<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 JANUARY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period to
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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
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
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 March 1, 1998, was
5,589,973.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
------------ -----------
(Unaudited) *
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ - $ -
Receivables, less allowances of
$2,183,000 and $1,790,000, respectively.................................... 16,062,000 18,141,000
Recoverable Income Taxes.................................................... 692,000 -
Inventories (Note 2)........................................................ 16,288,000 16,505,000
Prepaid expenses............................................................ 830,000 712,000
Deferred income taxes....................................................... 2,352,000 3,168,000
------------ -----------
Total current assets.................................................... 36,224,000 38,526,000
------------ -----------
Property, plant and equipment, less accumulated depreciation
of $11,879,000 and $12,358,000, respectively................................. 7,153,000 7,254,000
Long-term notes receivable..................................................... 2,218,000 2,234,000
Deferred income taxes.......................................................... 2,439,000 2,442,000
Cash surrender value of life insurance policies................................ 7,895,000 7,627,000
Intangible assets, less accumulated amortization
of $2,181,000 and $2,012,000, respectively................................... 7,909,000 7,594,000
Other assets................................................................... 1,228,000 1,127,000
------------ -----------
Total assets........................................................... $ 65,066,000 $66,804,000
============ ===========
LIABILITIES
Current liabilities:
Long-term debt due within one year.......................................... $ 133,000 $ 133,000
Accounts payable............................................................ 5,779,000 8,839,000
Accrued income taxes........................................................ 429,000 770,000
Accrued liabilities:
Payroll and related costs................................................. 6,168,000 5,331,000
Other..................................................................... 5,675,000 6,054,000
------------ -----------
Total current liabilities.............................................. 18,184,000 21,127,000
------------ -----------
Long-term debt less portion due within one year................................ 3,300,000 700,000
Deferred compensation and supplemental retirement benefits..................... 4,424,000 4,133,000
Other liabilities.............................................................. 3,778,000 4,352,000
------------ -----------
Total liabilities...................................................... $ 29,686,000 $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, 5,588,000 and 7,958,000 shares, respectively......................... 1,621,000 1,592,000
Capital in excess of par value................................................. 35,499,000 34,695,000
Retained earnings.............................................................. 11,793,000 9,607,000
Treasury stock at cost, 2,516,000 and 2,141,000 shares, respectively........... (13,533,000) (9,402,000)
------------ -----------
Total shareholders' equity............................................. 35,380,000 36,492,000
------------ -----------
Total liabilities and shareholders' equity............................. $ 65,066,000 $66,804,000
============ ===========
</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 Six-Months Ended
January 31, January 31,
1998 1997 (a) 1998 1997 (b)
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales.............................................. $28,559,000 $29,253,000 $58,014,000 $57,097,000
----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold................................ 18,128,000 18,865,000 36,782,000 36,715,000
Engineering and product development.................. 1,471,000 1,241,000 3,003,000 2,523,000
Selling, general and administrative.................. 6,115,000 6,679,000 12,741,000 13,122,000
Depreciation and amortization........................ 770,000 688,000 1,499,000 1,371,000
----------- ----------- ----------- -----------
Total cost and expenses................................ 26,484,000 27,473,000 54,025,000 53,731,000
----------- ----------- ----------- -----------
Income from operations................................. 2,075,000 1,780,000 3,989,000 3,366,000
Other income (expense):
Interest income...................................... 54,000 66,000 108,000 133,000
Interest expense..................................... (106,000) (227,000) (181,000) (464,000)
----------- ----------- ----------- -----------
Income before income taxes............................. 2,023,000 1,619,000 3,916,000 3,035,000
Provision for federal and state income taxes........... 798,000 655,000 1,509,000 1,191,000
----------- ----------- ----------- -----------
Net income............................................. $ 1,225,000 $ 964,000 $ 2,407,000 $ 1,844,000
=========== =========== =========== ===========
Basic net income per common share (Note 3) (c)......... $ 0.22 $ 0.17 $ 0.43 $ 0.32
=========== =========== =========== ===========
Diluted net income per common share (Note 3) (c)...... $ 0.21 $ 0.16 $ 0.41 $ 0.31
=========== =========== =========== ===========
</TABLE>
(a) Fiscal 1997 second quarter results include SL Auburn, Inc.'s net income and
net sales of $92,000 and $2,793,000, respectively. Substantially all of SL
Auburn, Inc.'s assets were sold on May 1, 1997.
(b) Fiscal 1997 six-month results include SL Auburn, Inc.'s net income and net
sales of $287,000 and $5,607,000, respectively. Substantially all of SL
Auburn, Inc.'s assets were sold on May 1, 1997.
(c) Fiscal 1997 restated to conform with current year's presentation.
See accompanying notes to consolidated financial statements.
<PAGE> 4
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six-Months Ended January 31,
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income...................................................................... $ 2,407,000 $ 1,844,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................................................. 1,027,000 964,000
Amortization................................................................. 471,000 407,000
Provisions for losses on accounts receivable................................. 11,000 29,000
Additions to deferred charges and other assets............................... (888,000) (1,197,000)
Cash surrender value of life insurance premium............................... (267,000) (253,000)
Deferred compensation and supplemental retirement payments................... 603,000 611,000
Deferred compensation and supplemental retirement benefit cash payments...... (307,000) (281,000)
Increase in deferred income taxes............................................ 819,000 (524,000)
Gain on sale of equipment.................................................... (8,000) (24,000)
Changes in operating assets and liabilities:
Accounts receivable........................................................ 2,069,000 (438,000)
Inventories................................................................ 217,000 (148,000)
Prepaid expenses........................................................... (118,000) (126,000)
Accounts payable........................................................... (3,060,000) 1,083,000
Other accrued liabilities.................................................. 308,000 1,738,000
Income taxes............................................................... (1,033,000) 930,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES......................................... $ 2,251,000 $ 4,615,000
------------ ------------
INVESTING ACTIVITIES:
Disposals of property, plant and equipment...................................... 45,000 29,000
Purchases of property, plant and equipment...................................... (1,392,000) (1,091,000)
Decrease in notes receivable.................................................... 15,000 14,000
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES............................................ $ (1,332,000) $ (1,048,000)
------------ ------------
FINANCING ACTIVITIES:
Cash dividends paid............................................................. (221,000) (173,000)
Proceeds from long-term debt.................................................... 6,950,000 -
Payments on long-term debt...................................................... (4,350,000) (1,407,000)
Proceeds from stock options exercised........................................... 833,000 87,000
Treasury stock acquired......................................................... (4,131,000) -
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES............................................. $ (919,000) $ (1,493,000)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......................................... - 2,074,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... - -
------------ ------------
CASH AND CASH EQUIVALENTS AT JANUARY 31,.......................................... $ - $ 2,074,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest...................................................................... $ 187,000 $ 523,000
Income taxes.................................................................. $ 1,515,000 $ 924,000
</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 January 31, 1998, and July 31, 1997, the results of
operations for the three-month and six-month periods ended January 31, 1998 and
1997, and the cash flows for the six-month periods ended January 31, 1998 and
1997.
2. Inventories at January 31, 1998, and July 31, 1997, were as follows:
<TABLE>
<CAPTION>
January 31, 1998 July 31, 1997
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<S> <C> <C>
Raw materials $ 7,770,000 $ 7,691,000
Work in process 2,967,000 2,283,000
Finished goods 5,551,000 6,531,000
----------- -----------
$16,288,000 $16,505,000
=========== ===========
</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 adopted effective December 15, 1997. This
statement establishes new standards for computing and presenting earnings per
share and requires the restatement of prior year amounts.
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 for the period. Diluted EPS is computed by dividing reported
earnings available to common shareholders by weighted average shares
outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, which consist of stock options, using the treasury stock method.
<PAGE> 6
The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per common share computations:
<TABLE>
<CAPTION>
Per Per
Share Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
---------------------------------------------------------------------------------
Three-Months Ended
---------------------------------------------------------------------------------
January 31, 1998 January 31, 1997
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<S> <C> <C> <C> <C>
Basic net income
per common share $1,225,000 5,546,000 $.22 $964,000 5,775,000 $.17
---- ----
Effect of dilutive
securities - 285,000 - 235,000
---------- --------- -------- ---------
Dilutive net income
per common share $1,225,000 5,831,000 $.21 $964,000 6,010,000 $.16
---------- --------- ---- -------- --------- ----
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Six-Months Ended
-----------------------------------------------------------------------------------------
January 31, 1998 January 31, 1997
-------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C>
Basic net income
per common share $2,407,000 5,595,000 $.43 $1,844,000 5,770,000 $.32
---- ----
Effect of dilutive
securities - 298,000 - 257,000
---------- --------- ---------- ---------
Dilutive net income
per common share $2,407,000 5,893,000 $.41 $1,844,000 6,027,000 $.31
---------- --------- ---- ---------- --------- ----
</TABLE>
For fiscal 1998 and 1997, 25,846 and 195,101 common stock options,
respectively, were excluded from the diluted computation because their effect
would be anti-dilutive.
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.
<PAGE> 7
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 six months of fiscal 1998 of
$2,251,000 were provided by operating activities, while investing and financing
activities used cash of $1,332,000 and $919,000, 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, computer hardware and software and
leasehold improvements. The net cash used in financing activities included
$4,131,000 used for the purchase of 375,500 shares of the Registrant's common
stock, offset in part, by net debt proceeds of $2,600,000.
The Registrant's borrowing capacity at January 31, 1998, remained above its use
of outside financing. As of January 31, 1998, the Registrant had $20,702,668
available for use under its $25,000,000 Revolving Credit Agreement since
$997,332 was allocated to outstanding trade letters of credit and $3,300,000
was 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 January 31, 1998, the Registrant had $7,895,000 available
from the cash surrender value of its life insurance policies.
During the three-month period ended January 31, 1998, the ratio of current
assets to current liabilities increased from 1.8 to 1 to 1.9 to 1 as compared
to October 31, 1997.
Capital expenditures for the six-month period ended January 31, 1998, amounted
to $1,392,000 and were primarily for purchases of manufacturing equipment,
computer hardware and software 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.
<PAGE> 8
Results of Operations
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES
Consolidated net sales for the three-month and six-month periods ended January
31, 1998, decreased 2% and increased 2%, respectively, as compared to the net
sales realized during the corresponding periods 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 and six-month periods of fiscal 1997,
current year net sales would have increased 8% and 13%, respectively. 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 and six-month periods decreased 4% and
remained constant, respectively, as compared to last year. If Auburn's results
were excluded from last year's three-month and six-month periods, cost of sales
would have increased 8% and 13%, respectively, as compared to last year. The
increase is primarily related to increased volume and training costs. As a
percentage of net sales, cost of sales for the current three-month and
six-month periods was 64% and 63%, respectively, as compared to 65% and 64%,
respectively, a year ago. If Auburn's results were excluded from prior
periods, cost of sales, as a percentage of net sales, would have been 63% and
64%, for the three-month and six-month periods, respectively. The three-month
period increase and six-month period decrease is primarily due to product mix.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
For both the three-month and six-month periods, engineering and product
development expenses increased 19%, as compared to the same periods last year.
If Auburn's results were excluded from last year's three-month and six-month
periods, engineering and product development expenses increased 23% and 25%,
respectively, as compared to last year. The increases were primarily related
to the development of new power supplies and battery charger products.
Investments in engineering and product development make it possible to properly
respond to our customers' current and future power and data quality
requirements with the latest technology. As a percentage of net sales,
engineering and product development expenses for the current three-month and
six-month periods were 5% as compared to 4%, for both periods a year ago. If
Auburn's results were excluded, engineering and product development expenses,
as a percentage of net sales, remained constant at 5%, as compared to last
year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the three-month and six-month periods, selling, general and administrative
expenses decreased 9% and 3%, respectively, as compared to last year. If
Auburn's results were excluded from last year's three-month and six-month
periods, selling, general and administrative expenses decreased 3% and
increased 3%, as compared to the same periods last year. The three-month
<PAGE> 9
period decrease was primarily related to staff reductions, offset, in part, by
the use of temporary employees. As a percentage of net sales, selling, general
and administrative expenses for the three-month and six-month periods were 21%
and 22%, respectively, as compared to 23% for both periods a year ago. If
Auburn's results were excluded from last year's three-month and six-month
periods, selling, general and administrative expenses, as a percentage of net
sales, were 24% for both periods. The three-month and six-month decreases, as
a percentage of net sales, were primarily related to decreased sales and
marketing expenses.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for the three-month and six-month periods
increased 12% and 9%, respectively, as compared to last year. If you exclude
Auburn's expense from prior year results, depreciation and amortization expense
increased 24% for the three-month period and 22% for the six-month period. The
increases were primarily related to depreciation and amortization of computer
hardware and software, respectively.
INTEREST
Interest income for the three-month and six-month periods decreased 22% and
23%, respectively, as compared to last year. The primary reason for the
decrease was less cash available for investment. Interest expense for the
three-month and six-month periods decreased 114% and 156%, respectively, as
compared to last year. The decrease resulted primarily from a lower debt
balance.
TAXES
The effective tax rate for both the three-month and six-month periods was 39%,
as compared to 40% and 39%, respectively, a year ago.
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
The Registrant did not file any reports on Form 8-K during the quarter
ended January 31, 1998.
<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: March 12, 1998 Owen Farren
---------------- ------------------------
Owen Farren
President and
Chief Executive Officer
Dated: March 13, 1998 James E. Morris
--------------- -------------------------------
James E. Morris
Vice President,
Corporate Controller,
and Treasurer
<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
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
EARNINGS, CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q-QTR. ENDED
JANUARY 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,245
<ALLOWANCES> 2,183
<INVENTORY> 16,288
<CURRENT-ASSETS> 36,224
<PP&E> 19,032
<DEPRECIATION> 11,879
<TOTAL-ASSETS> 65,066
<CURRENT-LIABILITIES> 18,184
<BONDS> 0
0
0
<COMMON> 1,621
<OTHER-SE> 35,380
<TOTAL-LIABILITY-AND-EQUITY> 65,066
<SALES> 28,559
<TOTAL-REVENUES> 28,559
<CGS> 18,128
<TOTAL-COSTS> 26,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,023
<INCOME-TAX> 798
<INCOME-CONTINUING> 1,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,225
<EPS-PRIMARY> 22
<EPS-DILUTED> 21
</TABLE>
