<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
FOR THE FISCAL YEAR ENDED JULY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period ______ to ______
Commission file number 1-4987
SL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
NEW JERSEY 21-0682685
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
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 17, 1997, the aggregate market value of SL common stock was
approximately $77,187,000. The number of shares of common stock outstanding as
of October 17, 1997, was 5,513,333.
DOCUMENTS INCORPORATED BY REFERENCE:
Part I, II, IV - Annual Report to Shareholders for the fiscal year ended July
31, 1997
Part III - Proxy Statement dated October 10, 1997
<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 and produce propriety advanced systems and equipment for the
high-growth Power and Data Quality ("PDQ") industry. The products of the
Registrant and its subsidiaries either become components of other industrial or
consumer products or are sold through distribution for general retail or
commercial use.
For the most part, the Registrant and its subsidiaries concentrate on specialty
markets believed to offer higher profit margins and greater potential for growth
than industrial commodities. Sales between segments are not material. No single
customer accounts for more than 10% of consolidated net sales nor are export
sales material thereto.
On May 1, 1997, the Registrant sold substantially all the assets, excluding real
property, of its wholly-owned subsidiary, SL Auburn, Inc., for $12,216,000. For
financial reporting purposes, the sale resulted in a pre-tax gain, net of
severance, facility closing, legal and other costs of $5,888,000, increasing net
income by $3,556,000, or $.59 per common share.
(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, 1997.
(c) Narrative Description of Business
Power and Data Quality Segment:
Products
Power Supplies - The Registrant produces a wide range of standard and custom
power supply products which convert AC or DC power to direct electrical current
to be used in customers' products. 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 700 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. Condor's power supplies service the medical,
industrial, telecommunications and instrumentation markets. SL Montevideo
Technology, Inc. ("MTI") also incorporates power supplies into its drive systems
for electric vehicles and other motion control systems. For the years ended July
31, 1997, 1996 and 1995, Condor's net sales, as a percentage of consolidated net
sales, were 26%, 23% and 23%.
<PAGE> 3
Power Distribution and Power Conditioning Units - The Registrant is the leader
in the design and manufacture of customized power distribution and power
conditioning units. Teal Electronics Corporation ("Teal") acquired in May 1995,
develops and manufactures custom electrical subsystems for OEM's 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. SL Waber, Inc. ("Waber") also designs and manufacturers Power Distribution
Units that safely convert a high power input into user specified output ranges.
For the years ended July 31, 1997 and 1996, Teal's net sales, as a percentage of
consolidated net sales, were 13% and 12%.
Uninterruptible Power Supplies and Battery Charging - Waber designs and
manufactures uninterruptible power supplies that provide back-up power in the
event of a power failure. These products are also used to recharge batteries
and, in some applications, provide a direct power supply to connected equipment.
Two of the products sold are "POWERHOUSE(R)" and "UPSTART(R)", which were
introduced in 1996 as an under the monitor product that included software used
to save and restore data, as well as typical UPS back up capability and surge
protection. This concept was extended to network equipment in 1997 in the form
of the "UPSTART Network(TM)" 350 and 550 products. Condor also designs and
manufactures custom back-up power supplies for medical equipment and other
critical industrial applications. MTI has introduced and developed battery
chargers as part of its motion control systems for electric vehicle applications
and is advancing its flywheel energy storage systems that provide
uninterruptible power by storing electricity as kinetic energy which does not
require batteries.
Motion Control Systems - 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's new motor and motion controls are used
in numerous applications, including aerospace, medical and industrial products.
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. For the years ended July
31, 1997, 1996 and 1995, MTI's net sales, as a percentage of consolidated net
sales, were 10%, 8% and 9%.
Surge Suppressors and Other - Surge suppressors are sold to protect computers,
audiovisual and other electronic equipment from sudden surges in power. Waber is
a leader in the design and manufacture of surge suppressors for the custom, OEM
and retail marketplaces. These products include those sold under the trademarks
of "POWERMASTER(R)" and "DATAGARD(R)". Waber also manufactures a
multi-directional antenna designed for AM/FM radio and television. For the years
ended July 31, 1997, 1996 and 1995, Waber's net sales, as a percentage of
consolidated net sales, were 41%, 42% and 46%.
<PAGE> 4
Raw Materials
Raw materials are supplied by various domestic and international vendors and
availability for materials is not foreseen to be a problem. Some raw materials
are purchased direct whenever possible to avoid distributor mark-ups. 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. The loss of any one major customer should not have an adverse effect on
the segment.
Backlog
Backlog at September 7, 1997, and September 8, 1996, was $30,713,000 and
$22,709,000, respectively. The increase is primarily related to MTI entering the
commercial product market and extended business with its existing customers,
along with Waber increasing its marketing of custom products.
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
Spark Plugs and Igniters - Prior to its disposition, on May 1, 1997, SL Auburn,
Inc. ("Auburn"), produced aviation spark plugs and igniters, under
"Spitfire(TM)" and "auburn(TM)" trademarks; and 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. Auburn's products also 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 were categorized as OEM,
distributors, government and end users. Auburn's products were sold by company
sales representatives, warehouse distributors and independent sales
representatives throughout the world. For the years ended July 31, 1997, 1996
and 1995, net sales for Auburn, as a percentage of consolidated net sales, were
7%, 9% and 10%, respectively.
<PAGE> 5
Industrial surface finishing - SL Surface Technologies, Inc. ("STI"), provides
chromium electroplated, specialty engineered surfaces to the paper, 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 Greater Philadelphia region, and has 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. STI has four customers which make up approximately seventy-five percent
of its sales.
Backlog
Backlog at September 7, 1997, and September 8, 1996, was $122,000 and
$3,927,000, respectively. The decrease is related to the disposition of Auburn.
Competitive Conditions
The businesses in this segment compete primarily with companies offering similar
services or products. STI competes on technology, as well as service.
Environmental
The Registrant (together with the industries in which it operates or has
operated) is subject to United States and Mexican environmental laws and
regulations concerning emissions to the air, discharges to surface and
subsurface waters, and the generation, handling, storage, transportation,
treatment and disposal of waste materials. The Registrant and the industries are
also subject to other federal, state and local environmental laws and
regulations, including those that require the Registrant to remediate or
mitigate the effects of the disposal or release of certain chemical substances
at various sites, including some where it has ceased operations. It is
impossible to predict precisely what effect these laws and regulations will have
on the Registrant in the future. However, it is not expected that the Registrant
will be affected differently from others in its industries.
It is the Registrant's policy to comply with all environmental, health and
safety regulations, as well as industry standards for maintenance. The
Registrant's domestic competitors are subject to the same environmental, health
and safety laws and regulations, and the Registrant believes that the compliance
issues and potential expenditures of its operating subsidiaries are comparable
to those
<PAGE> 6
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
1997 were immaterial and are estimated to be immaterial for fiscal 1998. 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, 1997, and is incorporated herein
by reference.
Employees
As of September 7, 1997, the Registrant had approximately 1,700 employees. Of
these employees, approximately 150 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 1997, the "Power and Data Quality
Operations" 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, 1997, are incorporated by reference.
<PAGE> 7
ITEM 2. PROPERTIES
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Approx. Owned or
Square Leased And
Location General Character Footage Expiration Date
-------- ----------------- ------- ---------------
<S> <C> <C> <C>
Montevideo, MN Manufacture of 26,200 Owned
precision motors and 7,040 Leased
motion control systems 12/31/98
Matamoros, Mexico Manufacture of 8,600 Leased
precision motors 11/05/99
Nogales, Mexico Manufacture of power 65,000 Leased
protection products 12/31/02
Nogales, AZ Distribution of power Leased
protection products 43,500 10/31/00
11,700 N/A
Mt. Laurel, NJ Corporate Office - 15,900 Leased
power protection 11/30/99
products
Oxnard, CA Manufacture and 36,000 Leased
distribution of power 02/28/03
supply products
Mexicali, Mexico Manufacture and Leased
distribution of power 40,000 6/01/98
supply products 21,150 08/31/00
San Diego, CA Manufacture of AC 31,200 Leased
power subsystems 03/22/00
Camden, NJ Industrial surface 15,800 Owned
finishing
Pennsauken, NJ Industrial surface 6,000 Owned
finishing warehouse
Mt. Laurel, NJ Corporate Office 4,200 Leased
11/30/99
</TABLE>
All manufacturing facilities are adequate for current production requirements.
The Registrant believes that its facilities are sufficient for future
operations, maintained in good operating condition and adequately insured. Of
the owned properties, none are subject to a major encumbrance material to the
operations of the Registrant.
<PAGE> 8
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, 1997, and is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter ended July 31, 1997, 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
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------------------------------------------------
FISCAL 1997 FISCAL 1996
------------------------------------------------
HIGH LOW HIGH LOW
------------------------------------------------
<S> <C> <C> <C> <C>
Stock Prices
1st Quarter................ 10 1/4 8 1/8 8 3/8 5 5/8
2nd Quarter................ 8 5/8 6 7/8 9 3/8 6 5/8
3rd Quarter................ 7 7/8 6 3/8 8 1/2 6 5/8
4th Quarter................ 11 7 3/8 11 3/8 7 7/8
Dividends
Cash - November............ $.03 $.03
Cash - June................ $.04 $.03
------------------------------------------------
</TABLE>
As of September 12, 1997, there were approximately 1,700 registered
shareholders. A semi-annual cash dividend of $.04 per share was declared on
September 25, 1997, which is payable on November 25, 1997, to shareholders of
record on November 3, 1997.
<PAGE> 9
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, 1997.
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, 1997.
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, 1997.
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 10, 1997. The ages of the executive
officers are as follows: Owen Farren, age 46, James D. Klemashevich, age 41, and
James E. Morris, age 60. 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; J.D. Klemashevich, Vice President of
Operational Development since April 1997, and J.E. Morris, Vice President and
Corporate Controller since September 1991, Secretary and Treasurer since
November 1995 and a financial executive since 1978.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the
material captioned "The Board Of Directors" and "Executive Officer Compensation"
on pages 6 through 10 of the proxy statement dated October 10, 1997.
<PAGE> 10
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 10, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item, except for related transactions, is
incorporated herein by reference to the material captioned "Executive Officer
Compensation" on pages 7 through 8 of the proxy statement dated October 10,
1997.
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, 1997, are incorporated herein by
reference:
Consolidated Statements of Earnings - Years ended July 31, 1997, 1996 and
1995
Consolidated Balance Sheets - July 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity - Years ended July 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows - Years ended July 31, 1997, 1996 and
1995
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(a) (2) Financial Statement Schedules
The following financial statement schedules for the years 1997, 1996 and 1995
are submitted herewith:
Report of Independent Public Accountants - Arthur Andersen LLP
Schedule II - Valuation and Qualifying Accounts
<PAGE> 11
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
On May 16, 1997, the Registrant filed a report dated May 1, 1997, on Form 8-K
covering the sale of SL Auburn, Inc.
<PAGE> 12
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 27, 1997
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/ Edward A. Gaugler
- ------------------------ -----------------------------------
Owen Farren Edward A. Gaugler
President and Chief Director
Executive Officer October 26, 1997
October 27, 1997
/s/ James E. Morris /s/ George R. Hornig
- ------------------------ -----------------------------------
James E. Morris George R. Hornig
Vice President, Director
Corporate Controller, October 24, 1997
Treasurer and Secretary
October 27, 1997
/s/ Salvatore J. Nuzzo /s/ Walter I. Rickard
- ------------------------ -----------------------------------
Salvatore J. Nuzzo Walter I. Rickard
Chairman of the Board Director
October 25, 1997 October 27, 1997
/s/ Robert J. Sanator
-----------------------------------
Robert J. Sanator
Director
October 25, 1997
<PAGE> 13
[ARTHUR ANDERSEN LLP Letterhead]
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 5, 1997. 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.
/s/ Arthur Andersen LLP
Philadelphia,PA
September 5, 1997
<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
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1997, 1996 AND 1995
(In Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------------
Balance at Charged to Charged to
Beginning of Costs and Other Balance at
Description Period Expenses Accounts Deductions End of Period
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR 1997
Allowance for:
doubtful accounts $428 $62 $35 $29 $496
---- --- --- --- ----
customer credits $1,212 $2,157 $-- $2,075(b) $1,294
------ ------ --- ------ ------
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
---- ------ --- ------ ------
</TABLE>
- ----------------------
(a) Accounts receivable written off, net of recoveries.
(b) Primarily for customer advertising programs.
<PAGE> 16
INDEX TO EXHIBITS
The exhibit number, description and sequential page number in the original copy
of this document where exhibits can be found follows:
<TABLE>
<CAPTION>
Exhibit # Description
- --------- -----------
<S> <C>
3.1 Articles of Incorporation. Incorporated by reference to Exhibit
3-A to the Registrant's report on Form 10-K for the fiscal years
ended July 31, 1985, July 31, 1986, July 31, 1987, and July 31,
1988.
3.2 By-Laws. Incorporated by reference to Exhibit 3 to the Registrant's
report on Form 10-Q for the quarters ended October 31, 1994 and
October 31, 1996.
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.
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.
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
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.
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 period 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.
10.26 Severance Pay Agreement with James D. Klemashevich
(transmitted herewith).
11 Statement Re Computation of Per Share Earnings (transmitted
herewith).
13 Portions of Annual Report to Shareholders for the fiscal year
ended July
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
31, 1997 (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 amendment).
</TABLE>
<PAGE> 1
EXHIBIT 10.26
AGREEMENT REGARDING SEVERANCE BENEFIT
This AGREEMENT REGARDING SEVERANCE BENEFIT ("Agreement") is made as of
the 28th day of April, 1997 by and between SL INDUSTRIES, INC., a New Jersey
corporation, and JAMES D. KLEMASHEVICH ("Employee").
Background
A. Employee has this date commenced employment with the Company
as its Vice President - Operational Development.
B. In connection with his employment with the Company, Employee,
because of the at-will nature of his employment, has requested
and the Company has agreed to provide the following severance
benefit in the event of a termination by the Company without
cause.
NOW THEREFORE, for good and valuable consideration and intending to be
legally bound hereby, the undersigned agree as follows:
1. The Company may terminate Employee's employment with the Company,
without payment of severance benefits, upon the occurrence of any of
the following:
a. Any breach of any of the terms of this Agreement, if such
breach has not been corrected within twenty (20) days
following written notice from the Company;
b. The repeated failure or neglect by Employee to perform his
assigned duties and responsibilities;
c. The commission by Employee of any act that tends to bring
Employee, the Company or any of its affiliates into disrepute,
or that results in or reasonably may result in any material
harm to the business of the Company or any of its affiliates;
d. The conviction of Employee of a felony; or
e. Employee's death or disability. For purposes of this
Agreement, the term "disability" shall mean the inability of
Employee, due to a physical or mental condition, to perform
the essential functions of his job with reasonable
accommodation that does not impose an undue hardship on the
Company.
2. The Company may also terminate Employee's employment with the
Company for any other or no reason, in its sole discretion, upon
written notice.
<PAGE> 2
3. Upon any termination under paragraph 2, above, and subject to the
terms and conditions of paragraph 4, below, the Company shall pay to
Employee an amount equal to twelve (12) months' salary at the
Employee's annual base salary in effect on the date of termination (the
"Severance Benefit"). The Severance Benefit shall be paid to Employee
at the same time and in the same manner as Employee's base salary was
paid to Employee, immediately prior to termination, and shall be
subject to deduction for any amounts that are required to be withheld
or deducted according to applicable law. The Severance Benefit shall be
the Company's sole obligation to Employee in the event of such a
termination.
4. As consideration for the payment of the Severance Benefit, Employee
shall provide to the Company a general release from all liability, in
form and substance satisfactory to the Company in its reasonable
discretion.
5. This Agreement: may not be modified or amended except by writing
signed by both parties; shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, legal
representatives, successors and assigns; sets forth the entire
agreement and understanding of the parties hereto with respect to the
specific subject matter hereof and supersedes any and all prior
discussions, agreements or understandings, whether oral or written; may
be executed in counterparts and delivered by facsimile transmission or
comparable means; and shall be governed by and construed in accordance
with the laws of the State of New Jersey without reference to any
principles of conflicts of law.
This Agreement is hereby executed and delivered by the undersigned as
of the date and year first above written.
SL INDUSTRIES, INC.
By: /s/ Owen Farren /s/ James D. Klemashevich
----------------------------- ----------------------------------
Owen Farren, President and JAMES D. KLEMASHEVICH
Chief Executive Officer
2
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Years
Ended
July 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET INCOME PER COMMON SHARE
- ----------------------------------------------------------------------
Net income............................................................ $7,815 $3,498 $3,677
------ ------ ------
Weighted average number of common shares
outstanding during the year........................................... 5,776 5,701 5,940
----- ----- -----
Net income per common share........................................... $1.35 $.61 $.62
----- ---- ----
PRIMARY
- ----------------------------------------------------------------------
Net income............................................................ $7,815 $3,498 $3,677
------ ------ ------
Weighted average number of common shares
outstanding during the year........................................... 5,776 5,701 5,940
Add: shares of common stock equivalents............................... 231 249 102
----- ----- -----
Weighted average number of shares used in
calculation of primary net income per share........................... 6,007 5,950 6,042
----- ----- -----
Primary net income per common share................................... $1.30 $.59 $.61
----- ---- ----
FULLY DILUTED
- ----------------------------------------------------------------------
Net income............................................................ $7,815 $3,498 $3,677
------ ------ ------
Weighted average number of common shares
outstanding as adjusted above......................................... 6,007 5,950 6,042
Add: incremental shares of common stock
equivalents........................................................... 14 18 20
----- ----- -----
Weighted average number of shares used in calculation of fully
diluted net income per share.......................................... 6,021 5,968 6,062
----- ----- -----
Fully diluted net income per common share............................. $1.30 $.59 $.61
----- ---- ----
</TABLE>
<PAGE> 1
Exhibit 13
[SL INDUSTRIES LOGO]
POWER & DATA QUALITY OPERATIONS
[PHOTO]
Today, SL Industries' energy and resources are dedicated to its mission of
becoming a world-class producer of power and data quality supplies and
products. In recognition of the Company's accomplishments, in November 1996, SL
Industries was named Electronics Company of the Year by the New Jersey
Technology Council.
The technology developed by SL Industries spans a number of PDQ applications
with excellent growth potential. In general, the Company's products have been
developed to meet specific customer needs. However, by partnering with its
customers, the Company is increasingly able to anticipate industry developments
and challenges. SL Industries is now positioning its operations to leverage its
well-established reputation for quality and innovation, in order to penetrate
new markets in the PDQ industry.
During the past year SL Industries has continued to develop its PDQ technology
through its mass customization strategy of employing market-driven engineering
teams as close to each customer as practicable. Some of the customers who rely
on SL Industries to develop and build their PDQ products and solutions are
listed on page 6.
In fiscal 1997 SL Industries realized a number of important product
developments. The following is a highlight of some of the Company's recent
developments and achievements:
POWER SUPPLIES
SL Industries produces a wide range of standard and custom power supply
products which convert AC or DC power to direct electrical current for use in
our customers' products. CONDOR designs and manufactures linear and switching
AC power supplies, primarily in the seven to 700 watt power range, for
applications in medical, telecommunications and industrial products. Over the
last year CONDOR significantly expanded its product capabilities and power
ranges and also introduced several new power supplies that we believe are the
highest power density units available in their class. In 1998 CONDOR will
introduce its new Gold Series products for medical equipment as part of the
Company's plans to further penetrate this market. In addition, SL-MONTEVIDEO
TECHNOLOGY (SL-MTI) has applied this same technology to incorporate power
supplies into its drive systems for electric vehicles and other motion control
systems. SL Industries is exploring other industrial markets where its power
supply technology can be applied to create value-added products.
[PHOTO]
Condor's power supply is being used in a portable patient monitoring unit. The
power supply is used to drive all the electronics which monitor a patient's
vital signs. This includes heart rate and blood pressure. The instrument can
be used in any location and environment.
4
<PAGE> 2
[SL INDUSTRIES LOGO]
[PHOTO]
POWER DISTRIBUTION AND
POWER CONDITIONING UNITS
SL Industries is a leader in the design and manufacture of customized power
distribution and power conditioning units. These units can be used to filter
out noise from power lines, as well as for voltage conversion and
stabilization, system control and distribution of power. Power conditioning and
distribution units (PCDUs) enhance the quality and reliability of equipment and
systems by providing the power and distribution features required for
dependable operation. For instance, TEAL'S PCDUs condition and stabilize power
to allow original equipment manufacturers (OEMs) to market and sell products in
compliance with applicable domestic and international agency standards.
SL WABER designs and manufactures Power Distribution Units (PDUs) that safely
convert a high power input into user specified output ranges. These PDUs
distribute power evenly and conveniently throughout the customer's system. For
electronic enclosure installations, the PDUs are designed with application
specific mounting means to provide a reliable and cost effective power
solution.
[PHOTO]
Through solid modeling and the creation of virtual prototypes, Teal's PCDU
equipment is designed to improve reliability, throughput and accuracy of
semiconductor test (ATE) equipment.
UNINTERRUPTIBLE POWER SUPPLIES AND BATTERY CHARGING
Uninterruptible power supply (UPS) products provide back-up power in the event
of a power failure. UPS products also recharge batteries and, in some
applications, provide a direct power supply to connected equipment. This year
SL WABER expanded its offering to include back-up power supplies (Upstart
Network) for computers operating in a network environment. These units
incorporate sophisticated software for managing, saving and restoring files.
CONDOR has also expanded into custom back-up power supplies that target medical
equipment and other critical industrial applications. This is an area of rapid
growth for our CONDOR subsidiary.
SL-MTI has introduced and developed battery chargers as part of its motion
control systems for electric vehicle applications and is advancing its flywheel
energy storage systems. Flywheel energy storage systems provide uninterruptible
power by storing electricity as kinetic energy which does not require
batteries. The Company anticipates that these systems, which combine
traditional power supply technology and motion control technology, will be the
power systems of the future.
[PHOTO]
UPSTART NETWORK battery back-up includes exclusive Save-and-Restore Software
(SRS(TM)) which automatically activates during a power outage, saving all files
and safely shutting down the computer system, then rebooting the system and
restoring the data as it originally appeared--even when the computer is
unattended.
5
<PAGE> 3
[SL INDUSTRIES LOGO]
[PHOTO]
This picture illustrates the traction drive electric motor, smart battery
charger, and power electronics for the Sparrow vehicle. The Sparrow vehicle is
a "Personal Transit Module" manufactured by Corbin industries in California.
MOTION CONTROL SYSTEMS
SL Industries' competitive advantages in motion control systems lies in its
cutting-edge designs. SL-MTI's new motor and motion controls are used in
numerous applications, including aerospace, medical and industrial products,
which demand extremely high reliability and operating characteristics. SL-MTI
developed proprietary motor/generator technology employed in our advanced
flywheel systems for the telecommunications and utility markets, as well as the
electric motor systems shown in the Sparrow and Rhino-cart illustrations. This
exciting new technology will expand SL Industries' position as a leader in two
high growth segments of the motion control and power supply market.
SURGE SUPPRESSORS AND OTHER
SL Industries has a well established reputation in the design and manufacture
of surge suppressors and surge suppression technologies. These devices are sold
to protect computers, audiovisual and other electronic equipment from sudden
surges in power. SL WABER is a leader in the design and manufacture of these
products for custom, OEM and retail marketplaces. Additionally, SL Industries'
other operating subsidiaries generally incorporate surge suppression and other
types of noise filtration technology into many of our more advanced products.
SL Industries provides power and data quality solutions for a wide range of
customers in several industries. The following list represents some of the
leading corporations that purchase the Company's PDQ products:
<TABLE>
<S> <C> <C>
AKSYS Future Electronics Office Depot
Allied Signal GEC Marconi Phillips
Avnet/Allied Electronics General Electric Raytheon
Bell/Milgray Electronics Healthdyne Schlumberger
B.F. Goodrich/Aerospace Hewlett Packard Siemens
Digi-Key Home Depot Teradyne
Digital Equipment Motorola Textron
Ericsson Nellcor/Purital Bennett 3M Corporation
Federal Express Newark Electronics Toshiba
</TABLE>
[PHOTO]
MTI supplies traction drive electric motors, power electronics, and battery
chargers for utility vehicles. These products range in scope from shopping cart
retrieval systems to aircraft tugs and other push and pull applications. The
Rhino Cart system is manufactured in Minnesota by Rhino Craft, Inc.
6
<PAGE> 4
SL INDUSTRIES, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales...................................................... $115,687 $117,313 $91,125 $76,593 $58,529
Income before extraordinary item and cumulative
effect of changes in accounting principles (1) .............. $ 7,815 $ 3,498 $ 3,677 $ 1,951 $ 954
Extraordinary item - utilization of the federal tax benefit
of a net operating loss carryforward......................... -- -- -- -- 500
Cumulative effect of change in accounting for income taxes..... -- -- -- 603 --
----------------------------------------------------------------
Net income..................................................... $ 7,815 $ 3,498 $ 3,677 $ 2,554 $ 1,454
================================================================
Net income per common share:
Income before extraordinary item and cumulative
effect of changes in accounting principles (1) .............. $ 1.30 $ 0.59 $ 0.62 $ 0.32 $ 0.15
Extraordinary item - utilization of the federal tax benefit
of a net operating loss carryforward ........................ -- -- -- -- 0.07
Cumulative effect of change in accounting for income taxes..... -- -- -- 0.10 --
----------------------------------------------------------------
Net income..................................................... $ 1.30 $ 0.59 $ 0.62 $ 0.42 $ 0.22
================================================================
Shares used in computing net income per common share (2) ...... 6,021 5,950 5,940 6,152 6,500
Cash dividend per common share................................. $ 0.07 $ 0.06 $ 0.06 $ 0.06 $ 0.09
YEAR-END FINANCIAL POSITION
Working capital................................................ $ 17,399 $ 20,765 $21,929 $21,125 $18,995
Current ratio.................................................. 1.8 2.3 2.5 2.9 2.8
Total assets................................................... $ 66,804 $ 64,175 $62,156 $52,397 $49,831
Long-term debt................................................. $ 700 $ 13,186 $17,373 $11,918 $ 9,218
Shareholders' equity........................................... $ 36,492 $ 28,680 $24,930 $23,577 $23,431
Book value per share........................................... $ 6.27 $ 4.98 $ 4.43 $ 3.93 $ 3.60
OTHER
Capital expenditures (3) ...................................... $ 2,097 $ 2,219 $ 1,736 $ 1,446 $ 1,191
Depreciation and amortization.................................. $ 2,700 $ 2,584 $ 2,108 $ 1,868 $ 1,674
================================================================
</TABLE>
(1) Fiscal 1997 includes pre-tax gain, net of severance, facility closing, legal
and other costs, on disposition of subsidiary of $5,888,000, increasing net
income by $3,556,000, or $.59 per common share. 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 1997 and 1996 includes the effect of outstanding dilutive stock
options.
(3) Excludes assets acquired in business combinations.
7
<PAGE> 5
SL INDUSTRIES, INC.
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1997, the net cash provided by operating activities was
$3,266,000, as compared to $4,687,000 and $3,307,000 provided in fiscal 1996
and 1995, respectively. The fiscal 1997 decrease, as compared to fiscal 1996,
resulted primarily from increased inventories at current operations, offset, in
part, by increased accounts payable. 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. During fiscal
1997, the net cash provided by investing activities was principally related to
the disposition of substantially all of the assets of SL Auburn, Inc.
("Auburn"), offset, in part, by capital expenditures. During fiscal 1996 and
1995, the net cash used in investing activities of $1,240,000, and $8,126,000,
respectively, was primarily related to capital expenditures for both 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 1997 and 1996, the net
cash used in financing activities of $12,665,000 and $4,024,000 was primarily
related to payments made to reduce the Company's long-term debt obligation.
During fiscal 1995, the net cash provided by financing activities of $5,199,000
was primarily related to the use of the Company's revolving line of credit for
the fiscal 1995 Teal acquisition.
The Company's current ratio was 1.8 to 1 at July 31, 1997, 2.3 to 1 at July 31,
1996, and 2.5 to 1 at July 31, 1995. The fiscal 1997 decrease, as compared to
fiscal 1996, resulted from a 28% increase in current liabilities, as compared
to a 3% increase in current assets. The increase in current liabilities
resulted primarily from increased accounts payable. 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.
As a percentage of total capitalization, consisting of long-term debt and
shareholders' equity, total borrowings by the Company were 2% at July 31, 1997,
32% at July 31, 1996, and 41% at July 31, 1995. The fiscal 1997 and 1996
decreases in total borrowings, as compared to fiscal 1996 and 1995, were
primarily a result of payments made to reduce the outstanding balance of the
Company's revolving line of credit. On October 31, 1996, the Company entered
into a new revolving credit agreement in the amount of $25,000,000 with three
participating banks. The agreement's maturity date is October 31, 1999. At July
31, 1997, the Company had $23,320,000, net of outstanding trade letters of
credit of $980,000, of its revolving line of credit available for use. On
September 12, 1997, the Company utilized $4,130,000 of its revolving line of
credit to purchase 375,500 shares of its common stock. See Note 8 to the
consolidated financial statements for additional information about the credit
agreement. The Company's borrowing capacity at July 31, 1997, remained
considerably above its use of outside financing.
Capital expenditures were $2,097,000 in 1997, as compared to $2,219,000 in
1996, and $1,736,000 in 1995. Expenditures during the three-year period have
primarily included investments in new process technology and increased
production capacity. Fiscal 1998 capital expenditures are planned to be
approximately $2,582,000, 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 1997 COMPARED TO FISCAL 1996
Fiscal 1997 consolidated net sales of $115,687,000 decreased approximately 1%
($1,626,000), as compared to fiscal 1996 consolidated net sales. Fiscal 1997's
consolidated net sales included nine months of Auburn's net sales of $8,489,000
and fiscal 1996 consolidated net sales included twelve months of Auburn's net
sales of $10,766,000 and $2,964,000 of Piping's net sales. Fiscal 1997 net
income was $7,815,000, or $1.30 per share, as compared to fiscal 1996 net
income of $3,498,000, or $.59 per share. Fiscal 1997 net income included a
$3,556,000, or $.59 per share, gain, net of severance, facility closing, legal
and other costs, from the disposition of substantially all of the assets of
Auburn. If the gain is excluded from fiscal 1997 net income, net income
increased approximately 22% ($761,000).
The power and data quality segment's fiscal 1997 net sales and operating income
increased approximately 4% ($3,533,000) and 6% ($511,000), respectively, as
compared to fiscal 1996 net sales and operating income. Contributing to these
increases were increased net sales of linear and switching power supplies,
custom electrical subsystems and precision motor products which resulted from
increased market share, offset by decreased sales of surge protection and
uninterruptible power supplies because of a flat retail market. The increase in
fiscal 1997 operating income resulted from the increased net sales realized by
the businesses within this segment.
The specialty products segment's fiscal 1997 net sales and operating income
decreased approximately 30% ($5,159,000), and increased approximately 34%
($224,000), respectively, as compared to fiscal 1996 net sales and operating
income. Fiscal 1997 and 1996's net sales and operating income included the
results of Auburn and, in fiscal 1996, also included the results of Piping.
During fiscal 1997, net sales of surface finishing services increased slightly
because of increased demand.
COST OF SALES
As a percentage of net sales, fiscal 1997 cost of products sold was
approximately 64%, as compared to approximately 65% in fiscal 1996. The
percentage decrease was a direct result of improved operational efficiencies
contributed by the power and data quality segment's product lines.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Fiscal 1997 engineering and product development expenses of $5,283,000
increased approximately 12% ($570,000), as compared to fiscal 1996. As a
percentage of net sales, fiscal 1997 engineering and product development
expenses were 5%, as compared to 4% in fiscal 1996. The fiscal 1997 increases
were primarily related to additional investments made by the businesses within
the power and data quality segment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1997 selling, general and administrative expenses of $26,364,000
decreased approximately 2% ($520,000), as compared to fiscal 1996. As a
percentage of net sales, fiscal 1997 and 1996 selling, general and
administrative expenses were approximately 23% for both years.
DEPRECIATION AND AMORTIZATION EXPENSE
Fiscal 1997 depreciation and amortization expense of $2,700,000 increased
approximately 4% ($116,000), as compared to fiscal 1996. The slight fiscal 1997
increase was primarily related to the depreciation of equipment within the
power and data quality segment.
8
<PAGE> 6
OTHER INCOME (EXPENSE)
Fiscal 1997 other income (expense) included the gain on the disposition of
Auburn, as well as interest income and expense, as compared to fiscal 1996
other income (expense), which consisted entirely of interest income and
expense. Fiscal 1997 interest income increased, as compared to fiscal 1996,
because of additional cash available for investment. Fiscal 1997 interest
expense decreased, as compared to fiscal 1996, primarily because of a reduction
in the Company's long-term debt obligation.
TAXES
The fiscal 1997 effective tax rate on pre-tax income was 39%, as compared to
35% in fiscal 1996. This increase was primarily related to taxes associated
with the Company's Mexican operations, the gain realized from the disposition
of Auburn and state income tax refunds included in fiscal 1996.
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 linear and switching power
supplies, which resulted from new customer programs and increased demand and
increased net sales of precision motor 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 surface finishing services, offset, in part, by decreased sales
of aviation spark plugs. The increases in sales of aviation and industrial
igniters, and surface finishing 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.
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 income increased, as compared to fiscal 1995, because of higher
interest rates and additional cash available for investment. 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.
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 effect of
prior year state income tax refunds. The fiscal 1995 effective tax rate
included the effect of the May 1995 tax free disposition of LUBE.
ENVIRONMENTAL
During fiscal 1997, 1996 and 1995, 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
9
<PAGE> 7
SL INDUSTRIES, INC.
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 Surface
Technologies, Inc. ("STI"), formerly SL Modern Hard Chrome, Inc., and 20 other
respondents are responsible for a contaminant 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 STI 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 STI
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 STI 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
STI site up to an aggregate of $300,000. During fiscal 1997, the Company
received $1,500,000 from three additional insurers and from two of those
insurers, commitments to pay 15% and 20% of the environmental costs associated
with the same location up to an aggregate of $150,000 and $400,000,
respectively. In addition, the Company will receive $100,000 during the fiscal
years 1998, 1999, 2000 and 2001, as stipulated in the settlement agreement
negotiated with one of the three insurers.
See Note 10 to the consolidated financial statements for additional
information.
TRENDS AND PROSPECTS
At the present time, all of the Company's businesses are profitable and are
expected to remain so, and it is anticipated that the Company's fiscal year
1998 consolidated financial results will continue to show improvements.
10
<PAGE> 8
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales................................................. $115,687,000 $117,313,000 $91,125,000
Cost and expenses:
Cost of products sold................................... 74,085,000 76,773,000 59,249,000
Engineering and product development..................... 5,283,000 4,713,000 3,394,000
Selling, general and administrative expenses............ 26,364,000 26,884,000 21,442,000
Depreciation and amortization........................... 2,700,000 2,584,000 2,108,000
------------------------------------------------------------
Total cost and expenses................................... 108,432,000 110,954,000 86,193,000
------------------------------------------------------------
Income from operations.................................... 7,255,000 6,359,000 4,932,000
Other income (expense):
Gain on disposition of subsidiaries..................... 5,888,000 -- 818,000
Interest income......................................... 301,000 159,000 54,000
Interest expense........................................ (680,000) (1,123,000) (859,000)
------------------------------------------------------------
Income before income taxes................................ 12,764,000 5,395,000 4,945,000
Provision for federal and state income taxes.............. 4,949,000 1,897,000 1,268,000
------------------------------------------------------------
Net income................................................ $ 7,815,000 $ 3,498,000 $ 3,677,000
============================================================
Net income per common share............................... $ 1.30 $ 0.59 $ 0.62
============================================================
Shares used in computing net income per common share...... 6,021,000 5,950,000 5,940,000
============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE> 9
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
July 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ -- $ --
Receivables, less allowances
of $1,790,000 and $1,639,000, respectively................................. 18,141,000 16,428,000
Inventories.................................................................. 16,505,000 17,339,000
Prepaid expenses............................................................. 712,000 868,000
Deferred income taxes........................................................ 3,168,000 2,668,000
-----------------------------
Total current assets................................................... 38,526,000 37,303,000
-----------------------------
Property, plant and equipment, net............................................. 6,296,000 7,119,000
Assets held for future sale.................................................... 958,000 985,000
Long-term note receivable...................................................... 2,234,000 2,264,000
Deferred income taxes.......................................................... 2,442,000 1,488,000
Cash surrender value of life insurance policies................................ 7,627,000 7,095,000
Intangible assets, net......................................................... 7,594,000 7,401,000
Other assets................................................................... 1,127,000 520,000
-----------------------------
Total assets........................................................... $66,804,000 $64,175,000
=============================
LIABILITIES
Current liabilities:
Long-term debt due within one year........................................... $ 133,000 $ 187,000
Accounts payable............................................................. 8,839,000 5,770,000
Accrued income taxes......................................................... 770,000 786,000
Accrued liabilities:
Payroll and related costs.................................................. 5,331,000 4,614,000
Other...................................................................... 6,054,000 5,181,000
-----------------------------
Total current liabilities.............................................. 21,127,000 16,538,000
-----------------------------
Long-term debt less portion due within one year................................ 700,000 13,186,000
Deferred compensation and supplemental retirement benefits..................... 4,133,000 3,723,000
Other liabilities.............................................................. 4,352,000 2,048,000
-----------------------------
Total liabilities...................................................... $30,312,000 $35,495,000
-----------------------------
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, 1997 - 7,958,000 shares, 1996 - 7,899,000 shares..................... 1,592,000 1,580,000
Capital in excess of par value................................................. 34,695,000 34,306,000
Retained earnings.............................................................. 9,607,000 2,196,000
Treasury stock at cost, 2,141,000 shares....................................... (9,402,000) (9,402,000)
-----------------------------
Total shareholders' equity............................................. $36,492,000 $28,680,000
-----------------------------
Total liabilities and shareholders' equity............................. $66,804,000 $64,175,000
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 10
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<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, 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
Net income.......................... 7,815,000
Cash dividends, $.07 per share...... (405,000)
Other, including exercise of
employee stock options and
related income tax benefits....... 59,000 12,000 389,000 1,000
------------------------------------------------------------------------------------------
BALANCE JULY 31, 1997............... 7,958,000 $1,592,000 (2,141,000) $(9,402,000) $34,695,000 $ 9,607,000
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 11
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................................. $ 7,815,000 $ 3,498,000 $ 3,677,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................................ 1,889,000 1,869,000 1,687,000
Amortization........................................................ 811,000 715,000 421,000
Provisions for losses on accounts receivable........................ 63,000 151,000 175,000
Additions to other assets........................................... (820,000) (259,000) (95,000)
Cash surrender value of life insurance premiums..................... (534,000) (499,000) (661,000)
Deferred compensation and supplemental retirement benefits.......... 942,000 863,000 521,000
Deferred compensation and supplemental retirement benefit payments.. (499,000) (449,000) (691,000)
Increase in deferred income taxes................................... (1,454,000) (1,148,000) (724,000)
(Gain) loss on the sale of equipment................................ (23,000) (5,000) 13,000
Discontinued product line expenses.................................. (143,000) (246,000) (172,000)
Gain on disposition of subsidiaries................................. (5,888,000) -- (818,000)
Changes in operating assets and liabilities, net of the effect
of acquisition and dispositions:
Receivables....................................................... (3,073,000) (5,000,000) (356,000)
Inventories....................................................... (1,718,000) 2,682,000 (3,318,000)
Prepaid expenses.................................................. 135,000 11,000 (57,000)
Accounts payable.................................................. 3,633,000 444,000 872,000
Accrued liabilities............................................... 2,025,000 2,325,000 2,526,000
Accrued income taxes.............................................. 105,000 (265,000) 307,000
--------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 3,266,000 $ 4,687,000 $ 3,307,000
--------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment.................... 29,000 151,000 14,000
Purchases of property, plant and equipment.............................. (2,097,000) (2,219,000) (1,736,000)
Proceeds from notes receivable.......................................... 74,000 7,000 --
Payments for acquisition, net of cash acquired.......................... (823,000) (533,000) (6,404,000)
Proceeds from disposition of subsidiaries............................... 12,216,000 1,354,000 --
--------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............... $ 9,399,000 $(1,240,000) $(8,126,000)
--------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid..................................................... (405,000) (343,000) (349,000)
Rights redemption....................................................... -- -- (48,000)
Proceeds from long-term debt............................................ 2,200,000 600,000 9,000,000
Payments on long-term debt.............................................. (14,740,000) (4,786,000) (3,526,000)
Proceeds from stock options exercised................................... 280,000 505,000 122,000
--------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... $(12,665,000) $(4,024,000) $ 5,199,000
--------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. -- (577,000) 380,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ -- 577,000 197,000
--------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END..................................... $ -- $ -- $ 577,000
==================================================
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 12
SL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997, 1996 and 1995, these costs were $2,287,000,
$2,322,000 and $2,085,000, respectively.
Research and development costs: Research and development costs are expensed as
incurred. For the fiscal years ended July 31, 1997, 1996 and 1995, these costs
were $1,405,000, $1,245,000 and $985,000, 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.
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 doubtful accounts, allowance for
inventory obsolescence and environmental costs.
Net income per common share: Net income per common share for fiscal 1997 and
1996 is calculated using weighted average shares outstanding plus the effect 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 effect of outstanding dilutive stock
options is not material for fiscal 1995 and is not included in the calculations
for this year.
New accounting pronouncements: 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 adopted SFAS No. 121, effective August 1,
1996. The adoption had no effect on the Company's financial condition or
results of operations during fiscal 1997.
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
adopted SFAS No. 123, effective August 1, 1996. The Company has elected to
adopt the disclosure requirement of this Statement with respect to its
valuation of stock options.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share ("SFAS No. 128")",
which the Company is required to adopt for both interim and annual periods
ending after December 15, 1997. SFAS No. 128 simplifies the Earnings per Share
("EPS") calculation by replacing primary EPS with basic EPS. Basic EPS is
computed by dividing reported earnings available to common shareholders by
weighted average shares outstanding. Fully diluted EPS, now called diluted EPS,
is still required. Early application is prohibited, although footnote
disclosure of pro forma EPS amounts are required. For the periods ended July
31, 1997, 1996 and 1995, the pro forma basic EPS would have been $1.35, $.61
and $.62, respectively. The diluted EPS for the periods presented would have
remained the same as presented.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income ("SFAS
No. 130")", which the Company is required to adopt for the interim and annual
periods ending after December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in interim and annual financial statements.
15
<PAGE> 13
SL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131")", which the Company is
required to adopt for the interim and annual periods ending after December 15,
1997. SFAS No. 131 establishes standards for the reporting of information about
operating segments in interim and annual financial statements. Management is in
the process of analyzing the impact of the adoption of SFAS No. 131.
Reclassifications: Reclassifications, when applicable, are made to the prior
year consolidated financial statements to conform with current year
presentation.
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 periods ended April 30,
1996 and 1997, additional purchase price of $423,000 and $669,000,
respectively, was paid and during fiscal 1997, an additional $271,000 was
accrued.
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 $4,412,000 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
----------------------
(In thousands,
except per share data)
<S> <C>
Net sales. . . . . . . . . . . . . . $ 98,307
Net income . . . . . . . . . . . . . $ 3,992
Net income per common share. . . . . $ .67
</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.
On May 1, 1997, the Company sold substantially all the assets, excluding real
property, of its wholly-owned subsidiary, SL Auburn, Inc., for $12,216,000. For
financial reporting purposes, the sale resulted in a pre-tax gain, net of
severance, facility closing, legal and other costs of $5,888,000, increasing
net income by $3,556,000, or $.59 per common share.
3. INCOME TAXES
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
---------------------------------
1997 1996 1995
---------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . $ 5,288 $ 2,584 $ 1,607
State . . . . . . . . . . . . . . 1,115 461 361
Deferred:
Federal . . . . . . . . . . . . . (1,182) (1,038) (587)
State . . . . . . . . . . . . . . (272) (110) (113)
---------------------------------
$ 4,949 $ 1,897 $ 1,268
=================================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities at
July 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
--------------------
1997 1996
--------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Deferred compensation. . . . . . . $ 1,681 $ 1,516
Liabilities related to
discontinued product line. . . . . 366 422
Liabilities related to
environmental matters. . . . . . . 304 453
Inventory valuation. . . . . . . . 514 692
Prepaid and accrued expenses . . . 3,484 1,830
Other. . . . . . . . . . . . . . . 17 2
--------------------
6,366 4,915
Deferred tax liabilities:
Accelerated depreciation and
amortization . . . . . . . . . . 756 759
--------------------
$ 5,610 $ 4,156
====================
</TABLE>
Following is a reconciliation between the amount of income tax
expense at the applicable federal statutory rate and the effective
rates:
<TABLE>
<CAPTION>
-------------------------------
1997 1996 1995
-------------------------------
<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)
State income taxes, net of federal
income tax benefit . . . . . . . . . 4 4 5
Other. . . . . . . . . . . . . . . . . 1 (2) -
-------------------------------
39% 35% 26%
===============================
</TABLE>
16
<PAGE> 14
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>
---------------------------------
1997 1996
---------------------------------
(In thousands)
<S> <C> <C>
Raw materials. . . . . . . . . . $ 7,691 $ 8,139
Work in process. . . . . . . . . 2,283 2,601
Finished goods . . . . . . . . . 6,531 6,599
---------------------------------
$ 16,505 $ 17,339
=================================
</TABLE>
The above includes certain inventories, which are valued using the LIFO method,
which aggregated $2,254,000 and $1,019,000 at July 31, 1997 and 1996,
respectively. The excess of FIFO cost over LIFO cost at July 31, 1997 and 1996,
was approximately $446,000 and $608,000, respectively.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
----------------------
1997 1996
----------------------
(In thousands)
<S> <C> <C>
Land . . . . . . . . . . . . . . . $ 58 $ 79
Buildings and leasehold
improvements . . . . . . . . . . . 2,873 3,688
Equipment and other property . . . 15,240 14,743
----------------------
18,171 18,510
Less accumulated depreciation. . . 11,875 11,391
----------------------
$ 6,296 $ 7,119
======================
</TABLE>
"Assets held for future sale" at July 31, 1997 and 1996, are not included above
and relate to assets remaining after the 1989 relocation of a power and data
quality operation. The assets remaining consist primarily of land, building and
building improvements which are being leased to a third party. The building and
building improvements are being depreciated and accounted for as an operating
lease. Aggregate accumulated depreciation for the building and building
improvements at July 31, 1997 and 1996, was $483,000 and $434,000,
respectively. Aggregate minimum rental income for fiscal 1997 and 1996 was
$123,000 and $205,000, respectively, which for fiscal 1996, included $88,000
from the assets sold that year. Aggregate minimum rental income for the
remaining lease period will be $131,000, $138,000 and $81,000 in 1998, 1999 and
2000, respectively. 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>
---------------------------------
1997 1996
---------------------------------
(In thousands)
<S> <C> <C>
Patents . . . . . . . . . . . . . . $ 873 $ 873
Covenants not to compete. . . . . . 2,980 2,980
Goodwill . . . . . . . . . . . . . 4,447 3,624
Trademarks . . . . . . . . . . . . 920 920
Other . . . . . . . . . . . . . . . 386 386
---------------------------------
9,606 8,783
Less accumulated amortization . . . 2,012 1,382
---------------------------------
$ 7,594 $ 7,401
=================================
</TABLE>
8. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
---------------------------
1997 1996
---------------------------
(In thousands)
<S> <C> <C>
Revolving line of credit.............. $ 700 $ 13,000
Industrial revenue bonds payable
in various principal amounts
through 1998.......................... 133 373
---------------------------
833 13,373
Less portion due within one year...... 133 187
---------------------------
$ 700 $ 13,186
===========================
</TABLE>
On October 31, 1996, the Company entered into a new revolving credit agreement
in the amount of $25,000,000 with three participating banks. The agreement's
maturity date is October 31, 1999. 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 contains limitations on borrowings and requires maintenance of
specified ratios, the most restrictive of which is the ratio of total funded
debt plus standby letters of credit to earnings before interest, taxes,
depreciation and amortization. At July 31, 1997, the Company is in compliance
with the above covenants. In lieu of compensating balances, the Company pays
commitment fees as defined under the agreement.
Under the terms of the industrial revenue bond installment loan agreements,
interest is payable quarterly on the outstanding principal at 65% of the
prevailing prime rate, adjusted monthly. Generally the banks have the right and
option to call each loan, at specified dates, if certain levels of
shareholders' equity, as defined, are not maintained.
Principal maturities of long-term debt in the next two years are $133,000 in
1998, and $700,000 in 2000.
9. RETIREMENT PLANS AND DEFERRED COMPENSATION
The Company maintains two noncontributory defined contribution pension plans
covering substantially all employees. The Company's aviation igniter subsidiary
also had a noncontributory defined contribution plan covering all its
employees. The Company's contribution to its plans is based on a percentage of
employee elective contributions and, in one plan, calendar year gross wages, as
defined. The power conditioner subsidiary's contribution to its plan is based
on a percentage of employee elective contributions. The aviation igniter
subsidiary's contribution to its plan was based on a percentage of salary, as
defined in the plan. Costs accrued under the plans for fiscal 1997, 1996 and
1995 amounted to approximately
17
<PAGE> 15
SL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$531,000, $508,000 and $416,000, respectively. It is the Company's policy to
fund its 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 $55,000,
$52,000 and $50,000 in 1997, 1996 and 1995, 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 $491,000, $398,000 and
$373,000 in 1997, 1996 and 1995, 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
$451,000, $465,000 and $148,000 in 1997, 1996 and 1995, 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, 1997, the aggregate death benefit totaled
$13,416,000 with the corresponding cash surrender value totaling $7,627,000. At
July 31, 1997, certain agreements may restrict the Company from utilizing cash
surrender value totaling $1,845,000 for purposes other than satisfaction of the
specific underlying deferred compensation agreements, if benefits are not paid
by the Company. The Company nets the dividends realized from the insurance
policies with premium expense. Net amounts included in income in connection
with the policies amounted to $257,000, $337,000 and $217,000 in 1997, 1996 and
1995, respectively.
10. COMMITMENTS AND CONTINGENCIES
For the fiscal years ended July 31, 1997, 1996 and 1995, rental expense
applicable to continuing operations aggregated $1,602,000, $2,000,000 and
$1,743,000, respectively. These expenses are primarily for facilities and
vehicles. The minimum rental commitments as of July 31, 1997, are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C> <C>
1998 . . . . . . . $1,419 2001 . . . . . . . 476
1999 . . . . . . . 1,015 2002 . . . . . . . 472
2000 . . . . . . . 755 Thereafter . . . . 199
------
$4,336
======
</TABLE>
At July 31, 1997, the Company was contingently liable for $1,216,000, 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 effect 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 effect 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 were probable. During fiscal years 1993, 1994, 1995, 1996 and 1997,
the Company incurred environmental related capital expenditures of
approximately $416,000.
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. During fiscal 1997, the Company received
$1,500,000 from three additional insurers and from two of those insurers,
commitments to pay 15% and 20% of the environmental costs associated with the
same location up to an aggregate of $150,000 and $400,000, respectively. In
addition, the Company will receive $100,000 during fiscal years 1998, 1999,
2000 and 2001, as stipulated in the settlement agreement negotiated with one of
the three insurers. At July 31, 1997 and 1996, the remaining environmental
accrual was $1,075,000 and $1,438,000, respectively, of which $400,000 and
$400,000, respectively, have been included in "Accrued Liabilities" and
$675,000 and $1,038,000, 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
18
<PAGE> 16
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 1995, 1996 and 1997 with respect to the Director Plan is as follows:
<TABLE>
<CAPTION>
---------------------------------------
Shares Option Price
---------------------------------------
(In thousands, except for option price)
<S> <C> <C>
Outstanding and exercisable
at August 1, 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
Granted . . . . . . . . . . . . . . . 27 $7.1875 to $9.6875
Outstanding and exercisable
at July 31, 1997. . . . . . . . . . . 103 $3.5625 to $10.50
</TABLE>
As of July 31, 1997, 1996 and 1995, the number of shares available for grant
were 133,000, 160,000 and 199,000, 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. Options granted before August 1,
1996, are exercisable at any time. Options granted after August 1, 1996, are
exercisable in equal installments, with 25% exercisable on the grant date and
the balance exercisable on each one, two and three year anniversary date
thereafter. 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 1995, 1996
and 1997 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, 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
Granted . . . . . . . . . . . . . . . 133 $7.25 to $9.375
Exercised . . . . . . . . . . . . . . (59) $3.25 to $9.375
Cancelled . . . . . . . . . . . . . . (13) $3.25 to $9.375
Outstanding at July 31, 1997. . . . . 348 $3.25 to $9.375
</TABLE>
The number of shares exercisable at July 31, 1997, were 259,000. As of July 31,
1997, 1996, and 1995, the number of shares available for grant were 381,000,
501,000, and 159,000, 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 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, 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 is exercisable at July 31, 1997, 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% at July 31, 1997, and 50%, 20% and 10% on or after 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.
The Company applies Accounting Principles Board opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had compensation cost for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 123, "Accounting for Stock-Based Compensation", the Company's net income
and net income per common share would have been reduced in 1997 and 1996 as
follows:
19
<PAGE> 17
SL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Net income - as reported . . . . . . . . . . . . $7,815,000 $3,498,000
Net income - pro forma . . . . . . . . . . . . . $7,617,000 $3,202,000
Net income per common share - as reported . . . $1.30 $.59
Net income per common share - pro forma . . . . $1.27 $.55
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Expected dividend yield. . . . . . . . . . . . . .98% 1.61%
Expected stock price volatility. . . . . . . . . 31.0% 27.2%
Risk-free interest rate. . . . . . . . . . . . . 6.7% 6.0%
Expected life of option. . . . . . . . . . . . . 7 YEARS 7 years
</TABLE>
Transactions from August 1, 1994 through July 31, 1997, under the above plans
were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Number of Option Price Weighted Weighted Average
Shares per Share Average Price Life Remaining
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Options at
August 1, 1994 . . . . 494 $3.25 to $7.90 $3.60 8.11 years
Granted . . . . . . . . 104 $3.5625 to $5.125 $4.37
Exercised . . . . . . . (34) $3.25 to $3.75 $3.58
Expired . . . . . . . . (16) $7.90 $7.90
Cancelled . . . . . . . (3) $3.25 to $7.90 $6.35
Outstanding at
July 31, 1995 . . . . . 545 $3.25 to $5.90 $3.76 7.53 years
Granted . . . . . . . . 172 $5.6875 to $10.50 $7.48
Exercised . . . . . . . (126) $3.25 to $5.90 $3.87
Expired . . . . . . . . (16) $5.90 $5.90
Cancelled . . . . . . . (2) $3.25 to $6.875 $5.27
Outstanding at
July 31, 1996 . . . . . 573 $3.25 to $10.50 $4.87 7.18 years
Granted . . . . . . . . 160 $7.1875 to $9.6875 $8.84
Exercised . . . . . . . (59) $3.25 to $9.375 $4.69
Cancelled . . . . . . . (13) $3.25 to $9.375 $7.26
Outstanding at
July 31, 1997 . . . . . 661 $3.25 to $10.50 $5.78 6.83 years
Exercisable at
July 31, 1997 . . . . . 532 $3.25 to $10.50 $5.05 6.83 years
</TABLE>
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>
---------------------------
1997 1996 1995
---------------------------
(In thousands)
<S> <C> <C> <C>
Interest paid . . . . . . . . . $ 735 $ 1,158 $ 790
Income taxes paid . . . . . . . $ 6,431 $ 3,312 $ 1,667
</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>
-------------------------------------------
1997 1996 1995
-------------------------------------------
(In thousands)
<S> <C> <C> <C>
NET SALES
Power and data quality . . . . $103,852 $100,319 $ 73,183
Specialty products . . . . . . 11,835 16,994 17,942
-------------------------------------------
Consolidated . . . . . . . . $115,687 $117,313 $ 91,125
===========================================
OPERATING INCOME
Power and data quality . . . . $ 9,364 $ 8,853 $ 5,758
Specialty products . . . . . . 884 660 1,760
Corporate. . . . . . . . . . . (2,993) (3,154) (2,586)
-------------------------------------------
Total. . . . . . . . . . . . 7,255 6,359 4,932
Gain on disposition. . . . . . 5,888 - 818
Interest income. . . . . . . . 301 159 54
Interest expense . . . . . . . (680) (1,123) (859)
-------------------------------------------
Consolidated income
before income taxes. . . . . $ 12,764 $ 5,395 $ 4,945
===========================================
IDENTIFIABLE ASSETS
Power and data quality . . . . $ 46,735 $ 39,984 $ 38,653
Specialty products . . . . . . 4,265 7,590 9,582
-------------------------------------------
Consolidated segment totals. 51,000 47,574 48,235
Corporate. . . . . . . . . . . 15,804 16,601 13,921
-------------------------------------------
Consolidated assets. . . . . $ 66,804 $ 64,175 $ 62,156
===========================================
CAPITAL EXPENDITURES (1)
Power and data quality . . . . $ 1,691 $ 1,761 $ 1,113
Specialty products . . . . . . 361 324 614
Corporate. . . . . . . . . . . 45 134 9
-------------------------------------------
Total. . . . . . . . . . . . $ 2,097 $ 2,219 $ 1,736
===========================================
DEPRECIATION AND AMORTIZATION
Power and data quality . . . . $ 2,116 $ 1,830 $ 1,255
Specialty products . . . . . . 459 580 627
Corporate. . . . . . . . . . . 125 174 226
-------------------------------------------
Total. . . . . . . . . . . . $ 2,700 $ 2,584 $ 2,108
===========================================
</TABLE>
(1) Excludes assets acquired in business combinations.
20
<PAGE> 18
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, 1997 and 1996, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended July 31, 1997. 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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended July 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
September 5, 1997
21
<PAGE> 19
SL INDUSTRIES, INC.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------------------------------------
October 31, January 31, April 30, July 31,
-----------------------------------------------------------------------------------------------
1996 1995 1997 1996 1997(2) 1996 1997 1996
-----------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ..................... $27,844 $28,939 $29,253 $29,635 $29,773 $28,302 $28,817 $30,437
Gross margin .................. $ 9,665 $ 9,632 $10,069 $ 9,820 $10,085 $ 9,733 $10,517 $10,092
Income before income taxes .... $ 1,416 $ 1,160 $ 1,619 $ 1,222 $ 7,526 $ 1,453 $ 2,203 $ 1,560
Net income .................... $ 880 $ 757 $ 964 $ 817 $ 4,572 $ 900 $ 1,399 $ 1,024
Net income per common share (1) $ 0.15 $ 0.13 $ 0.16 $ 0.14 $ 0.76 $ 0.15 $ 0.23 $ 0.17
-----------------------------------------------------------------------------------------------
</TABLE>
(1) Fiscal 1997 and 1996 include the effect of outstanding dilutive stock
options. See Note 1 to consolidated financial statements.
(2) Includes pre-tax gain, net of severance, facility closing, legal and other
costs, on disposition of subsidiary of $5,888,000, increasing net income by
$3,556,000, or $.59 per common share. See Note 2 to consolidated financial
statements.
22
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or other
Jurisdiction of
Subsidiaries Incorporation
- ------------ -------------
<S> <C>
Cedar Corporation Nevada
Cedro de Mexico, S.A. De C.V. Mexico
Condor D.C. Power Supplies, Inc. California
Industrias SL, S.A. de C.V Mexico
PDQ Corporation New Jersey
SL Ameritech Plastics, Inc. New York
SL Auburn, Inc.(a) New York
SL Delaware, Inc. Delaware
SL International (FSC), Inc. U.S. Virgin Islands
SL Surface Technologies, Inc.(b) New Jersey
SL Montevideo Technology, Inc. Minnesota
SL Piping Systems, Inc.(c) Delaware
SL Waber, Inc. New Jersey
Teal Electronics Corporation California
Waber de Mexico, S.A. De C.V. Mexico
Waber Power, LTD(d) Connecticut
</TABLE>
All of the registrant's subsidiaries are included in the consolidated
financial statements for the year ended July 31, 1997
- ----------------------
(a) Disposed on May 1, 1997.
(b) Formerly SL Modern Hard Chrome, Inc.
(c) Disposed on February 20, 1996.
(d) Formerly SL Electrostatic Technology, Inc.
<PAGE> 1
EXHIBIT 24
[ARTHUR ANDERSEN LLP LETTERHEAD]
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.
/s/ Arthur Andersen LLP
-------------------
Philadelphia, PA
October 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Statement of
Earnings, Consolidated Balance Sheet and Consolidated Statements of Cash Flow
and is qualified in its entirety by reference to such 10-K -- Year Ended July
31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 19,931
<ALLOWANCES> 1,790
<INVENTORY> 16,505
<CURRENT-ASSETS> 38,526
<PP&E> 18,171
<DEPRECIATION> 11,875
<TOTAL-ASSETS> 66,804
<CURRENT-LIABILITIES> 21,127
<BONDS> 0
0
0
<COMMON> 1,592
<OTHER-SE> 36,492
<TOTAL-LIABILITY-AND-EQUITY> 66,804
<SALES> 115,687
<TOTAL-REVENUES> 115,687
<CGS> 74,085
<TOTAL-COSTS> 108,432
<OTHER-EXPENSES> 680
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,764
<INCOME-TAX> 4,949
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,815
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
