<PAGE> 1
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 APRIL 30, 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)
<TABLE>
<S> <C>
NEW JERSEY 21-0682685
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ 08054
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 609-727-1500
<TABLE>
<CAPTION>
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
<S> <C>
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 June 9, 1997, was
5,786,280.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, 1997 July 31, 1996
------------------ ------------------
(Unaudited) *
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 379,000 $ -
Receivables, less allowances of
$2,024,000 and $1,639,000, respectively................................... 15,554,000 16,428,000
Inventories (Note 2)....................................................... 15,268,000 17,339,000
Prepaid expenses........................................................... 890,000 868,000
Deferred income taxes...................................................... 3,981,000 2,668,000
----------- -----------
Total current assets................................................... 36,072,000 37,303,000
----------- -----------
Property, plant and equipment, less accumulated depreciation
of $10,620,000 and $11,825,000, respectively................................ 6,657,000 8,104,000
Long-term notes receivable.................................................... 2,243,000 2,264,000
Deferred income taxes......................................................... 2,213,000 1,488,000
Cash surrender value of life insurance policies............................... 7,468,000 7,095,000
Intangible assets, less accumulated amortization
of $1,849,000 and $1,382,000, respectively.................................. 7,487,000 7,401,000
Other assets.................................................................. 1,180,000 520,000
----------- -----------
Total assets.......................................................... $63,320,000 $64,175,000
----------- -----------
LIABILITIES
Current liabilities:
Long-term debt due within one year......................................... $ 133,000 $ 187,000
Accounts payable........................................................... 4,328,000 5,770,000
Accrued income taxes....................................................... 5,170,000 786,000
Accrued liabilities:
Payroll and related costs................................................ 4,483,000 4,614,000
Other.................................................................... 6,501,000 5,181,000
----------- -----------
Total current liabilities............................................. 20,615,000 16,538,000
----------- -----------
Long-term debt less portion due within one year............................... - 13,186,000
Deferred compensation and supplemental retirement benefits.................... 4,040,000 3,723,000
Other liabilities............................................................. 3,533,000 2,048,000
----------- -----------
Total liabilities...................................................... $28,188,000 $35,495,000
----------- -----------
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, 7,920,000 and 7,899,000 shares, respectively........................ 1,584,000 1,580,000
Capital in excess of par value................................................ 34,510,000 34,306,000
Retained earnings............................................................. 8,440,000 2,196,000
Treasury stock at cost, 2,141,000 and 2,141,000 shares, respectively.......... (9,402,000) (9,402,000)
----------- -----------
Total shareholders' equity............................................ 35,132,000 28,680,000
----------- -----------
Total liabilities and shareholders' equity............................ $63,320,000 $64,175,000
=========== ===========
</TABLE>
* Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
<PAGE> 3
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three-Months Ended Nine-Months Ended
April 30, April 30,
1997 1996 1997 1996
------------- ------------- ------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales............................................ $29,773,000 $28,302,000 $86,870,000 $86,876,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold.............................. 19,339,000 18,332,000 56,054,000 56,769,000
Engineering and product development................ 1,289,000 1,247,000 3,812,000 3,428,000
Selling, general and administrative................ 6,667,000 6,484,000 19,789,000 20,171,000
Depreciation and amortization...................... 720,000 548,000 2,091,000 1,904,000
----------- ----------- ----------- -----------
Total cost and expenses.............................. 28,015,000 26,611,000 81,746,000 82,272,000
----------- ----------- ----------- -----------
Income from operations............................... 1,758,000 1,691,000 5,124,000 4,604,000
Other income (expense):
Gain on disposition of subsidiary.................. 5,888,000 - 5,888,000 -
Interest income.................................... 71,000 36,000 204,000 101,000
Interest expense................................... (191,000) (274,000) (655,000) (870,000)
----------- ----------- ----------- -----------
Income before income taxes........................... 7,526,000 1,453,000 10,561,000 3,835,000
Provision for federal and state income taxes......... 2,954,000 553,000 4,145,000 1,361,000
----------- ----------- ----------- -----------
Net income........................................... $ 4,572,000 $ 900,000 $ 6,416,000 $ 2,474,000
=========== =========== =========== ===========
Net income per common share.......................... $ 0.76 $ 0.15 $ 1.07 $ 0.42
=========== =========== =========== ===========
Cash dividend per share.............................. $ - $ - $0.03 $0.03
Shares used in computing net income
per common share................................... 5,982,000 5,975,000 6,004,000 5,949,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine-Months Ended April 30,
1997 1996
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................... $ 6,416,000 $ 2,474,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................................................ 1,492,000 1,392,000
Amortization................................................................ 599,000 512,000
Provisions for losses on accounts receivable................................ 26,000 80,000
Additions to deferred charges and other assets.............................. (1,380,000) (680,000)
Cash surrender value of life insurance premium.............................. (373,000) (438,000)
Deferred compensation and supplemental retirement payments.................. 778,000 717,000
Deferred compensation and suppl. retirement benefit cash payments........... (411,000) (335,000)
Increase in deferred income taxes........................................... (2,038,000) (788,000)
Gain on sale of equipment................................................... (30,000) (8,000)
Gain on disposition of subsidiary........................................... (5,888,000) -
Changes in operating assets and liabilities,
net of the effects of dispositions:
Accounts receivable...................................................... (238,000) (3,680,000)
Inventories.............................................................. (481,000) 1,318,000
Prepaid expenses......................................................... (43,000) 83,000
Accounts payable......................................................... (878,000) (223,000)
Other accrued liabilities................................................ 1,094,000 735,000
Income taxes............................................................. 4,507,000 (73,000)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................................... $ 3,152,000 $ 1,086,000
------------ ------------
INVESTING ACTIVITIES:
Disposals of property, plant and equipment.................................... 35,000 2,453,000
Purchases of property, plant and equipment.................................... (1,532,000) (1,614,000)
Decrease in notes receivable.................................................. 21,000 (2,300,000)
Proceeds from disposition of subsidiaries..................................... 12,029,000 1,354,000
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............................. $ 10,553,000 (107,000)
------------ ------------
FINANCING ACTIVITIES:
Cash dividends................................................................ (173,000) (170,000)
Proceeds from long-term debt.................................................. 800,000 500,000
Payments on long-term debt.................................................... (14,040,000) (2,186,000)
Proceeds from stock options exercised......................................... 87,000 300,000
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES........................................... $(13,326,000) $ (1,556,000)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS......................................... 379,000 (577,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................................. - 577,000
------------ ------------
CASH AND CASH EQUIVALENTS AT APRIL 30,.......................................... $ 379,000 $ -
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................... $715,000 $830,000
Income taxes................................................................ $1,799,000 $2,225,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
SL INDUSTRIES, INC.
Notes to Consolidated Financial Statements
1. In the opinion of the Registrant, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) and reclassifications necessary to present fairly the
financial position as of April 30, 1997, and July 31, 1996, the results of
operations for the three-month and nine-month periods ended April 30, 1997 and
1996, and the cash flows for the nine-month periods ended April 30, 1997 and
1996.
2. Inventories at April 30, 1997, and July 31, 1996, were as follows:
<TABLE>
<CAPTION>
April 30, 1997 July 31, 1996
-------------- -------------
<S> <C> <C>
Raw materials $ 7,212,000 $ 8,139,000
Work in process 2,041,000 2,601,000
Finished goods 6,015,000 6,599,000
----------- -----------
$15,268,000 $17,339,000
=========== ===========
</TABLE>
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 and
nine-month periods ending April 30, 1997, the pro forma basic EPS would have
been $.79 and $1.11, respectively. For the three-month and nine-month periods
ending April 30, 1996, the pro forma basic EPS would have been $.16 and $.44,
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, 1996, along with any subsequent Form
10-Q's and Form 8-K's.
<PAGE> 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The principal sources of cash during the first nine months of fiscal 1997 of
$3,152,000 and $10,553,000 were provided by operating and investing activities,
respectively, while financing activities used cash of $13,326,000. The net
cash provided by operating activities included $1,190,000 received from
insurance claims, net of legal costs. The net cash provided by investing
activities included proceeds of $12,029,000 from the SL Auburn, Inc. ("Auburn")
disposition, while the net cash used by financing activities was primarily for
repayment of debt.
The Registrant's borrowing capacity at April 30, 1997, remained above its use
of outside financing. As of April 30, 1997, the Registrant had $24,164,762
available for use under its $25,000,000 Revolving Credit Agreement since
$835,238 was allocated to outstanding trade letters of credit. 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 April
30, 1997, the Registrant had $7,468,000 available from the cash surrender value
of its life insurance policies.
During the three-month period ended April 30, 1997, the ratio of current assets
to current liabilities decreased from 2.2 to 1 to 1.8 to 1, as compared to
January 31, 1997. The decrease is primarily related to increased accrued
income taxes as a result of the Auburn disposition.
Capital expenditures for the nine-month period ended April 30, 1997, amounted
to $1,532,000 and were primarily for purchases of manufacturing equipment and
building and leasehold improvements. The Registrant anticipates that future
commitments for additional capital expenditures will be funded primarily by
cash generated by operations and, to the extent necessary, the utilization of
borrowings under its Revolving Credit Agreement.
On May 28, 1997, the Registrant's Board of Directors declared a $.04 per share
semi-annual cash dividend payable on June 13, 1997, to shareholders of record
on June 6, 1997.
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.
<PAGE> 7
Results of Operations
FISCAL 1997 COMPARED TO FISCAL 1996
Consolidated net sales for the three-month and nine-month periods ended April
30, 1997, increased 5% and remained constant, respectively, as compared to the
net sales realized during the corresponding periods a year ago, which included
the net sales of SL Piping Systems, Inc. ("Piping"). Substantially all of the
assets of Piping were sold on February 20, 1996. If Piping's net sales were
excluded from the three-month and nine-month periods of fiscal 1996, current
year net sales would be 7% and 4% higher, respectively. An analysis of net
sales by business segment for the three-month and nine-month periods ended
April 30, 1997, as compared to the same periods of the prior year, is as
follows:
Power and Data Quality Segment -
For the three-month and nine-month periods, net sales for the Power and Data
Quality segment increased 8% and 3%, respectively, when compared to net sales
of the prior year. Sales of surge protection and uninterruptible power
supplies increased for the three-month period and decreased for the nine-month
period. The three-month increase is primarily a result of the strengthening of
the custom and semi-custom market. The nine-month decrease is primarily the
result of a flat retail market. For the three-month and nine-month periods,
sales of standard and custom AC-DC power supplies, precision motor products and
custom electrical subsystems increased primarily as a result of increased
volume.
Specialty Products Segment -
For the three-month and nine-month periods, net sales for the Specialty
Products segment decreased 12% and 17%, when compared to net sales reported for
the preceding year. If Piping's net sales were excluded from the prior periods
three-month and nine-month results, net sales decreased 3% and increased 7%,
respectively, as compared to the same periods last year. For the three-month
period, a decrease in the sales of aviation products offset an increase in the
sale of industrial igniters and chrome plating services. For the nine-month
period, both sales of aviation and industrial igniters and chrome plating
services increased primarily as a result of increased demand.
COST OF SALES
Cost of sales for the three-month and nine-month periods increased 6% and
decreased 1%, as compared to last year. If Piping's results were excluded from
last year's three-month and nine-month periods, cost of sales for the
three-month and nine-month periods increased 8% and 3%, respectively, as
compared to last year. The increase is primarily related to increased volume
in the Power and Data Quality segment. As a percentage of net sales, cost of
sales for both the current and prior year three-month and nine-month periods
was 65%. If Piping's results were excluded, cost of sales, as a percentage of
net sales, for the three-month and nine-month periods of the prior year were
64% and 65%, respectively. The three-month decrease is primarily due to
product mix.
<PAGE> 8
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
For the three-month and nine-month periods, engineering and product development
expenses increased 3% and 11%, respectively as compared to the same periods
last year. The three-month and nine-month period increases were primarily
related to the development of new products within the Power and Data Quality
segment. As a percentage of net sales, engineering and product development
expenses for both the three-month and nine-month periods of both years remained
constant at 4%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the three-month and nine-month periods, selling, general and administrative
expenses increased 3% and decreased 2%, respectively, as compared to last year.
As a percentage of net sales, the three-month period decreased from 23% to 22%
and the nine-month period remained constant at 23%. If Piping's results were
excluded from last year's three-month and nine-month periods, selling, general
and administrative expenses increased 1% and decreased 1%, respectively, as
compared to the same periods last year, and as a percentage of net sales, were
24% for both periods, a year ago. The decreases, as a percentage of net sales,
were primarily related to a reduction in administrative expenses.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the three-month and nine-month
periods increased 31% and 10%, as compared to last year. If you exclude
Piping's depreciation expense from prior year results, there was no material
difference for the three-month period and the nine-month period increased 13%,
as compared to last year. The increases were primarily related to depreciation
and amortization of computer hardware and software.
DISPOSITION OF SUBSIDIARY
On May 1, 1997, SL Auburn, Inc., a wholly-owned subsidiary of the Registrant
with operations in Auburn, NY sold substantially all of its assets, excluding
its real property, to Champion Spark Plug Company, a wholly owned subsidiary of
Cooper Industries, Inc., pursuant to an Asset Purchase Agreement dated as of
May 1, 1997, (the "Purchase Agreement").
The consideration for the assets sold, arrived at by negotiation among the
parties, consisted entirely of cash in the amount of $11,979,000, out of which
certain additional expenses related to the transaction will be paid.
Furthermore, the purchase price is subject to adjustment, depending upon the
value of the net assets, as defined in the Purchase Agreement, of the seller at
the closing date, the final amount of which has not yet been determined. The
transaction resulted in an after-tax gain of $3,556,000, or $.59 per share,
which was reflected in the Registrant's consolidated financial statements for
the third quarter ended April 30, 1997. Additionally, cash consideration in
the amount of $50,000 was received for a covenant not to compete.
<PAGE> 9
INTEREST
Interest income for the three-month and nine-month periods increased $35,000
and $103,000, respectively, as compared to last year. The primarily reason for
the increases was additional cash available for investment. Interest expense
for the three-month and nine-month periods decreased 30% and 25%, as compared
to last year. The decreases resulted from a lower debt balance, as well as
from decreased interest rates.
TAXES
The effective tax rate for both the three-month and nine-month periods was 39%,
as compared to 38% and 36%, respectively, a year ago. The increases were
primarily related to taxes associated with the Registrant's Mexican operations
and the gain realized from the Auburn disposition.
PART II - OTHER INFORMATION
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
On May 16, 1997, the Registrant filed a report dated May 1, 1997, on
Form 8-K covering the May 1, 1997, sale of substantially all of the assets and
liabilities of SL Auburn, Inc.
<PAGE> 10
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SL INDUSTRIES, INC.
-------------------
Registrant
Dated: June 13, 1997 Owen Farren
--------------- ------------------------------
Owen Farren
President and
Chief Executive Officer
Dated: June 13, 1997 James E. Morris
--------------- ------------------------------
James E. Morris
Vice President,
Corporate Controller,
Treasurer and Secretary
<PAGE> 11
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 Page
------- ----------- ----
<S> <C> <C>
11 Statement Re Computation of Per Share Earnings 12
27 Financial Data Schedule 13
</TABLE>
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three-Months Nine-Months
Ended Ended
April 30, April 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS
Net income................................................. $4,572 $ 900 $6,416 $2,474
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------
SHARES
Weighted average number of common shares outstanding....... 5,779 5,705 5,773 5,686
Add: shares of common stock equivalents.................... 180 237 223 239
------ ------ ------ ------
Weighted average number of common shares used in
primary earnings per share calculation................... 5,959 5,942 5,996 5,925
Add: incremental shares of common stock equivalents........ 23 33 8 24
------ ------ ------ ------
Weighted average number of common shares used in
fully diluted earnings per share calculation............. 5,982 5,975 6,004 5,949
------ ------ ------ ------
- ------------------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE
Net income................................................. $0.77 $0.15 $1.07 $0.42
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE
Net income................................................. $0.76 $0.15 $1.07 $0.42
====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
EARNINGS; CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q - QTR. ENDED
APRIL 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> APR-30-1997
<CASH> 379
<SECURITIES> 0
<RECEIVABLES> 17,578
<ALLOWANCES> 2,024
<INVENTORY> 15,268
<CURRENT-ASSETS> 36,072
<PP&E> 17,277
<DEPRECIATION> 10,620
<TOTAL-ASSETS> 63,320
<CURRENT-LIABILITIES> 20,615
<BONDS> 0
0
0
<COMMON> 1,584
<OTHER-SE> 33,548
<TOTAL-LIABILITY-AND-EQUITY> 63,320
<SALES> 29,773
<TOTAL-REVENUES> 29,773
<CGS> 19,339
<TOTAL-COSTS> 28,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,526
<INCOME-TAX> 2,954
<INCOME-CONTINUING> 4,572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,572
<EPS-PRIMARY> .77
<EPS-DILUTED> .76
</TABLE>
