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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ______ to ______
Commission file number 1-4987
SL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
NEW JERSEY 21-0682685
(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
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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
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The number of shares of common stock outstanding as of December 5, 1997, was
5,575,923.
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<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
October 31, July 31,
1997 1997
------------ ------------
(Unaudited) *
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ASSETS
Current assets:
Cash and cash equivalents ........................................... $ -- $ --
Receivables, less allowances of
$2,055,000 and $1,790,000, respectively ............................ 17,024,000 18,141,000
Inventories (Note 2) ................................................ 16,296,000 16,505,000
Prepaid expenses .................................................... 952,000 712,000
Deferred income taxes ............................................... 3,487,000 3,168,000
------------ ------------
Total current assets ............................................ 37,759,000 38,526,000
------------ ------------
Property, plant and equipment, less accumulated depreciation
of $12,812,000 and $12,358,000, respectively ......................... 7,413,000 7,254,000
Long-term notes receivable ............................................. 2,226,000 2,234,000
Deferred income taxes .................................................. 2,485,000 2,442,000
Cash surrender value of life insurance policies ........................ 7,838,000 7,627,000
Intangible assets, less accumulated amortization
of $2,181,000 and $2,012,000, respectively ........................... 7,728,000 7,594,000
Other assets ........................................................... 1,195,000 1,127,000
------------ ------------
Total assets ................................................... $ 66,644,000 $ 66,804,000
============ ============
LIABILITIES
Current liabilities:
Long-term debt due within one year .................................. $ 133,000 $ 133,000
Accounts payable .................................................... 7,309,000 8,839,000
Accrued income taxes ................................................ 1,712,000 770,000
Accrued liabilities:
Payroll and related costs ......................................... 5,675,000 5,331,000
Other ............................................................. 5,596,000 6,054,000
------------ ------------
Total current liabilities ...................................... 20,425,000 21,127,000
------------ ------------
Long-term debt less portion due within one year ........................ 4,000,000 700,000
Deferred compensation and supplemental retirement benefits ............. 4,401,000 4,133,000
Other liabilities ...................................................... 4,033,000 4,352,000
------------ ------------
Total liabilities .............................................. $ 32,859,000 $ 30,312,000
------------ ------------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued $ -- $ --
Common stock, $20 par value; authorized, 25,000,000 shares;
issued, 5,533,000 and 7,958,000 shares, respectively ................. 1,610,000 1,592,000
Capital in excess of par value ......................................... 35,138,000 34,695,000
Retained earnings ...................................................... 10,569,000 9,607,000
Treasury stock at cost, 2,516,000 and 2,141,000 shares, respectively ... (13,532,000) (9,402,000)
------------ ------------
Total shareholders' equity ..................................... 33,785,000 36,492,000
------------ ------------
Total liabilities and shareholders' equity ..................... $ 66,644,000 $ 66,804,000
============ ============
* Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three-Months Ended
October 31,
1997 1996 (a)
------------ ------------
(Unaudited) (Unaudited)
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Net sales ................................................................... $ 29,455,000 $ 27,844,000
------------ ------------
Cost and expenses:
Cost of products sold ..................................................... 18,654,000 17,850,000
Engineering and product development ....................................... 1,532,000 1,282,000
Selling, general and administrative ....................................... 6,626,000 6,443,000
Depreciation and amortization ............................................. 729,000 683,000
------------ ------------
Total cost and expenses ..................................................... 27,541,000 26,258,000
------------ ------------
Income from operations ...................................................... 1,914,000 1,586,000
Other income (expense):
Interest income ........................................................... 54,000 67,000
Interest expense .......................................................... (75,000) (237,000)
------------ ------------
Income before income taxes .................................................. 1,893,000 1,416,000
Provision for federal and state income taxes ................................ 711,000 536,000
------------ ------------
Net income .................................................................. $ 1,182,000 $ 880,000
============ ============
Net income per common share ................................................. $ 0.20 $ 0.15
============ ============
Shares used in computing net income
per common share .......................................................... 5,953,000 6,047,000
(a) Fiscal 1997 first quarter results include SL Auburn, Inc.'s net income and
net sales of $195,000 and $2,814,000, respectively. Substantially all of SL
Auburn, Inc.'s assets were sold on May 1, 1997.
See accompanying notes to consolidated financial statements.
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<CAPTION>
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended October 31,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
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OPERATING ACTIVITIES:
Net income ................................................................ $ 1,182,000 $ 880,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................................... 499,000 482,000
Amortization ........................................................... 230,000 201,000
Provisions for losses on accounts receivable ........................... 6,000 12,000
Additions to deferred charges and other assets ......................... (433,000) (575,000)
Cash surrender value of life insurance premium ......................... (210,000) (101,000)
Deferred compensation and supplemental retirement payments ............. 447,000 358,000
Deferred compensation and supplemental retirement benefit cash payments (176,000) (152,000)
Increase in deferred income taxes ...................................... (362,000) (324,000)
Gain on sale of equipment ............................................... -- (4,000)
Cash dividends declared, but not paid ................................... (220,000) (173,000)
Changes in operating assets and liabilities:
Accounts receivable .................................................. 1,112,000 544,000
Inventories .......................................................... 210,000 202,000
Prepaid expenses ..................................................... (241,000) (251,000)
Accounts payable ..................................................... (1,530,000) 143,000
Other accrued liabilities ............................................ (436,000) (964,000)
Income taxes ......................................................... 942,000 856,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................... $ 1,020,000 $ 1,134,000
----------- -----------
INVESTING ACTIVITIES:
Disposals of property, plant and equipment ................................ 1,000 7,000
Purchases of property, plant and equipment ................................ (659,000) (390,000)
Decrease in notes receivable .............................................. 7,000 7,000
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ....................................... $ (651,000) $ (376,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt .............................................. 5,100,000 --
Payments on long-term debt ................................................ (1,800,000) (607,000)
Proceeds from stock options exercised ..................................... 461,000 43,000
Treasury stock acquired ................................................... (4,130,000) --
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES ....................................... $ (369,000) $ (564,000)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ..................................... -- 194,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............................. -- --
----------- -----------
CASH AND CASH EQUIVALENTS AT OCTOBER 31, .................................... $ -- $ 194,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................................ $ 79,000 $ 292,000
Income taxes ............................................................ $ 131,000 $ 828,000
See accompanying notes to consolidated financial statements.
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SL INDUSTRIES, INC.
Notes to Consolidated Financial Statements
1. In the opinion of the Registrant, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) and reclassifications necessary to present fairly the
financial position as of October 31, 1997, and July 31, 1997, the results of
operations for the three-month periods ended October 31, 1997 and 1996, and the
cash flows for the three-month periods ended October 31, 1997 and 1996.
2. Inventories at October 31, 1997, and July 31, 1997, were as follows:
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October 31, 1997 July 31, 1997
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Raw materials $ 7,469,000 $ 7,691,000
Work in process 3,244,000 2,283,000
Finished goods 5,583,000 6,531,000
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$16,296,000 $16,505,000
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3. In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which the Registrant 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 three-month periods ending
October 31, 1997 and 1996, the pro forma basic EPS would have been $.21 and
$.15, respectively. The diluted EPS for the periods presented remained the same
as presented.
4. These statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report To Shareholders and
Form 10-K for the year ended July 31, 1997, along with any subsequent Form
10-Q's and Form 8-K's.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The principal sources of cash during the first three months of fiscal 1998 of
$1,020,000 were provided by operating activities, while investing and financing
activities used cash of $651,000 and $369,000, respectively. The net cash
provided by operating activities resulted primarily from net income and the
collection of accounts receivable offset, in part, by cash used to reduce
accounts payable. The net cash used in investing activities resulted primarily
from purchases of manufacturing equipment and leasehold improvements. The net
cash used by financing activities included $4,130,000 for the purchase of
375,500 shares of the Registrant's common stock, offset by debt proceeds of
$5,100,000.
The Registrant's borrowing capacity at October 31, 1997, remained above its use
of outside financing. As of October 31, 1997, the Registrant had $19,995,847
available for use under its $25,000,000 Revolving Credit Agreement since
$1,004,153 was allocated to outstanding trade letters of credit and $4,000,000
utilized for the above stock repurchase and working capital requirements. The
available credit facility is subject to commitment fees, but not compensating
balances. In addition, the Agreement contains limitations on borrowings and
their use, requires maintenance of specified ratios, with all of which the
Registrant is in compliance, and has a maturity date of October 31, 1999. Also,
as of October 31, 1997, the Registrant had $7,838,000 available from the cash
surrender value of its life insurance policies.
During the three-month period ended October 31, 1997, the ratio of current
assets to current liabilities remained constant at 1.8 to 1 as compared to July
31, 1997.
Capital expenditures for the three-month period ended October 31, 1997, amounted
to $659,000 and were primarily for purchases of manufacturing equipment and
leasehold improvements. The Registrant anticipates that future commitments for
additional capital expenditures will be funded primarily by cash generated by
operations and, to the extent necessary, the utilization of borrowings under its
Revolving Credit Agreement.
The Registrant is not aware of any demands, commitments or uncertainties in the
normal course which are likely to impair its ability to generate or borrow
adequate amounts of cash to meet its future needs, which include payment of
dividends, capital expenditures and expenditures for working capital
requirements.
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Results of Operations
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES
Consolidated net sales for the three-month period ended October 31, 1997,
increased 6%, as compared to the net sales realized during the corresponding
period a year ago, which included the net sales of SL Auburn, Inc. ("Auburn").
Substantially all of the assets, excluding real property of Auburn, were sold on
May 1, 1997. If Auburn's net sales were excluded from the three-month period of
fiscal 1997, current year net sales would be 18% higher. The increases were
primarily related to increased demand for sales of power conditioning and
distribution units, motion control systems and power supplies.
COST OF SALES
Cost of sales for the three-month period increased 5%, as compared to last year.
If Auburn's results were excluded from last year's three-month period, cost of
sales for the three-month period increased 17%, as compared to last year. The
increase is primarily related to increased volume and excess costs associated
with training new production employees. As a percentage of net sales, cost of
sales for the current three-month period was 63%, as compared to 64%, a year
ago. If Auburn's results were excluded, cost of sales, as a percentage of net
sales, for the three-month period of the prior year remained the same. The
three-month decrease is primarily due to product mix.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
For the three-month period, engineering and product development expenses
increased 20% as compared to the same period last year. The three-month period
increase was primarily related to the development of new power supplies and
battery charger products. As a percentage of net sales, engineering and product
development expenses remained constant at 5%, as compared to last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the three-month period, selling, general and administrative expenses
increased 3%, as compared to last year. As a percentage of net sales, the
three-month period remained constant at 23%. If Auburn's results were excluded
from last year's three-month period, selling, general and administrative
expenses increased 10%, as compared to the same period last year, and as a
percentage of net sales, were 24%, a year ago. The decrease, as a percentage of
net sales, was primarily related to a reduction in administrative expenses
because of staff reductions and the use of temporary employees.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the three-month period increased 7%,
as compared to last year. If you exclude Auburn's expense from prior year
results, depreciation and
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amortization expense increased 19%, as compared to last year. The increases were
primarily related to depreciation and amortization of computer hardware and
software, respectively.
INTEREST
Interest income for the three-month period decreased 19%, as compared to last
year. The primarily reason for the decrease was less cash available for
investment. Interest expense for the three-month period decreased 68%, as
compared to last year. The decrease resulted primarily from a lower debt
balance.
TAXES
The effective tax rate for both three-month periods were 38%.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The regular annual meeting of shareholders of the Registrant was held on
November 21, 1997. The meeting was held to elect seven directors to serve for
one year, to ratify the appointment of a certified public accounting firm to
serve as the Registrant's auditors for fiscal year 1998, to amend the Company's
Certificate of Incorporation eliminating cumulative voting and to vote on a
shareholder proposal.
The votes cast for and against all nominees were as follows:
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Name For Against
---- --- -------
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Baumgardner, J. Dwane 4,642,398 436,784
Farren, Owen 4,646,871 432,311
Gaugler, Edward A. 4,663,940 415,242
Hornig, George R. 4,681,163 398,019
Nuzzo, Salvatore J. 4,642,988 436,194
Rickard, Walter I. 4,683,163 396,019
Sanator, Robert J. 4,678,707 400,475
</TABLE>
All of the above nominees for the Board of Directors were elected.
The votes cast for, against and abstain for ratifying the appointment of Arthur
Andersen LLP as the Registrant's auditors for fiscal year 1998 were as follows:
For 5,000,081 Against 11,366 Abstain 65,733
The appointment of Arthur Andersen LLP as the Registrant's auditors was
ratified, since this proposal received the required affirmative vote of a
majority of the votes cast at the annual meeting.
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The votes cast for, against and abstain for amending the Registrant's
Certificate of Incorporation eliminating cumulative voting were as follows:
For 2,812,339 Against 988,478 Abstain 46,147
The proposal to amend the certificate of incorporation was approved, since this
proposal received two-thirds of the votes cast at the annual meeting.
The votes cast for, against and abstain for the shareholder proposal were as
follows:
For 326,959 Against 3,280,700 Abstain 239,304
The shareholder proposal was not approved, since this proposal did not receive
the required affirmative vote of a majority of the votes cast at the annual
meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The information called for by this section is listed in the Exhibit Index
of this report.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended October 31, 1997.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SL INDUSTRIES, INC.
Registrant
Dated: December 12, 1997 Owen Farren
---------------------------
Owen Farren
President and
Chief Executive Officer
Dated: December 12, 1997 James E. Morris
---------------------------
James E. Morris
Vice President,
Corporate Controller,
and Treasurer
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INDEX TO EXHIBITS
The exhibit number, description and sequential page number in the original copy
of this document where exhibits can be found follows:
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Exhibit Description Page
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11 Statement Re Computation of Per Share 12
Earnings
27 Financial Data Schedule 13
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EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
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Three-Months
Ended
October 31,
1997 1996
---- ----
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EARNINGS
Net income ............................................. $1,182 $ 880
====== ======
- ---------------------------------------------------------------------------------------
SHARES
Weighted average number of common shares outstanding ... 5,643 5,770
Add: shares of common stock equivalents ................ 310 277
------ ------
Weighted average number of common shares used in
primary earnings per share calculation ............... 5,953 6,047
Add: incremental shares of common stock equivalents .... -- --
------ ------
Weighted average number of common shares used in
fully diluted earnings per share calculation ......... 5,953 6,047
====== ======
- ---------------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE
Net income ............................................. $ 0.20 $ 0.15
====== ======
- ---------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE
Net income ............................................. $ 0.20 $ 0.15
====== ======
- ---------------------------------------------------------------------------------------
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
EARNINGS, CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF CASH FLOWS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q - QTR. ENDED OCTOBER
31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,351
<ALLOWANCES> 2,055
<INVENTORY> 16,296
<CURRENT-ASSETS> 37,759
<PP&E> 20,225
<DEPRECIATION> 12,812
<TOTAL-ASSETS> 66,644
<CURRENT-LIABILITIES> 20,425
<BONDS> 0
0
0
<COMMON> 1,610
<OTHER-SE> 33,785
<TOTAL-LIABILITY-AND-EQUITY> 66,644
<SALES> 29,455
<TOTAL-REVENUES> 29,455
<CGS> 18,654
<TOTAL-COSTS> 27,541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,893
<INCOME-TAX> 711
<INCOME-CONTINUING> 1,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,182
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
