 14,743 14,478
------------------------
18,510 18,022
Less accumulated depreciation. . . 11,391 11,089
------------------------
$ 7,119 $ 6,933
========================
</TABLE>
"Assets held for future sale" at July 31, 1996, are not included above and
relate to assets remaining after the 1989 relocation of a power and data
quality operation and at July 31, 1995, also include the assets sold during
fiscal 1996 that remained after the 1988 consolidation of the Company's two
plastics operations. The assets remaining consist primarily of land, buildings
and building improvements which are being leased to a third party. 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, 1996 and 1995, was $434,000 and $1,379,000,
respectively. Aggregate minimum rental income for fiscal 1996 and 1995 was
$205,000 and $259,000, respectively. Aggregate minimum rental income for the
remaining lease period will be $70,000 in 1997. The net book values of these
assets are less than the estimated net realizable value based on a market
survey received from an independent third party.
7. Intangible assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
----------------------------
1996 1995
----------------------------
(In thousands)
<S> <C> <C>
Patents . . . . . . . . . . . . . . $ 873 $ 873
Covenants not to compete. . . . . . 2,980 2,980
Goodwill . . . . . . . . . . . . . 3,624 3,091
Trademarks . . . . . . . . . . . . 920 920
Other . . . . . . . . . . . . . . . 386 386
----------------------------
8,783 8,250
Less accumulated amortization . . . 1,382 782
----------------------------
$7,401 $7,468
============================
</TABLE>
8. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
----------------------------
1996 1995
----------------------------
(In thousands)
<S> <C> <C>
Revolving line of credit. . . . . . . $13,000 $17,000
Industrial revenue bonds payable in
various principal amounts
through 1998 . . . . . . . . . . . . 373 560
----------------------------
13,373 17,560
Less portion due within one year. . . 187 187
----------------------------
$13,186 $17,373
============================
</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, 1996, the Company is in compliance with
the above covenants. In lieu of compensating balances, the Company pays
commitment fees as defined under the agreement.
On September 13, 1996, the Company received approval from three banks to enter
into a new revolving credit agreement in the amount of $25,000,000 and the
Company expects to close on this agreement during the first quarter of fiscal
1997. The new agreement will replace the current agreement and any debt
outstanding under the current agreement will become outstanding under the new
agreement. The maturity date of the new agreement will be three years from
date of closing and its terms will be primarily the same as those of the
current agreement with the only material exception being the required ratios
that need to be maintained, the most restrictive of which will be the ratio of
total funded debt plus standby letters of credit to earnings before interest,
taxes, depreciation and amortization.
18
<PAGE> 17
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 two years are $187,000 in
1997, and $13,186,000 in 1998, however, on the closing date of the new
revolving credit agreement, $13,000,000 of the amount due in 1998 will not be
due until 2000.
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 1996, 1995
and 1994 amounted to approximately $508,000, $416,000 and $387,000,
respectively. It is the Company's and subsidiaries' policies to fund their
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
$52,000, $50,000 and $50,000 in 1996, 1995 and 1994, 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 supplemental retirement benefits. The
liability for 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 $398,000,
$373,000 and $539,000 in 1996, 1995 and 1994, respectively.
In addition, the Company has agreements with certain active officers and key
employees providing for deferred compensation benefits. Benefits to be
provided to each participant are stated in separate elective salary deferral
agreements. The amount charged to income in connection with these agreements
amounted to $465,000, $148,000 and $67,000 in 1996, 1995 and 1994,
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, 1996, the aggregate death benefit totaled
$13,198,000 with the corresponding cash surrender value totaling $7,095,000.
At July 31, 1996, certain agreements may restrict the Company from utilizing
cash surrender value totaling $1,740,000 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 in the cash surrender
value of the policies with premium expense. Net amounts included in income in
connection with the policies amounted to $337,000, $217,000 and $155,000 in
1996, 1995 and 1994, respectively.
10. Commitments and contingencies
For the fiscal years ended July 31, 1996, 1995 and 1994, rental expense
applicable to continuing operations aggregated $2,000,000, $1,743,000 and
$1,389,000, respectively. These expenses are primarily for facilities and
vehicles. The minimum rental commitments as of July 31, 1996, are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C> <C>
1997 . . . . . . . $1,720 2000 . . . . . . . 884
1998 . . . . . . . 1,456 2001 . . . . . . . 443
1999 . . . . . . . 1,309 Thereafter . . . . 634
------
$6,446
======
</TABLE>
At July 31, 1996, the Company was contingently liable for $1,313,000, under
outstanding letters of credit issued primarily for inventory purchases from
foreign suppliers and settlement of a civil lawsuit.
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 affect on the consolidated
financial position or results of operations of the Company.
Loss contingencies include potential obligations to investigate and eliminate
or mitigate the affects 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 accrual for all known costs 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
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 affect on the Company's consolidated financial
position or results of operations.
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 and 1996, the Company made additional provisions of
$480,000 and $900,000, respectively, based upon new estimates. The fiscal 1996
provision was necessary since, during the latter part of fiscal 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,
and based on the results of that investigation, which were received in fiscal
1996, the Company determined that additional remediation costs of approximately
$1,000,000 are probable. During fiscal years 1993, 1994, 1995 and 1996, the
Company paid or incurred expenses at all of those six locations and twelve
others, in addition to environment-related capital expenditures of
approximately $367,000.
19
<PAGE> 18
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
SL INDUSTRIES, INC.
The Company filed claims with its insurers seeking reimbursement for many of
these costs, and received $900,000 from one insurer during fiscal year 1996 and
a commitment to pay 15% of the environmental costs associated with one location
up to an aggregate of $300,000. The $900,000 received was recorded as a credit
against the fiscal 1996 provision. Subsequent to July 31, 1996, the Company
also executed a settlement agreement for an additional insurance claim in the
amount of $700,000 and a commitment to pay 20% of the future environmental
costs associated with the same location up to an aggregate of $400,000. Two
additional insurance claims are outstanding and some recovery is likely,
however, it is too early to assess the extent of the recovery. At July 31,
1996 and 1995, the remaining environmental accrual was $1,438,000 and $619,000,
respectively, of which $400,000 and $334,000, respectively, have been included
in "Accrued Liabilities" and $1,038,000 and $285,000, respectively, in "Other
Liabilities" in the accompanying consolidated balance sheets.
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 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, 1995 and 1996 with respect to the Director 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
Granted . . . . . . . . . . . . . . . 39 $5.6875 to $10.50
Exercised . . . . . . . . . . . . . . (14) $3.5625 to $5.125
Outstanding and exercisable
at July 31, 1996. . . . . . . . . . . 76 $3.5625 to $10.50
</TABLE>
As of July 31, 1996, 1995 and 1994, the number of shares available for grant
were 160,000, 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. At the 1995 Annual Meeting, the
shareholders approved an amendment to increase the number of shares subject to
options under the 1991 Plan from 500,000 to 922,650. 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 1994, 1995 and
1996 with respect to the 1991 Plan is as follows:
<TABLE>
<CAPTION>
----------------------------------------
Shares Option Price
----------------------------------------
(In thousands, except for option price)
<S> <C> <C>
Outstanding and exercisable
at August 1, 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
Granted . . . . . . . . . . . . . . . 83 $6.875
Exercised . . . . . . . . . . . . . . (95) $3.25 to $6.875
Cancelled . . . . . . . . . . . . . . (2) $3.25 to $6.875
Outstanding and exercisable
at July 31, 1996. . . . . . . . . . . 287 $3.25 to $6.875
</TABLE>
As of July 31, 1996, 1995, and 1994, the number of shares available for grant
were 501,000, 159,000, and 228,000, 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
were exercisable three years from date of grant and expired five years after
date of grant. Information for the years 1994, 1995 and 1996 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, 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
Exercised . . . . . . . . . . . . . . (1) $5.90
Expired . . . . . . . . . . . . . . . (16) $5.90
Outstanding at July 31, 1996. . . . . 0
</TABLE>
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. The option
for 15,000 shares was exercised during fiscal 1996. 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 and
20
<PAGE> 19
is exercisable at July 31, 1996, with an expiration date of November 30, 1998.
In fiscal 1996, an option to purchase 50,000 shares was granted to a subsidiary
officer at an option price of $8.375 and is exercisable 20%, 50%, 20% and 10%
on or after April 13, 1997, October 13, 1997, April 13, 1998, and April 13,
1999, respectively, with no expiration date, except in the event of
termination, disability or death provided that the subsidiary officer has been
employed through such date. 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. 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.
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>
---------------------------------------
1996 1995 1994
---------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest paid . . . . . . . . . $1,158 $ 790 $594
Income taxes paid . . . . . . . $3,312 $1,667 $528
</TABLE>
Non-cash investing and financing activities:
During fiscal 1996, the Company received a $2,300,000 note as part of the
consideration for a sale of property, plant and equipment.
Excluded from the consolidated statements of cash flows for fiscal 1995 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":
<TABLE>
<CAPTION>
--------------
1995
--------------
(In thousands)
<S> <C>
Fair value of assets acquired,
net of cash . . . . . . . . . . $6,969
Liabilities assumed . . . . . . $ 565
</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>
---------------------------------------------
1996 1995 1994(1)
---------------------------------------------
(In thousands)
<S> <C> <C> <C>
NET SALES
Power and data quality . . . . $100,319 $73,183 $58,911
Specialty products . . . . . . 16,994 17,942 17,682
---------------------------------------------
Consolidated . . . . . . . . $117,313 $91,125 $76,593
=============================================
OPERATING INCOME
Power and data quality . . . . $ 8,853 $ 5,758 $ 3,551
Specialty products . . . . . . 660 1,760 2,184
Corporate. . . . . . . . . . . (3,154) (2,586) (2,017)
---------------------------------------------
Total. . . . . . . . . . . . 6,359 4,932 3,718
Gain on disposition. . . . . . - 818 -
Interest income. . . . . . . . 159 54 50
Interest expense . . . . . . . (1,123) (859) (606)
---------------------------------------------
Consolidated income
before income taxes. . . . . $ 5,395 $ 4,945 $ 3,162
=============================================
IDENTIFIABLE ASSETS
Power and data quality . . . . $39,984 $38,653 $29,782
Specialty products . . . . . . 7,590 9,582 9,767
---------------------------------------------
Consolidated segment totals. 47,574 48,235 39,549
Corporate. . . . . . . . . . . 16,601 13,921 12,848
---------------------------------------------
Consolidated assets. . . . . $64,175 $62,156 $52,397
=============================================
CAPITAL EXPENDITURES (2)
Power and data quality . . . . $1,761 $1,113 $ 603
Specialty products . . . . . . 324 614 798
Corporate. . . . . . . . . . . 134 9 45
---------------------------------------------
Total. . . . . . . . . . . . $2,219 $1,736 $1,446
=============================================
DEPRECIATION AND AMORTIZATION
Power and data quality . . . . $1,830 $1,255 $1,067
Specialty products . . . . . . 580 627 572
Corporate. . . . . . . . . . . 174 226 229
---------------------------------------------
Total. . . . . . . . . . . . $2,584 $2,108 $1,868
=============================================
</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.
(2) Excludes assets acquired in business combinations.
21
<PAGE> 20
SL INDUSTRIES, INC.
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, 1996 and 1995, and the 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.
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, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended July 31,
1996, 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."
Arthur Andersen LLP
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
September 13, 1996
22
<PAGE> 21
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
SL INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Quarter Ended
---------------------------------------------------------------------------------
October 31, January 31, April 30, July 31,
---------------------------------------------------------------------------------
1995 1994 1996 1995 1996 1995 1996 1995 (2)
---------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . $28,939 $20,428 $29,635 $21,777 $28,302 $21,938 $30,437 $26,982
Gross margin. . . . . . . . . . $ 9,632 $ 6,543 $ 9,820 $ 7,023 $ 9,733 $ 8,035 $10,092 $ 9,047
Income before income taxes. . . $ 1,160 $ 811 $ 1,222 $ 781 $ 1,453 $ 1,231 $ 1,560 $ 2,122
Net income. . . . . . . . . . . $ 757 $ 517 $ 817 $ 480 $ 900 $ 778 $ 1,024 $ 1,902
Net income per common share (1) $ .13 $ .09 $ .14 $ .08 $ .15 $ .13 $ .17 $ .33
---------------------------------------------------------------------------------
</TABLE>
(1) Fiscal 1996 include the affect of outstanding dilutive stock options.
Fiscal 1995 does not add to the annua See Note 1 to consolidated financial
statements.
(2) Includes pre-tax gain, net of severance, legal and other costs, on
disposition of subsidiary of $818,000, in $1,100,000, or $.19 per common share.
See Note 2 to consolidated financial statements.
23
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
State or other
Jurisdiction of
Subsidiaries Incorporation
------------ -------------
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 Modern Hard Chrome, Inc. New Jersey
SL Montevideo Technology, Inc. Minnesota
SL Piping Systems, Inc. (a) Delaware
SL Waber, Inc. New Jersey
Teal Electronics Corporation California
Waber de Mexico, S.A. De C.V. Mexico
Waber Power, LTD(b) Connecticut
All of the registrant's subsidiaries are included in the consolidated
financial statements for the year ended July 31, 1996.
- --------
(a) Disposed on February 20, 1996.
(b) Formerly SL Electrostatic Technology, Inc.
<PAGE> 1
EXHIBIT 24
ARTHUR ANDERSEN LLP
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. 33-53274, 33-63681,
33-65445 and 33-00269.
ARTHUR ANDERSEN LLP
Philadelphia, PA
October 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
EARNINGS, CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF CASH FLOW AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K YEAR ENDED JULY 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,067
<ALLOWANCES> 1,639
<INVENTORY> 17,339
<CURRENT-ASSETS> 37,303
<PP&E> 18,510
<DEPRECIATION> 11,391
<TOTAL-ASSETS> 64,175
<CURRENT-LIABILITIES> 16,538
<BONDS> 0
0
0
<COMMON> 1,580
<OTHER-SE> 28,680
<TOTAL-LIABILITY-AND-EQUITY> 64,175
<SALES> 117,313
<TOTAL-REVENUES> 117,313
<CGS> 76,773
<TOTAL-COSTS> 110,954
<OTHER-EXPENSES> 1,123
<LOSS-PROVISION> 151
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,395
<INCOME-TAX> 1,897
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,498
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
