-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nx2AsWc95LtA3t0H6MmupfpwGNOqg5Vg19bT5XA2WIGxYrxjvoUUzfKOGmpSlhpg W3U1PW5jUuOznlGx4NTSlQ== 0000893220-95-000695.txt : 19951119 0000893220-95-000695.hdr.sgml : 19951119 ACCESSION NUMBER: 0000893220-95-000695 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19951030 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SL INDUSTRIES INC CENTRAL INDEX KEY: 0000089270 STANDARD INDUSTRIAL CLASSIFICATION: 3640 IRS NUMBER: 210682685 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04987 FILM NUMBER: 95585334 BUSINESS ADDRESS: STREET 1: 520 FELLOWSHIP ROAD STREET 2: STE 306C CITY: MT LAUREL STATE: NJ ZIP: 08054 BUSINESS PHONE: 6097271500 MAIL ADDRESS: STREET 1: 520 FELLOWSHIP ROAD STREET 2: STE 306C CITY: MT LAUREL STATE: NJ ZIP: 08054 FORMER COMPANY: FORMER CONFORMED NAME: SGL INDUSTRIES INC DATE OF NAME CHANGE: 19841008 FORMER COMPANY: FORMER CONFORMED NAME: GL INDUSTRIES INC DATE OF NAME CHANGE: 19710111 FORMER COMPANY: FORMER CONFORMED NAME: GL ELECTRONICS CO INC DATE OF NAME CHANGE: 19670928 10-K 1 FORM 10-K SL INDUSTRIES, INC. 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 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED JULY 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period ______ to ______ Commission file number 1-4987 SL INDUSTRIES, INC. (Exact name of registrant as specified in its charter) NEW JERSEY 21-0682685 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 520 FELLOWSHIP ROAD, SUITE 306C, MT. LAUREL, NJ 08054 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 609-727-1500 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common stock, $.20 par value New York Stock Exchange Philadelphia Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- Indicate by check mark if disclosure of delinquent filers to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K./X/ On October 13, 1995, the aggregate market value of SL common stock was approximately $43,875,000. The number of shares of common stock outstanding as of October 13, 1995, was 5,661,312. DOCUMENTS INCORPORATED BY REFERENCE: Part I, II, IV - Annual Report to Shareholders for the fiscal year ended July 31, 1995 Part III - Proxy Statement dated October 12, 1995 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, manufacture and distribute a broad range of innovative engineered products for industrial and consumer niche markets, as well as customized components and other products for a wide range of original equipment manufacturers ("OEM"). The Registrant currently defines its operations in two business segments: Power and Data Quality and Specialty Products. The products of the Registrant and its subsidiaries either become components of other industrial or consumer products or are sold through distribution for general retail or commercial use. For the most part, the Registrant and its subsidiaries concentrate on specialty markets believed to offer higher profit margins and greater potential for growth than industrial commodities. Sales between segments are not material. No single customer accounts for more than 10% of consolidated net sales nor are export sales material thereto. On May 1, 1995, the Registrant acquired substantially all of the assets and liabilities of Teal Electronics Corporation ("Teal"). Teal was founded in 1985 and is based in San Diego, California. Teal designs, manufactures and distributes custom AC power subsystems for OEM. Teal serves a variety of niche markets, which include medical, telecommunications, printing and test equipment. This strategic acquisition enhances the Registrant's reputation for supplying superior power and data quality products. On May 24, 1995, the Registrant distributed all of the shares of its wholly-owned subsidiary, SL LUBE/systems, Inc., in a tax free distribution, in exchange for 400,000 shares of its common stock owned by Vesper Corporation. (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, 1995. 3 (c) Narrative Description of Business The following narrative reflects the reclassification of the aviation and industrial igniter and spark plug product line from the Power and Data Quality segment to the Specialty Products segment because its products no longer fit the definition of power and data quality. Power and Data Quality Segment: Products The products of SL Waber, Inc. ("Waber"), consist of over 200 models and configurations of multiple outlet strips, surge suppressors, voltage regulators, power conditioners, and uninterruptible and standby power supplies. These products are sold by independent sales representatives and company sales personnel to distributors and dealers of electronics and electrical supplies; retailers and wholesalers of office, computer and consumer products; and to OEM. The products include those sold under the trademarks of "POWERMASTER(R)", "DATAGARD(R)", "SURGE SENTRY(TM)", "MEDGARD(TM)", "POWERHOUSE(R)", "CLIPSTRIP(R)" and "LINEBACKER(TM)". In fiscal 1994, Waber introduced a new line of satellite network surge protectors and significantly increased its penetration in the private label OEM business market. For the years ended July 31, 1995, 1994, and 1993, net sales, as a percentage of consolidated net sales, were 46%, 45% and 46%, respectively. Condor D.C. Power Supplies, Inc. ("Condor"), designs, manufactures and markets standard and custom AC-DC power supplies in both linear and switching configurations. These products range in power from 10-400 watts and are manufactured in either commercial or medical configurations. Condor power supplies closely regulate and monitor power outputs, using patented filter and other technologies, resulting in little or no electrical interference. These products are sold through manufacturers sales representatives and electronic distributors to customers in the medical, industrial, telecommunications and instrumentation markets. Medical customers use Condor's products to supply power in devices such as heart and respiration monitors, infusion pumps, pacemaker programmers and other critical patient-connected applications, all of which depend upon precise, low-voltage power outputs. For the years ended July 31, 1995, 1994 and 1993, net sales, as a percentage of consolidated net sales, were 23%, 22% and 14%, respectively. SL Montevideo Technology, Inc. ("MTI"), is continuing its recent growth as a technological leader in the design and manufacture of intelligent, high power density, precision motors. MTI has been capitalizing on its new motor and (patent pending) motor control technologies to win important programs in both traditional and new market areas. MTI has been validating its 4 new technologies through customer applications ranging from the Windows(R) based computer driven Digital Signal Process motion control package, which has enabled highly efficient oil field exploration, to an advanced hybrid chip motor controller that has allowed a more compact and reliable brushless DC motor for aerospace actuators. Contributing equally as well over the past year was MTI's effort to provide "Customer Delight" in designing new solutions for older problems using advanced technology, and responding with samples and production with ever decreasing lead and cycle times. Recent program successes include high volume iron gyro upgrades and pickoff assemblies for actuation. Its defense markets continue strong, despite further program cutbacks, with recent successes in drone unmanned reconnaissance aircraft, and the newest missile programs. 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. The aerospace and industrial markets are served by both internal company sales personnel and manufacturers' representatives. For the years ended July 31, 1995, 1994 and 1993, net sales, as a percentage of consolidated net sales, were 9%, 10% and 12%, respectively. Teal develops and manufactures custom electrical subsystems for OEM of semiconductor, medical imaging, printing and telecommunication systems. Outsourcing the AC power system to Teal helps the customers reduce cost and time to market, while increasing system performance and customer satisfaction. Custom products are often called "Power Conditioning and Distribution Units," which provide voltage conversion and stabilization, system control, power distribution, and agency approvals for systems such as CT and MRI scanners, chip testers and cellular radio systems. Most of Teal's products are sold direct to its OEM customers who include it with their systems, which are sold to the end user. Raw Materials Raw materials are supplied by various domestic and international vendors and availability for materials other than platinum and specialty metals is not foreseen to be a problem. Certain electronic components, platinum and specialty metals are subject to long lead times and limited availability. Seasonality Generally, seasonality is not a factor in this segment. 5 Significant Customers No business has a customer which accounts for 10% or more of consolidated net sales. Backlog Backlog at September 3, 1995, and September 4, 1994, was $25,197,000 and $15,166,000, respectively. The increase is primarily related to increased bookings and the acquisition of Teal. Competitive Conditions The businesses in this segment are in active competition with domestic companies, some with national name recognition, offering similar products or services and with companies producing alternative products appropriate for the same uses. In addition, Waber and Condor have experienced significant off-shore competition, for certain products in certain markets. Currently, the businesses are sourcing many components and products outside the United States. The decreasing military market has also created more competitive conditions in both the military and commercial markets. Methods of competition are primarily quality, service, delivery and price. Specialty Products Segment: Products SL Auburn, Inc. ("Auburn"), is one of the world's major producers of aviation spark plugs and igniters, under "Spitfire(TM)" and "auburn(TM)" trademarks; and the world's largest producer of custom engineered industrial spark ignition plugs, under the "Auburn(TM)" and "Durafire(TM)" trademarks. These products convert or transfer electrical power in devices that include aircraft engines (turbine and piston), furnaces and ovens for industrial processes, motors and transformers for air conditioning, and liquid level sensors for boilers and chemical processing. New products developed for introduction in fiscal 1995 included "DuraFire(TM)" industrial spark plugs which are based on new licensed technology and certified leak-proof feed throughs which meet more stringent requirements for extreme temperatures, pressures and environmental mandates. Auburn's customers are categorized as OEM, distributors, government and end users. Auburn's products are sold by company sales representatives, warehouse distributors and independent sales representatives throughout the world. For the years ended July 31, 1995, 1994 and 1993, net sales, as a percentage of consolidated net sales, were 10%, 11% and 14%, respectively. 6 SL Piping Systems, Inc., is an acknowledged leader in the shop fabrication of a wide variety of metallic piping systems used in the chemical process industry. The company also works closely with many industrial and mechanical contractors. In addition to the company's reputation with its customers for providing high quality precision welding, the application of the company's cost effective and quality enhancing pipe bending and forming techniques are preferred. The company is highly regarded for its experience in fabricating high alloy materials such as titanium, aluminum, stainless steel and the nickel alloys. Products and services include the fabrication of piping systems, jacketed piping, ASME code pressure vessels, pipe coils, modular skidded systems and specialty fabrications. Sales are made by company sales personnel and manufacturers' representatives and distributors. SL Piping Systems, Inc.'s facility is one of the largest of its type on the east coast. SL Modern Hard Chrome, Inc. ("MHC"), provides chromium plating services for the steel, paper and automotive industries. The company is a major supplier of these services in the Delaware Valley region, and has recently developed a presence in Western Europe. A new product, Nuchrome(TM), was introduced during 1995 and is intended for use primarily by the paper industry. Sales are made by appropriate company technical personnel. Raw Materials Raw materials are supplied by various domestic vendors and availability is not foreseen to be a problem. Generally, longer lead times and price increases are becoming evident. Seasonality Seasonality is not a factor in this segment. Significant Customers No business has a customer which accounts for 10% or more of consolidated net sales. MHC has four customers which make up approximately seventy-five percent of its sales. Backlog Backlog at September 3, 1995, and September 4, 1994, was $4,146,000 and $2,588,000, respectively. The increase is primarily related to increased bookings for future deliveries of feed throughs and aviation igniters. 7 Competitive Conditions The businesses in this segment compete primarily with companies offering similar services or products. The aviation ignition and service parts markets are global and highly competitive. There are numerous competitors in pipe fabrication which are classified according to scope and type of fabrication, location, materials and degree of difficulty. MHC competes on technology, as well as service. Environmental The Registrant (together with the industries in which it operates or has operated) is subject to United States and Mexican environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters, and the generation, handling, storage, transportation, treatment and disposal of waste materials. The Registrant and the industries are also subject to other federal, state, and local environmental laws and regulations, including those that require the Registrant to remediate or mitigate the effects of the disposal or release of certain chemical substances at various sites, including some where it has ceased operations. It is impossible to predict precisely what effect these laws and regulations will have on the Registrant in the future. However, it is not expected that the Registrant will be affected differently from others in its industries. It is the Registrant's policy to comply with all environmental, health and safety regulations, as well as industry standards for maintenance. The Registrant's domestic competitors are subject to the same environmental, health and safety laws and regulations, and the Registrant believes that the compliance issues and potential expenditures of its operating subsidiaries are comparable to those faced by their major domestic competitors. Environmental liabilities and related costs are believed to have been adequately provided for in the consolidated financial statements. Capital expenditures for these purposes for fiscal year 1995 were immaterial and are estimated to be immaterial for fiscal 1996. 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, 1995. 8 Employees As of September 3, 1995, the Registrant had a total of 1,639 employees. Of the total 1,639 employees, 144 employees are subject to collective bargaining agreements. Additional Information For the purposes of providing additional information regarding the development of the Registrant's businesses in fiscal 1995, the "Operations Review" 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, 1995, are incorporated by reference. ITEM 2. PROPERTIES
Approx. Owned or Leased Square And Location General Character Footage Expiration Date - - -------- ----------------- ------- --------------- Power and Data Quality: Montevideo, Manufacture of 26,200 Owned MN precision avionic products Matamoros, Manufacture of 8,600 Leased Mexico precision avionic 11/05/97 products Nogales, Manufacture of 43,500 Leased Mexico power protection 04/30/96 products Nogales, Manufacture and 51,500 Leased AZ distribution of 07/31/96 power protection products Mt. Laurel, Corporate Office - 15,900 Leased NJ power protection 11/30/99 products Oxnard, Manufacture of 36,000 Leased CA power supply products 02/28/03 Mexicali, Manufacture and Leased Mexico distribution of 50,000 06/01/98 power supply products 11,000 08/31/00 San Diego, Manufacture of 31,200 Leased CA AC power subsystems 03/22/00
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Approx. Owned or Leased Square And Location General Character Footage Expiration Date - - -------- ----------------- ------- --------------- Specialty Products: Auburn, Manufacture of 55,000 Owned NY specialty spark plugs and igniters Newport, Manufacture of 32,500 Leased DE fabricated piping 11/30/98 systems Camden, Industrial chrome 15,800 Owned NJ plating Pennsauken, Industrial chrome 6,000 Owned NJ plating warehouse Other: Mt. Laurel, Corporate Office 4,200 Leased NJ 11/30/99
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 federal, state and local governmental laws and regulations and is also party to certain legal actions, most frequently complaints by terminated employees. It is management's opinion that the impact of these legal actions will not have a material effect on the financial position or results of operations of the Registrant. There are no legal proceedings to which any Director or Officer of the Registrant, or any associate of any Director or Officer, is a party or has a material interest adverse to the Registrant's interest. There are no material proceedings with environmental issues, which involve penalties or sanctions. Additional information pertaining to legal proceedings is found in Note 10 to the consolidated financial statements, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report to Shareholders for the fiscal year ended July 31, 1995, and is incorporated herein by reference. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter ended July 31, 1995, there were no matters submitted to a vote of security holders, through a solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
FISCAL 1995 FISCAL 1994 ------------- ------------- HIGH LOW HIGH LOW ---- --- ---- --- Stock Prices 1st Quarter 4 1/2 3 7/8 4 1/4 3 2nd Quarter 5 4 4 3 3rd Quarter 5 1/4 4 1/2 5 3 1/2 4th Quarter 6 1/4 4 3/4 4 5/8 3 5/8 Dividends Cash - November $.03 $.03 Cash - June $.03 $.03
As of September 15, 1995, there were approximately 1,900 registered shareholders. A semi-annual cash dividend of $.03 per share was declared on September 21, 1995, which is payable on November 30, 1995, to shareholders of record on November 15, 1995. No stock dividend was possible, due to the deficit earnings balance at July 31, 1995. Payments of cash dividends are restricted to $600,000 per fiscal year under the Registrant's revolving credit agreement with its participating banks. 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, 1995. 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, 1995. 11 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, 1995. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This item is not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item, except for the ages and positions held with the Registrant of the executive officers, is incorporated herein by reference to the material captioned "Election of Directors" on pages 3 through 5 of the proxy statement dated October 12, 1995. The ages of the executive officers are as follows: Owen Farren, age 44, Ted D. Taubeneck, age 68, and James E. Morris, age 58. The capacities in which each served are as follows: O. Farren, President and Chief Executive Officer since April 1991 and prior thereto Executive Vice President since 1990; T.D. Taubeneck, Executive Vice President, Secretary and Treasurer since July 1988; and J.E. Morris, Vice President and Corporate Controller since September 1991 and a financial executive since 1978. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the material captioned "The Board Of Directors" and "Executive Officer Compensation" on pages 6 through 10 of the proxy statement dated October 12, 1995. 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 "Principal Shareholders of the Company", "Share Ownership of Directors and Officers" and "Election of Directors" on pages 3 through 5 of the proxy statement dated October 12, 1995. 12 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the material captioned "Executive Officer Compensation" on pages 7 through 9 of the proxy statement dated October 12, 1995. 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, 1995, are incorporated herein by reference: Consolidated Statements of Earnings - Years ended July 31, 1995, 1994 and 1993 Consolidated Balance Sheets - July 31, 1995 and 1994 Consolidated Statements of Shareholders' Equity - Years ended July 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows - Years ended July 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Public Accountants (a) (2) Financial Statement Schedules The following financial statement schedules for the years 1995, 1994 and 1993 are submitted herewith: Report of Independent Public Accountants - Arthur Andersen LLP Report of Independent Accountants - Coopers & Lybrand Schedule VIII - 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. 13 (a) (3) Exhibits The information called for by this section is listed in the Exhibit Index of this report. (b) Reports on Form 8-K On May 22, 1995, the Registrant filed a report on Form 8-K covering the May 1, 1995, acquisition of Teal Electronics Corporation. On June 8, 1995, the Registrant filed a report on Form 8-K covering the May 24, 1995, disposition of its wholly-owned subsidiary, SL LUBE\systems, Inc. On July 24, 1995, the Registrant filed a report on Form 8-K/A to submit financial statements and pro forma financial information for the Teal Electronics Corporation acquisition and the SL LUBE\systems, Inc. disposition. 14 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 25, 1995 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 President and Chief Director Executive Officer October 20, 1995 October 25, 1995 /s/ James E. Morris /s/ Dr. Edward A. Gaugler - - ------------------- ------------------------- James E. Morris Dr. Edward A. Gaugler Vice President and Director Corporate Controller October 23, 1995 October 25, 1995 /s/ Salvatore J. Nuzzo /s/ George R. Hornig - - ---------------------- -------------------- Salvatore J. Nuzzo George R. Hornig Chairman of the Board Director October 20, 1995 October 20, 1995 /s/ Warren G. Lichtenstein -------------------------- Warren G. Lichtenstein Director October 24, 1995 /s/ Robert J. Sanator --------------------- Robert J. Sanator Director October 23, 1995 15 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. 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To SL Industries, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements for the years ended July 31, 1995 and 1994 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 15, 1995. 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. ARTHUR ANDERSEN LLP Philadelphia, PA September 15, 1995 17 [COOPERS & LYBRAND LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of SL Industries, Inc.: We have audited the consolidated balance sheet of SL Industries, Inc. and subsidiaries as of July 31, 1993, and the related consolidated statements of operations, shareholders' equity, and cash flows for the period ended July 31, 1993 that are incorporated by reference in this Form 10-K from the 1995 Annual Report to Shareholders of SL Industries, Inc. In connection with our audit of such consolidated financial statements, we have also audited the related consolidated financial statement schedule listed in Item 14(a) of this Form 10-K. These financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the consolidated financial position of SL Industries, Inc. and subsidiaries as of July 31, 1993, and the consolidated results of their operations and their cash flows for the period ended July 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ COOPERS & LYBRAND --------------------- COOPERS & LYBRAND 2400 Eleven Penn Center Philadelphia, Pennsylvania September 20, 1993 18 SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 31, 1995, 1994 AND 1993 (In Thousands)
- - --------------------------------------------------------------------------------------------------------------------- Additions ----------------------------- Balance at Charged to Charged Balance at Beginning Costs and to Other End of Description of Period Expenses Accounts Deductions Period - - --------------------------------------------------------------------------------------------------------------------- YEAR 1995 Allowance for: doubtful accounts $256 $ 175 $ 63 $ 41(b) $ 453 ==== ====== ==== ====== ====== customer credits $528 $2,701 $--- $1,862(c) $1,367 ==== ====== ==== ====== ====== YEAR 1994 Allowance for: doubtful accounts $258 $ 50 $111 $ 163(b) $256 ==== ====== ==== ====== ==== customer credits $305 $2,200 $--- $1,977(c) $528 ==== ====== ==== ====== ==== YEAR 1993 Allowance for: doubtful accounts $241 $ 83 $ 25(a) $ 91(b) $258 ==== ====== ==== ====== ==== customer credits $656 $1,330 $--- $1,681(c) $305 ==== ====== ==== ====== ====
- - ---------------- (a) Due to acquisitions. (b) Accounts receivable written off, net of recoveries. (c) Primarily for customer advertising programs. 19 INDEX TO EXHIBITS The exhibit number, description and sequential page number in the original copy of this document where exhibits can be found follows:
Exhibit # Description - - --------- ----------- 3.1 Articles of Incorporation. Incorporated by reference to Exhibit 3-A to the Registrant's report on Form 10-K for the fiscal years ended July 31, 1985, July 31, 1986, July 31, 1987, and July 31, 1988. 3.2 By-Laws. Incorporated by reference to Exhibit 3 to the Registrant's report on Form 10-Q dated October 31, 1994. 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.
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Exhibit # Description - - --------- ----------- 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. 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.
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Exhibit # Description - - --------- ----------- 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. Incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-53274, filed October 14, 1992. 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. 11 Statement Re Computation of Per Share Earnings (transmitted herewith). 13 Portions of Annual Report to Shareholders for the fiscal year ended July 31, 1995 (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
Exhibit # Description - - --------- ----------- 22 Subsidiaries of the Registrant (transmitted herewith). 24 Consent of Independent Public Accountants - Arthur Andersen LLP (transmitted herewith). 24A Consent of Independent Accountants - Coopers & Lybrand L.L.P. (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 by amendment).
EX-11 2 STATEMENT OF RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (In Thousands, Except Per Share Data)
Years Ended July 31, ------------------------------------- 1995 1994 1993 ---- ---- ---- NET INCOME PER COMMON SHARE - - ----------------------------------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . $3,677 $2,554 $1,454 ====== ====== ====== Weighted average number of common shares outstanding during the year . . . . . . . . . . . . 5,940 6,152 6,500 ===== ===== ===== Net income per common share . . . . . . . . . . . . . . . . $.62 $.42 $.22 ==== ==== ==== PRIMARY - - ----------------------------------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . $3,677 $2,554 $1,454 ====== ====== ====== Weighted average number of common shares outstanding during the year . . . . . . . . . . . . 5,940 6,152 6,500 Add: shares of common stock equivalents . . . . . . . . . . . . . . . . . . . . . . . . 102 38 14 ----- ----- ----- Weighted average number of shares used in calculation of primary income per share . . . . . . . . . . . . . . . . . . . . . 6,042 6,190 6,514 ===== ===== ===== Primary income per common share . . . . . . . . . . . . . . . . . . . . . . . $.61 $.41 $.22 ==== ==== ==== FULLY DILUTED - - ----------------------------------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . $3,677 $2,554 $1,454 ====== ====== ====== Weighted average number of common shares outstanding as adjusted above.. . . . . . . . . . . 6,042 6,190 6,514 Add: incremental shares of common stock equivalents . . . . . . . . . . . . . . . . . . . . . 20 9 2 ----- ----- ----- Weighted average number of shares used in calculation of fully diluted income per share . . . . . . . . . . . . . . . . . 6,062 6,199 6,516 ===== ===== ===== Fully diluted income per common share . . . . . . . . . . . . . . . . . . . . . . . $.61 $.41 $.22 ==== ==== ====
EX-13 3 PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 OPERATIONS REVIEW SL INDUSTRIES, INC. AND SUBSIDIARIES PARTNERSHIPS WITH CUSTOMERS FUEL GROWTH At SL Industries, we work in partnership with our customers to develop creative solutions for their Power and Data Quality problems. We have re-engineered our work flow and manufacturing processes to enable us to produce, in a timely and cost-effective fashion, individual products or entire product lines, custom-designed to meet the specific needs of our customers -- a process we call "mass customization." Each of our businesses form dedicated task forces across departmental lines -- including marketing, manufacturing, distribution, design and engineering employees -- to address our customers' unique product requirements. Each team of highly skilled employees works together, from design and prototype through final delivery of a product, in partnership with our customers. This focus on partnership adds value to SL Industries' products, as reflected in our third consecutive year of increased market share in our core businesses. The following is a summary of the progress each of our subsidiaries has made and their plans for the future: SL WABER, a designer and producer of over 200 models and configurations of multiple outlet strips, surge suppressors, voltage regulators, power conditioners and uninterruptible and standby power supplies, enjoyed its greatest sales success during fiscal 1995. This success is a result of the subsidiary's efforts in three major areas -- continued expansion of Waber's markets, improvement in operational capabilities and intensive new product development. Already serving a wide range of OEMs, electronics and electrical supply distributors and dealers, and office and computer product dealers, Waber continued to increase its sales base through the expansion of business with current customers, as well as through expansion into new distribution channels. During fiscal 1995, Waber added Computer City, Montgomery Ward, MCM Electronics, Digital Equipment and Sprint to its growing number of impressive customers. By improving manufacturing operations and by reconfiguring its manufacturing floor, Waber was able to increase its total number of production lines by 40 percent. These improvements resulted in greater efficiency and flexibility, allowing Waber to exploit, more fully, its ability to offer custom solutions to customers. Waber's new line of low-cost uninterruptible power supply (UPS) products, enable it to be competitive with all of the major manufacturers in the industry and, early in fiscal 1996, Waber will introduce a new line of plastic and metal UPS products. The new Datagard line combines superior technology with competitive prices and includes the industry's only solid-state phone line protection. The Satellite protection product line continues to expand and now includes Digital Satellite (DSS), as well as many other variations which are rapidly gaining popularity. Later in fiscal 1996, Waber will introduce a new under-the-monitor power center and a patented save-and-restore system for data protection. In addition, Waber was chosen as a supplier to Steelcase, who provides work centers for Marriott hotel rooms worldwide. Waber's power strip is currently incorporated into these work centers. By broadening its product line and expanding its manufacturing capabilities, Waber is positioned to identify new and innovative opportunities to better serve its customers. 3 2 OPERATIONS REVIEW SL INDUSTRIES, INC. AND SUBSIDIARIES TEAL, the newest member of SL's Power and Data Quality group, is taking advantage of the continued trend toward outsourcing. By working in partnership with world-class OEM customers, Teal helps them reduce costs and time-to-market, as well as increase system performance and customer satisfaction. Teal's custom products, known as Power Conditioning and Distribution Units, provide voltage conversion and stabilization, system control and power distribution and help with federal agency approvals for computerized systems, such as MRI scanners, chip testers and cellular radio systems. Customers in the printing, semiconductor, medical imaging and telecommunications industries look to Teal's unique capabilities which allow for the rapid development of custom products which are incorporated into their own systems. By focusing on select vertical markets that exhibit growth potential and capitalize on Teal's capabilities, SL's newest subsidiary is positioning itself as a leading supplier of AC power systems. Teal's strong position in the semiconductor and medical imaging markets fueled most of its growth in fiscal 1995. In addition, Teal entered the printing and telecommunications markets during the year and will focus on further developing its presence in these markets during fiscal 1996. Through the expansion of its extensive library of 3-D drawings and the use of computerized design tools, such as 3-D "virtual prototyping," Teal will continue to work in partnership with its customers to develop new quality custom power system solutions. CONDOR, a designer and manufacturer of standard and custom AC-DC power supplies, also works closely with its customers and has continued to increase its share of the expanding medical device market through its reputation and commitment to providing customers with technical excellence, the ability to meet demanding specifications, and a thorough understanding of the industry's significant regulatory issues. In addition to serving the medical industry, Condor also serves the industrial, instrumentation, and computer peripheral markets, and has had recent success in targeting select areas within the massive telecommunications market, which contributed to growth in fiscal 1995 and will continue to contribute to future growth. Condor has increased its presence in the marketplace by introducing a new line of low-cost, low-power units specifically targeted for sale through distributors who typically serve smaller OEMs. In addition, Condor continues to expand the market for its Rainbow series of standard mid-range power supplies, first introduced during fiscal 1994. Condor's dedication to continuous improvement in manufacturing processes yielded a 15 percent increase in productivity in fiscal 1995 and will remain a primary focus of the subsidiary in fiscal 1996 and beyond. Working closely with its customers in a highly technical, creative and innovative manner, Condor has achieved considerable success and it has targeted selective niche areas in the telecommunications industry to help drive future growth. SL MONTEVIDEO TECHNOLOGY, a technological leader in manufacturing intelligent, high power density, precision motors, is capitalizing on new motor and motor control technologies to win important programs in both traditional (defense and defense-related aerospace) and new (commercial aerospace and industrial) markets. 4 3 OPERATIONS REVIEW SL INDUSTRIES, INC. AND SUBSIDIARIES Through a new program called "Customer Delight," MTI has focused its efforts on working closely with customers to design new solutions, using its advanced technology to solve old problems. The program includes dramatically shortening both quotation and lead times and allows customers to receive early, working prototypes for their application using MTI's line of motors and motor controls, which were introduced last year. In fiscal 1995, MTI received orders for such applications as a Windows-based(TM), computer driven, Digital Signal Process motion control package, which will enable highly efficient oil field exploration and an advanced hybrid chip motor controller, that has provided a more compact and reliable brushless DC motor for actuators in un-manned reconnaissance aircraft. MTI has received a patent for its new "sensorless controller" and is currently developing significant enhancements to this technology. Over the next 12 months, MTI expects to receive additional patents and will file two other patent applications, as new technologies are developed to fulfill its customer's needs. In addition, through customer evaluation, MTI has discovered that a number of its high precision, high reliability industrial applications are progressing well, and although it is still too early to make predictions, MTI is optimistic about the opportunities that exist in these markets. SL'S SPECIALTY PRODUCTS subsidiaries cater to niche markets in which they also have the ability to work in partnership with their customers. SL AUBURN, one of the largest producers of spark plugs and igniters for aircraft and of custom-engineered industrial applications, accelerated lead time reductions, promoted quality improvements and extended product lines during fiscal 1995. Growth, during fiscal 1995, can be attributed to increased market penetration, as well as new product introductions. In response to its customers' need for more environmentally "friendly" air conditioning refrigerants, Auburn developed and introduced a feed-through connector assembly used in commercial air conditioning units resulting in increased demand. Auburn's newest igniter, manufactured for use by aviation engine builders, resulted in record aviation igniter sales in fiscal 1995, because of technological improvements which extend the igniter's service life by a factor of up to six times over the prior technology. In addition, Auburn has developed an entire ignition system in partnership with certain industrial customers, and the initial response has been very encouraging. SL MODERN HARD CHROME, which provides chromium electroplating and surface finishing for the steel, paper and construction industries has enhanced its brand identity by working with OEM customers to tailor products specific to the end user's requirements. "NUchrome(TM)", a coating which increases the usable life of corrugating rolls, is an important example of a new product introduced in 1995 to meet the needs of the corrugated box industry. Also, in fiscal 1995, SL-MHC licensed certain technology to two surface finishers outside of North America to support our OEM customers globally. SL PIPING SYSTEMS, a leader in the fabrication of metallic piping systems, used principally by the Chemical Process and Power Generation industry, has targeted new high-growth OEM users within these market segments, where it can capitalize upon its technological expertise in forming, joining, and assembling of a wide range of products and materials. 6 4 SELECTED FINANCIAL DATA SL INDUSTRIES, INC. AND SUBSIDIARIES
- - ----------------------------------------------------------------------------------------------------------------------------------- Years ended July 31, 1995 1994 1993 1992 1991 - - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) SUMMARY OF OPERATIONS Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,125 $ 76,593 $ 58,529 $ 50,941 $ 54,777 Income (Loss) from continuing operations (1) . . . . . . . . $ 3,677 $ 1,951 $ 954 $ 1,506 $ (9,757) Income from discontinued operations . . . . . . . . . . . . --- --- --- --- 1,008 ------------------------------------------------------------------- Income (Loss) before extraordinary item and cumulative effect of changes in acccounting principles . . . . . . . 3,677 1,951 954 1,506 (8,749) Extraordinary item - utilization of the federal tax benefit of a net operating loss carryforward . . . . . . . . . . . --- --- 500 620 --- Cumulative effect of change in accounting for postretirement benefits other than pensions . . . . . . . --- --- --- --- (137) Cumulative effect of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . . --- 603 --- --- --- ------------------------------------------------------------------- Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ 3,677 $ 2,554 $ 1,454 $ 2,126 $ (8,886) =================================================================== Net income (loss) per common share: Income (Loss) from continuing operations (1) . . . . . . . . $ .62 $ .32 $ .15 $ .23 $ (1.47) Income from discontinued operations . . . . . . . . . . . . --- --- --- --- .15 ------------------------------------------------------------------- Income (Loss) before extraordinary item and cumulative effect of changes in acccounting principles . . . . . . . .62 .32 .15 .23 (1.32) Extraordinary item - utilization of the federal tax benefit of a net operating loss carryforward . . . . . . . . . . . --- --- .07 .09 --- Cumulative effect of change in accounting for postretirement benefits other than pensions . . . . . . . --- --- --- --- (.02) Cumulative effect of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . . --- .10 --- --- --- ------------------------------------------------------------------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ .62 $ .42 $ .22 $ .32 $ (1.34) =================================================================== Cash dividend per common share (2) . . . . . . . . . . . . . $ .06 $ .06 $ .09 $ .03 $ .16 Stock dividend per common share . . . . . . . . . . . . . . --- --- --- --- 6% YEAR-END FINANCIAL POSITION Working capital . . . . . . . . . . . . . . . . . . . . . . $ 21,929 $ 21,125 $ 18,995 $ 14,912 $ 14,012 Current ratio (5). . . . . . . . . . . . . . . . . . . . . . 2.5 2.9 2.8 2.8 2.2 Total assets (5) . . . . . . . . . . . . . . . . . . . . . . $ 62,156 $ 52,397 $ 49,831 $ 39,000 $ 41,650 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ 17,373 $ 11,918 $ 9,218 $ 844 $ 1,028 Shareholders' equity . . . . . . . . . . . . . . . . . . . . $ 24,930 $ 23,577 $ 23,431 $ 22,558 $ 20,832 Book value per share . . . . . . . . . . . . . . . . . . . . $ 4.43 $ 3.93 $ 3.60 $ 3.47 $ 3.18 OTHER Capital expenditures (4) . . . . . . . . . . . . . . . . . . $ 1,736 $ 1,446 $ 1,191 $ 1,048 $ 1,070 Depreciation and amortization (3). . . . . . . . . . . . . . $ 2,108 $ 1,868 $ 1,674 $ 1,452 $ 2,418 Weighted average shares outstanding (2) . . . . . . . . . . 5,940 6,152 6,500 6,552 6,641 ===================================================================
(1) 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. Fiscal 1991 includes provision for losses of discontinued product line, net of income taxes, of $8,171,000, or $(1.23) per common share. (2) Restated to reflect subsequent stock dividends. (3) Excludes discontinued operations. (4) Excludes discontinued operations and assets acquired in business combinations. (5) Restated to conform with current years' presentation. 7 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS SL INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES During fiscal 1995, the net cash provided by operating activities was $3,307,000, as compared to $1,329,000 provided in fiscal 1994 and $2,820,000 used in fiscal 1993. The fiscal 1995 increase, as compared to fiscal 1994, resulted primarily from increased net income from operations and accrued liabilities, offset, in part, by increased inventories. The fiscal 1994 increase, as compared to fiscal 1993, resulted primarily from increased net income from operations and decreased inventories, offset, in part, by increased receivables. During fiscal 1995, 1994 and 1993, the net cash used by investing activities of $8,126,000, $1,423,000 and $7,517,000, respectively, was primarily related to capital expenditures for all three years, the acquisition of substantially all of the net assets of Teal Electronics Corporation ("Teal") in May 1995, and the acquisition of all the stock of Condor D.C. Power Supplies, Inc. ("Condor") and all of the assets of its Mexican affiliate in February 1993. During fiscal 1995, 1994 and 1993, the net cash provided by financing activities of $5,199,000, $291,000 and $7,296,000, respectively, was primarily related to the use of the Company's revolving line of credit for the fiscal 1995 Teal acquisition, the fiscal 1994 purchase of 507, 000 shares of common stock held by two former directors, the fiscal 1993 Condor acquisition and for fiscal 1994 and 1993 capital expenditures and working capital requirements. The Company maintains a strong working capital position with a current ratio of 2.5 to 1 at July 31, 1995, 2.9 to 1 at July 31, 1994, and 2.8 to 1 at July 31, 1993. The fiscal 1995 decrease, as compared to fiscal 1994, resulted from a 38% increase in current liabilities, as compared to a 16% increase in current assets. The fiscal 1994 increase, as compared to fiscal 1993, resulted from a 9% increase in current assets, as compared to a 4% increase in current liabilities. As a percentage of total capitalization, consisting of long-term debt and shareholders' equity, total borrowings by the Company were 41% at July 31, 1995, 34% at July 31, 1994, and 29% at July 31, 1993. The fiscal 1995 and 1994 increases in total borrowings, as compared to fiscal 1994 and 1993, were primarily a result of the use of the Company's revolving line of credit for the above purposes. During fiscal 1995, the Company amended its revolving credit agreement to increase the amount from $15,000,000 to $22,000,000. At July 31, 1995, the Company had $4,738,000, net of outstanding trade letters of credit of $262,000, of its revolving line of credit available for use. See Note 8 to the consolidated financial statements for additional information. The Company's borrowing capacity at July 31, 1995, remained considerably above its use of outside financing. Capital expenditures were $1,736,000 in 1995, as compared with $1,446,000 in 1994, and $1,191,000 in 1993. Expenditures during the three-year period have primarily included investments in new process technology, increased production capacity and pollution control equipment. Fiscal 1996 capital expenditures are planned to be approximately $1,200,000, and the Company expects to fund the expenditures with cash provided by operations. The Company is not aware of any demands, commitments, trends or uncertainties, which are reasonably likely, in the normal course, to impair its ability to generate or obtain adequate amounts of cash to meet its future needs. RESULTS OF OPERATIONS FISCAL 1995 COMPARED TO FISCAL 1994 Fiscal 1995 consolidated net sales of $91,125,000 increased approximately 19% ($14,500,000), as compared to fiscal 1994 consolidated net sales. Fiscal 1995 net income was $3,677,000, or $.62 per share, as compared to fiscal 1994 net income of $2,554,000, or $.42 per share. Fiscal 1995 net income consisted of income from operations of $2,577,000, or $.43 per share, and a gain, net of severance, legal and other costs, from the disposition of SL LUBE/systems, Inc., ("LUBE") of $1,100,000, or $.19 per share. Fiscal 1994 net income consisted of income from operations of $1,951,000, or $.32 per share, and income from the cumulative effect of a change in accounting for income taxes of $603,000, or $.10 per share. If the gain is excluded from fiscal 1995 net income and income from the cumulative effect is excluded from fiscal 1994 net income, income from operations increased approximately 32% ($600,000), as compared to fiscal 1994 income from operations. Fiscal 1995 net sales and operating income by industry segment, as compared to fiscal 1994, reflect the reclassification of the net sales and operating income of the aviation and industrial igniter and spark plug product line from the power and data quality segment to the specialty products segment because its products no longer fit the definition of power and data quality. The power and data quality segment's fiscal 1995 net sales and operating income increased approximately 24% ($14,300,000) and 62% ($2,200,000), respectively, as compared to fiscal 1994 net sales and operating income. 8 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS SL INDUSTRIES, INC. AND SUBSIDIARIES Contributing to these increases were increased net sales of linear and switching power supplies, power surge protectors and uninterruptible power supplies, which resulted from the introduction of new products, as well as from increased market share, and increased net sales of precision avionic products which resulted from the introduction of new products. In addition, fiscal 1995 included the net sales and operating income contributed by Teal, the amounts of which were not material to the results of this segment. Also, an approximately 3% increase in this segment's gross margin, as a percentage of net sales, contributed to increased operating income. The increase in gross margin percentage resulted from increased volume and production efficiency improvements. The specialty products segment's fiscal 1995 net sales and operating income increased approximately 1% ($300,000), and decreased approximately 19% ($400,000), respectively, as compared to fiscal 1994 net sales and operating income. During fiscal 1995, net sales of aviation and industrial igniters, and pipe fabrication products increased, while net sales of aviation and industrial spark plugs and chrome plating services decreased. The increases in net sales were a result of increased demand, while the decrease in net sales of aviation and industrial spark plugs was the result of reduced demand, and the decrease in net sales of chrome plating services was the result of corrugated paper machinery manufacturers switching to alternative coatings, which extend the life of corrugated rolls. However, the Company has developed an improved, less expensive alternative coating: "NUchromeTM", which will also significantly extend the life of corrugated rolls. The principal factors affecting the decrease in the operating income of this segment were approximately 3% decreases in gross margins, as a percentage of net sales, realized by the aviation and industrial igniters and spark plugs, and pipe fabrication product lines. These margin decreases were a result of product mix. The May 1995 disposal of LUBE had no material impact on the year-to-year net sales and operating income comparison of this segment. COST OF SALES As a percent of net sales, fiscal 1995 cost of products sold was approximately 65%, as compared to approximately 67% in fiscal 1994. The percentage decrease was a direct result of the improvements contributed by the power and data quality segment's product lines, offset, in part, by the decreases experienced by the specialty products segment's product lines. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Fiscal 1995 selling, general and administrative expenses of $24,836,000 increased approximately 27% ($5,200,000), as compared to fiscal 1994. The fiscal 1995 increase was primarily related to increased selling and marketing, and engineering and product development expenses. As a percentage of net sales, fiscal 1995 selling, general and administrative expense were approximately 27%, as compared to approximately 26% in fiscal 1994. As a percentage of net sales, the fiscal 1995 increase was primarily related to increased engineering and product development expenses. DEPRECIATION AND AMORTIZATION EXPENSE Fiscal 1995 depreciation and amortization expense of $2,108,000 increased approximately 13% ($240,000), as compared to fiscal 1994. The fiscal 1995 increase was primarily related to the depreciation of equipment within the power and data quality segment. OTHER INCOME (EXPENSE) Fiscal 1995 other income (expense) included the gain on the disposition of LUBE, as well as a net increase in interest expense, as compared to fiscal 1994 other income (expense). The fiscal 1995 net increase in interest expense primarily resulted from increased interest rates and the use of the Company's revolving line of credit for the May 1995 Teal acquisition. TAXES The fiscal 1995 effective tax rate on pre-tax income was 26%, as compared to 38% in fiscal 1994. This decrease was directly related to the May 1995 tax free disposition of LUBE. FISCAL 1994 COMPARED TO FISCAL 1993 Fiscal 1994 consolidated net sales of $76,593,000 increased approximately 31% ($18,100,000), as compared to fiscal 1993 consolidated net sales. Fiscal 1994 net income was $2,554,000, or $.42 per share, as compared to fiscal 1993 net income of $1,454,000, or $.22 per share. Fiscal 1994 net income consisted of income from operations of $1,951,000, or $.32 per share, and income from the cumulative effect of a change in accounting for income taxes of $603,000, or $.10 per share. Fiscal 1993 net income consisted of income from operations of $954,000, or $.15 per share, and income from the utilization of the federal tax benefit of a net operating loss carryforward of $500,000, or $.07 per share. If the income from the cumulative effect is excluded from fiscal 1994 net income and income 9 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS SL INDUSTRIES, INC. AND SUBSIDIARIES from utilization of the federal tax benefit is excluded from fiscal 1993 net income, income from operations increased approximately 105% ($1,000,000), as compared to fiscal 1993 income from operations. Fiscal 1994 net sales and operating income by industry segment, as compared to fiscal 1993, reflect the reclassification of the net sales and operating income of the aviation and industrial igniter and spark plug product line from the power and data quality segment to the specialty products segment because its products no longer fit the definition of power and data quality. The power and data quality segment's fiscal 1994 net sales increased approximately 41% ($17,200,000), as compared to fiscal 1993 net sales. The segment's fiscal 1994 net sales included a full year of Condor's net sales, as compared to a partial year in fiscal 1993. If the net sales of Condor are excluded from both fiscal 1994 and 1993, the segment's net sales increased approximately 25% ($8,200,000), as compared to fiscal 1993. Contributing to this increase were increased net sales of surge protectors and uninterruptible power supplies, which primarily resulted from increased market share and the sale of new products, and increased net sales of precision avionic products which resulted from increased volume, offset, in part, by reduced defense spending. The power and data quality segment's fiscal 1994 operating income increased approximately 53% ($1,200,000), as compared to fiscal 1993. If the operating income of Condor is excluded from both fiscal 1994 and 1993, the segment's operating income increased approximately 15% ($200,000), as compared to fiscal 1993. The primary reason for the increase in fiscal 1994 operating income was increased gross margins of surge protection and uninterruptible power supply products because of increased volume, offset, in part, by decreased gross margins of precision avionic products because of product mix. The specialty products segment's fiscal 1994 net sales increased approximately 5% ($900,000), as compared to fiscal 1993 net sales. The net sales increase was primarily related to increased sales of aviation spark plugs and industrial igniters and spark plugs, chrome plating services and automatic grease feeders, offset, in part, by decreased sales of aviation igniters and pipe fabrication products. The increases in sales of aviation spark plugs, and industrial igniters and spark plugs were primarily a result of increased market share and increased demand, respectively. The decrease in sales of aviation igniters was primarily a result of decreased demand because of softness in the commercial, military and general aviation markets. The increases in sales of chrome plating services and automatic grease feeders were demand related, while the decrease in sales of pipe fabrication products was primarily related to competitive pricing pressures. The specialty products segment's fiscal 1994 operating income increased approximately 8% ($160,000), as compared to fiscal 1993. The increase in fiscal 1994 operating income was primarily due to increased volume. COST OF SALES As a percent of net sales, fiscal 1994 costs of products sold was approximately 67%, as compared to approximately 65% in fiscal 1993. The percentage increase was a direct result of product mix. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Fiscal 1994 selling, general and administrative expenses of $19,622,000 increased approximately 18% ($2,900,000), as compared to fiscal 1993. If the expenses of Condor are excluded from both fiscal 1994 and 1993, selling, general and administrative expenses increased approximately 8% ($1,200,000), as compared to 1993. The fiscal 1994 increase was primarily related to increased marketing expenses, as well as $438,000 in costs associated with the Board's ongoing effort to enhance shareholder value. As a percentage of net sales, fiscal 1994 selling, general and administrative expenses were approximately 26%, as compared to 29% in fiscal 1993. If the expenses and net sales of Condor are excluded from both 1994 and 1993, the expenses, as a percent of net sales, were approximately 28% and 30%, respectively. DEPRECIATION AND AMORTIZATION EXPENSE Fiscal 1994 depreciation and amortization expense of $1,868,000 increased approximately 12% ($190,000), as compared to fiscal 1993. If the expenses of Condor are excluded from both fiscal 1994 and 1993, depreciation and amortization expense decreased approximately 5% ($80,000). OTHER INCOME (EXPENSE) Fiscal 1994 and fiscal 1993 other income (expense) consisted entirely of interest income and expense. Fiscal 1994 interest income decreased, as compared to fiscal 1993, as a result of less cash available for investment. Fiscal 1994 interest expense increased, as compared to fiscal 1993, primarily because of borrowing under the Company's revolving line of 10 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS SL INDUSTRIES, INC. AND SUBSIDIARIES credit to purchase the previously mentioned shares of common stock held by two former directors, and to finance the 1993 acquisition of Condor and its Mexican affiliate. TAXES The fiscal 1994 effective tax rate on pre-tax income was 38%, as compared to 42% in fiscal 1993. The decrease in the effective tax rate in 1994, as compared to 1993, was primarily related to a lower effective net state tax rate. Effective August 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes (SFAS 109)," which was issued by the Financial Accounting Standards Board in February 1992. The cumulative effect to August 1, 1993, of the change was $603,000. See Note 1 to the consolidated financial statements for additional information. ENVIRONMENTAL During fiscal 1995, 1994 and 1993, investigation or remediation activities, or both, were undertaken at 18 sites owned, leased or previously utilized by the Company. During 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 has been underway for several years. Additional expenses at this location are now likely, but cannot be estimated at this time. In a November 1991, Administrative Directive, NJDEP alleged that SL Modern Hard Chrome ("MHC") and 20 other respondents are responsible for a contaminent plume which has affected the Puchack Wellfield in Pennsauken, New Jersey (which supplies Camden, New Jersey), and are, therefore, jointly and severally obligated to pay for the construction and operation of a potable water treatment system there. Three other actions have been initiated from the underlying directive. The first is Supplemental Directive No. 1 issued by NJDEP to the same parties in May, 1992, which seeks a cost reimbursement of $8,655,000 for the construction of a treatment system at the Puchack site and an annual payment of $611,000 for ongoing operation and maintenance of the treatment system. The second matter is a lawsuit initiated by one of the parties named in the original directive seeking to have the remainder of those parties and more than 600 others pay some or all of that party's cost of compliance with the directive and any other costs associated with its site. The third matter is a Spill Act Directive by NJDEP to MHC alone, regarding similar matters at its site. The state has not initiated enforcement action regarding any of its three Directives, and the court where the lawsuit is pending has ordered a "stay" of those proceedings, as to the Company and MHC, as well as others. 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" or "material" at this time. The MHC 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 MHC site. Based on this and other technical factors, the Company has been advised by its outside technical consultant, with the concurrence of its outside counsel, that it has a significant defense to the Cost Reimbursement Directive. It is management's opinion that future costs for these environmental matters are not expected to have a material impact on the results of operations of the Company. If there is a change in management's position, it will be indicated in future filings. See Note 10 to the consolidated financial statements for additional information. TRENDS AND PROSPECTS At the present time, both of the Company's industry segments are profitable and are expected to remain so, and it is anticipated that the Company's fiscal year 1996 consolidated financial results will continue to show improvements. 11 9 CONSOLIDATED STATEMENTS OF EARNINGS SL INDUSTRIES, INC. AND SUBSIDIARIES
- - ------------------------------------------------------------------------------------------------------------------------------------ Years ended July 31, 1995 1994 1993 - - ------------------------------------------------------------------------------------------------------------------------------------ Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,125,000 $ 76,593,000 $ 58,529,000 --------------------------------------------------- Cost and expenses: Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . 59,249,000 51,385,000 38,404,000 Selling, general and administrative expenses . . . . . . . . . . . . . . . 24,836,000 19,622,000 16,684,000 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 2,108,000 1,868,000 1,674,000 --------------------------------------------------- Total cost and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 86,193,000 72,875,000 56,762,000 --------------------------------------------------- Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,932,000 3,718,000 1,767,000 Other income (expense): Gain on disposition of subsidiary. . . . . . . . . . . . . . . . . . . . . 818,000 --- --- Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,000 50,000 82,000 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (859,000) (606,000) (208,000) --------------------------------------------------- Income before income taxes, extraordinary item and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,945,000 3,162,000 1,641,000 Provision for federal and state income taxes . . . . . . . . . . . . . . . . 1,268,000 1,211,000 687,000 --------------------------------------------------- Income before extraordinary item and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,677,000 1,951,000 954,000 Extraordinary item - utilization of the federal tax benefit of a net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . --- --- 500,000 Cumulative effect to August 1, 1993, of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 603,000 --- --------------------------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,677,000 $ 2,554,000 $ 1,454,000 =================================================== Net income per common share: Income before extraordinary item and cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .62 $ .32 $ .15 Extraordinary item - utilization of the federal tax benefit of a net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . --- --- .07 Cumulative effect to August 1, 1993, of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- .10 --- --------------------------------------------------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .62 $ .42 $ .22 =================================================== Weighted average shares outstanding. . . . . . . . . . . . . . . . . . . . . 5,940,000 6,152,000 6,500,000 ===================================================
See accompanying notes to consolidated financial statements. 12 10 CONSOLIDATED BALANCE SHEETS SL INDUSTRIES, INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------------------------------------------------- July 31, 1995 1994* - - --------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 577,000 $ 197,000 Receivables, less allowances of $1,820,000 and $784,000, respectively . . . . . . . . . . . . . . 12,442,000 12,961,000 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,622,000 16,719,000 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 890,000 797,000 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 2,457,000 1,327,000 ---------------------------------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . 36,988,000 32,001,000 ---------------------------------------- Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . 6,933,000 6,252,000 Assets held for future sale . . . . . . . . . . . . . . . . . . . . . . . 3,240,000 3,430,000 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 551,000 982,000 Cash surrender value of life insurance policies . . . . . . . . . . . . . 6,595,000 5,934,000 Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . 7,468,000 3,415,000 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381,000 383,000 ---------------------------------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,156,000 $ 52,397,000 ======================================== LIABILITIES Current liabilities: Long-term debt due within one year . . . . . . . . . . . . . . . . . . $ 187,000 $ 168,000 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,658,000 4,818,000 Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 1,140,000 821,000 Accrued liabilities: Payroll and related costs . . . . . . . . . . . . . . . . . . . . . . 3,938,000 2,208,000 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,136,000 2,861,000 ---------------------------------------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . 15,059,000 10,876,000 ---------------------------------------- Long-term debt less portion due within one year . . . . . . . . . . . . . 17,373,000 11,918,000 Deferred compensation and supplemental retirement benefits . . . . . . . 3,322,000 3,488,000 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,472,000 2,538,000 ---------------------------------------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,226,000 $ 28,820,000 ---------------------------------------- Commitments and contingencies SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized, 6,000,000 shares; none issued $ --- $ --- Common stock, $.20 par value; authorized, 25,000,000 shares; issued, 1995 - 7,773,000 shares, 1994 - 7,739,000 shares . . . . . . . 1,555,000 1,548,000 Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . 33,735,000 33,620,000 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (958,000) (4,239,000) Treasury stock at cost, 1995 - 2,141,000 shares, 1994 - 1,741,000 shares (9,402,000) (7,352,000) ---------------------------------------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . $ 24,930,000 $ 23,577,000 ---------------------------------------- Total liabilities and shareholders' equity . . . . . . . . . . . $ 62,156,000 $ 52,397,000 ========================================
*Reclassified to conform with current year's presentation. See accompanying notes to consolidated financial statements. 13 11 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SL INDUSTRIES, INC. AND SUBSIDIARIES
Common Stock ---------------------------------------------------------- Issued Held In Treasury Capital in ---------------------------------------------------------- Excess of Accumulated Shares Amount Shares Amount Par Value Deficit -------------------------------------------------------------------------------------------- Balance August 1, 1992 . . . . . . . 7,733,000 $ 1,547,000 (1,234,000) $ (5,303,000) $ 33,603,000 $ (7,289,000) Net income . . . . . . . . . . . . . 1,454,000 Cash dividends, $.09 per share . . . (585,000) Other, including exercise of employee stock options . . . . . . 1,000 3,000 1,000 -------------------------------------------------------------------------------------------- Balance July 31, 1993 . . . . . . . 7,734,000 1,547,000 (1,234,000) (5,303,000) 33,606,000 (6,419,000) Net income . . . . . . . . . . . . . 2,554,000 Cash dividends, $.06 per share . . . (375,000) Other, including exercise of employee stock options . . . . . . 5,000 1,000 14,000 1,000 Treasury stock purchased . . . . . . (507,000) (2,049,000) -------------------------------------------------------------------------------------------- Balance July 31, 1994 . . . . . . . 7,739,000 1,548,000 (1,741,000) (7,352,000) 33,620,000 (4,239,000) Net income . . . . . . . . . . . . . 3,677,000 Cash dividends, $.06 per share . . . (349,000) Rights redemption, $.0079 per share. (48,000) Other, including exercise of employee stock options . . . . . . 34,000 7,000 115,000 1,000 Treasury stock received from tax free distribution . . . . . . . . (400,000) (2,050,000) -------------------------------------------------------------------------------------------- BALANCE JULY 31, 1995 . . . . . . . 7,773,000 $ 1,555,000 (2,141,000) $ (9,402,000) $ 33,735,000 $ (958,000) ============================================================================================
See accompanying notes to consolidated financial statements. 14 12 CONSOLIDATED STATEMENTS OF CASH FLOWS SL INDUSTRIES, INC. AND SUBSIDIARIES
- - ----------------------------------------------------------------------------------------------------------------------------------- Years ended July 31, 1995 1994* 1993* - - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,677,000 $ 2,554,000 $ 1,454,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Cumulative effect of change in accounting for income taxes . . . . . . --- (603,000) --- Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,687,000 1,384,000 1,253,000 Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421,000 484,000 421,000 Provisions for losses on accounts receivable . . . . . . . . . . . . . 175,000 50,000 83,000 Additions to other assets . . . . . . . . . . . . . . . . . . . . . . (95,000) (208,000) (67,000) Cash surrender value of life insurance premiums . . . . . . . . . . . (661,000) (759,000) (721,000) Deferred compensation and supplemental retirement benefits . . . . . . 521,000 606,000 309,000 Deferred compensation and supplemental retirement benefit payments . . (691,000) (449,000) (503,000) (Increase) decrease in deferred income taxes . . . . . . . . . . . . . (724,000) 281,000 193,000 Loss on the sale of equipment . . . . . . . . . . . . . . . . . . . . 13,000 8,000 2,000 Discontinued product line expenses . . . . . . . . . . . . . . . . . . (172,000) (416,000) (699,000) Gain on disposition of subsidiary . . . . . . . . . . . . . . . . . . (818,000) --- --- Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions: Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . (356,000) (2,411,000) (1,452,000) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,318,000) 44,000 (4,466,000) Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . (57,000) (34,000) (384,000) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 872,000 937,000 903,000 Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 2,526,000 (830,000) (1,031,000) Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . 307,000 691,000 1,885,000 --------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES . . $ 3,307,000 $ 1,329,000 $ (2,820,000) --------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sales of equipment . . . . . . . . . . . . . . . . . . . . . 14,000 6,000 5,000 Purchases of property, plant and equipment . . . . . . . . . . . . . . . . (1,736,000) (1,446,000) (1,191,000) Proceeds from long-term notes receivable . . . . . . . . . . . . . . . . . --- 17,000 13,000 Payments for acquisitions, net of cash acquired . . . . . . . . . . . . . (6,404,000) --- (6,344,000) --------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . $ (8,126,000) $ (1,423,000) $ (7,517,000) --------------------------------------------------- FINANCING ACTIVITIES: Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (349,000) (375,000) (585,000) Rights redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,000) --- --- Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . --- (2,049,000) --- Proceeds from life insurance policy loans . . . . . . . . . . . . . . . . --- --- 164,000 Payments on life insurance policy loans . . . . . . . . . . . . . . . . . --- --- (324,000) Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . 9,000,000 6,600,000 9,100,000 Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (3,526,000) (3,900,000) (1,062,000) Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . 122,000 15,000 3,000 --------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . $ 5,199,000 $ 291,000 $ 7,296,000 --------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . 380,000 197,000 (3,041,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . 197,000 --- 3,041,000 --------------------------------------------------- CASH AND CASH EQUIVALENTS AT YEAR END . . . . . . . . . . . . . . . . . . . $ 577,000 $ 197,000 $ --- ===================================================
*Reclassified to conform with current year's presentation. See accompanying notes to consolidated financial statements. 15 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES 1. SUMMARY OF SIGNIFICANT POLICIES Consolidation: The consolidated financial statements include the accounts of SL Industries, Inc. and its wholly-owned subsidiaries ("the Company"). All intercompany accounts and transactions have been eliminated in consolidation. Revenue recognition: Sales are recognized upon shipment of products. Inventories: Inventories are valued at the lower of cost or market. Cost is primarily determined using the first-in, first-out ("FIFO") method. Cost for certain inventories is determined using the last-in, first-out ("LIFO") method. Property, plant and equipment: Property, plant and equipment are carried at cost and include expenditures for new facilities and major renewals and betterments. Maintenance, repairs and minor renewals are charged to expense as incurred. When assets are sold or otherwise disposed of, any gain or loss is recognized currently. Depreciation is provided primarily using the straight-line method over the estimated useful lives of the assets, which range from 25 to 40 years for buildings, 3 to 10 years for equipment and other property and the lease term for leasehold improvements. Intangible assets: Intangible assets consist primarily of goodwill, trademarks, covenants not to compete and patents. The goodwill and trademarks resulting from the May 1995 acquisition are being amortized over 25 years. Goodwill resulting from acquisitions made prior to November 1, 1970, of $955,000, is considered to have continuing value over an indefinite period, and is not being amortized. Covenants are amortized over their stated terms and patents are amortized over their remaining lives. Subsequent to its acquisitions, the Company continually evaluates whether later events or circumstances have occurred that would indicate that the remaining estimated useful life of an intangible asset may warrant revision or that the remaining balance may not be recoverable. Research and development costs: Research and development costs are expensed as incurred. For the fiscal years ended July 31, 1995, 1994 and 1993, these costs were $985,000, $670,000 and $1,507,000, 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. Effective August 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes ("SFAS 109")." SFAS 109 provides for income tax accounting under the asset/liability method, which includes a requirement for adjustment of deferred tax balances for income tax rate changes and an assessment as to whether a valuation allowance should be established for deferred tax assets. Future years' net income will be subject to increased volatility depending upon the frequency of tax rate changes. Adoption of SFAS 109 had no significant effect on the 1994 provision for income taxes. As shown in the fiscal 1994 consolidated statement of earnings, the cumulative effect to August 1, 1993, of the change was $603,000, or $.10 per common share. Prior year financial statements have not been restated to apply the provisions of SFAS 109. Net income per common share: Net income per common share is calculated based on weighted average shares outstanding. The effect of outstanding stock options is not material for fiscal 1995 and is antidilutive for 1994 and 1993. These stock options have not been included in the calculation. Reclassification: Certain reclassifications have been made to the prior year financial statements to conform with current year presentation. 2. ACQUISITIONS AND DISPOSITION On February 16, 1993, the Company acquired all of the stock of Condor D.C. Power Supplies, Inc. ("Condor"), and all of the assets of its Mexican affiliate, Electronica Condor de Mexico, S.A. de C.V. ("Electronica") for an aggregate of $6,344,000, net of cash acquired. Condor designs and manufactures linear and switching power supplies in the low to medium power range. The acquisitions were accounted for using the purchase method of accounting. Therefore, the aggregate purchase price has been allocated to the assets and liabilities acquired based on their respective fair values at date of acquisition. A total of $2,870,000 of the aggregate purchase price has been allocated to a covenant not to compete and is being amortized on a straight-line basis over ten years. The results of 16 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES operations of Condor and Electronica, since the acquisition date, are included in the accompanying consolidated financial statements. On May 1, 1995, the Company acquired substantially all of the assets and liabilities of Teal Electronics Corporation ("Teal"), for an aggregate of $6,404,000, net of cash acquired. In addition, the asset purchase agreement includes a provision to pay additional purchase price equal to 50% of the annual net profits of the acquired business in excess of $1,100,000 for each of the five twelve-month periods beginning May 1, 1995. Teal designs and manufactures custom low impedance power conditioners which are primarily sold to OEM's and are used to protect medical imaging systems, semiconductor production equipment, telecommunications systems, printing presses and other special purpose computerized systems. The acquisition has been accounted for using the purchase method of accounting. Therefore, the aggregate purchase price has been allocated to the assets and liabilities acquired based on their respective fair values at date of acquisition. A total of $3,056,000 of the aggregate purchase price has been allocated to goodwill and trademarks and is being amortized on a straight-line basis over twenty-five years. Additional purchase price will be allocated to goodwill as amounts become determinable. The results of operations of Teal, since the acquisition date, are included in the accompanying consolidated financial statements. Unaudited pro forma consolidated results of operations, as though the Company acquired Condor and Electronica on August 1, 1992, and Teal on August 1, 1993, are as follows:
--------------------------------- 1995 1994 1993 --------------------------------- (In thousands, except per share data) Net sales. . . . . . . . . . . $98,307 $83,332 $67,656 Net income . . . . . . . . . . $ 3,992 $ 1,970 $ 1,532 Net income per common share. . $ .67 $ .32 $ .24
The unaudited pro forma consolidated results of operations include the amortization of goodwill, covenant not to compete and other intangible assets, and additional interest and depreciation expense as if these acquisition related expenses had been incurred since the August 1st dates. The unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the purchases actually been made at the August 1st dates, or of results which may occur in the future. On May 24, 1995, the Company distributed all of the shares of its wholly-owned subsidiary, SL LUBE/systems, Inc., in a tax free distribution, in exchange for 400,000 shares of its common stock owned by Vesper Corporation. For financial reporting purposes, the distribution resulted in a pre-tax gain, net of severance, legal and other costs, of $818,000, increasing net income by $1,100,000, or $.19 per common share. 3. INCOME TAXES The provision for federal and state income taxes consists of the following:
-------------------------------- 1995 1994 1993 -------------------------------- (In thousands) Current: Federal. . . . . . . . . . . $1,607 $ 731 $(136) State. . . . . . . . . . . . 361 203 117 Deferred . . . . . . . . . . . (700) 277 206 Charge equivalent in lieu of income taxes related to benefit of net operating loss carryforward. . . . . . --- --- 500 ------------------------------- $1,268 $1,211 $ 687 ===============================
Significant components of the Company's deferred tax assets and liabilities at July 31, 1995 and 1994, are as follows:
------------------ 1995 1994 ------------------ (In thousands) Deferred tax assets: Deferred compensation. . . . $1,359 $1,453 Liabilities related to discontinued product line. 505 578 Liabilities related to environmental matters. . . 115 407 Inventory valuation. . . . . 573 331 Prepaid and accrued expenses 1,587 670 Other. . . . . . . . . . . . 1 62 ------------------ 4,140 3,501 Deferred tax liabilities: Accelerated depreciation and amortization . . . . . . . 1,132 1,192 ------------------ $3,008 $2,309 ==================
17 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES Following is a reconciliation between the amount of income tax expense at the applicable federal statutory rate and the effective rates:
--------------------------------------- 1995 1994 1993 --------------------------------------- Federal statutory rate . . . . 34% 34% 34% Adjustment related to disposal of subsidiary . . . (12) - - Tax rate differential on Foreign Sales Corporation earnings . . . . . . . . . . (1) (1) (1) State income taxes, net of federal income tax benefit . . . . . . . . . . 5 4 7 Other . . . . . . . . . . . . - 1 2 ------------------------------------- 26% 38% 42% =====================================
4. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentration of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across many industries and geographic regions. 5. INVENTORIES Inventories at July 31, 1995 and 1994, consist of the following:
------------------------ 1995 1994 ------------------------ (In thousands) Raw materials. . . . . . . . . . $ 9,060 $ 8,406 Work in process. . . . . . . . . 3,259 2,419 Finished goods . . . . . . . . . 8,303 5,894 ------------------------ $20,622 $16,719 ========================
The above includes certain inventories, which are valued using the LIFO method, which aggregated $1,066,000 and $748,000 at July 31, 1995 and 1994, respectively. The excess of FIFO cost over LIFO cost at July 31, 1995 and 1994, was approximately $518,000 and $503,000, respectively. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
------------------------ 1995 1994 ------------------------ (In thousands) Land . . . . . . . . . . . . . . . . $ 79 $ 79 Buildings and leasehold improvements . . . . . . . . . . . 3,465 3,172 Equipment and other property . . . . 14,478 13,117 ------------------------ 18,022 16,368 Less accumulated depreciation. . . . 11,089 10,116 ------------------------ $ 6,933 $ 6,252 ========================
"Assets held for future sale" at July 31, 1995 and 1994, are not included above and relate to assets remaining after the 1989 relocation of a power and data quality operation and the 1988 consolidation of the Company's two plastics operations into one, which was subsequently sold. These assets consist primarily of land, buildings and building improvements which are being leased to third parties. The buildings and building improvements are being depreciated and accounted for as an operating lease. Aggregate accumulated depreciation for the buildings and building improvements at July 31, 1995 and 1994, was $1,379,000 and $1,189,000, respectively. Aggregate minimum rental income for fiscal 1995 and 1994, was $259,000 and $250,000, respectively. Aggregate minimum rental income for the remaining lease periods will be $204,000 in 1996, and $70,000 in 1997. The net book values of these assets are less than the estimated net realizable value based on market surveys received from independent third parties. 7. INTANGIBLE ASSETS Intangible assets at July 31, 1995 and 1994, consist of the following:
-------------------------- 1995 1994 -------------------------- (In thousands) Patents . . . . . . . . . . . . . . . $ 873 $ 293 Covenants not to compete. . . . . . . 2,980 4,070 Goodwill . . . . . . . . . . . . 3,091 955 Trademarks . . . . . . . . . . . . . 920 --- Other . . . . . . . . . . . . . . . . 386 --- -------------------------- 8,250 5,318 Less accumulated amortization . . . . 782 1,903 -------------------------- $7,468 $3,415 ==========================
18 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES 8. DEBT Long-term debt consists of the following:
------------------------- 1995 1994 ------------------------- (In thousands) Revolving line of credit.............. $17,000 $11,300 Industrial revenue bonds payable in various principal amounts through 1998....................... 560 786 ------------------------- 17,560 12,086 Less portion due within one year...... 187 168 ------------------------- $17,373 $11,918 =========================
On December 27, 1994, the Company amended its revolving credit agreement to increase the amount from $15,000,000 to $22,000,000, the participating banks from two to four and to extend the maturity date to December 31, 1997. Under the terms of this agreement, the Company can borrow for acquisitions, working capital and, for other purposes, at either a "CD or LIBOR rate," as defined, or prime interest rate. The agreement, as amended, contains limitations on borrowings; restricts the payment of cash dividends to $600,000 per fiscal year; and requires maintenance of specified ratios, the most restrictive of which are the ratio of consolidated total liabilities to consolidated tangible net worth and the ratio of consolidated cash flow to consolidated financing requirements, as defined. At July 31, 1995, the Company is in compliance with the above covenants. In lieu of compensating balances, the Company pays commitment fees as defined under the agreement. Under the terms of the industrial revenue bond installment loan agreements, interest is payable quarterly on the outstanding principal at 65% of the prevailing prime rate, adjusted monthly. Generally the banks have the right and option to call each loan, at specified dates, if certain levels of shareholders' equity, as defined, are not maintained. Principal maturities of long-term debt in the next three years are $187,000 in 1996 and 1997, and $17,186,000 in 1998. 9. RETIREMENT PLANS AND DEFERRED COMPENSATION The Company and its aviation igniter and power conditioner subsidiaries have noncontributory defined contribution pension plans covering substantially all employees. The Company's contribution to its plan is based on a percentage of employee elective contributions and calendar year gross wages, as defined in the plan. The aviation igniter subsidiary's contribution to its plan is based on a percentage of salary, as defined in the plan. The power conditioner subsidiary's contribution to its plan is based on a percentage of employee elective contributions. Costs accrued under the plans for fiscal 1995, 1994 and 1993 amounted to approximately $416,000, $387,000 and $349,000, respectively. It is the Company's and subsidiaries' policies to fund 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 $50,000, $50,000 and $45,000 in 1995, 1994 and 1993, 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 deferred compensation and supplemental retirement benefits. In August 1992, a director rescinded his deferred compensation agreement and was paid $72,000 which covered his deferred directors' fees plus interest of 8% per annum, compounded quarterly. The liability for deferred compensation and supplemental retirement benefits is based on the most recent mortality tables available and discount rates of 8%, 10% and 12%. The amount charged to income in connection with these agreements amounted to $509,000, $606,000 and $309,000 in 1995, 1994 and 1993, 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, 1995, the aggregate death benefit totaled $12,453,000 with the corresponding cash surrender value totaling $6,595,000. At July 31, 1995, certain agreements may restrict the Company from utilizing cash surrender value totaling $1,636,000 for purposes other than satisfaction of the specific underlying deferred compensation agreements, if benefits are not paid by the Company. The Company nets the increase 19 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES in the cash surrender value of the policies with premium expense. Net amounts included in income in connection with the policies amounted to $217,000, $155,000 and $149,000 in 1995, 1994 and 1993, respectively. 10. COMMITMENTS AND CONTINGENCIES For the fiscal years ended July 31, 1995, 1994 and 1993, rental expense applicable to continuing operations aggregated $1,743,000, $1,389,000 and $1,117,000, respectively. These expenses are primarily for facilities and vehicles. The minimum rental commitments as of July 31, 1995, are as follows: (In thousands) 1996. . . . . . . . $1,283 1997. . . . . . . . 863 1998. . . . . . . . 809 1999. . . . . . . . 589 2000. . . . . . . . 388 Thereafter. . . . . 531 ------ $4,463 ======
At July 31, 1995, the Company was contingently liable for $272,000, under outstanding letters of credit issued primarily for inventory purchases from foreign suppliers and product liability insurance. In the ordinary course of its business, the Company is subject to loss contingencies pursuant to federal, state and local governmental laws and regulations and is also party to certain legal actions, most frequently complaints by terminated employees. It is management's opinion that the impact of these legal actions will not have a material effect on the financial position or results of operations of the Company. Included in these categories are potential obligations to investigate and eliminate or mitigate the effects 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 cost for all known contingencies of this sort 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. For example, during the latter part of fiscal year 1995, the New Jersey Department of Environmental Protection required the Company to begin additional investigation of the extent of off-site contamination at its former facility in Wayne, New Jersey, where remediation has been underway for years, so that additional expenses there are now likely but cannot yet be estimated with any accuracy. The amount of such future cost is indeterminable due to such factors as changing government regulations and tougher standards, the unknown magnitude of defense and cleanup costs, the unknown timing and extent of the remedial actions that may be required, the determination of the Company's liability in proportion to other responsible parties, and the extent, if any, to which such costs are recoverable from other parties or from insurance. Although these contingencies could result in additional expenses or judgments, or off-sets thereto, at present such expenses or judgments are not expected to have a material effect on the Company's consolidated financial position. 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, the Company made additional provisions of $480,000 based upon new estimates. During fiscal years 1993, 1994 and 1995, the Company paid or incurred expenses at all of those six locations and twelve others, in addition to environment-related capital expenditures of approximately $363,000. The Company has filed claims with its insurers seeking reimbursement for many of these costs, and believes that some recovery is likely. It is too early, however, to assess the extent of recovery that might be obtained under the various insurance policies from the insurers involved. Accordingly, no such recoveries have been recognized in the consolidated financial statements. At July 31, 1995 and 1994, the remaining accrual was $619,000 and $1,325,000, respectively, of which $334,000 and $425,000, respectively, have been included in "Accrued Liabilities" and $285,000 and $900,000, respectively, in "Other Liabilities" in the accompanying consolidated balance sheets. In the opinion of management, the remaining accrual at July 31, 1995, is adequate to cover cleanup costs, the amounts of which are known to be probable at this time. 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 20 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES 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 1994 and 1995 with respect to the Plan is as follows:
----------------------------- Shares Option Price ----------------------------- (In thousands, except for option price) Granted, outstanding and exercisable at July 31, 1994. . . . . . . . . . 17 $3.5625 to $4.25 Granted . . . . . . . . . . . . . . . 34 $4.1875 to $5.125 Outstanding and exercisable at July 31, 1995. . . . . . . . . . 51 $3.5625 to $5.125
As of July 31, 1995 and 1994, the number of shares available for grant were 199,000 and 233,000, 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. 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 1993, 1994 and 1995 with respect to the Plan is as follows:
---------------------------- Shares Option Price ---------------------------- (In thousands, except for option price) Outstanding and exercisable at August 1, 1992 . . . . . . . . 86 $3.25 Granted . . . . . . . . . . . . . . . 116 $3.25 to $3.75 Exercised . . . . . . . . . . . . . . (1) $3.25 Cancelled . . . . . . . . . . . . . . (19) $3.25 Outstanding and exercisable at July 31, 1993 . . . . . . . . . 182 $3.25 to $3.75 Granted . . . . . . . . . . . . . . . 103 $3.50 to $3.625 Exercised . . . . . . . . . . . . . . (5) $3.25 to $3.50 Cancelled . . . . . . . . . . . . . . (14) $3.25 Outstanding and exercisable at July 31, 1994 . . . . . . . . . 266 $3.25 to $3.75 Granted . . . . . . . . . . . . . . . 70 $4.25 to $4.50 Exercised . . . . . . . . . . . . . . (34) $3.25 to $3.75 Cancelled . . . . . . . . . . . . . . (1) $3.25 to $3.50 Outstanding and exercisable at July 31, 1995 . . . . . . . . . 301 $3.25 to $4.50
As of July 31, 1995, 1994, and 1993, the number of shares available for grant were 159,000, 228,000, and 317,000, respectively. The Company's 1981 Incentive Stock Option Plan for officers and employees expired on July 31, 1991. The Plan provided that option prices were equivalent to 100% of market value at date of grant. All options granted under the Plan are exercisable three years from date of grant and expire five years after date of grant. Information for the years 1993, 1994 and 1995 with respect to the Plan is as follows:
---------------------------- Shares Option Price ---------------------------- (In thousands, except for option price) Outstanding at August 1, 1992 . . . . 105 $5.90 to $7.90 Expired . . . . . . . . . . . . . . . (36) $6.84 Cancelled . . . . . . . . . . . . . . (14) $5.90 to $7.90 Outstanding at July 31, 1993. . . . . 55 $5.90 to $7.90 Expired . . . . . . . . . . . . . . . (17) $7.03 Cancelled . . . . . . . . . . . . . . (3) $5.90 to $7.90 Outstanding and exercisable at July 31, 1994. . . . . . . . . . 35 $5.90 to $7.90 Expired . . . . . . . . . . . . . . . (16) $7.90 Cancelled . . . . . . . . . . . . . . (2) $5.90 to $7.90 Outstanding and exercisable at July 31, 1995. . . . . . . . . . 17 $5.90
21 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SL INDUSTRIES, INC. AND SUBSIDIARIES During fiscal 1991, the Board of Directors approved the granting of nonqualified stock options to purchase 110,000 shares at an option price of $4.13, and 15,000 shares at an option price of $5.25 to the Chief Executive Officer of the Company and a subsidiary president, respectively. 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. The option for 15,000 shares was exercised on August 8, 1995. 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, and all of the option prices are equivalent to 100% of market value at date of grant. The above data have been adjusted to reflect subsequent stock dividends. In November 1987, the Board of Directors authorized a dividend of one preferred share purchase right ("Right") on each outstanding share of Common Stock of the Company to holders of record on December 13, 1987, and authorized the issuance of one Right for each share of Common Stock issued after December 13, 1987. By action dated October 30, 1992, the Board irrevocably redeemed the Rights on November 14, 1994, at a price of $.0079209 per Right. 12. CASH FLOW INFORMATION For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments, purchased with an original maturity of three months or less, to be cash equivalents. Supplemental disclosures of cash flow information:
-------------------------------- 1995 1994 1993 -------------------------------- (In thousands) Interest paid . . . . . . . . . $790 $594 $246 Income taxes paid . . . . . . . $1,667 $528 $189
Excluded from the consolidated statements of cash flows for fiscal 1995 and 1993 are certain noncash investing and financing activities relating to acquisitions which result in the item reflected under investing activities "Payments for acquisitions, net of cash acquired $6,404,000 and $6,344,000," respectively:
------------------------------- 1995 1993 ------------------------------- (In thousands) Fair value of assets acquired, net of cash . . . . . . . . . $6,969 $8,363 Liabilities assumed . . . . . . $565 $2,019
13. INDUSTRY SEGMENTS The Company's operations are conducted through domestic subsidiaries within two major industry segments. Sales between segments are not material. No single customer accounts for more than 10% of consolidated sales nor are export sales material thereto.
----------------------------------------------------- 1995 1994(1) 1993(1) ----------------------------------------------------- (In thousands) NET SALES Power and data quality . . . . $73,183 $58,911 $41,739 Specialty products . . . . . . 17,942 17,682 16,790 ----------------------------------------------------- Consolidated . . . . . . . . $91,125 $76,593 $58,529 ===================================================== OPERATING INCOME Power and data quality . . . . $ 5,758 $ 3,551 $ 2,316 Specialty products . . . . . . 1,760 2,184 2,024 Corporate. . . . . . . . . . . (2,586) (2,017) (2,573) ----------------------------------------------------- Total. . . . . . . . . . . . 4,932 3,718 1,767 Gain on disposition. . . . . . 818 -- -- Interest income. . . . . . . . 54 50 82 Interest expense . . . . . . . (859) (606) (208) ----------------------------------------------------- Consolidated income before income taxes. . . . $ 4,945 $ 3,162 $ 1,641 ===================================================== IDENTIFIABLE ASSETS Power and data quality . . . . $38,653 $29,782 $29,311 Specialty products . . . . . . 9,582 9,767 8,937 ----------------------------------------------------- Consolidated segment totals. . 48,235 39,549 38,248 Corporate. . . . . . . . . . . 13,921 12,848 11,583 ----------------------------------------------------- Consolidated assets. . . . . $62,156 $52,397 $49,831 ===================================================== CAPITAL EXPENDITURES(2) Power and data quality . . . . $ 1,113 $ 603 $ 729 Specialty products . . . . . . 614 798 408 Corporate. . . . . . . . . . . 9 45 54 ----------------------------------------------------- Total. . . . . . . . . . . . $ 1,736 $ 1,446 $ 1,191 ===================================================== DEPRECIATION AND AMORTIZATION Power and data quality . . . . $ 1,255 $ 1,067 $ 908 Specialty products . . . . . . 627 572 531 Corporate. . . . . . . . . . . 226 229 235 ----------------------------------------------------- Total. . . . . . . . . . . . $ 2,108 $ 1,868 $ 1,674 =====================================================
(1) SL Auburn, Inc. was transferred from the Power and Data Quality Segment to the Specialty Products Segment because its products no longer fit the Power and Data Quality definition. Prior years have been restated to reflect this change. (2) Excludes assets acquired in business combinations. 22 20 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, 1995 and 1994, and related consolidated statements of earnings, shareholders' equity and cash flows for the years then ended. 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. The financial statements of SL Industries, Inc. for the year ended July 31, 1993, were audited by other auditors whose report dated September 20, 1993, expressed an unqualified opinion on those statements. 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, 1995 and 1994, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements, effective August 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." /s/ ARTHUR ANDERSEN LLP Philadelphia, PA September 15, 1995 23 21 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) SL INDUSTRIES, INC. AND SUBSIDIARIES
--------------------------------------- Quarter Ended --------------------------------------- October 31, January 31, ----------------- ------------------ 1994 1993 1995 1994 --------------------------------------- (In thousands, except per share data) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,428 $ 17,640 $ 21,777 $ 18,319 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,543 $ 5,400 $ 7,023 $ 5,697 Income before income taxes and cumulative effect . . . . . . . $ 811 $ 742 $ 781 $ 307 Income before cumulative effect . . . . . . . . . . . . . . . $ 517 $ 467 $ 480 $ 168 Cumulative effect to August 1, 1993, of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . $ --- $ 603 $ --- $ --- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 517 $ 1,070 $ 480 $ 168 Net income per common share:(1) Income before cumulative effect . . . . . . . . . . . . . . . $ .09 $ .07 $ .08 $ .03 Cumulative effect to August 1, 1993, of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . $ --- $ .09 $ --- $ --- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ .09 $ .16 $ .08 $ .03 ---------------------------------------
----------------------------------------- Quarter Ended ----------------------------------------- April 30, July 31, ------------------ ------------------- 1995 1994 1995(2) 1994 ----------------------------------------- (In thousands, except per share data) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,938 $ 19,147 $26,982 $ 21,487 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,035 $ 6,378 $ 9,047 $ 6,719 Income before income taxes and cumulative effect . . . . . . . $ 1,231 $ 1,023 $ 2,122 $ 1,090 Income before cumulative effect . . . . . . . . . . . . . . . $ 778 $ 640 $ 1,902 $ 676 Cumulative effect to August 1, 1993, of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $ --- $ --- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 778 $ 640 $ 1,902 $ 676 Net income per common share:(1) Income before cumulative effect . . . . . . . . . . . . . . . $ .13 $ .11 $ .33 $ .11 Cumulative effect to August 1, 1993, of change in accounting for income taxes . . . . . . . . . . . . . . . . . . . . . $ --- $ --- $ --- $ --- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ .13 $ .11 $ .33 $ .11 -----------------------------------------
(1) Quarterly earnings per share are based on weighted average shares outstanding for each quarter, and as a result, fiscal 1995 and 1994 do not add to the annual amount, which is based on weighted average shares outstanding during the year. (2) 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. See Note 2 to consolidated financial statements. 24 EX-22 4 SUBSIDAIRIES OF THE REGISTRANT 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 Industrias SL, S.A. de C.V Mexico PDQ Corporation New Jersey SL Ameritech Plastics, Inc. New York SL Auburn, Inc. New York SL Delaware, Inc. Delaware SL International (FSC), Inc. U.S. Virgin Islands SL LUBE/systems, Inc.(a) New Jersey SL Modern Hard Chrome, Inc. New Jersey SL Montevideo Technology, Inc. Minnesota SL Piping Systems, Inc. Delaware SL Waber, Inc. New Jersey Teal Electronics Corporation California Waber de Mexico, S.A. De C.V. Mexico Waber Power, LTD(b) Connecticut
All of the registrant's subsidiaries are included in the consolidated financial statements for the year ended July 31, 1995. - - ------------------- (a) Disposed on May 24, 1995. (b) Formerly SL Electrostatic Technology, Inc. EX-24 5 CONSENT OF ARTHUR ANDERSON LLP 1 EXHIBIT 24 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. 33-31805, 33-53274 and 33-63681. ARTHUR ANDERSEN LLP Philadelphia, PA October 30, 1995 EX-24.A 6 CONSENT OF COOPERS & LYBRAND LLP 1 EXHIBIT 24A [COOPERS & LYBRAND LETTERHEAD] CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of SL Industries, Inc. on Form S-8 (File No.'s 33-31805, 33-53274, and 33-63681) of our report dated September 20, 1993, on our audit of the consolidated financial statements and financial statement schedule of SL Industries, Inc. as of July 31, 1993 and for the year ended July 31, 1993 which report is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND LLP - - -------------------------- 2400 Eleven Penn Center Philadelphia, PA October 30, 1995 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF EARNINGS, CONSOLIDATED BALANCE SHEET; CONSOLIDATED CASH FLOWS; NOTES TO FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K - YEAR ENDED JULY 31, 1995 1,000 U.S. DOLLARS YEAR JUL-31-1995 AUG-01-1994 JUL-31-1995 1 577 0 14,262 1,820 20,622 36,988 18,022 11,089 62,156 15,059 0 1,555 0 0 23,375 62,156 91,125 91,125 59,249 86,193 859 175 0 4,945 1,268 3,677 0 0 0 3,677 .62 0
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