<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, 1999
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)
NEW JERSEY 21-0682685
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ 08054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 856-727-1500
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 this Form 10-K or any amendment to this
Form 10-K.[X]
On October 15, 1999, the aggregate market value of SL common stock was
approximately $71,926,371. The number of shares of common stock outstanding as
of October 15, 1999, was 5,641,284.
DOCUMENTS INCORPORATED BY REFERENCE:
Part I, II, IV - Annual Report to Shareholders for the fiscal year ended July
31, 1999 Part III - Proxy Statement dated October 15, 1999
<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
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. No single customer accounts for more than 10% of
consolidated net sales nor are export sales material thereto.
On May 11, 1999, pursuant to a Share Purchase Agreement dated April 1, 1999, the
Registrant, acquired 100% of the issued and outstanding shares of capital stock
of RFL Electronics Inc. ("RFL"). The Registrant paid $11,387,000 in cash and
gave promissory notes with an aggregate face amount of $75,000, which bear
simple interest at a rate of 5.5% per annum, at closing. In addition, the
Registrant paid a contingent payment of $1,000,000 based upon the financial
performance of RFL for its fiscal year ended March 31, 1999. RFL is a leading
supplier of teleprotection and specialized communication equipment.
On July 27, 1999, pursuant to an Asset Purchase Agreement dated July 13, 1999,
Condor D.C. Power Supplies, Inc., a wholly-owned subsidiary of the Registrant,
acquired certain net operating assets of Todd Products Corporation and Todd
Power Corporation (together, "Todd Products"). The Registrant paid $7,430,000;
$3,700,000 in cash and assumption of debt equal to approximately $3,730,000.
There is also a contingent "earn-out" payment of either $1,000,000, $3,000,000
or $5,000,000, payable in the event that sales from the purchased assets are at
least $30,000,000, $35,000,000 or $40,000,000, respectively, during the
twelve-month period ending March 31, 2001. Condor also entered into a ten-year
Consulting Agreement with the Chief Executive Officer of Todd Products for an
aggregate amount of $1,275,000 which will be paid in quarterly installments over
the next three years. Todd Products is a leading supplier of high quality power
supplies to the datacom, telecommunications and computer industries.
(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, 1999.
<PAGE> 3
(c) Narrative Description of Business
-------------------------------------
During fiscal 1997, the Registrant was comprised of two business segments -
power and data quality and specialty products. During fiscal 1998, the
Registrant operated principally in one business segment; the design, production
and marketing of advanced power and data quality systems. During fiscal 1999 and
currently, the Registrant is comprised of six business segments: Power Supplies,
Power Conditioning and Distribution Units ("PCDUs"), Motion Control Systems,
Electric Utility Equipment Protection Systems, Surge Suppressors and Other.
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' end products. Standard and custom AC-DC and DC-DC power
supplies in both linear and switching configurations are produced with ranges in
power from 1 to 5000 watts and are manufactured in either commercial or medical
configurations. Power supplies closely regulate and monitor power outputs, using
patented filter and other technologies, resulting in little or no electrical
interference. Power supplies are also used in drive systems for electric
vehicles and other motion control systems. Uninterruptible power supplies that
provide back-up power in the event of a power failure are also produced by this
segment. Uninterruptible power supplies products are also used to recharge
batteries and, in some applications, provide a direct power supply to connected
equipment. These products are sold through a worldwide network of sales
representatives and electronic distributors to OEM customers in the medical,
industrial, telecommunications and instrumentation markets; along with retailers
and wholesalers of office, computer and consumer products. For the years ended
July 31, 1999, 1998 and 1997, net sales of power supplies, as a percentage of
consolidated net sales, were 27%, 31% and 31%, respectively.
Power Conditioning and Distribution Units - The Registrant is a leader in the
design and manufacture of customized power conditioning and power distribution
units. Products are developed and manufactured for custom electrical subsystems
for OEM's of semiconductor, medical imaging, graphics and telecommunication
systems. Outsourcing the AC power system to the Registrant helps its customers
reduce cost and time to market, while increasing system performance and customer
satisfaction. Customers are also helped by getting necessary agency approvals.
Custom products are often called "Power Conditioning and Distribution Units,"
which provide voltage conversion and stabilization, system control, and power
distribution for systems such as CT and MRI scanners, chip testers and cellular
radio systems. Power distribution products can be found in aerospace
applications such as passenger entertainment units, and in automotive
applications used in mirror controls and general power wiring systems throughout
the vehicle. Products are also designed and manufactured that safely convert a
high power input into user specified output ranges. A majority of these products
are sold directly to OEM customers who include them with their systems, which
are sold to the end user. For the years ended July 31, 1999, 1998 and 1997, net
sales of power distribution and power conditioning units, as a percentage of
consolidated net sales, were 20%, 17% and 13%, respectively.
Motion Control Systems - The Registrant is continuing its recent growth as a
technological leader in the design and manufacture of intelligent, high power
density, precision motors. Important programs in both traditional and new market
areas have been won as a result of new motor and (patented and patent pending)
motor control technologies. New motor and motion controls are used in numerous
applications, including aerospace, medical and industrial products.
<PAGE> 4
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. Electromechanical
products for Aerospace and Ordnance applications are used in rudder trim
actuation, cargo applications and door control. Some of the more recent
developments are the production of Power Drive Units for aircraft on-board Cargo
Loading Systems as well as a low-cost electrical seat actuation system for
business class seats. For the years ended July 31, 1999, 1998 and 1997, net
sales of motion control systems, as a percentage of consolidated net sales, were
19%, 14% and 10%, respectively.
Electric Utility Equipment Protection Systems - The Registrant designs and
manufacturers teleprotection products/systems that are used to protect
electric-utility transmission lines and apparatus by isolating faulty
transmission lines from a transmission grid. Products are sophisticated
communication systems that allow electric utilities to manage their high-voltage
power lines more efficiently and include a system that is a completely digital,
fully-integrated relay/communications terminal, suitable for high-speed
protective relaying of overhead or underground high-voltage transmission lines.
Customer service and maintenance for all electric utility equipment protection
systems manufactured is provided. Sales are made through both company and
independent sales representatives.
Surge Suppressors - Surge suppressors are sold to protect computers, audiovisual
and other electronic equipment from sudden surges in power. The Registrant is a
leader in the design and manufacture of surge suppressors for the industrial,
OEM and retail marketplaces. These products are sold to distributors and dealers
of electronics and electrical supplies; retailers and wholesalers of office,
computer, and consumer products; and to OEM's. For the years ended July 31,
1999, 1998 and 1997, net sales of surge suppressors, as a percentage of
consolidated net sales, were 26%, 35% and 36%, respectively.
Raw Materials
Raw materials are supplied by various domestic and international vendors and
availability for materials is not foreseen to be a problem. Raw materials are
purchased direct from the manufacturer whenever possible to avoid distributor
mark-ups. Average lead times run from immediate availability to eight weeks. In
most cases, viable multiple sources are maintained for flexibility and
competitive leverage.
Seasonality
Generally, seasonality is not a factor.
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 material
affect on the business.
Backlog
Backlog at September 5, 1999, and September 6, 1998, was $58,256,000 and
$40,229,000, respectively. The September 5, 1999, backlog included approximately
$14,000,000 of orders that were received by RFL and Todd Products.
<PAGE> 5
Competitive Conditions
The businesses 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, the surge suppressor and power supplies' businesses 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 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.
Environmental
- -------------
The Registrant (together with the industries in which it operates or has
operated) is subject to United States, Mexican and German 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 affect these laws and regulations will have
on the Registrant in the future. However, it is not expected that the Registrant
will be affected differently from others in its industries.
It is the Registrant's policy to comply with all environmental, health and
safety regulations, as well as industry standards for maintenance. The
Registrant's domestic competitors are subject to the same environmental, health
and safety laws and regulations, and the Registrant believes that the compliance
issues and potential expenditures of its operating subsidiaries are comparable
to those faced by their major domestic competitors. Environmental liabilities
and related costs are believed to have been adequately provided in the
consolidated financial statements. There were $202,000 in capital expenditures
for these purposes during fiscal year 1999 and such expenditures are estimated
to be immaterial for fiscal 2000. For additional information related to
environmental issues, see Note 10 to the consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report to Shareholders for the fiscal year ended July
31, 1999, which is incorporated herein by reference.
Employees
- ---------
As of September 5, 1999, the Registrant had approximately 2,100 employees. Of
these employees, approximately 357 are subject to collective bargaining
agreements.
<PAGE> 6
Additional Information
- ----------------------
For the purposes of providing additional information regarding the development
of the Registrant's businesses in fiscal 1999, the "The Power of Partnership"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Annual Report to Shareholders for the fiscal year
ended July 31, 1999, are incorporated by reference.
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
Approx.
Square Owned or Leased And
Location General Character Footage Expiration Date
-------- ----------------- ------- -------------------
<S> <C> <C> <C>
Montevideo, MN Manufacture of precision motors and 38,700 Owned
motion control systems 7,040 Leased - 12/31/99
Matamoros, Mexico Manufacture of precision motors 8,600 Leased - 11/05/99
Nogales, Mexico Manufacture of power protection products 65,000 Leased - 12/31/02
Nogales, AZ Distribution of power protection 11,700 Leased - 10/31/00
products
Mt. Laurel, NJ Corporate Office - power protection 15,900 Leased - 11/30/00
products
Oxnard, CA Manufacture and distribution of power 36,400 Leased - 02/28/03
supply products
Mexicali, Mexico Manufacture and distribution of power Leased
supply products 40,000 6/01/00
21,150 08/31/00
Brentwood, NY Manufacture and distribution of power 36,750 Leased - 5/31/02
supply products
San Diego, CA Manufacture of power distribution and 45,054 Leased - 03/22/02
conditioning units
Ingolstadt, Germany Manufacture of motion control systems 34,337 Owned
and power distribution products 16,684 Leased - 09/30/03
Boonton Twp., NJ Manufacture of electric utility 78,000 Owned
equipment protection systems
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Approx.
Square Owned or Leased And
Location General Character Footage Expiration Date
-------- ----------------- ------- ---------------
<S> <C> <C> <C>
Camden, NJ Industrial surface finishing 15,800 Owned
Pennsauken, NJ Industrial surface finishing warehouse 6,000 Owned
Mt. Laurel, NJ Corporate Office 4,200 Leased - 11/30/02
</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.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Registrant is subject to loss
contingencies pursuant to foreign and domestic federal, state and local
governmental laws and regulations and is also party to certain legal actions,
most frequently complaints by terminated employees. It is management's opinion
that the impact of these legal actions will not have a material affect on the
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's Discussion and Analysis
of Financial Condition and Results of Operations" in the Annual Report to
Shareholders for the fiscal year ended July 31, 1999, which is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter ended July 31, 1999, there were no matters submitted
to a vote of security holders, through a solicitation of proxies or otherwise.
<PAGE> 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FISCAL 1999 FISCAL 1998
----------------------------------------------------------------------
HIGH LOW HIGH LOW
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Prices
1st Quarter............................... 14 3/4 9 1/2 16 1/4 10
2nd Quarter............................... 13 3/4 11 3/4 13 1/2 11
3rd Quarter............................... 13 11 3/8 14 7/8 12
4th Quarter............................... 13 5/8 11 3/8 15 3/8 12 1/2
Dividends
Cash - November........................... $.04 $.04
Cash - June............................... $.05 $.04
---------------------------------------------------------------------
</TABLE>
As of September 15, 1999, there were approximately 1,200 registered
shareholders. A semi-annual cash dividend of $.05 per share was declared on
September 24, 1999, which is payable on November 23, 1999, to shareholders of
record on November 1, 1999.
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, 1999.
ITEM 7. MANAGEMENT'S 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's Discussion and Analysis of Financial Condition
and Results of Operations" in the Annual Report to Shareholders for the fiscal
year ended July 31, 1999.
ITEM 7A. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
The Registrant is exposed to market risk from changes in interest and foreign
currency exchange rates. Changes in the market rate effects both interest paid
and earned by the Registrant. The Registrant's investments and outstanding debt
bear variable interest rates. Debt consists primarily of a revolving credit
agreement with three United States banks, where the Registrant can borrow at
either a "CD or LIBOR rate," as defined, or prime interest rate and lines of
credit with German banks, where the German subsidiary can borrow at interest
rates of 3.7% to 6.125%. The Registrant manufactures some of its products in
Mexico and Germany and purchases some components in foreign markets. With the
exception of component purchases made by the German
<PAGE> 9
subsidiary, all other foreign market component purchases are primarily invoiced
in U.S. dollars. The German subsidiary's foreign market component purchases are
primarily invoiced in German Deutchemarks. A foreign currency loan is used to
hedge the value of the Registrant's investment in its German subsidiary;
therefore, related foreign current transaction gains and losses are primarily
reported in the same manner as translation adjustments under generally accepted
accounting principles. Changes in interest and foreign currency exchange rates
are not expected to have a material impact on the Registrant's results of
earnings.
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, 1999.
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 of the executive
officers and positions held by them with the Registrant, is incorporated herein
by reference to the material captioned "Election of Directors" on page 5 of the
proxy statement dated October 15, 1999. The name, age and positions of each
executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Positions with the Registrant
- ---- --- -----------------------------
<S> <C> <C>
Owen Farren 48 Chairman of the Board, President and Chief Executive Officer
James E. Morris 62 Vice President, Corporate Controller and Treasurer
David Nuzzo 42 Vice President - Finance and Administration & Secretary
</TABLE>
Owen Farren has been Chairman of the Board since June 1998 and President and
Chief Executive Officer since April 1991 and prior thereto as Executive Vice
President since 1990.
James E. Morris has been Vice President and Corporate Controller since September
1991 and Treasurer since November 1995. From November 1995 through December
1997, Mr. Morris served as Corporate Secretary and has been a financial
executive since 1978.
David R. Nuzzo has been Vice President - Finance and Administration & Secretary
since December 1997.
<PAGE> 10
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 9 of the proxy statement dated October 15, 1999.
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 pages 3 through 4 of the proxy statement dated October 15, 1999.
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 6 through 9 of the proxy statement dated October 15,
1999.
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, 1999, are incorporated herein by
reference:
Consolidated Statements of Earnings - Years ended July 31, 1999, 1998 and
1997
Consolidated Statements of Comprehensive Earnings - Years ended July 31,
1999, 1998 and 1997
Consolidated Balance Sheets - July 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity - Years ended July 31, 1999,
1998 and 1997
Consolidated Statements of Cash Flows - Years ended July 31, 1999, 1998 and
1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
<PAGE> 11
(a) (2) Financial Statement Schedules
The following financial statement schedules for the years 1999, 1998 and 1997
are submitted herewith:
Report of Independent Public Accountants - Arthur Andersen LLP
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because (a) the required information is shown
elsewhere in the Annual Report, or (b) they are inapplicable, or (c) they are
not required.
(a) (3) Exhibits
The information called for by this section is listed in the Exhibit Index of
this report.
(b) Reports on Form 8-K
On August 10, 1999, the Registrant filed a report dated July 27, 1999, on Form
8-K covering the acquisition of the net operating assets of Todd Products
Corporation and Todd Power Corporation.
On October 5, 1999, the Registrant filed a report dated September 24, 1999, on
Form 8-K covering a change in fiscal year from July 31 to December 31.
<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 22, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
/s/ Owen Farren /s/ J. Dwane Baumgardner
- --------------- ------------------------
Owen Farren J. Dwane Baumgardner
Chairman of the Board, Director
President and Chief Executive Officer October 25, 1999
October 22, 1999
/s/ James E. Morris /s/ Richard E. Caruso
- ------------------- ---------------------
James E. Morris Richard E. Caruso
Vice President, Director
Corporate Controller, October 25, 1999
and Treasurer
October 26, 1999 /s/ George R. Hornig
--------------------
George R. Hornig
Director
October 25, 1999
/s/ Walter I. Rickard
---------------------
Walter I. Rickard
Director
October 22, 1999
/s/ Robert J. Sanator
---------------------
Robert J. Sanator
Director
October 25, 1999
<PAGE> 13
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> 14
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SL Industries, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in SL Industries, Inc.'s annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated September 10, 1999. 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 10, 1999
<PAGE> 15
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1999, 1998 AND 1997
(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 1999 Allowance for:
Doubtful accounts $590 $(90)(a) $121(b) $32(c) $589
==== ===== ==== === ====
Customer credits $1,455 $1,223 $-- $1,282(d) $1,396
====== ====== === ====== ======
YEAR 1998 Allowance for:
Doubtful accounts $496 $53 $85 $44(c) $590
==== === === === ====
Customer credits $1,294 $2,462 $-- $2,301(d) $1,455
====== ====== === ====== ======
YEAR 1997 Allowance for:
Doubtful accounts $428 $62 $35 $29 $496
==== === === === ====
Customer credits $1,212 $2,157 $-- $2,075(d) $1,294
====== ====== === ====== ======
</TABLE>
- -------------------------
(a) Primarily for allowances not needed.
(b) Due to reclassifications.
(c) Accounts receivable written off, net of recoveries.
(d) 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 3.1 to the Registrant's report on Form 10-K for
the fiscal year ended July 31, 1998.
3.2 By-Laws. Restated By-Laws (transmitted herewith).
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.
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.
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit # Description
- --------- -----------
<S> <C>
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.
Incorporated by reference to Exhibit 10.26 to the Registrant's
report on Form 10-K for the fiscal year ended July 31, 1997.
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit # Description
- --------- -----------
<S> <C>
10.27 Severance Pay Agreement with David R. Nuzzo. Incorporated by
reference to Exhibit 10.1 to the Registrant's report on Form
10-K for the fiscal year ended July 31, 1998.
11 Statement Re Computation of Per Share Earnings (transmitted
herewith).
13 Portions of Annual Report to Shareholders for the fiscal year
ended July 31, 1999 (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 3.2
BY-LAWS
OF
SL INDUSTRIES, INC.
ARTICLE 1
OFFICES
SECTION 1. The registered office of the Corporation shall be
at the Corporation Trust Company, 28 West State Street, Trenton, New Jersey
08608.
SECTION 2. The Corporation may have such other offices either
within or without the state as the Board of Directors may designate or the
business of the Corporation may require from time to time.
ARTICLE II
SEAL
SECTION 1. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its creation and the words "Corporate Seal,
New Jersey."
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 1. All meeting of the Shareholders shall be held at
the registered office of the Corporation or at such other place or places either
within or without the State of New Jersey as may from time-to-time be selected
by the Board of Directors.
SECTION 2. Annual Meetings: The Annual Meeting of the
Shareholders shall be held at such time and date as may be fixed each year by
the Board of Directors, when the shareholders shall elect by a plurality vote a
Board of Directors and transact such other business as may properly be brought
before the meeting.
If the Annual Meeting for election of Directors is
not held on the day designated therefore, the Directors shall cause the meeting
to be held as soon thereafter as convenient.
SECTION 3. Special Meetings: Special Meetings of the
Shareholders may be called by the Chairman, the President or the Board of
Directors and, with respect to Shareholders, as provided in Section 14A:5-3 of
the New Jersey Business Corporation Act, as in effect from time to time or any
successor statute thereto.
<PAGE> 2
SECTION 4. Notice of Shareholders' Meetings: Written notice of
the time, place and purpose or purposes of every meeting of Shareholders shall
be given not less than thirty (30) nor more than sixty (60) days before the date
of the meeting either personally or by mail to each Shareholder of record
entitled to vote at the meeting, unless lessor or greater period of notice is
required or allowed by statute in a particular case.
When a meeting is adjourned to another time or place,
it shall not be necessary to give notice of the adjourned meeting if the time
and place to which the meeting is adjourned are announced at the meeting at
which the adjournment is taken and at the adjourned meeting only such business
is transacted as might have been transacted at the original meeting. However, if
after the adjournment the Board fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Shareholder of
record entitled to notice on the new record date.
SECTION 5. Waiver of Notice: Notice of a meeting need not be
given to any Shareholder who signs a waiver of such notice, in person or by
proxy, whether before or after the meeting. The attendance of any Shareholder at
a meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting shall constitute a waiver of
notice by him.
Whenever Shareholders are authorized to take any
action after the lapse of a prescribed period of time, the action may be taken
without such lapse if such requirement is waived in writing, in person or by
proxy, before or after the taking of such action by every Shareholder entitled
to vote thereon as of the date of the taking of such action.
SECTION 6. Fixing Record Date:
(1) The Board may fix, in advance, a date as the record date
for determining the Corporation's Shareholders with regard to any corporate
action or event and, in particular, for determining the Shareholders who are
entitled to:
(a) notice of or to vote at any meeting of Shareholders
or any adjournment thereof;
(b) be given a written consent to any action without a
meeting; or
(c) receive payment of any dividend or allotment of any
given right.
The record date may in no case be more than sixty (60) days prior to the
Shareholders' meeting or other corporate action or event to which it relates.
The record date for a Shareholders' meeting is recommended to be not less than
thirty (30) days before the date of the meeting. The record date to determine
Shareholders to give a written consent may not be more than sixty (60) days
before the date fixed for tabulation of the consents or, if no date has been
fixed for tabulation, more than sixty (60) days before the last day on which
consents received may be counted.
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<PAGE> 3
(2) If no record date is fixed,
(a) The record date for a Shareholders' meeting shall be
the close of business on the day next preceding the
day on which notice is given or, if no notice is
given, the day next preceding the day on which the
meeting is held; and
(b) The record date for determining Shareholders for any
other purpose shall be at the close of business on
the day on which the resolution of the Board relating
thereto is adopted.
(3) When a determination of Shareholders of record for a
Shareholders' meeting has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board fixes a
new record date under this section for the adjourned meeting.
SECTION 7. Voting Lists: The officer or agent having charge of
the stock transfer books for shares of the Corporation shall make and certify a
complete list of Shareholders entitled to vote at a Shareholders' meeting or any
adjournment thereof. A list required by this section may consist of cards
arranged alphabetically or any equipment which permits the visual display of
such information. Such list shall be arranged alphabetically within each class,
series or groups of Shareholders maintained by the Corporation for convenience
of reference, with the address of and the number of shares held by each
Shareholder; be produced or available by means of a visual display at the time
and place of the meeting; be subject to the inspection of any Shareholder for
reasonable periods during the whole time of the meeting; and be prima facie
evidence as to who are the Shareholders entitled to examine such list or to vote
at any meeting.
If the requirements of this section have not been
complied with, the meeting, on the demand of any Shareholder in person or by
proxy, shall be adjourned until the requirements are complied with. Failure to
comply with the requirements of this section shall not affect the validity of
any action taken at such meeting prior to the making of any such demand.
SECTION 8. Quorum: Unless otherwise provided in the
Certificate of Incorporation or by Statute, the holders of shares entitled to
cast a majority of the votes at a meeting shall constitute a quorum at such
meeting. The Shareholders present in person or by proxy at a duly organized
meeting may continue to do business until adjournment, notwithstanding the
withdrawal of enough Shareholders to leave less than a quorum. Less than a
quorum may adjourn.
Whenever the holders of any class or series of share
are entitled to vote separately on a specified item of business, the provisions
of this section shall apply in determining the presence of a quorum of such
class or series for the transaction of such specified item of business.
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<PAGE> 4
SECTION 9. Voting: Each holder of any share with voting rights
shall be entitled to one (1) vote for each such share registered in his name,
except as otherwise provided in the Certificate of Incorporation. Whenever any
action, other than the election of Directors, is to be taken by vote of the
Shareholders, it shall be authorized by a majority of the votes cast at a
meeting of Shareholders by the holders of shares entitled to vote thereon,
unless a greater plurality is required by statute or by the Certificate of
Incorporation.
Every Shareholder entitled to vote at a meeting of
Shareholders or to express consent without a meeting may authorize another
person or persons to act for him by proxy. Every proxy shall be executed in
writing by the Shareholder or his agent, except that a proxy may be given by the
Shareholder or his agent by telegram or cable or by means of electronic
communication which results in a writing. No proxy shall be valid for more than
eleven (11) months unless a longer time is expressly provided therein. Unless it
is irrevocable as provided in Section 14A:5-19(3) of the New Jersey Business
Corporation Act, a proxy shall be revocable at will. The grant of a later proxy
revokes any earlier proxy unless the earlier proxy is irrevocable. A proxy shall
not be revoked by the death or incapacity of the Shareholder but such proxy
shall continue in force until revoked by the personal representative or guardian
of the Shareholder. The presence at any meeting of any shareholder who has given
a proxy shall not revoke such proxy unless the Shareholder shall file written
notice of such revocation with the Secretary of the meeting prior to the voting
of such proxy, or votes the shares subject to the proxy by written ballot.
SECTION 10. Election of Directors: Except as otherwise
provided in the Certificate of Incorporation, at each election of Directors
every Shareholder entitled to vote at such election shall have the right to vote
the number of shares owned by him for as many persons as there are Directors to
be elected and for whose election he has a right to vote. Directors shall be
elected by a plurality of the votes cast at the election, except as otherwise
provided by the Certificate of Incorporation.
Elections of Directors need not be by ballot unless a
Shareholder demands election by ballot at the election and before the voting
begins.
SECTION 11. Inspectors of Election: The Board, in advance of
any Shareholders' meeting or of the tabulation of written consents of
Shareholders without a meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof or to tabulate such consents and make a
written report thereof. If inspectors to act at any meeting of Shareholders are
not so appointed or shall fail to qualify, the person presiding at a
Shareholders' meeting may and on the request of any Shareholder entitled to vote
thereat shall make such appointment.
Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability. No
person shall be elected a Director in an election for which he has served as an
inspector.
4
<PAGE> 5
SECTION 12. Advance Notification Requirement: At any meeting
of Shareholders, only such director nominations, proposals or other business
("business") shall be conducted or considered by the Shareholders as shall have
been properly brought before such meeting. To be properly brought before a
meeting the business must be a proper subject for action by Shareholders and
must be: (a) specified in the notice of any meeting (or supplement thereto)
given by or at the direction of the Board of Directors; (b) brought before a
meeting by or at the direction of the Board of Directors; or (c) brought before
a meeting by a Shareholder where the Shareholder has complied with the
procedures set forth in this Section.
For business to be properly brought before a meeting
by a Shareholder of the Corporation, the Shareholder must give the Secretary of
the Corporation timely written notice of the business to be brought before a
meeting. To be timely, a Shareholder's written notice must be delivered or
mailed to and actually received at the Corporation's principal headquarters no
later than the close of business on the 60th calendar day prior to the date of
the meeting. A Shareholder's written notice to the Secretary of the Corporation
of the business to be brought before the meeting shall set forth (a) as to each
person whom the Shareholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the Shareholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such Shareholder and the
beneficial owners, if any, on whose behalf the proposal is made; and (c) as to
the Shareholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
Shareholder, as they appear on the Corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such Shareholder and such beneficial owner and
(iii) a representation that the Shareholder is a holder of record of shares of
the Corporation and intends to appear in person or by proxy at the meeting to
propose such business.
Notwithstanding anything in the Corporation's By-Laws
to the contrary, no business shall be conducted at a Shareholder meeting except
in accordance with the provisions and procedures set forth in this Section of
the Corporation's By-Laws.
The presiding officer of a meeting shall, if the
facts warrant, determine and declare to the meeting that the business was not
properly brought before the meeting, and, in accordance with the provisions of
this section of the Corporation's By-Laws, the presiding officer of the meeting
shall so declare to the meeting that any such business not properly before the
meeting shall not be transacted.
5
<PAGE> 6
ARTICLE IV
DIRECTORS
SECTION 1. The business and affairs of this Corporation shall
be managed by its Board of Directors, not less than five (5) nor more than ten
(10) in number, as determined by the Board. A Director shall be at least
eighteen years of age and need not be a United States citizen or a resident of
this State or a Shareholder in the Corporation. Each Director shall be elected
by the Shareholders at the Annual Meeting of the Corporation and shall be
elected for the term of one (1) year and until his successor shall be elected
and shall qualify.
SECTION 2. Regular Meetings: Regular meetings of the Board
shall be held immediately following the Annual Meeting of Shareholders, and at
such other times and places, as shall be determined by the Board. After the
election of the Directors, the newly-elected Board shall meet for the purpose of
organization, election of officers of the Corporation and Chairman, and
otherwise, and no notice of such meeting shall be necessary to the newly-elected
Directors in order to constitute legally the meeting, provided a majority of the
whole Board shall be present.
SECTION 3. Quorum: A majority of the entire Board or of any
committee thereof shall constitute a quorum for the transaction of business and
the act of the majority present at a meeting at which a quorum is present shall
be the act of the Board or of the committee.
Any action required or permitted to be taken pursuant
to authorization voted at a meeting of the Board or any committee thereof may be
taken without a meeting if, prior or subsequent to such action, all members of
the Board or of such committee, as the case may be, consent thereto in writing
and such written consents are filed with the minutes of the proceedings of the
Board or the committee.
Where appropriate communication facilities are
reasonably available, any or all Directors shall have the right to participate
in all or any part of a meeting of the Board or a committee of the Board by
means of conference telephone or any means of communication by which all persons
participating in the meeting are able to hear each other, unless otherwise
provided in the Certificate of Incorporation.
SECTION 4. Special Meetings: Special meetings of the Board may
be called by the Chairman or the President on one day's notice to each Director,
either personally or by mail; special meetings may be called in like manner and
on like notice on the written request of any two (2) Directors.
SECTION 5. Waiver of Notice: Notice of any meeting need not be
given to any Director who signs a waiver of notice, whether before or after the
meeting. The attendance of any Director at a meeting without protesting prior to
the conclusion of the meeting the lack of notice of such meeting shall
constitute a waiver of notice by him. Neither the business to be transacted at
nor the purposes of any meeting of the Board need be specified in the notice or
6
<PAGE> 7
waiver of notice of such meeting. Notice of any adjourned meeting need not be
given if the time and place are fixed at the meeting adjourning and if the
period of adjournment does not exceed ten (10) days in any one adjournment.
SECTION 6. Powers of Directors: The Board of Directors shall
have the management of the business of the Corporation. In addition to the
powers and authorities by the By-Laws expressly conferred upon them, the Board
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute nor by these By-Laws directed or required to be
exercised or done by the Shareholders.
SECTION 7. Compensation of Directors: The Board, by the
affirmative vote of a majority of Directors in office and irrespective of any
personal interest of any of them, shall have authority to establish reasonable
compensation of Directors for services to the Corporation as Directors, officers
or otherwise.
SECTION 8. Executive Committee: If deemed advisable, the Board
of Directors, by resolution adopted by a majority of the entire Board, may
appoint from among its members an executive committee and one or more other
committees, each of which shall have one or more members. Each such committee
shall have and may exercise all the authority of the Board, except that no such
committee shall make, alter or repeal any By-Law of the Corporation; elect or
appoint any Director, or remove any officer or Director; submit to Shareholders
any action that requires Shareholders' approval; or amend or repeal any
resolution theretofore adopted by the Board which by its terms is amendable or
repealable only by the Board.
Actions taken at a meeting of such committee shall be
reported to the Board at its next meeting following such committee meeting
except that, when the meeting of the Board is held within two (2) days after the
committee meeting, such report, if not made at the first meeting, shall be made
to the Board at its second meeting following such committee meeting.
SECTION 9. Chairman of the Board: The Chairman of the Board
shall preside at all meetings of the Shareholders and of the Directors; shall be
ex officio a member of the Executive Committee, and shall exercise such other
powers and perform such other duties as the Board of Directors shall prescribe.
SECTION 10. Audit Committee: The Audit Committee shall be
appointed from among those Directors who are not officers or employees of the
Corporation. Such Committee shall designate from among its members a chairman
who shall preside over meetings of the Committee and perform such administrative
functions as the Committee may deem necessary. The Committee shall (a) recommend
to the Board and to the Shareholders an accounting firm whose duty it shall be
to audit the books and records of the Corporation; (b) review the audit report
each year and make such recommendations as it may deem appropriate to carry out
recommendations as may be made by the auditing accounting firm or such auditing
and account steps as the Committee may deem necessary upon its own motion; (c)
from time-to-time meet
7
<PAGE> 8
with and receive reports from the Corporation's Controller and recommend to the
Chairman, the President or the Board of Directors such action, as the Committee
may deem appropriate.
SECTION 11. Secretary: The Secretary shall keep full minutes
of all meetings of the Board of Directors, shall attend all sessions of the
Board, shall act as clerk thereof and shall record all minutes and proceedings
in a book to be kept for that purpose and shall perform like duties for the
standing committees when required. Unless otherwise provided by the Chairman, he
shall give or cause to be given notices of all meetings of the Board of
Directors and shall perform such other duties as may be prescribed by the Board
of Directors.
SECTION 12. Discharge of Duties: A. In discharging their
duties, Directors and members of any committee designated by the Board shall not
be liable if, acting in good faith, they rely (a) upon the opinion of counsel
for the Corporation, (b) upon written reports setting forth financial data
concerning the Corporation and prepared by an independent public accountant or
certified public accountant or firm of such accountants, (c) upon financial
statements, books of account or reports of the Corporation represented to them
to be correct by the President, the officer of the Corporation having charge of
its book of account, or the person presiding at a meeting of the Board, or (d)
upon written reports of committees of the Board.
B. In discharging his duties to the Corporation and
in determining what he reasonably believes to be in the best interest of the
Corporation, a Director may, in addition to considering the effects of the
action on the Corporation's shareholders, consider any of the following: (a) the
effects of the action on the Corporation's employees, suppliers, creditors and
customers; (b) the effects of the action on the community or communities in
which the Corporation operates; and, (c) the long-term as well as the short-term
interests of the Corporation and its shareholders, including the possibility
that these interests may best be served by the continued independence of the
Corporation. If, on the basis of the foregoing factors, the Board of Directors
determines that any proposal or offer to acquire the Corporation is not in the
best interest of the Corporation, it may reject such proposal or offer. If the
Board of Directors determines to reject any such proposal or offer, the Board of
Directors shall have no obligation to facilitate, remove any barriers to, or
refrain from impeding the proposal or offer.
ARTICLE V
OFFICERS
SECTION 1. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer, a Controller and, if desired, one or more
Vice Presidents, and such other officers as may be required. They shall be
annually elected by the Board of Directors and shall hold office for one (1)
year and until their successors are elected and have qualified, subject to
earlier termination by removal by the Board or resignation. The Board may also
choose such employees and agents as it shall deem necessary, who shall hold
their offices for such terms and shall have such authority and shall perform
such duties as from time-to-time shall be prescribed by the Board.
8
<PAGE> 9
Any two or more offices may be held by the same
person but no officer shall execute, acknowledge or verify any instrument in
more than one capacity if such instrument is required by law or by these By-Laws
to be executed, acknowledged or verified by two or more officers.
SECTION 2. Salaries: The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. Removal: Any officer elected or appointed by the
Board of Directors may be removed by the Board with or without cause.
SECTION 4. President: The President shall be the Chief
Executive Officer of the Corporation; he shall have general and active
management of the business of the Corporation, shall perform the duties of the
Chairman of the Board in his absence and shall see that all orders and
resolutions of the Board are carried into effect, subject, however, to the right
of the Directors to delegate any specific powers, except such as may be by
statute exclusively conferred on the President, to any other officer or officers
of the Corporation. He shall be ex officio a member of all committees other than
the Audit Committee and shall have the general powers and duties of supervision
and management usually vested in the office of President of a corporation.
SECTION 5. Secretary: The Secretary shall keep full minutes of
all meetings of the Shareholders and shall give or cause to be given notices of
all meetings of the Shareholders of the Corporation and shall perform such other
duties as may be prescribed by the Board of Directors or the President, under
whose supervision he shall be.
SECTION 6. Treasurer: The Treasurer shall be responsible for
banking and borrowing arrangements of the Corporation and its relations with
financial institutions, as well as investor relations.
SECTION 7. Controller: The Controller shall be responsible for
keeping full and accurate accounts of the assets, liabilities, receipts and
disbursements of the Corporation and reporting thereon and on the Corporation's
transactions and financial condition.
ARTICLE VI
VACANCIES
SECTION 1. Directors: Any directorship not filled at the
Annual Meeting and any vacancy, however caused, including vacancies resulting
from an increase in the number of Directors, occurring in the Board may be
filled by the affirmative vote of a majority of the remaining Directors even
though less than a quorum of the Board or by a sole remaining Director. A
Director so elected by the Board shall hold office until his successor shall
have been elected and qualified.
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<PAGE> 10
SECTION 2. Officers: Any vacancy occurring among the officers,
however caused, shall be filled by the Board of Directors.
SECTION 3. Resignations: Any Director or other officer may
resign by written notice to the Corporation. The resignation shall be effective
upon receipt thereof by the Corporation or at such subsequent time as shall be
specified in the notice of resignation.
ARTICLE VII
SHARE CERTIFICATES
SECTION 1. The share certificates of the Corporation shall be
numbered and registered in the transfer records of the Corporation as they are
issued. They shall bear the corporate seal, or a facsimile thereof, and shall be
signed by the President or a Vice President and by the Secretary or Assistant
Secretary. If the certificates are signed by a Transfer Agent and a Registrar,
the signatures of the officers of the Corporation may be facsimile.
SECTION 2. The Board of Directors shall have the power to
appoint one or more Transfer Agents and Registrars for the transfer and
registration of certificates of the shares of the Corporation and may require
that share certificates be countersigned by one or more of such Transfer Agents
and Registrars.
SECTION 3. Transfers: All transfers of the shares of the
Corporation shall be made upon the books of the Corporation by the holders of
the shares in person or by their legal representatives. Share certificates shall
be surrendered and cancelled at the time of transfer.
SECTION 4. Loss of Certificates: In the event that a share
certificate shall be lost, destroyed or mutilated, a new certificate may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
ARTICLE VIII
BOOKS AND ACCOUNTS
SECTION 1. The Corporation shall keep books and records of
account and minutes of the proceedings of the Shareholders, Board of Directors
and executive committees, if any. Such books, records and minutes may be kept
outside this State. The Corporation shall keep at its principal office, its
registered office or at the office of a transfer agent a record or records
containing the names and addresses of all Shareholders, the number, class and
series of shares held by each and the dates when they respectively became the
owners of record thereof. Any of the foregoing books, minutes or records may be
in written form or in any other form capable of being converted into readable
form within a reasonable time, and the Corporation shall convert into readable
form without charge any such records not in such form, upon the written request
of any person entitled to inspect them.
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<PAGE> 11
SECTION 2. Inspection: Any person who shall have been a
Shareholder of record of the Corporation for at least six (6) months immediately
preceding this demand or any person holding or so authorized in writing by the
holders of at least five percent (5%) of the outstanding shares of any class or
series, upon at least five (5) days' written demand shall have the right during
the usual business hours for any proper purpose to examine in person or by agent
or attorney the minutes of the proceedings of the Shareholders and record of
Shareholders and to make extracts therefrom at the places where the same are
kept.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 1. Monetary Disbursements: All checks or demands for
money and notes of the Corporation shall be signed by such officer or officers
as the Board of Directors may from time to time designate.
SECTION 2. Fiscal Year: Effective January 1, 2000, the fiscal
year of the Corporation shall begin on the first day of January of each year.
Prior to January 1, 2000, the fiscal year of the Corporation shall begin on the
first day of August of each year.
SECTION 3. Dividends: The Board of Directors may declare and
pay dividends upon the outstanding shares of the Corporation from time to time
and to such extent as they deem advisable, in the manner and upon the terms and
conditions provided by statute and the Certificate of Incorporation.
SECTION 4. Reserve: Before payment of any dividend there may
be set aside sum or sums as the Directors from time to time in their absolute
discretion think proper as a reserve fund to meet contingencies or for
equalizing dividends or for repairing or maintaining any property of the
Corporation or for such other purpose as the Directors shall think conducive to
the interests of the Corporation and the Directors may abolish any such reserve
in the manner in which it was created.
SECTION 5. Giving Notice: Whenever written notice is required
to be given to any person, it may be given to such person, either personally or
by sending a copy thereof through the mail. If notice is given by mail, the
notice shall be deemed to be given when deposited in the mail addressed to the
person to whom it is directed at his last address as it appears on the records
of the Corporation with postage prepaid thereon. Such notice shall specify the
place, day and hour of the meeting and, in the case of a Shareholders' meeting,
the general nature of the business to be transacted.
In computing the period of time for the giving of any
notice required or permitted by statute or by the Certificate of Incorporation
or by these By-Laws or by any resolution of Directors or Shareholders, the day
on which the notice is given shall be excluded and the day on which the matter
noticed is to occur shall be included.
11
<PAGE> 12
SECTION 6. Loans to Officers and Employees: The corporation
may lend money to or guarantee any obligation of or otherwise assist any officer
or other employee of the Corporation or of any subsidiary whenever it may
reasonably be expected to benefit the Corporation. The loan, guarantee or other
assistance may be made with or without interest, and may be unsecured or secured
in such manner as the Board shall approve, including, without limitation, a
pledge of shares of the Corporation, and may be made upon such other terms and
conditions as the Board may determine.
SECTION 7. Disallowed Compensation: Any payments made to an
officer or employee of the Corporation such as salary, commission, bonus,
interest, rent, travel or entertainment expense incurred by him which shall be
disallowed as a deductible expense for tax purposes shall be reimbursed by such
officer or employee to the Corporation to the full extent of the disallowance,
provided, however, that partial disallowances through no fault of the employee,
such as those provided by Section 274 of the Internal Revenue Code, at the
discretion of the Chief Executive Officer need not be reimbursed. In lieu of
payment by the officer or employee and subject to the determination of the
Directors, proportionate amounts may be withheld from his or her future
compensation payments until the amount owed to the Corporation has been fully
recovered.
ARTICLE X
INDEMNIFICATION
SECTION 1. Indemnification: The Corporation shall indemnify in
the manner and to the full extent permitted by the New Jersey Business
Corporation Act, as amended, any "corporate agent" of the Corporation (as such
term is defined in Section 14A:3-5 of the New Jersey Business Corporation Act)
who was or is a party to or is threatened to be made a party to any "proceeding"
(as such term is defined in said Section 14A:3-5), whether or not by or on
behalf of the Corporation, by reason of the fact that such person is or was a
corporate agent of the Corporation. Where required by law, the indemnification
provided for herein shall be made only as authorized in the specific case upon
the determination, in the manner provided by law, that indemnification of the
Corporate agent is proper in the circumstances. The Corporation, to the full
extent permitted by law, may purchase and maintain insurance on behalf of any
such person against any liability which may be asserted against him. To the full
extent permitted by laws, the indemnification provided herein shall include
"expenses" (as such term is defined in said Section 14A:3-5) and, in the manner
provided by law, any such expenses may be paid by the Corporation in advance of
the final disposition of such proceeding. The indemnification provided herein
shall not be deemed to limit the right of the Corporation to idemnify any other
person for any such expenses to the full extent permitted by law nor shall it be
deemed exclusive of any other rights to which any person seeking indemnification
from the Corporation may be entitled under any agreement, vote of Shareholders
or Directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
12
<PAGE> 13
ARTICLE XI
AMENDMENTS
SECTION 1. The Board of Directors shall have the power to
make, alter and repeal these By-Laws but By-Laws made by the Board may be
altered and repealed and new By-Laws may be made by the Shareholders.
Amended and Restated - September 21, 1979
Amended and Restated - September 21, 1984
Amended and Restated - June 1, 1989
Amended and Restated - June 19, 1991
Amended and Restated - August 19, 1992
Amended and Restated - January 5, 1994
Amended and Restated - November 17, 1994
Amended and Restated - November 14, 1996
Amended and Restated - September 24, 1999
13
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Income ................................................................ $5,406 $5,313 $7,815
====== ====== ======
Shares Outstanding:
Weighted average number of common shares used in calculation
for basic net income per common share...................................... 5,643 5,598 5,776
Add: shares of common stock equivalents 233 299 245
====== ====== ======
Weighted average number of common shares used in calculation of
diluted net income per common share........................................ 5,876 5,897 6,021
====== ====== ======
Basic net income per common share ......................................... $ .96 $ .95 $ 1.35
====== ====== ======
Diluted net income per common share ....................................... $ .92 $ .90 $ 1.30
====== ====== ======
</TABLE>
<PAGE> 1
Exhibit 13
[Plane Graphic]
EME designs and manufactures
the Pedal Position Sensor Unit,
which provides quadruplex
signals proportional to the
displacement of the rudder
mechanism to the fully digital
Flight Control System. This
equipment is integrated into the
cockpit of the Eurofighter
(Typhoon).
[Medical Equipment Graphic]
Teal provides power quality
solutions to applications where
clean power isn't just desirable,
it's a necessity. Teal power
conditioning units are
incorporated in a broad range of
medical imaging equipment,
which require reliable power for
accurate results.
FOR AEROSPACE CONTRACTORS:
THE POWER OF PRECISION
SL Industries is a manufacturer of a wide variety of aerospace equipment,
including the power actuators, pressure and temperature switches and wiring
harnesses used throughout modern military and commercial aircraft.
Eurofighter GmbH, a customer of our Elektro-Metall Export subsidiary based in
Ingolstadt, Germany, offers a case in point. Designed as an air superiority
fighter, hundreds of Eurofighter Typhoons will help fill the air defense
requirements of the United Kingdom, Germany, Spain, and Italy, home countries of
the principal constructors.
The requirements for a 21st century air superiority fighter are incredibly
complex. Low cost, low weight, and ease of maintenance, while all critical,
cannot compromise combat performance. Moreover, with the pilot fully occupied
during combat, the airplane must rely on a heavily computerized flight control
system.
Working closely with DaimlerChrysler Aerospace, the prime contractor for the
fully digital flight control system, EME designed and manufactured the pedal
position sensor unit that is now being fitted in Typhoon cockpits. In fact,
earlier this year, EME's pedal position sensor unit was shipped to British
Aerospace for installation in the very first production aircraft: Eurofighter
Typhoon IPA 001.
Low cost, low maintenance, digital control, and flawless performance. At Mach
2, nothing less will do.
FOR CRITICAL APPLICATIONS:
THE POWER OF TOTAL SUPPORT
Manufacturers of semiconductor automatic test equipment and manufacturers of
medical imaging equipment may not have much else in common, but they both rely
on Teal Electronics for power that is free of electrical noise, impulses, and
grounding problems.
It's hardly surprising. For both customer groups, clean, controlled power is
essential. For computer chipmakers, just one surge can destroy a half million
dollar's worth of product. And without properly conditioned front end power,
sophisticated medical imaging equipment may not function at all, disrupting
patient care and, of course, the revenue stream of health care providers.
Through our Teal subsidiary, SL Industries has gained a dominant share in
both markets. Attitude is a prime reason. For these key customers, Teal isn't
just a supplier, it's an extension of these customers' engineering departments.
SL Industries makes it its business to understand the customer's products and
product applications in depth. Teal exemplifies the point well. Every Teal
product is a custom product, of course, but the stamp of individuality goes
deeper. Teal involves the customer throughout the design process, using a
library of design tools that include on-line computer modeling and virtual
prototyping. Quick samples and quick designs mean faster tooling for customers
and quicker market entry.
Understanding customers' needs eliminates customer headaches, too. Examples:
easily re-tappable transformers let our products function worldwide, despite
variations in line voltages from country to country. For medical imaging
applications, our products are plug-in simple. We call it "site preparation in a
box."
Customers call it total support.
4
<PAGE> 2
[Charge System Graphic]
The RFL 9300 Charge Comparison System
is a completely digital, fully-integrated
relay/communications terminal, suitable
for high-speed protective relaying of
overhead or underground high-voltage
transmission lines.
[Computer Graphic]
SL Industries' Investment in Kreiss
Johnson Technologies brings
our customers powerful artificial
intelligence software to
automatically analyze power
quality metering data and deliver
real time reporting via the
Internet.
FOR ELECTRIC UTILITIES:
ADDED EFFICIENCY, ADDED POWER
The electric utility industry remains well managed and financially healthy, but
much has changed since passage of the 1992 Energy Act. That Act brought
deregulation of power generation and change throughout the industry. Excess
electric generation and transmission capacity that had stood at some 20% among
the nation's utilities fell to less than 10%. For some utilities, the available
capacity is too low for the electricity demand. Still, home building continues,
suburbs sprawl farther and farther and electricity requirements increase.
Without added generating capacity and new transmission lines, trouble seems
inevitable. But, adding capacity and securing rights of way takes time and
money, both of which are in short supply in a deregulated industry, which is why
more and more utilities are turning to SL Industries for help.
Our RFL subsidiary makes sophisticated communication systems that allow
electric utilities to manage their high-voltage power lines more efficiently.
That increased efficiency comes from products that sense fault conditions. The
signals, sent to a control center, allow the utility to drop load or move it to
another transmission line. In effect, that communication technology gives
utilities more net capacity.
Here's a case that illustrates the point: The customer base of a utility in
the Western U.S. was expanding so fast, it was just months away from running out
of capacity on parts of its power transmission and distribution grid. The
utility customer asked RFL to design a protective relay and communication system
that would revitalize their transmission and substation grid. One more thing -
they wanted the system up and running in just 45 days, about one-third the usual
time. RFL said yes. After six weeks of side-by-side work with the customer's
engineering staff, RFL developed and installed a system for multiple substations
covering several miles of transmission lines.
The utility never lost a customer. In fact, the new RFL system means the
utility will be able to manage the demand on this part of the grid for several
years. For RFL, its reputation is earned by performance.
FOR POWER PRODUCERS AND CONSUMERS:
POWERFUL INTERNET SOFTWARE
In an industry oriented toward hardware, Kreiss Johnson stands out. It is one of
the few power and data quality companies that specialize in information
technology. It's a powerful distinction.
For utilities and industrial power consumers, data collection and monitoring
devices are nothing new. But, until now, analysis of that data took expertise
and personnel few had on staff, so the usefulness of these devices was limited.
Kreiss Johnson is changing that with revolutionary software.
For the first time, a single software program is able to collect data from
virtually any monitoring device, use artificial intelligence to process that
data, and automatically generate analytical reports. These reports are then fed
to customers over the Internet. If and when trouble brews, the software will
automatically page key personnel, who can then log on to a website, get the
analysis and take action. Appropriately enough, the program is called OPEN
because of its open architecture, that is, its ability to interface with
monitoring devices from various manufacturers.
OPEN is winning friends fast. One municipal utility - the City of Lakeland,
Florida - is using OPEN to offer automated power monitoring services to their
industrial customers. The process gives customers timely, clear information on
power quality and energy demand profiles. It gives the Lakeland utility a
selling and service edge in an increasingly competitive energy market.
As Kreiss Johnson is proving, Internet information is power. And so is
partnership.
5
<PAGE> 3
SL Industries, Inc.
- --------------------------------------------------------------------------------
[Power Supplies Graphic]
Condor provides its customers with
state of the art technology. Its new
line of power supplies (top photo),
which incorporates a patent pending
technology, will increase power
efficiencies from 75% to 90% to allow
greater power density. Another new
product line (bottom photo) provides
up to 110 watts of power in a footprint
no larger than 3.75" x 6.3".
[Blower Assembly Graphic]
SL-MTI's blower assemblies, which
are used in Armored Personnel Carriers,
consist of an Integrated Brushless
DC Motor/Controller and Impeller
assemblies.
...powerful...
FOR POWER SUPPLY APPLICATIONS:
A FULL RANGE OF OPTIONS
What does today's power supply customer want? If any one word answer would
suffice, it might be "choice." The market for power supplies expanded markedly
in the 90's, driven in part by mushrooming telecom, datacom and medical
applications. But while the market has expanded, so have the demands of original
equipment manufacturers for fewer vendors and a preferred purchasing regimen.
Today, that preferred power supply vendor is likely to be one that can deliver a
full product range, at competitive prices, rather than just a niche product or
two.
A full product range means just that: micro-power units, up to 25 watts; low
power units, up to 150 watts; mid-power units, up to 500 watts, and high power
units, with outputs from 500 watts to kilowatts. Beyond that, a complete product
range will also likely include the latest in sophistication: distributed power
supplies that put tiny power supply units immediately adjacent to the integrated
circuits they power. The benefit: with inches less to travel, electrons take
less time to move, thus supporting the latest hyper computing speeds.
Thanks to extensive internal product development, supplier managed inventory
programs and value-added capability at our Condor subsidiary, coupled with this
year's acquisition of Todd Products, SL has enhanced its position as a leading
supplier of AC/DC and DC/DC power supplies - a full range of power supplies, we
might add, with the Todd product range adding significant capabilities in larger
power supplies. Additionally, the integration of Todd with Condor means an
expanded market presence in telecom and datacom manufacturers, in addition to
strengthening our position in medical, instrumentation and industrial markets,
traditional Condor strong points.
The net result: more products, more expertise and more choice for customers.
FOR MOTIVE POWER APPLICATIONS:
POWER OF QUALITY
SL Industries is a leading designer of high quality brushless DC motors and
motor controls used in myriad applications throughout industry, from aerospace
to machine tools.
Manufactured through our SL-MTI subsidiary, these motors excel in virtually
every performance parameter. They pack more power per pound than competitive
motors, and they have the highest torque to size ratio in the industry. They're
brushless, cutting maintenance cost. They have ultra sophisticated motion
control capabilities. And of course they can be built in a wide range of sizes
and outputs to match customer needs precisely.
One SL customer, a U.S. manufacturer's Canadian defense division, recently
came to SL with a problem. As a prime military contractor for a light artillery
vehicle, they found that two DC blower motors - one for engine cooling, the
other for air conditioning -
6
<PAGE> 4
[IPC-12 Graphic]
This year the Niles IPC-12 Power Management System, designed and built by SL
Waber, was awarded the 1999 Consumer Electronic Show Innovations Design and
Engineering Award. SL Waber manufactures a full line of Power Management
Systems, which provide power protection and noise filtration for home theaters.
[Tank Graphic]
solutions.
currently used in the armored vehicle were not meeting the customer's needs.
Neither motor met the Canadian Army's rigid environmental performance or EMI
specifications.
SL responded with an engineering team that took ownership of the problem.
After analyzing the existing designs, they pinpointed the current assemblies'
deficiencies and set about making design modifications. The catch, and there
always seems to be one in remedial situations like this, was time. The prime
contractor needed the newly designed blower assemblies to be coming off the
production line in some 120 days. Thanks to the engineering team at SL-MTI, they
were. The final product - a high performance brushless DC motor, controller, EMI
filter, and a large shaft-mounted impeller was delivered, on time, within
specification, and on budget.
FOR OEMS:
THE POWER OF PROTECTION
The silicon chip revolution has changed everything, from the way kids play games
to the way the world does business. E-mail. E-commerce. The Web. The personal
computer has an Achilles heel, however: the risk of power surges and power
outages. Too much wattage, or not enough, and hardware can be ruined or data may
disappear. That risk presents opportunity for SL Industries. As a major
manufacturer of surge suppressors and uninterruptible power supplies (UPS), our
SL Waber subsidiary sells the kind of insurance the PC revolution needs to keep
on turning.
In years past, surge protection may have been an afterthought, a secondary
appendage of chip-dependent electronic devices. Today, more and more original
equipment manufacturers are building surge suppression into their equipment
directly or offering surge suppression devices as part of their own brand's
product portfolio.
In either case, OEMs find a willing and able partner in SL Industries. We
make a full range of surge suppression devices such as wall taps and power
strips, fully adaptable to meet specific customer requirements. As an example,
we recently reached an arrangement with a leading supplier of home theater
equipment to develop an entire product line of protection devices - including
protection circuitry for DSS and HDTV signals - for their video and home theater
products.
SL Waber's products are also sold to consumers for use in the home and
office. Consumer products include multiple outlet strips, surge suppression
devices such as wall taps and power strips, and battery back-up power supplies.
With data now as precious as hardware, uninterruptible power supplies are
rapidly approaching indispensable status. No one wants to risk losing data
because of a utility line hiccup. We couldn't agree more. Our product range
includes UPS units that can protect entire networks, both servers and
workstations, from data loss in the event of a power outage. In fact, we're
using that technology to produce a very cost-effective desktop UPS for a leading
PC manufacturer.
Chalk up these and other 1999 successes to the power of partnership. At SL
Industries, we think that's something worth protecting.
7
<PAGE> 5
SL Industries, Inc
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Net sales $125,128 $118,212 $115,687 $117,313 $91,125
Net income (1) $5,406 $5,313 $7,815 $3,498 $3,677
Diluted net income per common share (1) (2) $.92 $.90 $1.30 $.59 $.62
Shares used in computing diluted net income per common share (2) 5,876 5,897 6,021 5,950 5,940
Cash dividend per common share $.09 $.08 $.07 $.06 $.06
YEAR-END FINANCIAL POSITION
Working capital $24,812 $21,344 $17,399 $20,765 $21,929
Current ratio 1.9 2.1 1.8 2.3 2.5
Total assets $112,686 $80,915 $66,804 $64,175 $62,156
Long-term debt $31,984 $13,283 $700 $13,186 $17,373
Shareholders' equity $42,842 $38,345 $36,492 $28,680 $24,930
Book value per share $7.61 $6.84 $6.27 $4.98 $4.43
OTHER
Capital expenditures (3) $2,688 $2,756 $2,097 $2,219 $1,736
Depreciation and amortization $3,881 $3,043 $2,700 $2,584 $2,108
=================================================================
</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) The effect of outstanding dilutive stock options is not material for
fiscal 1995 and is not included in the calculation for this year.
(3) Excludes assets acquired in business combinations.
8
<PAGE> 6
SL Industries, Inc.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1999, the net cash provided by operating activities was
$4,294,000, as compared to $6,621,000 and $3,266,000 provided in fiscal 1998 and
1997, respectively. The fiscal 1999 decrease, as compared to fiscal 1998,
resulted primarily from increased inventories and federal and state income tax
payments, offset, in part, by increased accounts payable. The fiscal 1998
increase, as compared to fiscal 1997, resulted primarily from increased income
from operations and decreased receivables and inventories, offset, in part, by
decreased accounts payable and accrued liabilities. During fiscal 1999, the net
cash used in investing activities of $20,818,000 was primarily related to the
acquisition of all the issued and outstanding common shares of RFL Electronics
Inc. ("RFL"), the acquisition of certain net operating assets of Todd Products
Corporation and Todd Power Corporation (together "Todd Products") and capital
expenditures, offset, in part, by the proceeds received from the sale of land
and buildings leased to a third party. During fiscal 1998, the net cash used in
investing activities of $13,634,000 was primarily related to the acquisition of
all of the issued and outstanding common shares of Elektro-Metall Export GmbH
("EME") and capital expenditures. During fiscal 1997, the net cash provided by
investing activities of $9,399,000 was primarily related to the sale of
substantially all of the assets of SL Auburn, Inc. ("Auburn"), offset, in part,
by capital expenditures. During fiscal 1999, the net cash provided by financing
activities of $16,543,000 was primarily related to the use of the Company's
revolving line of credit for the RFL and Todd Products acquisitions. During
fiscal 1998, the net cash provided by financing activities of $7,000,000 was
primarily related to the use of the Company's revolving line of credit for the
EME acquisition, offset, in part, by the purchase of 375,500 shares of the
Company's common stock. During fiscal 1997, the net cash used in financing
activities of $12,665,000 was primarily related to payments made to reduce the
Company's long-term debt obligation.
The Company's current ratio was 1.9 to 1 at July 31, 1999, 2.1 to 1 at July
31, 1998, and 1.8 to 1 at July 31, 1997. The fiscal 1999 decrease, as compared
to fiscal 1998, resulted from a 45% increase in current liabilities, as compared
to a 30% increase in current assets. The increase in current liabilities and
current assets resulted primarily from the acquisitions of RFL and Todd
Products. The fiscal 1998 increase, as compared to fiscal 1997, resulted from a
7% increase in current assets and a 5% decrease in current liabilities. The
increase in current assets resulted primarily from the addition of inventories
at EME. The decrease in current liabilities resulted primarily from the payment
of vendor invoices, offset, in part, by the addition of liabilities at EME.
As a percentage of total capitalization, consisting of debt and
shareholders' equity, total borrowings by the Company were 44% at July 31, 1999,
27% at July 31, 1998, and 2% at July 31, 1997. The fiscal 1999 increase in total
borrowings, as compared to fiscal 1998, was primarily a result of the Company's
use of its revolving line of credit to purchase all of the issued and
outstanding shares of RFL and the net operating assets of Todd Products. The
fiscal 1998 increase in total borrowings, as compared to fiscal 1997, was
primarily a result of the Company's use of its revolving line of credit to
purchase all of the issued and outstanding common shares of EME and 375,500
shares of the Company's common stock. On July 21, 1998, the Company amended its
$25,000,000 revolving credit agreement with three participating banks to provide
for multi-currency borrowing and international acquisitions, and to extend the
agreement's maturity date to October 31, 2001. On July 16, 1999, the Company
again amended its agreement to increase the amount of its credit facility from
$25,000,000 to $40,000,000. At July 31, 1999, the Company had $8,795,000, net of
outstanding trade letters of credit of $915,000, of this credit facility
available for use. See Note 8 to the consolidated financial statements for
additional information about the credit agreement. The Company's borrowing
capacity at July 31, 1999, remained above its use of outside financing.
Capital expenditures were $2,688,000 in 1999, as compared to $2,756,000 in
1998, and $2,097,000 in 1997. Expenditures during the three-year period have
primarily included investments in new process technology and increased
production capacity. Fiscal 2000 capital expenditures are planned to be
approximately $4,722,000, 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.
9
<PAGE> 7
SL Industries, Inc.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
Fiscal 1999 consolidated net sales of $125,128,000 increased approximately 6%
($6,916,000), as compared to fiscal 1998 consolidated net sales. Fiscal 1999's
consolidated net sales included twelve months of EME's net sales of $19,992,000
and three months of RFL's net sales of $5,274,000. Fiscal 1998 consolidated net
sales included one month of EME's net sales of $1,831,000. Fiscal 1999 net
income was $5,406,000, or a diluted $.92 per share, as compared to fiscal 1998
net income of $5,313,000, or a diluted $.90 per share.
The power supplies segment's fiscal 1999 net sales decreased approximately
8% ($3,042,000) and its operating income increased approximately 3% ($167,000),
as compared to fiscal 1998 net sales and operating income. Contributing to the
reduction in net sales were decreased net sales of linear and switching power
supplies because of a slowdown in the volume of orders received from customers
in the distribution channel, as well as decreased net sales of uninterruptible
power supplies because of continued competitive pricing and related pressures in
the retail marketplace. The increase in fiscal 1999 operating income resulted
from decreased costs associated with the expiration of a profit sharing
agreement during the first half of fiscal 1998.
The power conditioning and distribution units segment's fiscal 1999 net
sales increased approximately 26% ($5,199,000), and its operating income
decreased approximately 9% ($282,000), as compared to fiscal 1998 net sales and
operating income. Contributing to the increase in net sales and decrease in
operating income were increased sales of power distribution systems, offset by
decreased sales of higher margin customized power conditioning and distribution
units because of a slowdown in the semiconductor industry. Fiscal 1999's segment
results included twelve months of power distribution systems' net sales, as
compared to fiscal 1998, which included one month of net sales. If these power
distribution systems' net sales were excluded from both periods, fiscal 1999 net
sales and operating income decreased approximately 19% ($3,637,000) and 31%
($904,000), respectively.
The motion control systems segment's fiscal 1999 net sales increased
approximately 46% ($7,376,000) and its operating income increased approximately
72% ($980,000), as compared to fiscal 1998 net sales and operating income.
Contributing to the increased net sales and operating income were increased
sales of actuators, offset by decreased sales of precision motor products
because of customer requests to delay the shipment of their orders. Fiscal
1999's segment results included twelve months of actuator net sales and
operating income, as compared to one month in fiscal 1998. If these actuator
sales were excluded from both periods, fiscal 1999 net sales and operating
income decreased approximately 2% ($358,000) and remained constant,
respectively.
The electric utility equipment protection systems segment's fiscal 1999 net
sales and operating income included the financial results of RFL for the three
month period ended July 31, 1999.
The surge suppressors segment's fiscal 1999 net sales and operating income
decreased approximately 20% ($8,472,000) and 137% ($2,303,000), respectively, as
compared to fiscal 1998 net sales and operating income. Contributing to these
decreases were delays in the introduction of new products and competitors'
aggressive pricing initiatives. See the Trends and Prospects section of this
MD&A for further explanation.
COST OF SALES
As a percentage of net sales, fiscal 1999 cost of products sold was
approximately 65%, as compared to approximately 63% in fiscal 1998. The
percentage increase was a direct result of product mix, which included a higher
percentage of lower margin products such as actuators and power distribution
systems.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Fiscal 1999 engineering and product development expenses of $7,680,000 increased
approximately 25% ($1,513,000), as compared to fiscal 1998. As a percentage of
net sales, fiscal 1999 engineering and product development expenses were 6%, as
compared to 5% in fiscal 1998. The fiscal 1999 increases were primarily related
to additional investments made by the businesses within the power supplies,
motion control systems and surge suppressors segments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1999 selling, general and administrative expenses of $23,402,000
decreased approximately 9% ($2,174,000), as compared to fiscal 1998. As a
percentage of net sales, fiscal 1999 and 1998 selling, general and
administrative expenses were approximately 19% and 22%, respectively. The fiscal
1999 decreases were primarily related to reduced marketing expenses, staff
reductions and the expiration of a profit sharing agreement during the first
half of fiscal 1998.
DEPRECIATION AND AMORTIZATION EXPENSE
Fiscal 1999 depreciation and amortization expense of $3,881,000 increased
approximately 28% ($838,000), as compared to fiscal 1998. The fiscal 1999
increase was primarily related to the depreciation of property, plant and
equipment, the amortization of computer software and the amortization of
goodwill associated with the EME and RFL acquisitions.
OTHER INCOME (EXPENSE)
Fiscal 1999 interest income increased, as compared to fiscal 1998, primarily
because of the inclusion of EME's interest income in current year results.
Fiscal 1999 interest expense increased, as compared to fiscal 1998, primarily
because of an increase in debt that resulted from the acquisitions of RFL in
fiscal 1999 and EME in fiscal 1998.
TAXES
The fiscal 1999 effective tax rate on pre-tax income was 36%, as compared to 38%
in fiscal 1998. This decrease was primarily related to net non-taxable life
insurance dividend income and a 1% decrease in the Company's effective state tax
rate, offset, in part, by a higher effective international tax rate.
10
<PAGE> 8
FISCAL 1998 COMPARED TO FISCAL 1997
Fiscal 1998 consolidated net sales of $118,212,000 increased approximately 2%
($2,525,000), as compared to fiscal 1997 consolidated net sales. Fiscal 1998 and
1997 consolidated net sales included one month of EME's net sales of $1,831,000
and nine months of Auburn's net sales of $8,489,000, respectively. Fiscal 1998
net income was $5,313,000, or a diluted $.90 per share, as compared to fiscal
1997 net income of $7,815,000, or a diluted $1.30 per share. Fiscal 1997 net
income included a gain, net of severance, facility closing, legal and other
costs, from the sale of substantially all of the assets of Auburn of $3,556,000,
or a diluted $.59 per share. If the gain is excluded from fiscal 1997 net
income, fiscal 1998 net income increased approximately 25% ($1,054,000).
The power supplies segment's fiscal 1998 net sales and operating income
increased approximately 2% ($652,000) and 41% ($1,602,000), respectively, as
compared to fiscal 1997 net sales and operating income. Contributing to these
increases were increased net sales of linear and switching power supplies, which
resulted primarily from new customer programs and increased demand, offset by
decreased net sales of uninterruptible power supplies, which resulted primarily
from competitive pricing and related pressures within the retail marketplace.
Operational efficiencies realized by the power supplies segment also contributed
to the increased operating income.
The power conditioning and distribution units segment's fiscal 1998 net
sales and operating income increased approximately 28% ($4,289,000) and 33%
($735,000), respectively, as compared to fiscal 1997 net sales and operating
income. The primary reason for these increases were increased net sales of power
conditioning and distribution units, which resulted primarily from increased
demand, and as it affected operating income, operational efficiencies realized
by this segment.
The motion control systems segment's fiscal 1998 net sales and operating
income increased approximately 43% ($4,857,000) and 41% ($400,000),
respectively, as compared to fiscal 1997 net sales and operating income. The
primary reason for the increase was increased net sales of precision motor
products, which resulted from new customer programs.
The surge suppressors segment's fiscal 1998 net sales increased slightly,
while its operating income decreased approximately 23% ($509,000), as compared
to fiscal 1997 net sales and operating income. Contributing to the decreased
operating income were competitive pricing pressures in the retail marketplace.
COST OF SALES
As a percentage of net sales, fiscal 1998 and 1997 costs of products sold were
approximately 63% and 64%, respectively. The Company continued to make
investments to improve operational efficiencies that would reduce cost of
products sold as a percentage of net sales.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Fiscal 1998 engineering and product development expenses of $6,167,000 increased
approximately 17% ($884,000), as compared to fiscal 1997. As a percentage of net
sales, fiscal 1998 and 1997 engineering and product development expenses were
approximately 5%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Fiscal 1998 selling, general and administrative expenses of $25,576,000
decreased approximately 3% ($788,000), as compared to fiscal 1997. The fiscal
1998 decrease was primarily related to decreased selling expenses. As a
percentage of net sales, fiscal 1998 selling, general and administrative
expenses were approximately 22%, as compared to 23% in fiscal 1997.
DEPRECIATION AND AMORTIZATION EXPENSE
Fiscal 1998 depreciation and amortization expense of $3,043,000 increased
approximately 13% ($343,000), as compared to fiscal 1997. The increase was
primarily related to depreciation and amortization of computer hardware and
software, respectively.
OTHER INCOME (EXPENSE)
Fiscal 1998 other income (expense) consisted entirely of interest income and
expense. Fiscal 1997 other income (expense) included the gain from the Auburn
asset sale, as well as interest income and expense. Fiscal 1998 interest income
decreased, as compared to fiscal 1997, because of less cash available for
investment. Fiscal 1998 interest expense decreased, as compared to fiscal 1997,
primarily because of a lower average debt balance.
TAXES
The fiscal 1998 effective tax rate on pre-tax income was 38%, as compared to 39%
in fiscal 1997. The fiscal 1997 effective tax rate included incremental taxes
associated with the gain realized from the Auburn asset sale.
ENVIRONMENTAL
During fiscal 1999, 1998 and 1997, investigation or remediation activities, or
both, were continued at sites owned, leased or previously utilized by the
Company. During the latter part of fiscal 1995, the New Jersey Department of
Environmental Protection ("NJDEP") required the Company to begin additional
investigation of the extent of off-site contamination at its former facility in
Wayne, New Jersey, where remediation had been underway for several years. 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; therefore, in fiscal 1996, the Company made an additional
provision of $900,000. During fiscal 1999, the Company made an additional
provision of $375,000 to cover additional costs required to complete groundwater
remediation at the Wayne, New Jersey site, as well as one other site.
11
<PAGE> 9
SL Industries, Inc.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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).
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 Directive No. 1 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 Directive No. 1 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 Directive No. 1 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 it 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 received $100,000 during fiscal 1998 and
1999 and will receive $100,000 during the fiscal years 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.
YEAR 2000
The Year 2000 issue is the result of computer programs using two digits rather
than four to define the applicable year. Computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
leading to disruptions in a company's operations.
The Company has taken actions to address and complete the work associated
with the Year 2000 issue. Each of its business units and corporate headquarters
established teams to identify and correct Year 2000 issues. Attention was given
to computer hardware and software, communications equipment, manufacturing
equipment and facilities and products sold, if any, to achieve compliance in all
these areas. The teams were also charged with investigating the Year 2000
capabilities of suppliers, customers and other external entities, and with the
development of contingency plans.
During the last three years, four of the Company's business units
implemented new enterprise software packages that their suppliers have stated
are Year 2000 compliant. A detailed accounting and assessment of all computer
systems and application software utilized throughout the Company's operations
was completed, and plans for establishing compliance were developed. These plans
identified which non-compliant hardware and software were to be remediated,
upgraded or replaced and the timetable and resource requirements to achieve
those objectives. Remediation, testing activities and development of a
contingency plan have been completed or are in the process of being completed at
each of the Company's business units and at corporate headquarters.
The Company has requested information from all its key third party vendors
on their Year 2000 readiness to determine the extent to which their failure to
remedy their own Year 2000 problems will affect the Company. In most
circumstances, the information that the Company has received from its key third
party vendors to date indicates that they will be Year 2000 compliant by the end
of 1999.
The magnitude of the Company's Year 2000 problem and the dates on which the
Company believes it will complete its Year 2000 compliance are based on
management's knowledge to date and its best estimates. The Company is not aware,
at this time, of any Year 2000 non-compliance issues related to the Company that
will not be remedied by the end of 1999, which would materially affect the
Company. However, these estimates were derived using numerous assumptions and
the Company does face some risks. These risks include an inability of gas and
electric suppliers and telecommunications carriers to supply their services.
There can be no assurance that these estimates will be achieved and actual
results could differ from those anticipated.
The Company does not expect Year 2000 spending to materially affect
consolidated profitability or liquidity. This expectation assumes that its
existing forecast of costs to be incurred contemplates all significant actions
required, and that the Company will not be obligated to incur significant Year
2000 related costs on behalf of its customers or suppliers.
12
<PAGE> 10
TRENDS AND PROSPECTS
With the exception of the Company's surge suppressors segment, all of the
Company's remaining operating segments are profitable and are expected to remain
so. The surge suppressors segment's underperformance during the fourth quarter
of fiscal 1999 had an adverse affect on the Company's fourth quarter results,
which was offset by the aggregate favorable performance of the remaining
operating segments. This underperformance was attributable to delays in the
introduction of new surge protection products and competitors' aggressive
pricing initiatives, which the Company anticipates will continue to adversely
affect its financial results for at least the first half of fiscal 2000, and as
a result, earnings for the first and second quarters of fiscal 2000 are likely
to be less than those reported for the same periods last year.
Aggressive actions taken that are intended to prevent future delays include
improved project management and business forecasting. The Company is improving
the surge suppressors segment's competitive position by streamlining this
segment's operations, vigorously improving process and structure, implementing
more effective cost reduction measures such as product redesign and component
sourcing, and focusing new business development on higher margin opportunities.
FORWARD-LOOKING INFORMATION
From time to time, information provided by the Company, including written or
oral statements made by its representatives, may contain forward-looking
information as defined in the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as expansion and growth of the
Company's business, future capital expenditures and the Company's prospects and
Year 2000 strategy, contain forward-looking information. In reviewing such
information, it should be kept in mind that actual results may differ materially
from those projected or suggested in such forward-looking information. This
forward-looking information is based on various factors and was derived
utilizing numerous assumptions. Many of these factors have previously been
identified in filings or statements made by or on behalf of the Company.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in the general economy, changes in consumer
spending, competitive factors and other factors affecting the Company's business
in or beyond the Company's control. These factors include changes in the rate of
inflation, changes in state or federal legislation or regulation, adverse
determinations with respect to litigation or other claims (including
environmental matters), adverse effects of failure to achieve Year 2000
compliance, the Company's ability to recruit and develop employees, its ability
to successfully implement new technology and the stability of product costs.
These factors also include, in particular, whether, and the extent to which,
certain of the Company's markets which had experienced a slowdown recover or
continue to recover. The Company's financial results will also depend on the
extent to which management is able to successfully address the operating issues
in the Company's surge suppressors segment and in the uninterruptible power
supplies portion of its power supplies segment.
Other factors and assumptions not identified above could also cause actual
results to differ materially from those set forth in the forward-looking
information. The Company does not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
information.
13
<PAGE> 11
SL Industries, Inc
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Years ended July 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales .................................................. $ 125,128,000 $ 118,212,000 $ 115,687,000
------------- ------------- -------------
Cost and expenses:
Cost of products sold .................................... 80,957,000 74,646,000 74,085,000
Engineering and product development ...................... 7,680,000 6,167,000 5,283,000
Selling, general and administrative expenses ............. 23,402,000 25,576,000 26,364,000
Depreciation and amortization ............................ 3,881,000 3,043,000 2,700,000
------------- ------------- -------------
Total cost and expenses .................................... 115,920,000 109,432,000 108,432,000
------------- ------------- -------------
Income from operations ..................................... 9,208,000 8,780,000 7,255,000
Other income (expense):
Gain on disposition of subsidiary ........................ -- -- 5,888,000
Interest income .......................................... 272,000 214,000 301,000
Interest expense ......................................... (993,000) (427,000) (680,000)
------------- ------------- -------------
Income before income taxes ................................. 8,487,000 8,567,000 12,764,000
Provision for income taxes ................................. 3,081,000 3,254,000 4,949,000
------------- ------------- -------------
Net income ................................................. $ 5,406,000 $ 5,313,000 $ 7,815,000
============= ============= =============
Basic net income per common share .......................... $ .96 $ .95 $ 1.35
============= ============= =============
Diluted net income per common share ........................ $ .92 $ .90 $ 1.30
============= ============= =============
Shares used in computing basic net income per common share . 5,643,000 5,598,000 5,776,000
============= ============= =============
Shares used in computing diluted net income per common share 5,876,000 5,897,000 6,021,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
SL Industries, Inc
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income .............................................. $ 5,406,000 $ 5,313,000 $ 7,815,000
Other comprehensive income:
Currency translation adjustment, net of related taxes (31,000) 80,000 --
----------- ----------- -----------
Comprehensive income .................................... $ 5,375,000 $ 5,393,000 $ 7,815,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
14
<PAGE> 12
SL Industries, Inc
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
July 31, 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 71,000 $ --
Receivables, less allowances
of $1,985,000 and $2,045,000, respectively ......................... 23,663,000 18,886,000
Inventories .......................................................... 26,151,000 18,538,000
Prepaid expenses ..................................................... 1,069,000 972,000
Deferred income taxes ................................................ 3,033,000 3,014,000
------------- -------------
Total current assets ........................................... 53,987,000 41,410,000
------------- -------------
Property, plant and equipment, net ..................................... 21,416,000 13,977,000
Assets held for future sale ............................................ -- 913,000
Long-term note receivable .............................................. 2,167,000 2,201,000
Deferred income taxes .................................................. 1,813,000 1,865,000
Cash surrender value of life insurance policies ........................ 9,592,000 8,657,000
Intangible assets, net ................................................. 22,350,000 10,705,000
Other assets ........................................................... 1,361,000 1,187,000
------------- -------------
Total assets ................................................... $ 112,686,000 $ 80,915,000
============= =============
LIABILITIES
Current liabilities:
Debt due within one year ............................................. $ 1,095,000 $ 727,000
Accounts payable ..................................................... 12,085,000 5,982,000
Accrued income taxes ................................................. 1,220,000 2,105,000
Accrued liabilities:
Payroll and related costs .......................................... 5,405,000 4,851,000
Other .............................................................. 9,370,000 6,401,000
------------- -------------
Total current liabilities ...................................... 29,175,000 20,066,000
------------- -------------
Long-term debt less portion due within one year ........................ 31,984,000 13,283,000
Deferred compensation and supplemental retirement benefits ............. 5,486,000 4,667,000
Other liabilities ...................................................... 3,199,000 4,554,000
------------- -------------
Total liabilities .............................................. $ 69,844,000 $ 42,570,000
------------- -------------
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, 1999 - 8,240,000 shares, 1998 - 8,153,000 shares ............. 1,648,000 1,631,000
Capital in excess of par value ......................................... 36,932,000 36,061,000
Retained earnings ...................................................... 19,374,000 14,476,000
Accumulated other comprehensive income ................................. 49,000 80,000
Treasury stock at cost, 1999 - 2,608,000 shares, 1998 - 2,546,000 shares (15,161,000) (13,903,000)
------------- -------------
Total shareholders' equity ..................................... $ 42,842,000 $ 38,345,000
------------- -------------
Total liabilities and shareholders' equity ..................... $ 112,686,000 $ 80,915,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
15
<PAGE> 13
SL Industries, Inc
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------
Accumulated
Issued Held in Treasury Capital in Other
---------------------- -------------------------- Excess of Retained Comprehensive
Shares Amount Shares Amount Par Value Earnings Income
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance August 1, 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 --
Net income .......................... 5,313,000
Cash dividends, $.08 per share ...... (445,000)
Other, including exercise of
employee stock options and
related income tax benefits ....... 195,000 39,000 1,366,000 1,000
Treasury stock purchased ............ (405,000) (4,501,000)
Current year translation adjustment . 80,000
------------------------------------------------------------------------------------------
Balance July 31, 1998 ............... 8,153,000 1,631,000 (2,546,000) (13,903,000) 36,061,000 14,476,000 80,000
Net income .......................... 5,406,000
Cash dividends, $.09 per share ...... (507,000)
Other, including exercise of
employee stock options and
related income tax benefits ....... 87,000 17,000 373,000 (1,000)
Treasury stock sold.................. 71,000 390,000 498,000
Treasury stock purchased ............ (133,000) (1,648,000)
Current year translation adjustment . (31,000)
------------------------------------------------------------------------------------------
BALANCE JULY 31, 1999 ............... 8,240,000 $ 1,648,000 (2,608,000) $(15,161,000) $36,932,000 $19,374,000 $ 49,000
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
16
<PAGE> 14
SL Industries, Inc
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years ended July 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................... $ 5,406,000 $ 5,313,000 $ 7,815,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ..................................................... 2,643,000 2,023,000 1,889,000
Amortization ..................................................... 1,262,000 1,020,000 811,000
Provisions for losses on accounts receivable ..................... (90,000) 52,000 63,000
Additions to other assets ........................................ (1,223,000) (1,366,000) (820,000)
Cash surrender value of life insurance premiums .................. (753,000) (656,000) (534,000)
Deferred compensation and supplemental retirement benefits ....... 852,000 1,158,000 942,000
Deferred compensation and supplemental retirement benefit payments (620,000) (611,000) (499,000)
Decrease (Increase) in deferred income taxes ..................... (729,000) 731,000 (1,454,000)
Gain on the sale of equipment .................................... (13,000) (13,000) (23,000)
Discontinued product line expenses ............................... (141,000) (168,000) (143,000)
Gain on disposition of subsidiary ................................ -- -- (5,888,000)
Changes in operating assets and liabilities, net of the effect of
acquisitions and disposition:
Receivables .................................................... 1,023,000 2,495,000 (3,073,000)
Inventories .................................................... (1,268,000) 1,068,000 (1,718,000)
Prepaid expenses ............................................... 81,000 181,000 135,000
Accounts payable ............................................... 727,000 (3,588,000) 3,633,000
Accrued liabilities ............................................ (2,129,000) (1,978,000) 2,025,000
Accrued income taxes ........................................... (734,000) 960,000 105,000
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................... $ 4,294,000 $ 6,621,000 $ 3,266,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment ................. 920,000 18,000 29,000
Purchases of property, plant and equipment ........................... (2,688,000) (2,756,000) (2,097,000)
Proceeds from note receivable ........................................ 32,000 32,000 74,000
Payments for acquisitions, net of cash acquired ...................... (19,082,000) (10,928,000) (823,000)
Proceeds from disposition of subsidiary .............................. -- -- 12,216,000
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ............ $(20,818,000) $(13,634,000) $ 9,399,000
------------ ------------ ------------
FINANCING ACTIVITIES:
Cash dividends paid .................................................. (507,000) (445,000) (405,000)
Proceeds from short-term debt ........................................ 21,863,000 -- --
Proceeds from long-term debt ......................................... 33,878,000 17,550,000 2,200,000
Payments on short-term debt .......................................... (21,012,000) -- --
Payments on long-term debt ........................................... (17,395,000) (6,722,000) (14,740,000)
Proceeds from stock options exercised ................................ 476,000 1,118,000 280,000
Treasury stock acquired .............................................. (760,000) (4,501,000) --
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............ $ 16,543,000 $ 7,000,000 $(12,665,000)
------------ ------------ ------------
Effect of exchange rate changes on cash .............................. $ 52,000 $ 13,000 $ --
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... 71,000 -- --
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......................... -- -- --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT YEAR END .................................. $ 71,000 $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
17
<PAGE> 15
SL Industries, Inc
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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.
The investment in the more than 20% owned affiliate is accounted for by using
the equity method.
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, patents and a consulting agreement. The goodwill
resulting from the fiscal 1999 and 1998 acquisitions and the goodwill and
trademarks resulting from the May 1995 acquisition are being amortized over 30
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. The consulting
agreement is being amortized over ten years. 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. If impairment exists, measurement of the impairment will
be based on the valuation method which management believes most closely
approximates the fair value of the intangible asset.
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, 1999, 1998 and 1997, these costs were $1,739,000,
$2,128,000 and $2,287,000, respectively.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred. For the fiscal years ended July 31, 1999, 1998 and 1997, these costs
were $2,165,000, $1,756,000 and $1,405,000, 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 Mexican 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
Mexican subsidiaries' functional currency is U.S. dollars. Gains or losses
resulting from these foreign currency conversions are included in the
accompanying consolidated statements of earnings. Since the functional currency
for the Company's German subsidiary is its local currency, the translation from
the local currency to U.S. dollars is performed for balance sheet accounts using
the current exchange rate in effect at the balance sheet date and for earnings
using the monthly weighted average exchange rate during the period. Gains or
losses resulting from such translation are included in a separate component of
stockholders' equity. A foreign currency loan is used to hedge the value of the
investment in the German subsidiary. Gains and losses on the translation of this
foreign currency loan to U.S. dollars is generally not included in the income
statement but is shown in a separate component of stockholders' equity.
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: 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 adopted 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
18
<PAGE> 16
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 computed by dividing reported earnings available to
common shareholders by weighted average shares outstanding plus the effect of
outstanding dilutive stock options, using the treasury method.
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, 1998 and 1999.
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 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 its fiscal year ended
July 31, 1999. 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. The Company adopted SFAS No. 130,
effective August 1, 1998.
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 its July 31, 1999, financial statements. SFAS No. 131
establishes standards for the reporting of information about operating segments
in interim and annual financial statements. The Company adopted SFAS No. 131 for
its July 31, 1999, financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 "Employers" Disclosures about Pensions
and Other Postretirement Benefits ("SFAS No. 132")", which the Company is
required to adopt for annual periods beginning after December 15, 1997. SFAS No.
132 establishes new standards for disclosing pension and other postretirement
benefits in financial statements.
RECLASSIFICATIONS: Reclassifications, when applicable, are made to the prior
year consolidated financial statements to conform with current year
presentation.
NOTE 2. ACQUISITIONS AND DISPOSITIONS
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.
On July 10, 1998, pursuant to a Purchase Agreement dated June 30, 1998, the
Company, through its wholly-owned subsidiary formed solely for such purpose, SL
Industries Vertrieb, GmbH, a German Corporation, acquired 100% of the issued and
outstanding Common Shares of Elektro-Metall Export GmbH ("EME"), a German
Corporation. The Company paid $9,500,000 in cash at closing. EME is a leading
German based designer and manufacturer of power quality products.
The acquisition was accounted for using the purchase method; therefore, the
aggregate purchase price has been allocated to the net assets acquired based on
their respective fair values at date of acquisition. The excess of the aggregate
purchase price over the fair value of net tangible assets acquired of $2,589,000
has been allocated to goodwill and is being amortized on a straight-line basis
over 30 years. The results of operations of EME, since the acquisition date, are
included in the accompanying consolidated financial statements.
On May 11, 1999, pursuant to a Share Purchase Agreement dated April 1,
1999, the Company acquired 100% of the issued and outstanding shares of capital
stock of RFL Electronics Inc. ("RFL"). The Company paid $11,387,000 in cash and
gave promissory notes with an aggregate face amount of $75,000, which bear
simple interest at a rate of 5.5% per annum, at closing. In addition, the
Company paid a contingent payment of $1,000,000 based upon the financial
performance of RFL for its fiscal year ended March 31, 1999. RFL is a leading
supplier of teleprotection and specialized communication equipment.
The acquisition was accounted for using the purchase method; therefore, the
aggregate purchase price has been allocated to the net assets acquired based on
their respective fair values at date of acquisition. The excess of the aggregate
purchase price over the fair value of net tangible assets acquired of $5,838,000
has been allocated to goodwill and is being amortized on a straight-line basis
over 30 years. The results of operations of RFL, since the acquisition date, are
included in the accompanying consolidated financial statements.
19
<PAGE> 17
SL Industries, Inc
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 27, 1999, pursuant to an Asset Purchase Agreement dated July 13,
1999, Condor D.C. Power Supplies, Inc., a wholly-owned subsidiary of the
Company, acquired certain of the net operating assets of Todd Products
Corporation and Todd Power Corporation (together, "Todd Products"). The Company
paid $7,430,000; $3,700,000 in cash and assumption of debt equal to
approximately $3,730,000. There is also a contingent "earn-out" payment of
either $1,000,000, $3,000,000 or $5,000,000, payable in the event that sales
from the purchased assets are at least $30,000,000, $35,000,000 or $40,000,000,
respectively, during the twelve-month period ending March 31, 2001. Condor also
entered into a ten-year Consulting Agreement with the Chief Executive Officer of
Todd Products for an aggregate amount of $1,275,000 which will be paid in
quarterly installments over the next three years. Todd Products is a leading
supplier of high quality power supplies to the datacom, telecommunications and
computer industries.
The acquisition will be accounted for using the purchase method, however,
the aggregate purchase price has not been allocated to the net assets acquired
since an appraisal covering their respective fair values at date of acquisition
has not been finalized.
Unaudited pro forma consolidated results of operations, which included a
$3,556,000 after-tax gain from the sales of substantially all of the assets of
SL Auburn, Inc. in fiscal 1997, as though the Company acquired RFL on August 1
of fiscal 1999 and 1998 and EME on August 1 of fiscal 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
---------------- ----------------- ----------------
1999 1998 1997
---------------- ----------------- ----------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . $141,376 $156,440 $140,974
Net income . . . . . . . . . . . . . . $5,872 $5,939 $8,769
Basic net income per common share. . . $1.04 $1.06 $1.52
Diluted net income per common share. . $1.00 $1.01 $1.46
</TABLE>
The unaudited pro forma consolidated results of operations include the
amortization of goodwill, and additional interest and depreciation expense as if
these acquisition related expenses had been incurred from the beginning of the
respective periods. 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 beginning of the respective periods, or of
results which may occur in the future.
NOTE 3. INCOME TAXES
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
--------------------------------------
1999 1998(1) 1997(1)
--------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . $1,648 $2,454 $5,060
International . . . . . . . . . . 890 188 228
State . . . . . . . . . . . . . . 409 521 1,115
Deferred:
Federal . . . . . . . . . . . . . 118 36 (1,182)
International . . . . . . . . . . 1 - -
State . . . . . . . . . . . . . . 15 55 (272)
------ ------ ------
$3,081 $3,254 $4,949
====== ====== ======
</TABLE>
(1) Reclassified to conform with current year's presentation.
Foreign income before income taxes was $1,973,000, $328,000 and $443,000
for the years ended July 31, 1999, 1998 and 1997, respectively.
Significant components of the Company's deferred tax assets and liabilities
at July 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
-----------------------
1999 1998
-----------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Deferred compensation. . . . . . . $2,207 $1,883
Liabilities related to
discontinued product line. . . . 265 313
Liabilities related to
environmental matters. . . . . . 311 145
Inventory valuation. . . . . . . . 927 615
Prepaid and accrued expenses . . . 2,561 3,306
Other. . . . . . . . . . . . . . . - 17
------ ------
6,271 6,279
Deferred tax liabilities:
Accelerated depreciation and
amortization . . . . . . . . . . 1,402 1,400
Other. . . . . . . . . . . . . . . 23 -
------ ------
$4,846 $4,879
====== ======
</TABLE>
Following is a reconciliation between the amount of income tax expense at
the applicable federal statutory rate and the effective rates:
<TABLE>
<CAPTION>
-----------------------------------
1999 1998(1) 1997(1)
-----------------------------------
<S> <C> <C> <C>
U.S. . . . . . . . . . . . . . . . . 34% 34% 34%
Tax rate differential on Foreign
Sales Corporation earnings. . . . . (1) (1) -
International rate differences. . . . 2 1 1
State income taxes, net of
federal income tax benefit. . . . . 3 4 4
Other . . . . . . . . . . . . . . . . (2) - -
-- -- --
36% 38% 39%
== == ==
</TABLE>
(1) Reclassified to conform with current year's presentation.
20
<PAGE> 18
Note 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.
Note 5 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
--------------------------
1999 1998
--------------------------
(In thousands)
<S> <C> <C>
Raw materials . . . . . . . . . $16,395 $10,543
Work in process . . . . . . . . 4,336 3,611
Finished goods . . . . . . . . . 5,420 4,384
------- -------
$26,151 $18,538
======= =======
</TABLE>
The above includes certain inventories, which are valued using the LIFO
method, which aggregated $3,384,000 and $3,009,000 at July 31, 1999 and 1998,
respectively. The excess of FIFO cost over LIFO cost at July 31, 1999 and 1998,
was approximately $639,000 and $455,000, respectively.
Note 6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
--------------- ----------------
1999 1998
--------------- ----------------
(In thousands)
<S> <C> <C>
Land . . . . . . . . . . . . . . . $ 4,359 $ 3,553
Buildings and leasehold
improvements . . . . . . . . . . 11,010 5,622
Equipment and other property . . . 25,150 16,844
------ ------
40,519 26,019
Less accumulated depreciation. . . 19,103 12,042
------ ------
$21,416 $13,977
======= =======
</TABLE>
"Assets held for future sale" at July 31, 1998, are not included above and
relate to assets remaining after the 1989 relocation of a power and data quality
operation. The assets, which were sold during fiscal 1999, consisted primarily
of land, building and building improvements which were being leased to a third
party. The building and building improvements were being depreciated and
accounted for as an operating lease. Aggregate accumulated depreciation for the
building and building improvements at July 31, 1998, was $527,000. Aggregate
minimum rental income for fiscal 1999 and 1998 was $42,000 and $131,000,
respectively.
Note 7 INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
--------------------------
1999 1998
--------------------------
(In thousands)
<S> <C> <C>
Patents . . . . . . . . . . . . . . $ 895 $ 895
Covenants not to compete and
consulting agreement . . . . . . 4,255 2,980
Goodwill . . . . . . . . . . . . . 19,331 8,204
Trademarks . . . . . . . . . . . . 920 920
Other . . . . . . . . . . . . . . . 503 398
------- -------
25,904 13,397
Less accumulated amortization . . . 3,554 2,692
------- -------
$22,350 $10,705
======= =======
</TABLE>
The fiscal 1999 increase in goodwill included $5,838,000 and $4,422,000
from the RFL and Todd Products acquisitions, respectively (see Note 2 for
additional information about the acquisitions) and also included $673,000 from
the payment of additional purchase price as required by the May 1, 1995 Asset
Purchase Agreement between the Company and Teal Electronics Corporation. The
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.
The fiscal 1999 Consulting Agreement in the amount of $1,275,000 that
covers a period of ten years was acquired as part of the Todd Products
acquisition. The Agreement provides for twelve quarterly payments that began on
July 27, 1999.
21
<PAGE> 19
SL Industries, Inc
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
----------------------------
1999 1998
----------------------------
(In thousands)
<S> <C> <C>
Note payable . . . . . . . . . . . . . $ 75 $ 557
Mortgages payable . . . . . . . . . . . 780 465
Revolving lines of credit . . . . . . . 30,307 12,926
Term loan . . . . . . . . . . . . . . . 1,917 -
Other . . . . . . . . . . . . . . . . . - 62
------- -------
33,079 14,010
Less portion due within one year . . . 1,095 727
------- -------
$31,984 $13,283
======= =======
</TABLE>
On July 31, 1998, the Company's German subsidiary had a note payable at an
interest rate of 4.5% that was paid during fiscal 1999 and on July 31, 1999 and
1998, mortgages payable on building additions, which have fixed interest rates
of 3.95% and 4.75% and require principal repayments through 2002 and 2004.
On July 16, 1999, the Company amended its revolving credit agreement with
its participating banks to increase the amount of its credit facility from
$25,000,000 to $40,000,000. Under the terms of this agreement, which expires on
October 31, 2001, 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, 1999, the Company is in
compliance with the above covenants. In lieu of compensating balances, the
Company pays commitment fees as defined under the agreement. The Company's
German subsidiary also has $5,202,000 in lines of credit with its banks. Under
the terms of its lines of credit, the subsidiary can borrow for any purpose at
interest rates of 3.7% to 6.125%. No financial covenants are required.
Principal maturities of debt payable over the next five years are
$1,095,000 in 2000, $207,000 in 2001, $31,618,000 in 2002, $99,000 in 2003 and
$60,000 in 2004.
Note 9 RETIREMENT PLANS AND DEFERRED COMPENSATION
The Company maintains three 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, plan year gross wages, as defined. The
power conditioner and electric utility equipment protection subsidiaries'
contributions to its plans are based on a percentage of employee elective
contributions and the electric utility equipment protection subsidiary makes a
profit sharing contribution annually. 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 1999, 1998 and 1997 amounted to
approximately $788,000, $671,000 and $531,000, 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 $60,000,
$64,000 and $55,000 in 1999, 1998 and 1997, 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 6%, 8%, 10% and 12%. The amount
charged to income in connection with these agreements amounted to $438,000,
$456,000 and $491,000 in 1999, 1998 and 1997, 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 $414,000, $702,000 and $451,000 in 1999, 1998 and 1997,
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, 1999, the aggregate death benefit totaled
$17,403,000 with the corresponding cash surrender value totaling $9,592,000. At
July 31, 1999, certain agreements may restrict the Company from utilizing cash
surrender value totaling $2,193,000 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 $354,000, $261,000 and $257,000 in 1999, 1998 and 1997,
respectively.
22
<PAGE> 20
Note 10 COMMITMENTS AND CONTINGENCIES
For the fiscal years ended July 31, 1999, 1998 and 1997, rental expense
applicable to operations aggregated $1,850,000, $1,701,000 and $1,602,000,
respectively. These expenses are primarily for facilities and vehicles. The
minimum rental commitments as of July 31, 1999, are as follows:
<TABLE>
<S> <C>
(In thousands)
2000 . . . . . . . $1,820
2001 . . . . . . . 1,460
2002 . . . . . . . 1,227
2003 . . . . . . . 480
2004 . . . . . . . 217
Thereafter . . . . 26
------
$5,230
======
</TABLE>
At July 31, 1999, the Company was contingently liable for $1,209,000, under
outstanding letters of credit issued for inventory purchases from foreign
suppliers, casualty insurance requirements and settlement of a civil lawsuit.
In the ordinary course of its business, the Company is subject to loss
contingencies pursuant to foreign and domestic federal, state and local
governmental laws and regulations and is also party to certain legal actions,
most frequently complaints by terminated employees. It is management's opinion
that the impact of these legal actions will not have a material affect on the
consolidated financial position or results of operations of the Company.
Loss contingencies include potential obligations to investigate and
eliminate or mitigate the affects on the environment of the disposal or release
of certain chemical substances at various sites, such as Superfund sites and
other facilities, whether or not they are currently in operation. The Company is
currently participating in environmental assessments and cleanups at a number of
sites under these laws and may in the future be involved in additional
environmental assessments and cleanups. Based upon investigations completed by
the Company and its independent engineering consulting firm to date, management
has provided an estimated accrual for all known costs believed to be probable.
However, it is in the nature of environmental contingencies that other
circumstances might arise, the costs of which are indeterminable at this time
due to such factors as changing government regulations and stricter standards,
the unknown magnitude of defense and cleanup costs, the unknown timing and
extent of the remedial actions that may be required, the determination of the
Company's liability in proportion to other responsible parties, and the extent,
if any, to which such costs are recoverable from other parties or from
insurance. Although these contingencies could result in additional expenses or
judgments, or off-sets thereto, at present such expenses or judgments are not
expected to have a material affect on the Company's consolidated financial
position or results of operations.
In the fourth quarter of fiscal year 1990, the Company made a provision of
$3,500,000 to cover various such environmental costs for six locations, based
upon estimates prepared at that time by the independent engineering consulting
firm. In fiscal 1991, 1996 and 1999, the Company made additional provisions of
$480,000, $900,000 and $375,000, 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 had been underway. 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. From fiscal 1993 through 1999 the Company incurred environmental
related capital expenditures of approximately $618,000.
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
2000 and 2001, as stipulated in the settlement agreement negotiated with one of
the three insurers. At July 31, 1999 and 1998, the remaining environmental
accrual was $817,000 and $678,000, respectively, of which $350,000 and $250,000,
respectively, have been included in "Accrued Liabilities" and $467,000 and
$428,000, respectively, in "Other Liabilities" in the accompanying consolidated
balance sheets.
23
<PAGE> 21
SL Industries, Inc
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 STOCK OPTIONS AND CAPITAL STOCK
At the Company's 1993 Annual Meeting, the shareholders approved a Nonemployee
Director Nonqualified Stock Option Plan (the "Director Plan"), which was
effective June 1, 1993. The Director Plan provides for the granting of
nonqualified options to purchase up to 250,000 shares of the Company's Common
Stock to nonemployee directors of the Company in lieu of paying quarterly
retainer fees and regular quarterly meeting attendance fees, when elected. The
Director Plan enables the Company to grant options, with an exercise price per
share not less than fair market value of the Company's Common Stock on the date
of grant, which are exercisable at any time. Each option granted under the
Director Plan expires no later than ten years from date of grant and no options
can be granted under the Director Plan after its May 31, 2003, expiration date.
Information for the years 1997, 1998 and 1999 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, 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
Granted . . . . . . . . . . . . . . . 22 $10.1875 to $14.625
Exercised . . . . . . . . . . . . . . (71) $3.5625 to $12.0313
Outstanding and exercisable
at July 31, 1998. . . . . . . . . . 54 $3.5625 to $14.625
Granted . . . . . . . . . . . . . . . 20 $11.1563 to $14.625
Cancelled . . . . . . . . . . . . . . (6) $12.0313 to $14.625
OUTSTANDING AND EXERCISABLE
AT JULY 31, 1999. . . . . . . . . . 68 $3.5625 TO $14.625
</TABLE>
As of July 31, 1999, 1998 and 1997, the number of shares available for
grant were 96,000, 110,000 and 133,000, 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. At the 1998 Annual Meeting,
the shareholders approved an amendment to increase the number of shares subject
to options under the 1991 Plan from 922,650 to 1,522,650. The 1991 Plan enables
the Company to grant either nonqualified options, with an exercise price per
share established by the Board's Compensation Committee, or incentive stock
options, with an exercise price per share not less than the fair market value of
the Company's Common Stock on the date of grant, which are exercisable at any
time. Each option granted under the 1991 Plan expires no later than ten years
from date of grant and no options can be granted under the 1991 Plan after its
September 25, 2001, expiration date. Information for the years 1997, 1998 and
1999 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, 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
Granted . . . . . . . . . . . . . . . 189 $11.00 to $14.5625
Exercised . . . . . . . . . . . . . . (90) $3.25 to $11.00
Cancelled . . . . . . . . . . . . . . (25) $4.25 to $11.00
Outstanding at July 31, 1998. . . . . 422 $3.25 to $14.5625
Granted . . . . . . . . . . . . . . . 174 $11.125 to $12.875
Exercised . . . . . . . . . . . . . . (63) $3.25 to $11.125
Cancelled . . . . . . . . . . . . . . (24) $9.375 to $11.125
OUTSTANDING AT JULY 31, 1999. . . . . 509 $3.25 TO $14.5625
</TABLE>
The number of shares exercisable at July 31, 1999 and 1998, were 281,000
and 244,000, respectively. As of July 31, 1999, 1998 and 1997, the number of
shares available for grant were 668,000, 217,000 and 381,000, respectively.
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 to the Chief Executive Officer of the Company. 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 with an expiration date of November 30, 1998. Options for
25,100 and 24,900 shares were exercised during fiscal 1998 and 1999,
respectively. In fiscal 1996, an option to purchase 50,000 shares was granted to
a subsidiary officer at an option price of $8.375 and was 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. Options for 8,000 shares were exercised
during fiscal 1998. 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 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
24
<PAGE> 22
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 1999, 1998 and 1997 as
follows:
<TABLE>
<CAPTION>
-------------------- ------------------- --------------------
1999 1998 1997
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Net income - as reported . . . . . . . $5,406,000 $5,313,000 $7,815,000
Net income - pro forma . . . . . . . . $4,799,000 $4,908,000 $7,617,000
Diluted net income per common share -
as reported . . . . . . . . . . . . $.92 $.90 $1.30
Diluted net income per common share -
pro forma . . . . . . . . . . . . . $.82 $.83 $1.27
</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>
------------------- ------------------- -------------------
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Expected dividend yield. . . . . . . . .73% .61% .98%
Expected stock price volatility. . . . 29.7% 32.7% 31.0%
Risk-free interest rate. . . . . . . . 5.0% 6.1% 6.7%
Expected life of option. . . . . . . . 7 YEARS 7 years 7 years
</TABLE>
Transactions from August 1, 1996 through July 31, 1999, under the above
plans were as follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Weighted Life
Shares Option Price Average Remaining
(In thousands) per Share Price (Years)
<S> <C> <C> <C> <C>
Options at
August 1, 1996 . . 573 $3.25 to $10.50 $4.87 7.18
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
Granted . . . . . . 211 $10.1875 to $14.625 $11.95
Exercised . . . . . (194) $3.25 to $12.0313 $5.75
Cancelled . . . . . (25) $4.25 to $11.00 $8.65
Outstanding at
July 31, 1998. . . 653 $3.25 to $14.625 $7.67 6.73
Granted . . . . . . 194 $11.125 to $14.625 $11.60
Exercised . . . . . (88) $3.25 to $11.125 $5.44
Cancelled . . . . . (30) $9.375 to $14.625 $11.13
OUTSTANDING AT
JULY 31, 1999. . . 729 $3.25 TO $14.625 $8.85 6.71
EXERCISABLE AT
JULY 31, 1999. . . 501 $3.25 TO $14.625 $7.63
</TABLE>
The following table segregates the outstanding options at July 31, 1999,
into four ranges:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Weighted
Options Range of Option Average
Outstanding Prices Weighted Life
(In per Share Average Remaining
thousands) Price (Years)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
198 $3.25 to $4.25 $3.92 2.95
252 $4.3125 to $11.00 $9.09 7.08
200 $11.125 to $12.50 $11.48 9.12
79 $12.75 to $14.625 $13.65 8.80
--
729
===
</TABLE>
Note 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.
In accordance with Statement of Financial Accounting Standards No. 95,
Statement of Cash Flows, cash flows from EME's operations are calculated based
on their reporting currencies. As a result, amounts related to assets and
liabilities reported on the consolidated cash flows will not necessarily agree
with the translation adjustment recorded on the consolidated balance sheet. The
effect of exchange rate changes on cash balances held in foreign currencies is
reported on a separate line in the statement of cash flows.
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
------------------------------
1999 1998 1997
------------------------------
(In thousands)
<S> <C> <C> <C>
Interest paid . . . . . . . . . $950 $368 $735
Income taxes paid . . . . . . . $3,208 $2,225 $6,431
</TABLE>
Non-cash investing and financing activities:
During fiscal 1999, Condor acquired certain of the net operating assets of
Todd Products for $7,430,000. In conjunction with the acquisition, liabilities
were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired . . . . . . $12,738,000
Cash paid . . . . . . . . . . . . . . . . $7,430,000
Liabilities assumed . . . . . . . . . . . $5,308,000
</TABLE>
During fiscal 1999 the Company acquired all of the capital stock of RFL for
$12,462,000. In conjunction with the acquisition, liabilities were assumed as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired . . . . . . $16,417,000
Cash paid for the capital stock . . . . . $12,387,000
Liabilities assumed . . . . . . . . . . . $5,166,000
</TABLE>
During fiscal 1998, the Company acquired all of the capital stock of EME
for $9,500,000. In conjunction with the acquisition, liabilities were assumed as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired . . . . . . $15,729,000
Cash paid for the capital stock . . . . . $9,500,000
Liabilities assumed . . . . . . . . . . . $6,229,000
</TABLE>
25
<PAGE> 23
SL Industries, Inc
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 INDUSTRY SEGMENTS
Under the disclosure requirements of SFAS 131, the Company classifies its
operations into the following six business segments: Power Supplies, Power
Conditioning and Distribution Units ("PCDUs"), Motion Control Systems, Electric
Utility Equipment Protection Systems, Surge Suppressors and Other. The power
supplies segment designs and manufactures a wide range of standard and custom
power supply products which convert AC to DC power which is the electrical
current used to operate customers' end products. Uninterruptible power supplies
that provide back-up power in the event of a power failure are also designed and
manufactured by this segment. The power conditioning and distribution units
segment designs and manufactures customized PCDUs and wiring systems which
provide voltage conversion and stabilization, system control, power distribution
for aerospace passenger entertainment units and automotive applications. The
motion control systems' segment designs and manufactures intelligent, high power
density, precision motors and actuators for both commercial and military
aerospace applications. The electric utility equipment protection systems'
segment designs and manufactures teleprotection products/systems that are used
to protect electric-utility transmission lines and apparatus by isolating faulty
transmission lines from a transmission grid. The surge suppressors segment
designs and manufactures products to protect electrical equipment from damage or
destruction due to sudden power surges. The other segment includes corporate
related items not allocated to reportable segments and the results of
insignificant operations. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies (see Note 1
for additional information). The Company's reportable segments are managed
separately because each offers different products and services and requires
different marketing strategies.
The segments' operations are conducted through domestic and foreign
subsidiaries. During fiscal 1999, 1998 and 1997, sales between segments were not
material. No single customer accounts for more than 10% of consolidated net
sales.
<TABLE>
<CAPTION>
--------------------------------------------
1999 1998(1) 1997(1)
--------------------------------------------
(In thousands)
<S> <C> <C> <C>
NET SALES
Power Supplies. . . . . . . $ 33,669 $ 36,711 $ 36,059
PCDUs . . . . . . . . . . . 24,906 19,707 15,418
Motion Control Systems. . . 23,476 16,100 11,243
Electric Utility Equipment
Protection Systems. . . . 5,274 - -
Surge Suppressors . . . . . 33,041 41,513 41,132
Other (2) . . . . . . . . . 4,762 4,181 11,835
============= =============== ==============
Consolidated. . . . . . . . $125,128 $118,212 $115,687
============= =============== ==============
OPERATING INCOME
Power Supplies. . . . . . . $ 5,723 $5,556 $3,954
PCDUs . . . . . . . . . . . 2,710 2,992 2,257
Motion Control Systems. . . 2,345 1,365 965
Electric Utility Equipment
Protection Systems. . . . 510 - -
Surge Suppressors . . . . . (624) 1,679 2,188
Other . . . . . . . . . . . (1,456) (2,812) (2,109)
------------- --------------- --------------
Total . . . . . . . . . . 9,208 8,780 7,255
Gain on disposition . . . . - - 5,888
Interest income . . . . . . 272 214 301
Interest expense. . . . . . (993) (427) (680)
============= =============== ==============
Consolidated income
before income taxes . . . $8,487 $8,567 $12,764
============= =============== ==============
IDENTIFIABLE ASSETS
Power Supplies. . . . . . . $26,317 $11,580 $12,260
PCDUs . . . . . . . . . . . 17,640 16,642 9,914
Motion Control Systems. . . 18,046 16,722 6,445
Electric Utility Equipment
Protection Systems. . . . 17,300 - -
Surge Suppressors . . . . . 13,147 12,674 16,877
Other . . . . . . . . . . . 20,236 23,296 21,308
============= =============== ==============
Consolidated. . . . . . . . $112,686 $80,915 $66,804
============= =============== ==============
CAPITAL EXPENDITURES (3)
Power Supplies. . . . . . . $ 273 $ 375 $ 380
PCDUs . . . . . . . . . . . 444 408 433
Motion Control Systems. . . 894 789 215
Electric Utility Equipment
Protection Systems. . . . 151 - -
Surge Suppressors . . . . . 714 652 663
Other . . . . . . . . . . . 212 532 406
============= =============== ==============
Consolidated. . . . . . . . $2,688 $2,756 $2,097
============= =============== ==============
</TABLE>
26
<PAGE> 24
<TABLE>
<CAPTION>
1999 1998(1) 1997(1)
---------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
DEPRECIATION AND
AMORTIZATION
Power Supplies. . . . . . . $ 750 $ 571 $ 675
PCDUs . . . . . . . . . . . 1,124 931 626
Motion Control Systems. . . 670 341 196
Electric Utility Equipment
Protection Systems. . . . 169 - -
Surge Suppressors . . . . . 714 739 619
Other . . . . . . . . . . . 454 461 584
============= =============== ==============
Consolidated. . . . . . . . $3,881 $3,043 $2,700
============= =============== ==============
</TABLE>
(1) Reclassified to conform with current year's presentation.
(2) Fiscal 1997 includes nine months net sales of SL Auburn, Inc.
(3) Excludes assets acquired in business combinations.
Financial information relating to the Company's segments by geographic area
is as follows:
<TABLE>
<CAPTION>
----------- ------------ ------------
1999 1998 1997
----------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
NET SALES (1)
United States . . . . . . . $99,182 $110,926 $108,212
Germany . . . . . . . . . . 14,917 1,531 -
Other Foreign . . . . . . . 11,029 5,755 7,475
=========== ============ ============
Consolidated. . . . . . . . $125,128 $118,212 $115,687
=========== ============ ============
LONG-LIVED ASSETS
United States . . . . . . . $31,805 $14,487 $13,750
Germany . . . . . . . . . . 9,639 9,881 -
Other Foreign . . . . . . . 2,322 1,227 1,098
=========== ============ ============
Consolidated. . . . . . . . $43,766 $25,595 $14,848
=========== ============ ============
</TABLE>
(1) Net sales are attributed to countries based on location of customer.
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, 1999 and 1998, and the related consolidated
statements of earnings, comprehensive income, shareholders' equity and cash
flows for each of the three years in the period ended July 31, 1999. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1999, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, PA
September 10, 1999
27
<PAGE> 25
SL INDUSTRIES, INC.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Quarter Ended
---------------------------------------------------------------------------------------------
October 31, January 31, April 30, July 31,
---------------------------------------------------------------------------------------------
1998 1997 1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $30,247 $29,455 $29,084 $28,559 $30,474 $29,340 $35,323 $30,858
Gross margin $10,335 $10,491 $ 9,654 $10,096 $10,539 $10,635 $11,792 $10,981
Income before income taxes $ 1,991 $ 1,893 $ 1,941 $ 2,023 $ 2,382 $ 2,249 $ 2,173 $ 2,402
Net income $ 1,213 $ 1,182 $ 1,329 $ 1,225 $ 1,402 $ 1,405 $ 1,462 $ 1,501
Diluted net income per common share $ 0.21 $ 0.20 $ 0.22 $ 0.21 $ 0.24 $ 0.24 $ 0.25 $ 0.25
</TABLE>
28
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
State or other
Jurisdiction of
Subsidiaries Incorporation
- ------------ -------------
Cedar Corporation Nevada
Cedro de Mexico, S.A. De C.V. Mexico
Condor D.C. Power Supplies, Inc. California
Elecktro-Metall Export GmbH Germany
Industrias SL, S.A. de C.V Mexico
PDQ Corporation New Jersey
RFL Electronics Inc. Delaware
SL Ameritech Plastics, Inc. New York
SL Auburn, Inc. (a) New York
SL Delaware, Inc. Delaware
SL Industries Deutschland GmbH Germany
SL Industries Holding GmbH Germany
SL Industries Vertrieb GmbH Germany
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
All of the registrant's subsidiaries are included in the consolidated
financial statements for the year ended July 31, 1999.
- -------------------------
(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
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports incorporated by reference or included in this Form 10-K, into the
Company's previously filed Registration Statement File Nos. 33-53274, 33-63681,
33-65445, 33-00269 and 333-73407.
/s/ Arthur Andersen LLP
Philadelphia, PA
October 29, 1999
<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-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 71
<SECURITIES> 0
<RECEIVABLES> 25,648
<ALLOWANCES> 1,985
<INVENTORY> 26,151
<CURRENT-ASSETS> 53,987
<PP&E> 40,519
<DEPRECIATION> 19,103
<TOTAL-ASSETS> 112,686
<CURRENT-LIABILITIES> 29,175
<BONDS> 0
0
0
<COMMON> 1,648
<OTHER-SE> 42,842
<TOTAL-LIABILITY-AND-EQUITY> 112,686
<SALES> 35,323
<TOTAL-REVENUES> 35,323
<CGS> 23,061
<TOTAL-COSTS> 32,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (90)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,173
<INCOME-TAX> 711
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,462
<EPS-BASIC> .26
<EPS-DILUTED> .25
</TABLE>
