-----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, Uqrl+iZjlXM1LcFCcEeWDpuxzrmUXThU8CstriR1Uw0K3YJH5wX9pVMAhQ249Gsz KiAhtnLIJudkm0NhT6wGHw== 0000893220-03-001424.txt : 20030813 0000893220-03-001424.hdr.sgml : 20030813 20030813141106 ACCESSION NUMBER: 0000893220-03-001424 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SL INDUSTRIES INC CENTRAL INDEX KEY: 0000089270 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 210682685 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04987 FILM NUMBER: 03840428 BUSINESS ADDRESS: STREET 1: 520 FELLOWSHIP ROAD STREET 2: SUITE A114 CITY: MT LAUREL STATE: NJ ZIP: 08054 BUSINESS PHONE: 8567271500 MAIL ADDRESS: STREET 1: 520 FELLOWSHIP ROAD STREET 2: SUITE A114 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-Q 1 w89228e10vq.txt FORM 10-Q FOR THE QUARTER ENDED JUNE 30,2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 (I.R.S. Employer Identification No.) organization) 520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ 08054 - ----------------------------------------------------------------- ----- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 856-727-1500 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered Title of each class American Stock Exchange Common stock, $.20 par value 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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of shares of common stock outstanding as of August 7, 2003 were 5,923,541. TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets June 30, 2003 and December 31, 2002......................................... 1 Consolidated Statements of Operations Three Months Ended June 30, 2003 and 2002 and Six Months Ended June 30, 2003 and 2002............................... 2 Consolidated Statements of Cash Flows Six Months Ended June 30, 2003 and 2002................................... 3 Notes to Consolidated Financial Statements..................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 17 Item 3. Quantitative and Qualitative Disclosures about Market Risk........................ 25 Item 4. Controls and Procedures........................................................... 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................................. 25 Item 4. Submission of Matters to a Vote of Security Holders.............................. 26 Item 5. Other Information................................................................ 26 Item 6. Exhibits and Reports on Form 8-K.................................................. 27 Signatures................................................................................ 28
Item 1 Financial Statements SL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2003 2002 ------------ ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents ................................................................ $ - $ 3,539,000 Receivables, net ......................................................................... 16,650,000 18,001,000 Notes receivable ......................................................................... 1,000,000 - Inventories, net ......................................................................... 12,856,000 13,747,000 Prepaid expenses ......................................................................... 906,000 657,000 Net current assets held for sale ......................................................... - 22,950,000 Deferred income taxes, net ............................................................... 2,108,000 2,690,000 ------------ ------------ Total current assets ................................................................. 33,520,000 61,584,000 Property, plant and equipment, net ......................................................... 10,408,000 10,852,000 Deferred income taxes, net ................................................................. 5,278,000 5,118,000 Goodwill, net .............................................................................. 10,303,000 10,303,000 Other intangible assets, net ............................................................... 1,035,000 1,085,000 Other assets ............................................................................... 1,602,000 1,725,000 ------------ ------------- Total assets ......................................................................... $ 62,146,000 $ 90,667,000 ------------ ------------- LIABILITIES Current liabilities: Debt, current portion..................................................................... $ 3,756,000 $ 17,557,000 Accounts payable ......................................................................... 3,379,000 4,689,000 Accrued income taxes ..................................................................... 1,688,000 1,884,000 Net current liabilities held for sale .................................................... - 14,950,000 Accrued liabilities: Payroll and related costs ............................................................. 4,096,000 4,937,000 Other ................................................................................. 6,695,000 7,470,000 ------------ ------------ Total current liabilities ............................................................ 19,614,000 51,487,000 Debt, less current portion ................................................................. 2,835,000 - Deferred compensation and supplemental retirement benefits ................................. 4,031,000 3,875,000 Other liabilities .......................................................................... 926,000 1,593,000 ------------ ------------ Total liabilities .................................................................. $ 27,406,000 $ 56,955,000 ------------ ------------ Commitments and contingencies (Note 9) 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, 8,298,000 shares ................................................................. 1,660,000 1,660,000 Capital in excess of par value ............................................................. 38,806,000 38,820,000 Retained earnings .......................................................................... 9,312,000 8,427,000 Treasury stock at cost, 2,375,000 and 2,398,000 shares, respectively ....................... (15,038,000) (15,195,000) ------------ ------------ Total shareholders' equity ......................................................... 34,740,000 33,712,000 ------------ ------------ Total liabilities and shareholders' equity ......................................... $ 62,146,000 $ 90,667,000 ------------ ------------
See accompanying notes to consolidated financial statements. 1 SL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three-Months Ended Six-Months Ended June 30, June 30, 2003 2002* 2003 2002* ------------ ------------ ------------ ------------ Net Sales .................................................. $ 27,444,000 $ 27,924,000 $ 53,662,000 $ 55,457,000 Cost and expenses: Cost of products sold .................................... 17,018,000 18,458,000 34,137,000 35,627,000 Engineering and product development ...................... 1,996,000 1,646,000 3,914,000 3,644,000 Selling, general and administrative ...................... 6,639,000 6,682,000 12,659,000 13,408,000 Depreciation and amortization ............................ 635,000 721,000 1,283,000 1,452,000 Special charges .......................................... - 9,000 - 1,834,000 Restructuring costs ...................................... - 40,000 - 265,000 ------------ ------------ ------------ ------------ Total cost and expenses .................................... 26,288,000 27,556,000 51,993,000 56,230,000 ------------ ------------ ------------ ------------ Income (loss) from continuing operations ................... 1,156,000 368,000 1,669,000 (773,000) Other income (expense): Interest income .......................................... 31,000 7,000 96,000 10,000 Interest expense ......................................... (129,000) (376,000) (335,000) (892,000) ------------ ------------ ------------ ------------ Income (loss) from continuing operations before income taxes 1,058,000 (1,000) 1,430,000 (1,655,000) Income tax provision (benefit) ............................. 359,000 (118,000) 545,000 (844,000) ------------ ------------ ------------ ------------ Income (loss) from continuing operations ................... 699,000 117,000 885,000 (811,000) ------------ ------------ ------------ ------------ Income from discontinued operations (net of tax) ........... - 214,000 - 766,000 ------------ ------------ ------------ ------------ Net income (loss) .......................................... $ 699,000 $ 331,000 $ 885,000 $ (45,000) ------------ ------------ ------------ ------------ BASIC NET INCOME (LOSS) PER COMMON SHARE Income (loss) from continuing operations ................. $ 0.12 $ 0.02 $ 0.15 $ (0.14) Income from discontinued operations (net of tax) ......... - 0.04 - 0.13 ------------ ------------ ------------ ------------ Net income (loss) ........................................ $ 0.12 $ 0.06 $ 0.15 $ (0.01) ------------ ------------ ------------ ------------ DILUTED NET INCOME (LOSS) PER COMMON SHARE Income (loss) from continuing operations ................. $ 0.12 $ 0.02 $ 0.15 $ (0.14) Income from discontinued operations (net of tax) ......... - 0.04 - 0.13 ------------ ------------ ------------ ------------ Net income (loss) ........................................ $ 0.12 $ 0.06 $ 0.15 $ (0.01) ------------ ------------ ------------ ------------ Shares used in computing basic net income (loss) per common share ......................................... 5,898,000 5,894,000 5,896,000 5,839,000 Shares used in computing diluted net income (loss) per common share ......................................... 5,912,000 5,930,000 5,912,000 5,839,000
* RECLASSIFIED FOR COMPARATIVE PURPOSES ONLY. See accompanying notes to consolidated financial statements. SL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (Unaudited)
Three-Months Ended Six-Months Ended June 30, June 30, 2003 2002* 2003 2002* --------- --------- --------- --------- Net income (loss) ............................................ $ 699,000 $ 331,000 $ 885,000 $ (45,000) Other comprehensive income: Currency translation adjustment, net of related taxes ... - 389,000 - 402,000 --------- --------- --------- --------- Comprehensive income ......................................... $ 699,000 $ 720,000 $ 885,000 $ 357,000 --------- --------- --------- ---------
See accompanying notes to consolidated financial statements 2 SL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002 (Unaudited)
2003 2002* ------------ ------------ OPERATING ACTIVITIES: Net income (loss) from continuing operations ................................................. $ 885,000 $ (811,000) Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities: Depreciation ............................................................................... 978,000 1,135,000 Amortization ............................................................................... 305,000 317,000 Restructuring charges ...................................................................... - 35,000 Provisions for losses on accounts receivable ............................................... 54,000 47,000 Cash surrender value of life insurance premiums ............................................ (74,000) 83,000 Deferred compensation and supplemental retirement benefits ................................. 208,000 249,000 Deferred compensation and supplemental retirement benefit payments ......................... (264,000) (1,780,000) (Increase) decrease in deferred income taxes ............................................... 422,000 (662,000) Gain on sale of equipment .................................................................. (2,000) (6,000) Changes in operating assets and liabilities, excluding effects of business disposition: Accounts receivable ...................................................................... 1,222,000 4,383,000 Inventories .............................................................................. 891,000 1,930,000 Prepaid expenses ......................................................................... (249,000) 15,000 Other assets, net ........................................................................ (59,000) (37,000) Accounts payable ......................................................................... (780,000) (1,624,000) Other accrued liabilities ................................................................ (1,577,000) (1,055,000) Accrued income taxes ..................................................................... (1,262,000) (1,133,000) ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITES ...................................................... 698,000 1,086,000 ------------ ------------ INVESTING ACTIVITIES: Proceeds from sale of subsidiary ............................................................ 7,000,000 - Proceeds from sale of equipment ............................................................. 59,000 - Purchases of property, plant, and equipment ................................................. (567,000) (1,045,000) Increase in notes receivable ................................................................ 1,000 1,000 Proceeds from cash surrender life insurance policies ........................................ - 10,676,000 ------------ ------------ NET CASH PROVIDED BY INVESTING ACTIVITES ...................................................... 6,493,000 9,632,000 ------------ ------------ FINANCING ACTIVITIES: Net proceeds from Senior Credit Facility .................................................... 6,824,000 - Payments of term loans ...................................................................... (233,000) - Payments to Revolving Credit Facility, net. ................................................. (17,557,000) (14,424,000) Proceeds from stock options exercised ....................................................... - 755,000 Treasury stock sold ......................................................................... 143,000 165,000 ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES ......................................................... (10,823,000) (13,504,000) ------------ ------------ NET CASH PROVIDED BY DISCONTINUED OPERATIONS .................................................. 93,000 320,000 ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS ....................................................... (3,539,000) (2,466,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................................. 3,539,000 2,466,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................................... $ - $ - ------------ ------------ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ................................................................................. $ 222,000 $ 1,037,000 Income taxes ............................................................................. $ 247,000 $ 275,000
* RECLASSIFIED FOR COMPARATIVE PURPOSES ONLY. See accompanying notes to consolidated financial statements. 3 SL INDUSTRIES, INC. Notes to Consolidated Financial Statements 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation. Operating results for interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These financial statements should be read in conjunction with the Company's audited financial statements and notes thereon included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. The statements of operations and cash flows for the applicable periods ended June 30, 2002 and certain footnotes have been restated to reflect the effect of discontinued operations. LIQUIDITY On January 6, 2003, the Company sold all of the issued and outstanding shares of capital stock of its subsidiary, Electro-Metall Export GmbH ("EME") for a purchase price of $8,000,000, which consisted of cash and purchaser notes. In addition, a dividend of $2,000,000 was paid prior to closing of the sale by EME to a subsidiary of the Company, and the purchaser did not require that the Company pay-down EME's bank debt of approximately $3,600,000. The purchaser notes were comprised of a $3,000,000 secured note that paid interest at the prime rate plus 2%, which was paid on March 14, 2003, and a $1,000,000 unsecured note that pays interest at an annual rate of 12% and matures April 3, 2004. Cash proceeds of $4,000,000 received at closing plus the $2,000,000 dividend and the cash received from the $3,000,000 note were used to pay down bank debt. The above sale was recorded by the Company in the fourth quarter of 2002. EME is recorded as a discontinued operation in the consolidated statement of operations and statement of cash flows for the three and six month periods ended June 30, 2002. On January 6, 2003, the Company entered into a three-year senior secured credit facility (the "Senior Credit Facility") with LaSalle Business Credit LLC. The Senior Credit Facility provides for a revolving loan and two term loans, up to a maximum indebtedness of $20,000,000. The revolving loan of up to $16,810,000 is based upon eligible receivables and inventory, as well as an original overadvance amount of $1,500,000, which is reduced pro-rata over a two-year term. The two term loans of $2,350,000 and $840,000 are paid down over a three-year term. The Senior Credit Facility restricts investments, acquisitions, capital expenditures and dividends. It contains financial covenants relating to minimum levels of net worth, fixed charge coverages, EBITDA levels and maximum levels of capital expenditures, as defined. The Company is currently in compliance with all of the restrictions and covenants of the Senior Credit Facility. The Senior Credit Facility bears interest ranging from the prime rate plus fifty basis points to the prime rate plus 2%. The Senior Credit Facility is secured by all of the Company's assets (see Note 7). 4 2. RECEIVABLES Receivables at June 30, 2003 and December 31, 2002 consisted of the following:
June 30, December 31, 2003 2002 ----------------------- (in thousands) Trade receivables ........................................................ $ 15,409 $ 14,306 Less allowances for doubtful accounts .................................... (402) (273) --------------------- 15,007 14,033 Recoverable income taxes ................................................. 265 1,992 Other .................................................................... 1,378 1,976 --------------------- $ 16,650 $ 18,001 =====================
Recoverable income taxes of $1,789,000 were received on May 27, 2003. 3. INVENTORIES Inventories at June 30, 2003 and December 31, 2002 consisted of the following:
June 30, December 31, 2003 2002 ----------------------- (in thousands) Raw materials ............................................................ $ 9,090 $ 9,951 Work in process .......................................................... 3,917 4,014 Finished goods ........................................................... 2,770 2,367 --------------------- 15,777 16,332 Less allowances .......................................................... (2,921) (2,585) --------------------- $ 12,856 $ 13,747 =====================
4. INCOME (LOSS) PER SHARE The Company has presented net income (loss) per common share pursuant to the Financial Accounting Standards Board Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share." Basic net income (loss) per common share is computed by dividing reported net income (loss) available to common shareholders by the weighted average number of shares outstanding for the period. Diluted net income per common share is computed by dividing reported net income available to common shareholders by the weighted average shares outstanding for the period, adjusted for the dilutive effect of common stock equivalents, which consist of stock options, using the treasury stock method. 5 The table below sets forth the computation of basic and diluted net income (loss) per share:
Three Months Ended June 30, 2003 2002 ----------------------------------------- ---------------------------------------- (in thousands, except per share amounts) Net Per Share Net Per Share Income Shares Amount Income Shares Amount ----------------------------------------- ---------------------------------------- Basic net income per common share $ 699 5,898 $ 0.12 $ 331 5,894 $ 0.06 Effect of dilutive securities 14 36 ----------------------------------------- ---------------------------------------- Diluted net income per common share $ 699 5,912 $ 0.12 $ 331 5,930 $ 0.06 ========================================= ========================================
Six Months Ended June 30, 2003 2002 ----------------------------------------- ---------------------------------------- (in thousands, except per share amounts) Net Per Share Net Per Share Income Shares Amount Loss Shares Amount ----------------------------------------- ---------------------------------------- Basic net income (loss) per common share $ 885 5,896 $ 0.15 $ (45) 5,839 $ (0.01) Effect of dilutive securities ---- 16 ---- ---- ---- ---- ----------------------------------------- --------------------------------------- Diluted net income (loss) per common share $ 885 5,912 $ 0.15 $ (45) 5,839 $ (0.01) ========================================= =======================================
For the six-month period ended June 30, 2002, common stock options of 57,224 were outstanding but were excluded from the diluted computation because the Company incurred a net loss and the effect of including the options would be anti-dilutive. For the three and six-month periods ended June 30, 2003, and June 30, 2002 common stock options of 492,475 and 469,315 respectively, were excluded from the diluted computation because the option exercise prices were greater than the average market price of the Company's common stock during these periods. STOCK BASED COMPENSATION In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock Based Compensation-Transition and Disclosure" ("SFAS No. 148"), an amendment of SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which provided alternative methods for a voluntary change to the fair value method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123. The Company has elected to continue to account for its stock-based employee 6 compensation plans under APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related interpretations. The following disclosures are provided in accordance with SFAS 148. As permitted by the FASB, the Company has elected to follow APB No. 25, and related interpretations in accounting for its stock option plans. Under APB No. 25, no compensation expense is recognized at the time of option grant because the exercise price of the Company's stock option equals the fair market value of the underlying common stock on the date of grant. The exercise price of all options equals the market price of the Company's common stock on the date of grant. Accordingly, no compensation cost has been recognized for the Company's option plans. Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, the Company's net income (loss) and net income (loss) per common share would have been as follows:
Three Months Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 -------------------------- ------------------------ (in thousands, except per common share amounts) Net income (loss), as reported $ 699 $ 331 $ 885 $ (45) Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects - - - - ----------------------- --------------------- $ 699 $ 331 $ 885 $ (45) Deduct: Total stock-based employee compensation expense determined under fair value based method for awards granted, modified, or settled, net of related tax effects (170) (159) (494) (317) ----------------------- --------------------- Pro forma net income (loss) $ 529 $ 172 $ 391 $ (362) ======================= ===================== Earnings (loss) per common share: Basic - as reported $ 0.12 $ 0.06 $ 0.15 $ (0.01) Basic - pro forma $ 0.09 $ 0.03 $ 0.07 $ (0.06) Diluted - as reported $ 0.12 $ 0.06 $ 0.15 $ (0.01) Diluted - pro forma $ 0.09 $ 0.03 $ 0.07 $ (0.06)
The fair value of the above stock-based compensation costs were determined using the Black-Scholes option valuation model. The Black Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions, are fully transferable and do not include a discount for large block trades. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility, expected life of the option and other estimates. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes of the subjective input assumptions can materially affect the fair value estimate, in the Company's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 7 5. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which provides the accounting requirements for retirement obligations associated with tangible long-lived assets. This statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. At the beginning of the year 2003, the Company adopted this statement, which did not have an impact on its consolidated financial position or results of operations. In April 2002, the FASB adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and amends, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers" and amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. At the beginning of the year 2003, the Company adopted the provisions of this statement, which did not have an impact on its consolidated financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issues No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("Issue 94-3"). The principal difference between this Statement and Issue 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. At the beginning of the year 2003, the Company adopted the provisions of this statement, which did not have an impact on its consolidated financial position or results of operations. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that the liability be recorded in the guarantor's balance sheet upon the issuance of a guarantee. In addition, FIN 45 requires disclosure about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities (see Note 8). The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company has adopted the provisions of FIN 45, which did not have an impact on the Company's financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Costs-Transition and Disclosure" ("SFAS No. 148"). This statement amends 8 SFAS No. 123, and provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation. It also requires additional disclosures about the effects on reported net income of an entity's accounting policy with respect to stock-based employee compensation. The Company accounts for stock-based compensation in accordance with APB No. 25, and has adopted the disclosure only alternative of SFAS No. 123. The Company adopted the disclosure provisions of SFAS No. 148 in December 2002 (see Note 4). In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of Accounting Research Bulletin 51, "Consolidated Financial Statements," for entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest entities"). Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company is in the process of determining what impact, if any, the adoption of the provisions of FIN 46 will have upon its financial condition or results of operations. In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables," ("Issue No. 00-21") which requires the revenue from sales with multiple deliverables be accounted for based on a determination of whether the multiple deliverables qualify to be accounted for as separate units of accounting. The consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not expect a material impact on its results of operations or financial condition as a result of the adoption of Issue No. 00-21. In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," ("SFAS No. 149"), which clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 149 is effective prospectively for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The exception to these requirements are the provisions of SFAS No. 149 related to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, and should continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23 (a), which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The Company does not expect a material impact on its results of operations or financial condition as a result of the adoption of SFAS No. 149. The Company has not yet determined the effect, if any, that SFAS No. 149 will have on its consolidated financial statements. 9 In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity" ("SFAS No. 150"), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, which may have previously been reported as equity, as a liability or an asset in some circumstances. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. 6. INTANGIBLE ASSETS Intangible assets consist of the following:
June 30, 2003 December 31, 2002 ------------------------------------------ ------------------------------------------- Accumulated Accumulated Gross Value Amortization Net Value Gross Value Amortization Net Value -------------------------------------------------------------------------------------- (in thousands) Goodwill $12,167 $1,864 $10,303 $12,167 $1,864 $10,303 ----------------------------------------- ------------------------------------------ Other Intangible Assets: Patents 944 558 386 938 523 415 Covenant Not To Compete 110 110 ---- 2,980 2,980 ---- Trademarks 922 301 621 922 282 640 Other 501 473 28 501 471 30 ----------------------------------------- ------------------------------------------ Total Other Intangible Assets 2,477 1,442 1,035 5,341 4,256 1,085 ----------------------------------------- ------------------------------------------ $14,644 $3,306 $11,338 $17,508 $6,120 $11,388 ========================================= ==========================================
The other intangible assets are all amortizable and have original estimated useful lives as follows: patents are amortized over approximately 13 years and trademarks over approximately 25 years. Amortization expense for intangible assets for the three and six month periods for fiscal 2003 was $28,000 and $56,000, respectively. Amortization expense for intangible assets subject to amortization in each of the next five fiscal years is estimated to be $111,000 per year. 7. DEBT Debt consists of the following:
June 30, December 31, 2003 2002 -------------------------------- (in thousands) Revolving lines of credit $ 3,633 $ 17,557 Term Loan A 2,188 ----- Term Loan B 770 ----- ------------------------------ 6,591 17,557 Less current portion (3,756) (17,557) ------------------------------ Long term debt $ 2,835 $ ----- ==============================
On January 6, 2003, the Company entered into the Senior Credit Facility with LaSalle Business Credit LLC. The Senior Credit Facility provides for a revolving loan and two term loans, up to a maximum indebtedness of $20,000,000. The revolving loan of up to $16,810,000 is based upon eligible receivables and inventory and an original overadvance amount of $1,500,000, which is reduced pro-rata over a two-year term. The two term loans of $2,350,000 and $840,000 are paid down over a three-year term. The Senior Credit Facility restricts investments, acquisitions, capital expenditures and dividends. It contains financial covenants relating to minimum levels of 10 net worth, fixed charge coverages, EBITDA levels and maximum levels of capital expenditures, as defined. The Company is currently in compliance with all the restrictions and covenants of the Senior Credit Facility. The Senior Credit Facility bears interest ranging from the prime rate plus fifty basis points to the prime rate plus 2%. The Senior Credit Facility is secured by all of the Company's assets. The Senior Credit Facility also provides for certain reserves for outstanding letters of credit and other contingencies, which have reduced the Company's availability under the revolving loan portion of the Senior Credit Facility. At June 30, 2003, the outstanding revolving loan balance was $3,633,000 and the outstanding term loan balances were $2,188,000 and $770,000, or a total of $6,591,000. As of August 3, 2003, outstanding balances under the Senior Credit Facility were $4,377,000 and availability under the revolving loan was $7,394,000. The schedule of payments on long-term debt is as follows:
June 30 ---------------- (in thousands) 2004 $ 3,756 2005 997 2006 1,838 ------- $ 6,591 Less-current portion (3,756) ------- Total long-term debt $ 2,835 =======
8. ACCRUED LIABILITIES AND OTHER Accrued liabilities and other consists of the following:
June 30, December 31, 2003 2002 ------------------------------- (in thousands) Insurance, taxes and commissions $ 1,820 $ 1,343 Professional fees 2,117 4,151 Accrual for contingencies, and other 2,758 1,976 ----------------------------- $ 6,695 $ 7,470 =============================
The Company's warranty reserve which is included in the accrual for contingencies, and other above, for the period ended June 30, 2003 is as follows:
June 30, 2003 ------------- (in thousands) Liability, beginning of year $ 897 Expense for new warranties issued 77 Expense related to accrual revisions for prior year (6) Warranty claims (75) -------- Liability, end of period $ 893 --------
11 9. COMMITMENTS AND CONTINGENCIES LITIGATION: In the ordinary course of its business, the Company is subject to loss contingencies pursuant to foreign and domestic federal, state and local governmental laws and regulations and is also party to certain legal actions, most frequently involving complaints by terminated employees and disputes with customers and suppliers. It is management's opinion that the impact of these legal actions will not have a material adverse effect on the consolidated financial position or results of operations of the Company. The Company's subsidiary, SL Montevideo Technology, Inc. ("SL-MTI"), recently defended a cause of action, brought against it in the fall of 2000, in the federal district court for the western district of Michigan. The lawsuit was filed by a customer, Eaton Aerospace, Inc. ("Eaton"), alleging breach of contract and warranty in the defective design and manufacture of a high precision motor and demanding compensatory damages of approximately $3,900,000. On November 7, 2002, after a full trial of the facts, a jury awarded Eaton damages of $650,000, which when combined with pre-trial interest brings the total claim to $780,000. Eaton is appealing the decision. On June 12, 2002, the Company and SL Surface Technologies, Inc. ("SurfTech"), a subsidiary of the Company, were served with notice of class action complaint filed in Superior Court of New Jersey for Camden County. The Company and SurfTech are currently two of approximately 39 defendants in this action. The complaint alleges, among other things, that plaintiffs suffered personal injuries as a result of consuming water distributed from the Puchack Wellfield in Pennsauken, New Jersey (which supplies Camden, New Jersey). This case arises from the same factual circumstances as current administrative actions involving the Puchack Wellfield, to which the Company is a party. The administrative actions are discussed below. The administrative actions and the class action lawsuit both allege that SurfTech and other defendants contaminated ground water through the disposal of hazardous substances at industrial facilities in the area. SurfTech once operated a chrome-plating facility in Pennsauken, New Jersey (the "SurfTech Site"). As with the administrative actions, the Company believes it has significant defenses against the class action plaintiff's claims and intends to pursue them vigorously. Technical data generated as part of remedial activities at the SurfTech Site have not established offsite migration of contaminants. Based on this and other technical factors, the Company has been advised by its outside counsel that it has a strong defense against the claims alleged in the class action plaintiffs' complaint, as well as the environmental administrative actions. It is management's opinion that the impact of legal actions brought against the Company and its operations will not have a material adverse effect on its financial position or results of operations. However, the ultimate outcome of these matters, as with litigation generally, is inherently uncertain, and it is possible that some of these matters may be resolved adversely to the Company. The adverse resolution of any one or more of these matters could have a material adverse effect on the business, operating results, financial condition or cash flows of the Company. ENVIRONMENTAL: Loss contingencies include potential obligations to investigate and eliminate or mitigate the affects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other facilities, whether or not they are currently in 12 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 firms to date, management has provided an estimated accrual for all known costs believed to be probable in the amount of $926,000. However, it is in the nature of environmental contingencies that other circumstances might arise, the costs of which are indeterminable at this time due to such factors as changing government regulations and stricter standards, the unknown magnitude of defense and cleanup costs, the unknown timing and extent of the remedial actions that may be required, the determination of the Company's liability in proportion to other responsible parties, and the extent, if any, to which such costs are recoverable from other parties or from insurance. Although these contingencies could result in additional expenses or judgments, or offsets thereto, at present such expenses or judgments are not expected to have a material adverse effect on the consolidated financial position or results of operations of the Company. In the fourth quarter of fiscal year 1990, the Company recorded a provision of $3,500,000 to cover various environmental costs for six locations, based upon estimates prepared at that time by an independent engineering consulting firm. In fiscal 1991, 1996 and 1999, based upon estimates, the Company made additional provisions of $480,000, $900,000 and $375,000, respectively. The fiscal 1996 provision was necessary since, during the latter part of fiscal 1995, the New Jersey Department of Environmental Protection required the Company to begin additional investigation of the extent of off-site contamination at its former facility in Wayne, New Jersey, where remediation had been underway. Based on the results of that investigation, which were received in fiscal 1996, the Company determined that additional remediation costs of approximately $1,000,000 were probable. The Company is the subject of various other lawsuits and actions relating to environmental issues, including administrative actions in connection with the SurfTech Site, which could subject the Company to, among other things, $9,266,000 in collective reimbursements (with other parties) to the New Jersey Department of Environmental Protection. The Company believes that it has a significant defense against all or any part of the claim and that any material impact is unlikely. The Company filed claims with its insurers seeking reimbursement for many of these costs, and received $900,000 from one insurer during fiscal year 1996 and a commitment to pay 15% of the environmental costs associated with the SurfTech site up to an aggregate of $300,000. During fiscal 1997, the Company received $1,500,000 from three additional insurers and from two of those insurers, commitments to pay 15% and 20% of the environmental costs associated with the same location up to an aggregate of $150,000 and $400,000, respectively. In addition, the Company received $100,000 during 2001, 2000, and fiscal 1999, as stipulated in the settlement agreement negotiated with one of the three insurers. As of June 30, 2003 and December 31, 2002, the remaining environmental accrual was $926,000 and $875,000, respectively. The Company is investigating a possible ground water contamination plume on its property in Camden, New Jersey. Based upon the preliminary evidence, the Company was advised that the cost to remediate the site could amount to $500,000. The Company recorded a provision for this amount during the first quarter of 2002. 13 The Company is investigating possible soil and ground water contamination on property in Montevideo, Minnesota, which is owned and operated by SL-MTI. Based upon the preliminary evidence, the Company does not believe it will incur material remediation costs at this site. 10. SEGMENT INFORMATION Under the disclosure requirements of Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company had classified its operations into the following five operating business units: Condor D.C. Power Supplies, Inc. ("Condor"), Teal Electronics Corporation ("Teal"), SL Montevideo Technology, Inc. ("SL-MTI"), RFL Electronics Inc. ("RFL"), SL Surface Technologies, Inc. ("SurfTech"). Condor produces a wide range of standard and custom power supply products that convert AC or DC power to direct electrical current to be used in customers' end products. Power supplies closely regulate and monitor power outputs, using patented filter and other technologies, resulting in little or no electrical interference. Teal is a leader in the design and manufacture of customized power conditioning and power distribution units. Teal products are developed and manufactured for custom electrical subsystems for original equipment manufacturers of semiconductor, medical imaging, graphics, and telecommunications systems. SL-MTI is a technological leader in the design and manufacture of intelligent, high power density precision motors. New motor and motion controls are used in numerous applications, including aerospace, medical, and industrial products. RFL designs and manufactures teleprotection products/systems that are used to protect utility transmission lines and apparatus by isolating faulty transmission lines from a transmission grid. RFL provides customer service and maintenance for all electric utility equipment protection systems. SurfTech produces industrial coatings and platings for equipment in the corrugated paper and telecommuni- cations industries. The "Other" segment includes corporate related items not allocated to reportable segments and the results of insignificant operations. During the second quarter of 2003, management had decided to combine Condor and Teal into one business unit classified as the Power Electronics group ("Power Electronics"). Both subsidiaries develop, market and sell power electronics equipment to original equipment manufacturers. Accordingly, they employ similar technology, utilize similar production processes, and address market niches with similar characteristics. This business unit now has the same management team responsible for the performance of the two entities. The Company has reflected the combination of Condor and Teal as the Power Electronics group for all periods presented. 14 The unaudited comparative results for the three-month and six-month periods are as follows:
Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ---------------------------------------------------------- (in thousands) Net sales from continuing operations: Power Electronics $ 15,661 $13,842 $29,465 $26,286 SL-MTI 5,732 6,241 11,129 11,950 RFL 5,534 7,267 12,043 16,033 SurfTech 517 574 1,025 1,188 ---------------------------------------------------------- Consolidated $ 27,444 $27,924 $53,662 $55,457 ----------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ---------------------------------------------------------- (in thousands) Operating income (loss) from continuing operations: Power Electronics $ 1,786 $ 232 $ 2,705 $ 962 SL-MTI 507 436 806 940 RFL 525 875 1,150 2,213 SurfTech (93) (178) (256) (485) Other (1,569) (997) (2,736) (4,403) ---------------------------------------------------------- Consolidated $ 1,156 $ 368 $ 1,669 $ (773) ==========================================================
Included in "Other" for the six months ended June 30, 2002 were special charges of $1,834,000 related to change-of-control and proxy costs, a $542,000 addition to the reserve for environmental matters and other expenses not allocated to the reportable business units. There were no special charges for the six months ended June 30, 2003.
June 30, December 31, 2003 2002 --------------------------------- (in thousands) Identifiable assets: Power Electronics $ 26,514 $ 26,862 SL-MTI 9,222 9,691 RFL 16,432 16,322 SurfTech 1,735 1,995 Other 8,243 35,797 -------------------------------- Consolidated $ 62,146 $ 90,667 ================================
15 The reduction of identifiable assets in the segment listed as "Other" is primarily related to the sale of EME, the assets in the amount of $22,950,000 where listed as "net assets held for sale" at December 31, 2002.
June 30, December 31, 2003 2002 ------------------------------- (in thousands) INTANGIBLE ASSETS (NET) Power Electronics $ 6,062 $ 6,107 SL-MTI 28 30 RFL 5,248 5,251 ----------------------------- Consolidated $11,338 $11,388 =============================
11. DISCONTINUED OPERATIONS On January 6, 2003, the Company sold all of the issued and outstanding shares of capital stock of EME, as discussed in Note 1. The above sale was recorded by the Company in the fourth quarter of 2002. EME is reflected as a discontinued operation in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows for all of the 2002 periods presented. Net sales of EME for the three and six month periods ended June 30, 2002 were $6,485,000 and $11,899,000 respectively. Net income for the three and six month periods ended June 30, 2002 was $214,000 and $453,000, respectively. In July 2001, the Board of Directors authorized the disposition of SL Waber Inc. Effective August 27, 2001, substantially all of the assets of SL Waber Inc. and the stock of its subsidiary, Waber de Mexico S.A. de C.V. were sold. As part of this transaction, the purchaser acquired the rights to the SL Waber Inc. name and assumed certain liabilities and obligations of SL Waber Inc. Subsequent to the sale, the Company changed the name of the SL Waber Inc. subsidiary to SLW Holdings, Inc. ("SLW Holdings"). The net income of this subsidiary is included in the consolidated statements of operations under discontinued operations for all periods presented. During the three months ended March 31, 2002, the Company, based upon a review of potential liabilities, reduced the accrual for the liabilities (excluding accrued income taxes) related to SLW Holdings by $450,000. This reversal, net of tax in the amount of $313,000 is reported as a component of discontinued operations for the six months ended June 30, 2002. As of June 30, 2003 and December 31, 2002, the Company had accruals of $232,000 and $688,000, respectively related to SLW Holdings. 12. RELATED PARTY TRANSACTIONS During the six months ended June 30, 2003, the Company was billed $297,000 in legal fees for 2003 services performed by Olshan Grundman Frome Rosenzweig & Wolosky LLP, a law firm in which a director of the Company is a senior partner. The compensation committee has approved the payment of certain fees from the Company to Steel Partners, Ltd. ("SPL"), a company controlled by the Chairman of the Board and Chief Executive Officer of the Company, Warren Lichtenstein. These fees are in consideration for the services of the Chairman of the Board and Chief Executive Officer, Warren Lichtenstein and the Company's President, Glen Kassan, as well as other assistance provided by SPL from time to time. SPL was paid $237,000 for services performed for the six months ended June 30, 2003. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES On January 6, 2003, the Company sold all of the issued and outstanding shares of capital stock of EME for a purchase price of $8,000,000, which consisted of cash and purchaser notes. In addition, a dividend of $2,000,000 was paid prior to closing of the sale by EME to a subsidiary of the Company and the purchaser did not require that the Company pay-down EME's bank debt of approximately $3,600,000. The purchaser notes were comprised of a $3,000,000 secured note-bearing interest at the prime rate plus 2%, which was paid on March 14, 2003, and a $1,000,000 unsecured note-bearing interest at an annual rate of 12% and maturing on April 3, 2004. Cash proceeds of $4,000,000 received at closing plus dividends of $2,000,000 and the cash received from the $3,000,000 note were used to pay down bank debt. The Company recorded the above sale in the fourth quarter of 2002. EME is recorded as a discontinued operation in the consolidated statement of operations and statement of cash flows for the three and six month periods ended June 30, 2002. On January 6, 2003, the Company entered into the Senior Credit Facility with LaSalle Business Credit LLC. The Senior Credit Facility provides for a revolving loan and two term loans, up to a maximum indebtedness of $20,000,000. The revolving loan of up to $16,810,000 is based upon eligible receivables and inventory, as well as an overadvance in the original amount of $1,500,000, which is reduced pro-rata over a two-year term. The two term loans of $2,350,000 and $840,000 are paid down over a three-year term. The Senior Credit Facility restricts investments, acquisitions, capital expenditures and dividends. It contains financial covenants relating to minimum levels of net worth, fixed charge coverage, EBITDA levels and maximum levels of capital expenditures, as defined. The Company is currently in compliance with all the restrictions and covenants of the Senior Credit Facility. The Senior Credit Facility bears interest ranging from the prime rate plus fifty basis points to the prime rate plus 2%. The Senior Credit Facility is secured by all of the Company's assets. During the six months ended June 30, 2003, the net cash provided by operating activities was $698,000, as compared to net cash provided by operating activities of $1,086,000 during the six months ended June 30, 2002. Uses of cash by operating activities for 2003 were primarily for payments made under the Company's 2002 bonus and incentive programs, payments of professional fees related to financing and closing costs offset by collections of accounts receivable, primarily recoverable income taxes, a reduction of inventory levels from year end and positive income from operations. In the first six months of the prior year, net cash provided by operating activities was positively affected by the recovery of income taxes and the reduction of inventory, offset by payments under deferred compensation and retirement plans, reductions in accrued liabilities and negative operating results. During the six months ended June 30, 2003, net cash provided by investing activities was $6,493,000, primarily related to the cash proceeds received from the sale of EME previously discussed. During the six months ended June 30, 2002, net cash provided by investing activities was $9,632,000, which was primarily generated by the proceeds from the surrender of life insurance policies of $10,676,000. During the six months ended June 30, 2003, net cash used in financing activities was $10,823,000, primarily due to the payoff of the Company's revolving credit facility (the "Former 17 Credit Facility"). During the six months ended June 30, 2002, net cash used in financing activities was $13,504,000, primarily related to the pay down of the Former Credit Facility in the net amount of $14,424,000. As of June 30, 2003, the Company had principal debt outstanding of $6,591,000 under the Senior Credit Facility, as compared to $17,557,000 under the Former Credit Facility at December 31, 2002. The significant reduction of debt is primarily due to the proceeds received from the sale of EME, which included a $2,000,000 dividend, $4,000,000 received at closing, the collection of a $3,000,000 purchaser note paid on March 14, 2003 and recoverable income taxes of $1,789,000 received on May 27, 2003. The Company had $6,926,000 available for borrowings under the Senior Credit Facility at June 30, 2003 and $7,394,000 on August 3, 2003. The Company's current ratio was 1.71 to 1 at June 30, 2003 and 1.19 to 1 at December 31, 2002. Included in the ratio calculation at December 31, 2002 were net current assets and liabilities held for sale related to EME. Without these amounts the December 31, 2002 current ratio would have been 1.06 to 1. The improvement in the current ratio for June 30, 2003 is primarily due to the reduction of current debt from $17,557,000 at December 31, 2002 to $3,756,000 at June 30, 2003. As a percentage of total capitalization, consisting of debt and shareholders' equity, total borrowings by the Company were 16% at June 30, 2003 and 34% at December 31, 2002. During the first six months of 2003 total borrowings decreased by $10,966,000. Capital expenditures of $567,000 made during the first six months of 2003 primarily related to equipment purchases and building repairs. The amount of expenditures for the first six months of 2003 is down $478,000 from the comparable 2002 period. During the remainder of the year 2003, the Company may incur up to approximately $1,593,000 of additional capital expenditures, which includes obligations under capital leases. This amount is subject to change depending upon a number of factors including certain market conditions within the Company's business segments and availability of financing. During the first six months of 2003, the Company has been able to generate adequate amounts of cash to meet its operating needs, while reducing total borrowing by $10,966,000. During the first six months of 2003, the operating segments had an aggregate positive cash flow of $3,350,000 compared to $2,973,000 positive cash flow in the same period of 2002. All of the operating business segments had positive cash flow for the first six months of 2003 except SurfTech, which had a $124,000 negative cash flow for the period. Condor, now part of the Power Electronics segment, experienced a significant increase in cash flow in the first six months of 2003 as compared to 2002 due primarily to a significant improvement in operating performance over the same 2002 period. Also in 2002 Condor's cash flow was negatively impacted by payments made against its restructuring reserve of $575,000 and deferred compensation payments of $1,252,000. Without these cash payments, Condor would have been cash flow positive in 2002. With the exception of SurfTech and the segment reported as "Other" (which consists primarily of corporate office expenses and accruals not specifically allocated to the reportable business units), all of the Company's operating segments had income from operations for the first six months of 2003. SurfTech's operating loss of $256,000 improved over the comparable six month period in 2002 of $485,000. SurfTech is facing historically low demand in its marketplace and has reduced 18 its operating costs by consolidating its operations into one facility and by implementing several other cost cutting measures. The following is a summary of the Company's contractual obligations that existed as of June 30, 2003:
Less Than 1 to 3 4 to 5 After 5 1 Year Years Years Years Total --------------------------------------------------------------------------- (in thousands) Operating Leases $ 666 $2,513 $266 - $ 3,445 Debt 3,756 2,835 - - 6,591 Capital Leases 71 520 57 - 648 -------------------------------------------------------------------------- $4,493 $5,868 $323 $10,684 --------------------------------------------------------------------------
Assuming no further significant slowdown of economic activity in the markets in which the Company conducts business, management believes that cash from operations and funds expected to be available under the Senior Credit Facility will be sufficient to fund the Company's operations and working capital requirements. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2003, COMPARED WITH THREE MONTHS ENDED JUNE 30, 2002 The table below shows the comparison of net sales from continuing operations for the quarter ended June 30, 2003 and the quarter ended June 30, 2002.
Increase/ Increase/ Three Months Three Months Decrease Over Decrease Over Ended Ended Same Quarter Same Quarter June 30, June 30, Last Year Last Year 2003 2002 --------------------------------------------------------- Percent Amount Amount Amount --------------------------------------------------------- (in thousands) Power Electronics 13% $ 1,819 $15,661 $13,842 SL-MTI (8%) (509) 5,732 6,241 RFL (24%) (1,733) 5,534 7,267 Surf Tech (10%) (57) 517 574 ------------------------------------------------------ Total (2%) $ (480) $27,444 $27,924 ------------------------------------------------------
19 The table below shows the comparison of operating income (loss) from continuing operations for the quarter ended June 30, 2003 and the quarter ended June 30, 2002.
Increase/ Increase/ Three Months Three Months Decrease Over Decrease Over Ended Ended Same Quarter Same Quarter June 30, June 30, Last Year Last Year 2003 2002 --------------------------------------------------------- Percent Amount Amount Amount --------------------------------------------------------- (in thousands) Power Electronics 670% $ 1,554 $ 1,786 $ 232 SL-MTI 16% 71 507 436 RFL (40%) (350) 525 875 Surf Tech 48% 85 (93) (178) Other (57%) (572) (1,569) (997) ------------------------------------------------------- Total 214% $ 788 $ 1,156 $ 368 -------------------------------------------------------
Consolidated net sales from continuing operations for the three-month period ended June 30, 2003 decreased by $480,000, or 2%, compared to the same quarter in 2002. The Power Electronics segment had significant increases in sales while the remaining business segments experienced a decrease in sales in the quarter ended June 30, 2003 compared to the 2002 quarter (see preceding schedule). The Power Electronics segment's net sales increased $1,819,000, or 13%, primarily due to increased sales to distributors and a significant reduction in allowances and returns. Allowances and returns offered to distributors in 2002 were primarily related to Condor's telecommunication product line, which was substantially scaled down in 2002. RFL experienced a significant reduction in sales in the current quarter compared to 2002. RFL's sales decreased $1,733,000, or 24%. This decrease is primarily attributed to its teleprotection and protective relaying product lines, which decreased by $1,055,000 from the 2002 quarter. At the end of 2001, RFL had a relatively strong backlog, which carried into the first six months of 2002 and generated a relatively high sales performance for the 2002 quarter. RFL is currently experiencing inconsistent procurement patterns from electric power utility companies, which is its primary market. At SL-MTI sales decreased $509,000, or 8% due to a combination of higher than normal military spending in the 2002 quarter and the partial loss of customer base in the windings product line which is in the process of being replaced by brushless motors. SurfTech's sales decreased $57,000, or 10%. These decreases were relatively less significant than those experienced by RFL and less significant to the Company's consolidated net sales for the second quarter of 2003, as compared to 2002. The Company had income from continuing operations of $1,156,000 for the three-month period ended June 30, 2003, as compared to operating income of $368,000 for the corresponding period last year which is an increase of $788,000 or 214%. The components of operating expenses by business segment are discussed in the following paragraphs. Cost of products sold as a percentage of sales for the quarter ended June 30, 2003 decreased slightly to 62%, as compared to 66% for the corresponding period in 2002. The major reasons for the decrease in the cost of products sold percentage for the 2003 quarter compared to 2002 are related to significant improvements at the Power Electronics segment, which had a 63% cost of products sold compared to 72% in 2002. SL-MTI has improved its cost of products sold 20 percentage from 79% in 2002 compared to 72% in the 2003 quarter. SurfTech also improved its percentage of cost of products sold, however to a lesser extent. RFL's cost of products sold percentage in the current quarter was 53%, as compared to 50% in the prior year quarter due to lower volume and increased pricing pressures in the markets it serves. The Power Electronics segment's cost of products sold as a percentage of sales decreased significantly during the current quarter, as compared to the same period last year due to a number of factors. The segment's volume increased significantly during the 2003 quarter compared to 2002. The Power Electronics segment's manufacturing efficiency increased due in part to Condor's re-engineering of its manufacturing facility in Mexicali, Mexico. Also, in the comparable period for 2002, significant inefficiencies and start up costs were incurred due to the movement of its remaining telecommunication's product line from its Reynosa, Mexico facility, to its current location in Mexicali, Mexico. The Power Electronics segment is also experiencing a more favorable product mix in 2003 compared to 2002. The improvement in SL-MTI's cost of products sold percentage improvement is primarily due to an inventory charge taken in 2002. Without this charge, the cost of products sold percentage would have remained constant. Engineering and product development expenses for the three month periods ended June 30, 2003 and June 30, 2002 were 7% and 6% of net sales, respectively. The increase in engineering and product development expenses was $350,000 in the current quarter, as compared to last year's quarter. This increase is primarily attributable to SL-MTI, which had fewer commercial customer funded non-recurring engineering projects in 2003 than 2002. All of the other business units had expenditures in line with the 2002 levels. Selling, general and administrative expenses for the comparative periods in 2003 compared to 2002 remained relatively constant. As a percentage of sales, selling, general and administrative expenses for the three months ended June 30, 2003 and 2002 remained at 24%. The Company has incurred significant additional costs of $320,000 during the period in defense of a class action complaint filed in Superior Court of New Jersey for Camden County related to environmental matters (See Note 9). Without these defense costs selling, general and administrative expenses would have decreased to 23% of sales. Depreciation and amortization expenses for the current three month period decreased by $86,000, or 12%, primarily due to a reduced fixed asset base. As a percentage of sales these expenses were 2% in 2003 and 3% in 2002. For the three month period ended June 30, 2002, the Company recorded special charges of $9,000 related to change-in-control and proxy costs and a restructuring charge of $40,000 primarily related to Condor. There were no charges of this nature recorded during the quarter ended June 30, 2003. Interest income increased for the current three month period by $24,000, as compared to the same period last year. This is primarily related to interest income recorded on the note receivable issued in connection with the sale of EME. Interest expense for the current three month period decreased by $247,000, or 66%, due to the combination of a significant reduction of debt and more favorable interest rates, as compared to the second quarter of the prior year. Income from discontinued operations of $214,000 for the three month period ended June 30, 2002 represents the net income of EME which was sold on January 6, 2003 and is reflected as a discontinued operation for the three and six month periods in 2002. 21 The effective tax rate for the three month period ended June 30, 2003 was 34%. The effective tax benefit rate for the three month period ended June 30, 2002 was greater than the statutory rate primarily due to the recovery of tax benefits not previously recognized. SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2002 The table below shows the comparison of net sales from continuing operations for the six months ended June 30, 2003 and June 30, 2002.
Increase/ Increase/ (Decrease) Over (Decrease) Over Six Months Six Months Same Quarter Same Quarter Ended Ended Last Year Last Year June 30, 2003 June 30, 2002 ------------------------------------------------------------------------- Percent Amount Amount Amount ------------------------------------------------------------------------- (in thousands) Power Electronics 12% $ 3,179 $ 29,465 $ 26,286 SL-MTI (7%) (821) 11,129 11,950 RFL (25%) (3,990) 12,043 16,033 SurfTech (14%) (163) 1,025 1,188 ------------------------------------------------------------------- Total (3%) $(1,795) $ 53,662 $ 55,457 -------------------------------------------------------------------
The table below shows the comparison of operating income (loss) from continuing operations for the six months ended June 30, 2003 and June 30, 2002.
Increase/ Increase/ (Decrease) Over (Decrease) Over Six Months Six Months Same Quarter Same Quarter Ended Ended Last Year Last Year June 30, 2003 June 30, 2002 --------------------------------------------------------------------- Percent Amount Amount Amount --------------------------------------------------------------------- (in thousands) Power Electronics 181% $ 1,743 $ 2,705 $ 962 SL-MTI (14%) (134) 806 940 RFL (48%) (1,063) 1,150 2,213 SurfTech (47%) 229 (256) (485) Other 38% 1,667 (2,736) (4,403) ------------------------------------------------------------------- Total 316% $ 2,442 $ 1,669 $ (773) -------------------------------------------------------------------
Consolidated net sales from continuing operations for the six months ended June 30, 2003 compared to the six months ended June 30, 2002 decreased by $1,795,000, or 3%. This decrease was due mainly to a significant sales decrease at RFL of $3,990,000 or 25% and to a lesser extent SL-MTI's sales decrease of $821,000 or 7%. These decreases were partially offset by significant increases in sales in the Power Electronics segment of $3,179,000 or 12%. RFL has experienced a significant decrease in its teleprotection and protective relaying product lines which have decreased 35% and 70% respectively in the six month period ended June 30, 2003 compared to the same period last year. Collectively these product lines have experienced a sales 22 decrease of $4,103,000 when compared to the same period last year. RFL experienced an increase in its carrier communications product line of $531,000 or 14% as compared to last year. At the end of 2001, RFL had a relatively strong backlog, which carried into the first six months of 2002 and generated a record sales performance for the first six months of 2002. SL-MTI's decrease in sales for the comparative six months is primarily due to a decrease in military spending, in the second quarter of 2003 compared to 2002 and a reduction in sales of $1,138,000 in its windings product line. The windings product line is older technology and being replaced by SL-MTI's brushless motors product line which had an increase of 9% or $515,000 in the six months ended June 30, 2003 compared to 2002. Power Electronics' sales increase of $3,179,000 is primarily related to increased sales to distributors and significant reductions in allowances and returns. Allowances and returns offered to distributors in 2002 were primarily related to Condor's telecommunication product line, which has been significantly scaled back. The Company realized operating income of $1,669,000 for the six months ended June 30, 2003, as compared to operating loss of $773,000 for the corresponding period in 2002 an increase of $2,442,000 or 316%. During the six months ended June 30, 2002, the Company recorded a charge of $265,000 as a result of restructuring charges recorded primarily at Condor and special charges of $1,834,000 related to change-of-control and proxy costs. Without these charges, the Company would have had an operating profit of $1,326,000. The increase in operating income from continuing operations for the six months ended June 30, 2003 compared to the comparable period in 2002 would have been $343,000 or 26% on a reduced revenue base. Cost of products sold as a percentage of sales for the six months ended June 30, 2003 and 2002 was approximately 64%. All of the business segments cost of products sold as a percentage of sales were comparable to 2002 except SurfTech which improved from 88% in 2002 to 76% in 2003. SurfTech's operations, however, are not significant to the consolidated results of the Company. Engineering and product development expenses for the six months ended June 30, 2003 and 2002 remained at approximately 7% of sales. The increase in expenses of $270,000 from the 2002 period is primarily attributable to SL-MTI who had fewer customer funded engineering programs in the current year as compared to 2002. Selling, general and administrative expenses for the six months ended June 30, 2003 decreased by $749,000 or approximately 6%, as compared to the same period last year. As a percentage of net sales, selling, general and administrative expenses for the six months ended June 30, 2003 and 2002 were approximately 24% of sales. The reduction of $749,000 in expenses is primarily due to reduced selling costs and commissions related to reduced revenue levels. As mentioned previously the Company has incurred approximately $580,000 in costs related to the defense of a class action complaint related to environmental matters (See Note 9). Without these defense costs selling, general and administrative expenses would have decreased $1,329,000 or 10% compared to the same six month period in 2002. For the six month period ended June 30, 2002, the company recorded special charges of $1,834,000 related to change-in-control and proxy costs, and a restructuring charge of $265,000 primarily related to Condor. There were no charges of this nature recorded during the six month period ended June 30, 2003. 23 Depreciation and amortization expenses for the six months ended June 30, 2003 decreased by $169,000, or 12%, compared to 2002, primarily due to a reduced fixed asset base. Interest income for the six months ended June 30, 2003 increased by $86,000, as compared to the same period last year. This increase is primarily related to interest income recorded on the note receivable issued in connection with the sale of EME. Interest expense for the same six month period decreased by $557,000, or 62% due primarily to the significant reduction of debt as compared to the prior year period and improved interest rates. The effective tax rate for the six months ended June 30, 2003 was 38%, which approximates the statutory rate. The effective tax benefit rate for the six months ended June 30, 2002 was 51%. The difference in tax rates is due primarily to the recovery of certain tax benefits not previously recognized during the six months ended June 30, 2002. Income from discontinued operations of $766,000 for the six month period ended June 30, 2002 represents the net income of EME in the amount of $453,000. EME was sold on January 6, 2003 and is reflected as a discontinued operation for the three and six month periods in 2002. Also included is the reversal of an accrual made in the first quarter of 2002 related to SLW Holdings, net of tax, in the amount of $313,000. FORWARD-LOOKING INFORMATION From time to time, information provided by the Company, including written or oral statements made by representatives, may contain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, contain forward-looking information, particularly statements which address activities, events or developments that the Company expects or anticipates will or may occur in the future, such as expansion and growth of the Company's business, future capital expenditures and the Company's prospects and strategy. In reviewing such information, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. This forward-looking information is based on various factors and was derived utilizing numerous assumptions. Many of these factors previously have been identified in filings or statements made by or on behalf of the Company. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking information include changes in the general economy, changes in capital investment and/or consumer spending, competitive factors and other factors affecting the Company's business in or beyond the Company's control. These factors include a change in the rate of inflation, a change in state or federal legislation or regulations, an adverse determination with respect to a claim in litigation or other claims (including environmental matters), the ability to recruit and develop employees, the ability to successfully implement new technology and the stability of product costs. These factors also include, in particular, whether or not a sale of all or part of the Company's business can be successfully affected and the timing and degree of any business recovery in certain of the Company's markets that are currently experiencing a cyclical economic downturn. Other factors and assumptions not identified above could also cause actual results to differ materially from those set forth in the forward-looking information. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual 24 results, changes in assumptions or changes in other factors affecting such forward-looking information. Future factors include the effectiveness of cost reduction actions undertaken by the Company; the timing and degree of any business recovery in certain of the Company's markets that are currently experiencing economic uncertainty; increasing price, products and services competition by U.S. and non-U.S. competitors, including new entrants; rapid technological developments and changes and the Company's ability to continue to introduce and develop competitive new products and services on a timely, cost-effective basis; availability of manufacturing capacity, components and materials; credit concerns and the potential for deterioration of the credit quality of customers; customer demand for the Company's products and services; ability of the Company to continue to finance its operations on satisfactory terms; U.S. and non-U.S. governmental and public policy changes that may affect the level of new investments and purchases made by customers; changes in environmental and other U.S. and non-U.S. governmental regulations; protection and validity of patent and other intellectual property rights; compliance with the covenants and restrictions of bank credit facilities; and outcome of pending and future litigation and governmental proceedings. These are representative of the future factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general U.S. and non-U.S. economic conditions, including increased economic uncertainty and instability, the global economic slowdown and interest rate and currency exchange rate fluctuations and other future factors. For a further description of future factors that could cause actual results to differ materially from such forward-looking statements, see the discussion in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, Part I, Item 1 - Risk Factors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in quantitative and qualitative market risk from the disclosure contained in Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2002, which is incorporated herein by reference. ITEM 4. CONTROLS AND PROCEDURES Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer have concluded the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective. There have been no significant changes in internal controls over financial reporting that have materially affected or are reasonably likely to materially affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no other material changes to the information previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. See Part I, 25 Item 3 - Legal Proceedings of such Annual Report and Note 9 to the Consolidated Financial Statements included herein for additional information on these matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Shareholders on May 29, 2003, the Company's shareholders re-elected seven incumbent members (Warren Lichtenstein, Glen Kassan, J. Dwane Baumgardner, Mark E. Schwarz, James Henderson, Steven Wolosky and Avrum Gray) to the Company's eight-member Board of Directors. One new director was elected to the Board (James Risher). The votes cast for all nominees were as follows:
NOMINEES FOR WITHHOLD AUTHORITY -------- --- ------------------ Warren Lichtenstein 2,831,085 1,472,202 Glen Kassan 2,831,407 1,471,880 J. Dwane Baumgardner 2,770,866 1,532,421 Mark E. Schwarz 2,832,425 1,470,862 James Henderson 2,833,225 1,470,062 Steven Wolosky 2,831,407 1,471,880 Avrum Gray 2,833,232 1,470,055 James A. Risher 2,832,356 1,470,931
The votes cast for, against, and withheld for the ratification of the appointment of Grant Thornton LLP as the Company's independent auditors for the fiscal year ending December 31, 2003 were as follows:
FOR AGAINST ABSTAIN BROKER NON-VOTES --- ------- ------- ---------------- 4,235,312 27,900 30,075 - 0 -
ITEM 5. OTHER INFORMATION In 1997, the Company, through a wholly-owned subsidiary, commenced a patent infringement action against American Power Conversion Corporation ("APC") in the United States District Court for the District of New Jersey. The complaint alleges that APC infringed a patent held by the subsidiary, and seeks damages resulting from APC's infringement. APC petitioned the U.S. Patent and Trademark Office ("PTO") to review the patent to determine whether the patent was valid, and the District Court suspended the proceedings pending the outcome of the PTO's determination. The PTO recently reaffirmed the validity of the patent, and the District Court has restored the case to the active docket. The Company intends to pursue the litigation vigorously, although there can be no assurance that the matter will be resolved in the Company's favor, or when it will be resolved. 26 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K The following reports on Form 8-K were filed by the Company during the period covered by this report: Current report on Form 8-K filed April 30, 2003 pursuant to Item 5 (Other Events). 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 11, 2003 SL INDUSTRIES, INC. ------------------- (Company) By: /s/ Warren Lichtenstein ---------------------------- Warren Lichtenstein Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ David R. Nuzzo ---------------------- David R. Nuzzo Chief Financial Officer (Principal Accounting Officer) EX-31.1 3 w89228exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 Exhibit 31.1 CERTIFICATIONS I, Warren Lichtenstein, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SL Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 29 (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 By: /s/ Warren Lichtenstein --------------------------- Warren Lichtenstein Chief Executive Officer 30 EX-31.2 4 w89228exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 Exhibit 31.2 CERTIFICATIONS I, David R. Nuzzo, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SL Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and 31 (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2003 By: /s/ David R. Nuzzo ---------------------- David R. Nuzzo Chief Financial Officer 32 EX-32.1 5 w89228exv32w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 Exhibit 32.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) I, Warren Lichtenstein, Chairman and Chief Executive Officer (Principal Executive Officer) of SL Industries, Inc. (the "Registrant"), certify that to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended June 30, 2003 of the Registrant (the "Report"): (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: /s/Warren Lichtenstein ---------------------- Warren Lichtenstein Chairman of the Board and Chief Executive Officer Date: August 11, 2003 33 EX-32.2 6 w89228exv32w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 Exhibit 32.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350 (SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002) I, David R. Nuzzo, Chief Financial Officer (Principal Financial Officer) of S.L. Industries, Inc. (the "Registrant"), certify that to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended June 30, 2003 of the Registrant (the "Report"): (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: /s/David R. Nuzzo ----------------- David R. Nuzzo Chief Financial Officer Date: August 11, 2003 34 -----END PRIVACY-ENHANCED MESSAGE-----