-----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, EouWFbwTAe958uAl9t8b36puSYYb8LNDhGwxhxs6niAi9ZXGeoJynxo3JosCtOfu e0HkBTuefwko42n5dgH3ug== 0000893220-98-001649.txt : 19981030 0000893220-98-001649.hdr.sgml : 19981030 ACCESSION NUMBER: 0000893220-98-001649 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19981029 SROS: NONE 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: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04987 FILM NUMBER: 98732940 BUSINESS ADDRESS: STREET 1: 520 FELLOWSHIP ROAD STREET 2: SUITE A114 CITY: MT LAUREL STATE: NJ ZIP: 08054 BUSINESS PHONE: 6097271500 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-K 1 SL INDUSTRIES, INC. FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JULY 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period ______ to ______ Commission file number 1-4987 SL INDUSTRIES, INC. (Exact name of registrant as specified in its charter) NEW JERSEY 21-0682685 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ 08054 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 609-727-1500 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common stock, $.20 par value New York Stock Exchange Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X] On October 15, 1998, the aggregate market value of SL common stock was approximately $57,036,000. The number of shares of common stock outstanding as of October 15, 1998, was 5,633,140. DOCUMENTS INCORPORATED BY REFERENCE: Part I, II, IV - Annual Report to Shareholders for the fiscal year ended July 31, 1998 Part III - Proxy Statement dated October 16, 1998 2 PART I ITEM 1. DESCRIPTION OF BUSINESS (a) General Development of Business On March 29, 1956, the Registrant was incorporated as G-L Electronics Company in the state of New Jersey. Its name was changed to G-L Industries, Inc., in November 1963, SGL Industries, Inc., in November 1970 and then to the present name of SL Industries, Inc., in September 1984. The Registrant and its subsidiaries design and produce propriety advanced systems and equipment for the high-growth Power and Data Quality ("PDQ") industry. The products of the Registrant and its subsidiaries either become components of other industrial or consumer products or are sold through distribution for general retail or commercial use. For the most part, the Registrant and its subsidiaries concentrate on specialty markets believed to offer higher profit margins and greater potential for growth than industrial commodities. No single customer accounts for more than 10% of consolidated net sales nor are export sales material thereto. On July 10, 1998, pursuant to a Purchase Agreement dated June 30, 1998, the Registrant, through its wholly-owned subsidiary formed solely for such purpose, SL Industries Vertrieb, GmbH, a German Corporation, acquired 100% of the issued and outstanding Common Shares of Elektro-Metall Export GmbH ("EME"), a German Corporation. The Registrant paid $9,500,000 in cash at closing. EME is a leading German based designer and manufacturer of power quality products. EME is based in Ingolstadt, Germany and maintains low-cost manufacturing operations in Paks, Hungary. (b) Financial Segment Information Financial information about the Registrant's business segments is incorporated herein by reference to Note 13 in the Annual Report to Shareholders for the fiscal year ended July 31, 1998. (c) Narrative Description of Business During fiscal 1997 and 1996, the Registrant was comprised of two business segments - power and data quality and specialty products. Currently, the Registrant operates principally in one business segment; the design, production and marketing of advanced power and data quality systems and equipment for industrial, medical, aerospace and consumer applications. Products Power Supplies - The Registrant produces a wide range of standard and custom power supply products which convert AC or DC power to direct electrical current to be used in customers' end products. Condor D.C. Power Supplies, Inc. ("Condor"), designs, manufactures and markets standard and custom AC-DC and DC-DC power supplies in both linear and switching configurations. These products range in power from 7 to 700 watts and are manufactured in either commercial or medical configurations. Condor's power supplies closely regulate and monitor power outputs, using patented filter and other technologies, resulting in little or no electrical interference. Condor's power supplies service the medical, industrial, 3 telecommunications and instrumentation markets. SL Montevideo Technology, Inc. ("MTI") also incorporates power supplies into its drive systems for electric vehicles and other motion control systems. For the years ended July 31, 1998, 1997 and 1996, Condor's net sales, as a percentage of consolidated net sales, were 27%, 26% and 23%. Power Distribution and Power Conditioning Units - The Registrant is the leader in the design and manufacture of customized power distribution and power conditioning units. Teal Electronics Corporation ("Teal") develops and manufactures custom electrical subsystems for OEM's of semiconductor, medical imaging, graphics and telecommunication systems. Outsourcing the AC power system to Teal helps its customers reduce cost and time to market, while increasing system performance and customer satisfaction. Teal also helps its customers by getting necessary agency approvals. Custom products are often called "Power Conditioning and Distribution Units," which provide voltage conversion and stabilization, system control, and power distribution for systems such as CT and MRI scanners, chip testers and cellular radio systems. Most of Teal's products are sold direct to its OEM customers who include them with their systems, which are sold to the end user. EME's power distribution products can be found in aerospace applications such as passenger entertainment units, and in automotive applications used in mirror controls and general power wiring systems throughout the vehicle. SL Waber, Inc. ("Waber") also designs and manufacturers Power Distribution Units that safely convert a high power input into user specified output ranges. For the years ended July 31, 1998, 1997 and 1996, Teal's net sales, as a percentage of consolidated net sales, were 16%, 13% and 12%. Uninterruptible Power Supplies and Battery Charging - Waber designs and manufactures uninterruptible power supplies that provide back-up power in the event of a power failure. These products are also used to recharge batteries and, in some applications, provide a direct power supply to connected equipment. Two of the products sold are "POWERHOUSE(R)" and "UPSTART(R)", which is an under the monitor product that includes software used to save and restore data, as well as provide typical UPS back up capability and surge protection. This concept was extended to network equipment in 1997 in the form of the "UPSTART Network(TM)" 350 and 550 products. Condor also designs and manufactures custom back-up power supplies for medical equipment and other critical industrial applications. MTI has introduced and developed battery chargers as part of its motion control systems for electric vehicle applications and is advancing its flywheel energy storage systems that provide uninterruptible power by storing electricity as kinetic energy which does not require batteries. Motion Control Systems - MTI is continuing its recent growth as a technological leader in the design and manufacture of intelligent, high power density, precision motors. MTI has been capitalizing on its new motor and (patented and patent pending) motor control technologies to win important programs in both traditional and new market areas. MTI's new motor and motion controls are used in numerous applications, including aerospace, medical and industrial products. Negotiations are continuing with customers on advanced designs for numerous programs including flywheel energy storage systems, high performance missile guidance motors, and medical/surgical drills and saws. EME designs and manufactures electromechanical products for Aerospace and Ordnance applications. Its products are used in aircraft elevator and rudder trim actuation, cargo application and door control. For the years ended July 31, 1998, 1997 and 1996, MTI's net sales, as a percentage of consolidated net sales, were 13%, 10% and 8%. 4 Surge Suppressors and Other - Surge suppressors are sold to protect computers, audiovisual and other electronic equipment from sudden surges in power. Waber is a leader in the design and manufacture of surge suppressors for the custom, OEM and retail marketplaces. These products include those sold under the trademarks of "POWERMASTER(R)" and "DATAGARD(R)". SL Surface Technologies, Inc. ("STI"), provides chromium electroplated, specialty engineered surfaces to the paper, plastics, steel, nuclear and construction industries. The company is a major supplier of these services in the Greater Philadelphia region, and has developed a presence in Western Europe. Sales are made by appropriate company technical personnel. For the years ended July 31, 1998, 1997 and 1996, Waber's net sales, as a percentage of consolidated net sales, were 39%, 41% and 42%. Raw Materials Raw materials are supplied by various domestic and international vendors and availability for materials is not foreseen to be a problem. Raw materials are purchased direct from the manufacturer whenever possible to avoid distributor mark-ups. Average lead times run from immediate availability to eight weeks. In most cases, viable multiple sources are maintained for flexibility and competitive leverage. Seasonality Generally, seasonality is not a factor. Significant Customers No business has a customer which accounts for 10% or more of consolidated net sales. The loss of any one major customer should not have an adverse affect on the business. Backlog Backlog at September 6, 1998, and September 7, 1997, was $40,229,000 and $30,713,000, respectively. The increase is primarily related to the EME acquisition. Excluding EME, the backlog at September 6, 1998, was $30,202,000. Competitive Conditions The businesses are in active competition with domestic companies, some with national name recognition, offering similar products or services and with companies producing alternative products appropriate for the same uses. In addition, Waber and Condor have experienced significant off-shore competition, for certain products in certain markets. Currently, the businesses are sourcing many components and products outside of the United States. The decreasing military market has also created more competitive conditions in both the military and commercial markets. The businesses differentiate themselves from their competitor by concentrating on customized products based on customer needs. Methods of competition are primarily quality, service, innovation, delivery and price. Environmental The Registrant (together with the industries in which it operates or has operated) is subject to United States, Mexican and German environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters, and the generation, handling, storage, 5 transportation, treatment and disposal of waste materials. The Registrant and the industries are also subject to other federal, state and local environmental laws and regulations, including those that require the Registrant to remediate or mitigate the effects of the disposal or release of certain chemical substances at various sites, including some where it has ceased operations. It is impossible to predict precisely what affect these laws and regulations will have on the Registrant in the future. However, it is not expected that the Registrant will be affected differently from others in its industries. It is the Registrant's policy to comply with all environmental, health and safety regulations, as well as industry standards for maintenance. The Registrant's domestic competitors are subject to the same environmental, health and safety laws and regulations, and the Registrant believes that the compliance issues and potential expenditures of its operating subsidiaries are comparable to those faced by their major domestic competitors. Environmental liabilities and related costs are believed to have been adequately provided for in the consolidated financial statements. There were no capital expenditures for these purposes during fiscal year 1998 and are estimated to be immaterial for fiscal 1999. For additional information related to environmental issues, see Note 10 to the consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report to Shareholders for the fiscal year ended July 31, 1998, which is incorporated herein by reference. Employees As of September 6, 1998, the Registrant had approximately 2,000 employees. Of these employees, approximately 363 are subject to collective bargaining agreements. Additional Information For the purposes of providing additional information regarding the development of the Registrant's businesses in fiscal 1998, the "PDQ Solutions" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report to Shareholders for the fiscal year ended July 31, 1998, are incorporated by reference. 6 ITEM 2. PROPERTIES
Approx. Owned or Leased Square And Location General Character Footage Expiration Date ---------- ----------------- ------- --------------- Montevideo, MN Manufacture of precision motors and motion 38,700 Owned control systems 7,040 Leased - 12/31/98 Matamoros, Mexico Manufacture of precision motors 8,600 Leased - 11/05/99 Nogales, Mexico Manufacture of power protection products 65,000 Leased - 12/31/02 Nogales, AZ Distribution of power protection products 11,700 Leased - Month to Month Mt. Laurel, NJ Corporate Office - power protection products 15,900 Leased - 11/30/99 Manufacture and distribution of power supply Oxnard, CA products 36,400 Leased - 02/28/03 Leased Manufacture and distribution of power supply 40,000 6/01/99 Mexicali, Mexico products 21,500 08/31/00 San Diego, CA Manufacture of AC power subsystems 45,054 Leased - 03/22/02 Manufacture of motion control systems and 39,876 Owned Ingolstadt, Germany power distribution products 17,668 Leased - 09/30/03 Camden, NJ Industrial surface finishing 15,800 Owned Pennsauken, NJ Industrial surface finishing warehouse 6,000 Owned Mt. Laurel, NJ Corporate Office 4,200 Leased - 11/30/99
All manufacturing facilities are adequate for current production requirements. The Registrant believes that its facilities are sufficient for future operations, maintained in good operating condition and adequately insured. Of the owned properties, none are subject to a major encumbrance material to the operations of the Registrant. 7 ITEM 3. LEGAL PROCEEDINGS In the ordinary course of its business, the Registrant is subject to loss contingencies pursuant to foreign and domestic federal, state and local governmental laws and regulations and is also party to certain legal actions, most frequently complaints by terminated employees. It is management's opinion that the impact of these legal actions will not have a material affect on the financial position or results of operations of the Registrant. There are no legal proceedings to which any Director or Officer of the Registrant, or any associate of any Director or Officer, is a party or has a material interest adverse to the Registrant's interest. There are no material proceedings with environmental issues, which involve penalties or sanctions. Additional information pertaining to legal proceedings is found in Note 10 to the consolidated financial statements, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report to Shareholders for the fiscal year ended July 31, 1998, which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter ended July 31, 1998, there were no matters submitted to a vote of security holders, through a solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------- --------------------------------------- FISCAL 1998 FISCAL 1997 --------------------------------------- --------------------------------------- HIGH LOW HIGH LOW ------------------- ------------------- ------------------- ------------------- Stock Prices 1st Quarter............................... 16 1/4 10 10 1/4 8 1/8 2nd Quarter............................... 13 1/2 11 8 5/8 6 7/8 3rd Quarter............................... 14 7/8 12 7 7/8 6 3/8 4th Quarter............................... 15 3/8 12 1/2 11 7 3/8 Dividends Cash - November........................... $.04 $.03 Cash - June............................... $.04 $.04 --------------------------------------- ---------------------------------------
As of September 17, 1998, there were approximately 1,700 registered shareholders. A semi-annual cash dividend of $.04 per share was declared on September 25, 1998, which is payable on November 24, 1998, to shareholders of record on November 2, 1998. 8 ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference to the material captioned "Selected Financial Data" in the Annual Report to Shareholders for the fiscal year ended July 31, 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated herein by reference to the material captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report to Shareholders for the fiscal year ended July 31, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is incorporated herein by reference to the consolidated financial statements and the notes thereto and the material captioned "Report of Independent Public Accountants" and "Selected Quarterly Financial Data (Unaudited)" in the Annual Report to Shareholders for the fiscal year ended July 31, 1998. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This item is not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item, except for the ages and positions held with the Registrant of the executive officers, is incorporated herein by reference to the material captioned "Election of Directors" on page 5 of the proxy statement dated October 16, 1998. The name, age and positions of each executive officers are as follows:
Name Age Position with the Registrant - ---- --- ---------------------------- Owen Farren 47 Chairman of the Board, President and Chief Executive Officer James E. Morris 61 Vice President, Corporate Controller and Treasurer David Nuzzo 41 Vice President - Finance and Administration & Secretary
Owen Farren has been Chairman of the Board since June 1998 and President and Chief Executive Officer since April 1991 and prior thereto as Executive Vice President since 1990. James E. Morris has been Vice President and Corporate Controller since September 1991 and Treasurer since November 1995. From November 1995 through December 1997, Mr. Morris served as Corporate Secretary and has been a financial executive since 1978. 9 David R. Nuzzo has been Vice President - Finance and Administration & Secretary since December 1997. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the material captioned "The Board of Directors" and "Executive Officer Compensation" on pages 6 through 9 of the proxy statement dated October 16, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the material captioned "Security Ownership of Principal Shareholders and Management" on pages 3 and 4 of the proxy statement dated October 16, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item, except for related transactions, is incorporated herein by reference to the material captioned "Executive Officer Compensation" on pages 7 through 9 of the proxy statement dated October 16, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements The following consolidated financial statements, related notes to consolidated financial statements and the report of independent public accountants appearing in the portions of the Registrant's Annual Report to Shareholders, filed as Exhibit 13, for the fiscal year ended July 31, 1998, are incorporated herein by reference: Consolidated Statements of Earnings - Years ended July 31, 1998, 1997 and 1996 Consolidated Balance Sheets - July 31, 1998 and 1997 Consolidated Statements of Shareholders' Equity - Years ended July 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - Years ended July 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Report of Independent Public Accountants 10 (a)(2) Financial Statement Schedules The following financial statement schedules for the years 1998, 1997 and 1996 are submitted herewith: Report of Independent Public Accountants - Arthur Andersen LLP Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because (a) the required information is shown elsewhere in the Annual Report, or (b) they are inapplicable, or (c) they are not required. (a)(3) Exhibits The information called for by this section is listed in the Exhibit Index of this report. (b) Reports on Form 8-K On July 24, 1998, the Registrant filed a report dated July 10, 1998, on Form 8-K covering the acquisition of Elektro-Metall Export GmbH. On September 18, 1998, the Registrant filed a report on Form 8-K/A to amend Item 7 of the Form 8-K filed on July 24, 1998. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SL INDUSTRIES, INC. ------------------- (Registrant) /s/ Owen Farren ------------------- Owen Farren, President October 21, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. /s/ Owen Farren /s/ J. Dwane Baumgardner - --------------- ------------------------ Owen Farren J. Dwane Baumgardner Chairman of the Board, Director President and Chief Executive Officer October 22, 1998 October 21, 1998 /s/ James E. Morris /s/ Edward A. Gaugler - ------------------- --------------------- James E. Morris Edward A. Gaugler Vice President, Director Corporate Controller, October 22, 1998 and Treasurer October 21, 1998 /s/ George R. Hornig -------------------- George R. Hornig Director October 22, 1998 /s/ Walter I. Rickard --------------------- Walter I. Rickard Director October 22, 1998 /s/ Robert J. Sanator --------------------- Robert J. Sanator Director October 22, 1998 12 COMMISSION FILE NO. 1-4987 - -------------------------------------------------------------------------------- SL INDUSTRIES, INC. AND SUBSIDIARIES SUPPORTING SCHEDULES FOR ANNUAL REPORT (Form 10-K) TO SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 13 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To SL Industries, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in SL Industries, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated September 10, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index at Item 14 (a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, PA September 10, 1998 14 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JULY 31, 1998, 1997 AND 1996 (In Thousands)
- -------------------------------------------------------------------------------------------------------------------- Additions ----------------------------------------- Balance at Charged to Charged to Beginning of Costs and Other Balance at Description Period Expenses Accounts Deductions End of Period - -------------------------------------------------------------------------------------------------------------------- YEAR 1998 Allowance for: doubtful accounts $496 $53 $85 $44(a) $590 ==== === === === ==== customer credits $1,294 $2,462 $-- $2,301(b) $1,455 ====== ====== === ====== ====== YEAR 1997 Allowance for: doubtful accounts $428 $62 $35 $29 $496 ==== === === === ==== customer credits $1,212 $2,157 $-- $2,075(b) $1,294 ====== ====== === ====== ====== YEAR 1996 Allowance for: doubtful accounts $453 $151 $41 $217(a) $428 ==== ==== === ==== ==== customer credits $1,367 $1,888 $-- $2,043(b) $1,212 ====== ====== === ====== ======
- ----------------- (a) Accounts receivable written off, net of recoveries. (b) Primarily for customer advertising programs. 15 INDEX TO EXHIBITS The exhibit number, description and sequential page number in the original copy of this document where exhibits can be found follows:
Exhibit # Description - --------- ----------- 3.1 Articles of Incorporation. Copy of Certificate of Incorporation as amended (transmitted herewith). 3.2 By-Laws. Incorporated by reference to Exhibit 3 to the Registrant's report on Form 10-Q for the quarters ended October 31, 1994 and October 31, 1996. 10.1 Supplemental Compensation Agreement for the Benefit of Byrne Litschgi. Incorporated by reference to Exhibit 10.1 to the Registrants report on Form 8 dated November 9, 1990. 10.2 Chairman's Executive Severance Agreement. Incorporated by reference to Exhibit 10.2 to the Registrant's report on Form 8 dated November 9, 1990. 10.3 First Amendment to Chairman's Executive Severance Agreement and to Supplemental Compensation Agreement. Incorporated by reference to Exhibit 10.3.1 to the Registrant's report on Form 8 dated November 9, 1990. 10.4 Second Amendment to Chairman's Executive Severance Agreement and to Supplemental Compensation Agreement. Incorporated by reference to Exhibit 10.3.2 to the Registrant's report on Form 8 dated November 9, 1990. 10.5 Third Amendment to Chairman's Executive Severance Agreement and to Supplemental Compensation Agreement. Incorporated by reference to Exhibit 10.3.3 to the Registrant's report on Form 8 dated November 9, 1990. 10.6 Fourth Amendment to Chairman's Executive Severance Agreement and to Supplemental Compensation Agreement. Incorporated by reference to Exhibit 10.3.2 to the Registrant's report on Form 8 dated November 9, 1990. 10.7 Deferred Supplemental Compensation Agreement with Grant Heilman. Incorporated by reference to Exhibit 10.4.5 to the Registrant's report on Form 8 dated November 9, 1990. 10.8 Deferred Supplemental Compensation Agreement with William Hess. Incorporated by reference to Exhibit 10.4.6 to the Registrant's report on Form 8 dated November 9, 1990. 10.9 Supplemental Compensation Agreement for the Benefit of Donald J. Lloyd-Jones. Incorporated by reference to Exhibit 10.5.1 to the Registrant's report on Form 8 dated November 9, 1990. 10.10 Supplemental Compensation Agreement for the Benefit of Salvatore J. Nuzzo. Incorporated by reference to Exhibit 10.5.3 to the Registrant's report on Form 8 dated November 9, 1990. 10.11 Supplemental Compensation Agreement for the Benefit of Marlin Miller, Jr. Incorporated by reference to Exhibit 10.5.4 to the Registrant's report on Form 8 dated November 9, 1990.
16 10.12 Supplemental Compensation Agreement for the Benefit of Grant Heilman. Incorporated by reference to Exhibit 10.5.5 to the Registrant's report on Form 8 dated November 9, 1990. 10.13 Supplemental Compensation Agreement for the Benefit of William M. Hess. Incorporated by reference to Exhibit 10.5.6 to the Registrant's report on Form 8 dated November 9, 1990. 10.14 1988 Deferred Compensation Agreement with a Certain Officer. Incorporated by reference to Exhibit 10.6 to the Registrant's report on Form 8 dated November 9, 1990. 10.15 Death Benefit Arrangement with Certain Officers adopted by Board Resolution dated September 18, 1975. Incorporated by reference to Exhibit 10.7 to the Registrant's report on Form 8 dated November 9, 1990. 10.16 Non-Qualified Stock Option Agreement dated June 19, 1991. Incorporated by reference to Exhibit 10-A to the Registrant's report on Form 10-K for the fiscal year ended July 31, 1991. 10.17 Non-Qualified Stock Option Agreement dated September 25, 1991. Incorporated by reference to Exhibit 10-B to the Registrant's report on Form 10-K for the fiscal year ended July 31, 1991. 10.18 Severance Pay Agreement with Owen Farren. Incorporated by reference to Exhibit 10-C to the Registrant's report on Form 10-K for the fiscal year ended July 31, 1991. 10.19 Severance Pay Agreement with Ted D. Taubeneck. Incorporated by reference to Exhibit 10-D to the Registrant's report on Form 10-K for the fiscal year ended July 31, 1991. 10.20 Deferred Compensation Agreement with James E. Morris. Incorporated by reference to Exhibit 10-E to the Registrant's report on Form 10-K for the fiscal year ended July 31, 1991. 10.21 1991 Long Term Incentive Plan of SL Industries, Inc., as amended, is incorporated by reference to Appendix to the Registrant's Proxy Statement for its 1995 Annual Meeting held November 17, 1995, previously filed with the Securities and Exchange Commission. 10.22 SL Industries, Inc. Non-Employee Director Non-Qualified Stock Option Plan. Incorporated by reference to Exhibit 4.3 to Registration Statement No. 33-63681, filed October 25, 1995. 10.23 Capital Accumulation Plan. Incorporated by reference to the Registrant's report on Form 10K/A for the fiscal period ended July 31, 1994. 10.24 Amendment No. 1 to Non-Qualified Stock Option Agreement dated September 25, 1991, is incorporated herein by reference to Exhibit 4.5 to Registration Statement on Form S-8/A (No. 33-53274) filed with the Securities and Exchange Commission on June 18, 1996. 10.25 Non-Qualified Stock Option Agreement Incorporated by reference to Exhibit 4.3 to Registration Statement No. 33-65445, filed December 28, 1995. 10.26 Severance Pay Agreement with James D. Klemashevich. Incorporated by reference to Exhibit 10.26 to the Registrant's report on Form 10-K for the fiscal year ended July 31, 1997.
17 10.27 Severance Pay Agreement with David R. Nuzzo. Incorporated by reference to Exhibit 10.1 to the Registrant's report on Form 10-K for the fiscal year ended July 31, 1998. 11 Statement Re Computation of Per Share Earnings (transmitted herewith). 13 Portions of Annual Report to Shareholders for the fiscal year ended July 31, 1998 (transmitted herewith). 17 Letter Re Director Resignation. Incorporated by reference to the Registrant's report on Form 8-K filed on October 20, 1992. 22 Subsidiaries of the Registrant (transmitted herewith). 24 Consent of Independent Public Accountants - Arthur Andersen LLP (transmitted herewith). 27 Financial Data Schedule (Schedule is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed" as part of Form 10-K, or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934). 28 Annual Report on Form 11-K (to be filed by amendment).
EX-3.1 2 ARTICLES OF INCORPORATION 1 EXHIBIT 3-1 RESTATED CERTIFICATE OF INCORPORATION OF SL INDUSTRIES, INC. TO: The Secretary of State State of New Jersey Pursuant to the provisions of Section 14A:9-5 of the New Jersey Business Corporation Act, the undersigned corporation hereby executes the following Restated Certificate of Incorporation: I. Name. The name of the corporation is SL INDUSTRIES, INC. II. Registered Office and Agent. The location of the corporation's current registered office in the State of New Jersey is 28 West State Street, Trenton, New Jersey 08608 and the name of the current registered agent thereon and in charge thereof, upon whom process against this corporation may be served, is The Corporation Trust Company. III. Objects. A. The objects for which the corporation is formed are: (1) To manufacture, purchase or otherwise acquire and to hold, own, mortgage, sell or otherwise dispose of, trade and deal in and with electronic and other components, parts, materials and products. 2 (2) To acquire by purchase, assignment, grant, license or otherwise, to apply for, secure, lease or in any manner obtain, to develop, hold, own, use, exploit, operate, enjoy and introduce, to sell, assign, lease, mortgage, pledge, grant licenses and rights of all kinds in respect of, or otherwise dispose of, and generally to deal in and with and turn to account for any or all purposes, either for itself or as nominee or agent for others: (a) Any and all inventions, devices, processes, discoveries and formulae, and improvements and modifications thereof and rights and interests therein; (b) Any and all letters patent or applications for letters patent of the United States of America or of any other country, state, locality or authority, and any and all rights, interests and privileges connected therewith or incidental or appertaining thereto; (c) Any and all copyrights granted by the United States of America or any other country, state, locality or authority, and any and all rights, interests and privileges connected therewith or incidental or appertaining thereto; and (d) Any and all trade-marks, trade names, trade symbols, labels, designs and other indications of origin and ownership granted by or recognized under the laws of the United States of America or any other country, state, locality or authority, and any and all rights, interests and privileges connected therewith or incidental or appertaining thereto. -2- 3 (3) To manufacture, purchase, sell and generally trade and deal in and with any article, product or commodity produced as the result of or through the use of any such inventions, devices, processes, discoveries, formulae and improvements and modifications thereof, or the like, or any articles, products, commodities, supplies and materials used or suitable to be used in connection therewith or in any manner applicable or incidental thereto; to grant licenses, sub-licenses, rights, interests and privileges in respect of any of the foregoing, and to supervise or otherwise exercise such control over its licenses or grantees and the business conducted by them, as may be agreed upon in its contracts or agreements with such licensees or grantees for the protection of its rights and interests therein, and to secure to it the payment of agreed royalties or other considerations. (4) To carry on and conduct the business of research and development in any and all fields for the purpose of leasing and/or selling such services and the products thereof; including the conception, development, execution and completion of special scientific and engineering projects, on its own behalf and on behalf of any other person, firm, association, corporation, public or private, or the government of the United States of America, or any foreign government, or any political subdivision thereof or any governmental agency. (5) To act as agent, manufacturer's agent, sales representative, distributor, representative, dealer, broker, wholesaler, retailer, or in any other capacity as principal or -3- 4 agent, and with any and all persons, firms, partnerships, corporations, and others, and to buy, sell, distribute, export, import, pledge, make advances upon, or otherwise deal in and deal with goods, wares and merchandise of every class and description; to act as dealers, distributors, selling agents or representatives, sectionally, nationally or internationally, of manufacturers, producers, distributors, dealers and others; to establish and maintain dealerships and agencies of all kinds; to represent, in any capacity, manufacturers, wholesalers, jobbers and dealers in the sale and distribution of their products. (6) To purchase, lease, rent, construct, erect or otherwise acquire, and to hold, own, operate,conduct, sell, lease or otherwise dispose of factories, manufacturing plants, workshops, laboratories, office buildings, or other structures as may seem necessary, useful or incidental to the proper accomplishment of any of the purposes of the corporation; to purchase, acquire, hold, own, use, deal in, sell, lease, mortgage, pledge or otherwise dispose of real estate or any interests therein without limit as to amount within or without the State of New Jersey, in other states, territories or dependencies of the United States and in foreign countries. (7) To manufacture, purchase or otherwise acquire goods, merchandise and personal property of every class, and to hold, own, mortgage, sell or otherwise dispose of, trade, deal in and with the same. -4- 5 (8) To purchase, take by devise or bequest, hold, mortgage and convey such real estate as the purposes of the corporation shall require and all other real estate which shall have been conveyed to the corporation by way of security or in satisfaction of debts or purchased at sales upon judgment or decree duly obtained. (9) To acquire and pay for in cash, stock or bonds of this corporation, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation. (10) To apply for, obtain, register, purchase,lease or otherwise acquire, and to hold, use, own, operate and introduce and to sell, assign or otherwise dispose of, any trade-marks, trade names, copyrights, patents, inventions, improvements and processes used in connection with or secured under letters patent of the United States or any foreign country, and to use, exercise, develop, grant licenses in respect of, or otherwise to turn to account any such trade-marks, trade names, patents, licenses, processes, copyrights, or any such property or rights. (11) To purchase hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of the shares of the capital stock of, or any bonds, securities or evidences of indebtedness created by, any other corporation or corporations organized under the laws of New Jersey or any other state or any foreign country, always subject, however, to the laws of the State of New Jersey, and while the owner of such stock, to -5- 6 exercise all the rights, powers, and privileges of ownership, including the right to vote thereon. (12) To enter into, make, perform and carry out contracts of every kind and for any lawful purpose with any person, firm, association, corporation or body politic or government. (13) To borrow or raise money without limit as to amount and to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness and to secure the payment of any of the foregoing and the interest thereon by mortgage upon or pledge, or assignment in trust of the whole or any part of the property of the corporation, and to sell, pledge or otherwise dispose of such bonds and other evidences of indebtedness for the purposes of the corporation. (14) To purchase, hold, reissue and sell the shares of its own capital stock, provided that shares of its own capital stock belonging to it shall not be voted upon directly or indirectly. (15) To conduct business in any of the states, territories, possessions or dependencies of the United States, in the District of Columbia, and in any and all foreign countries, and to have one or more offices therein and to hold, purchase, mortgage and convey real and personal property therein without limit as to amount, but always subject to the laws of such state, territory, possession, dependency or country. -6- 7 (16) In general, to carry on any other business in connection with the foregoing, and to have and exercise all the powers conferred by Title 14A, Corporations, General, Revised Statutes of New Jersey, and to do any or all of the things hereinbefore set forth and to the same extent as natural persons might or could do, and in any part of the world. B. The foregoing clauses shall be construed both as objects and powers and, except where otherwise expressed, such objects and powers shall not be limited or restricted by reference to or inference from the terms of any other clause in this restated certificate of incorporation, but the objects and powers so specified shall be regarded as independent objects and powers,and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of the corporation. IV. Shares. A. The total number of authorized common shares of the corporation is six million (6,000,000) shares of the par value of twenty cents ($0.20) per share. The total authorized capital stock of this corporation is ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000.00). B. All or any part of such shares of common stock, of the par value of twenty cents ($0.20), may be issued from time to time and for such consideration, not less than the par value thereof, as may be determined and fixed from time to time by the board of directors, as provided by law. -7- 8 C. At all elections of directors of the corporation, each stockholder shall be entitled to as many votes as shall equal the number of votes which he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. D. No shareholder shall be entitled as a matter of right to subscribe for or receive additional shares of any class of stock of the corporation, whether now or hereafter authorized or any bonds, debentures or other securities convertible into stock, but such additional shares of stock or other securities convertible into stock maybe issued or disposed of by the board of directors to such persons and on such terms as in its discretion it shall deem advisable. V. Directors. The directors constituting the current board of directors of the corporation are:
NAME ADDRESS ---- ------- Grant Heilman Box 609 Buena Vista, CO 81211 William M. Hess 33 E. Main St. Moorestown, NJ 08057 John C. Instone Three Greentree Centre Suite 201 Marlton, NJ 08053 Byrne Litschgi Atlantic Bank Building 501 E. Kennedy Blvd. Tampa, FL 33601
-8- 9 Donald J. Lloyd-Jones 37 Chestnut Hill Lane Stamford, CT 06903 Marlin Miller, Jr. Hill & George Streets Wyomissing, PA 19610 Mandell Shimberg Barnett Bank Building, Suite 400 1000 N. Ashley Drive Tampa, FL 33602
VI. Duration. The duration of the corporation is to be perpetual. VII. Directors' Authority. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: A. To make, alter and amend the by-laws of the corporation. B. To fix and vary the amount of the working capital of the corporation and to determine what, if any, dividends shall be declared and paid. C. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. D. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose or to abolish any such reserve in the manner in which it was created. E. By a resolution passed by a majority vote of the whole board, if so provided in the by-laws, to designate two or more of its number to constitute an executive committee, which committee shall exercise, as provided in said resolution or in -9- 10 the by-laws, the powers of the board of directors in the management of the business, affairs and property of the corporation during the intervals between the meetings of the directors. F. To determine from time to time whether and, if allowed, under what conditions and regulations the accounts and books of the corporation (other than the stock and transfer books), or any of them, shall be open to the inspection of the stockholders, and the stockholders, rights in this respect are and shall be restricted and limited accordingly. VIII. Indemnification. The corporation shall indemnify any and all of its directors or officers or former directors or officers or any person who may have served at its request as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor against expenses actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding in which they, or any of them, are made parties, or a party, by reason of being or having been directors or officers or a director or officer of the corporation, or of such other corporation, except in relation to matters as to which any such director or officer or former director or officer or person shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty. Such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled, under any by-law, agreement, vote of stockholders, or otherwise. -10- 11 IX. Related Transactions. In the absence of fraud, no contract or other transaction between the corporation and any other corporation or any individual, association or firm shall be in any way affected or invalidated by the fact that any of the directors of the corporation are interested in such other corporation, association or firm or personally interested in such contract or transaction; provided that such interest shall be fully disclosed or otherwise known to the board of directors at the meeting of said board at which such contract or transaction is authorized or confirmed; and provided further that at such meeting there is present a quorum of directors not so interested and that such contract or transaction shall be approved by a majority of such quorum. Any director of the corporation may vote upon any contract or other transaction between this corporation and any subsidiary or affiliated corporation without regard to the fact that he is also a director of such subsidiary or affiliated corporation. X. Books and Records. The corporation may have one or more offices within or outside the State of New Jersey at which the directors may hold their meetings and keep the books of the corporation, but the corporation shall always keep at its principal office in New Jersey a transfer book in which the transfers of stock can be made, entered and registered, and also a book containing the names and addresses of the stockholders and the number of shares held by them respectively, which shall be open at all times during the business hours to the examination of -11- 12 the stockholders. Elections of directors need not be by ballot unless the by-laws of the corporation so provide. XI. Amendment. Subject to the provisions of Article XII below, the corporation reserves the right to amend, alter or repeal any provision contained in this restated certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. XII. A. Required Vote for Mergers, Sales of Substantially All of the Corporation's Assets and Dissolution. The affirmative vote of the holders of not less than two-thirds of the votes cast by the holders of the outstanding common shares of the corporation shall be required: (1) to adopt any agreement for, or to approve, the merger or consolidation of the corporation with or into any other corporation; (2) to authorize any sale, transfer, or exchange of all or substantially all of the assets of the corporation; or (3) to authorize or adopt any plan for the dissolution of the corporation; except that any such action that has been approved by resolution adopted by at least two-thirds of the directors then in office may be authorized by the affirmative vote of a majority of the votes cast by the holders of the common shares of the corporation. B. Higher Vote for Certain Business Combinations. (1) When Higher Vote is Required. In addition to any affirmative vote required by law or this restated certificate of -12- 13 incorporation, and except as otherwise expressly provided in subparagraph (3) of this paragraph B: (a) any merger or consolidation of the corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Shareholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or more; or (c) the issuance or transfer by the corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; or -13- 14 (d) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or (e) any reclassification of securities (including any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly, or indirectly, of increasing the proportionate share of the outstanding common shares or convertible securities of the corporation or any Subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder; shall require the affirmative vote of the holders of at least seventy-five percent (75%) of the outstanding common shares of the corporation. Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise, but such affirmative vote shall be required in addition to any affirmative vote of the holders of the outstanding common shares required by law or this restated certificate of incorporation. -14- 15 (2) Definition of "Business Combination". The term "Business Combination" as used in this Article XII shall mean any transaction which is referred to in any one or more of clauses (a) through (e) of subparagraph (1) of this paragraph B. (3) When Higher Vote is Not Required. The provisions of subparagraph (1) of this paragraph B shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law, any other provision of this restated certificate of incorporation, or any agreement with any national securities exchange, if all of the conditions specified in either of the following clauses (a) and (b) are met: (a) Approval by Disinterested Directors. The Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined). (b) Price, Form of Consideration and Procedural Requirements. All of the following conditions shall have been met: (i) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of the common shares in such Business Combination shall be at least equal to the highest amount determined under subclauses (a), (b) and (c) below: -15- 16 (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any common shares acquired by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Shareholder, whichever is higher; (b) the Fair Market Value per common share on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (such latter date is referred to in this Article XII as the "Determination Date"), whichever is higher; and (c) (if applicable) the price per common share equal to the Fair Market Value per common share determined pursuant to subclause (b)(i)(b) above, multiplied by the ratio of (1) the highest per common share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any common shares acquired by it within the two-year period immediately prior to the Announcement Date to (2) the Fair Market Value per common share on -16- 17 the first day in such two-year period upon which the Interested Shareholder acquired any common shares. (ii) The consideration to be received by holders of common shares shall be in cash or in the same form as the Interested Shareholder has previously paid for common shares. If the Interested Shareholder has paid for common shares with varying forms of consideration, the form of consideration shall be either cash or the form used to acquire the largest number of common shares previously acquired by it. (iii) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (a) there shall have been (1) no reduction in the annual rate of dividends paid on the common shares (except as necessary to reflect any subdivision of the common shares), except as approved by a majority of the Disinterested Directors, and (2) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding common shares, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors; and (b) such Interested Shareholder shall have not become the -17- 18 beneficial owner of any additional common shares except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder. (iv) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (v) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public shareholders of the corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). (4) Certain Definitions. For the purposes of this Article XII: (a) The term "person" shall mean any individual, firm, corporation or other entity. -18- 19 (b) The term "Interested Shareholder" shall mean any person (other than the corporation or any Subsidiary and other than any profit--sharing,employee stock ownership or other employee benefit plan of the corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: (i) is the beneficial owner, directly or indirectly, of 10% or more of the outstanding common shares; or (ii) is an Affiliate of the corporation and at any time within the two--year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the outstanding common shares; or (iii) is an assignee of or has otherwise succeeded to any common shares which were at any time within the two--year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (c) A person shall be a "beneficial owner" of common shares: (i) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether -19- 20 such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or' understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any common shares. (d) For the purposes of determining whether a person is an Interested Shareholder pursuant to clause (b) of this subparagraph (4), the number of common shares deemed to be outstanding shall include shares deemed owned through application of clause (c) of this subparagraph (4) but shall not include any other common shares which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, exchange rights, warrants or options, or otherwise. (e) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b--2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on September 30, 1984. (f) The term "Subsidiary" shall mean any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the corporation; provided, -20- 21 however, that for the purposes of the definition of Interested Shareholder set forth in clause (b) of this subparagraph (4), the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the corporation. (g) The term "Disinterested Director" shall mean any member of the Board (i) who was a director on September 30, 1984, or (ii) who is unaffiliated with the Interested Shareholder and who was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder, or (iii) any successor of a Disinterested Director if such successor is unaffiliated with the Interested Shareholder and if such successor was recommended or elected to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board. (h) The term "Fair Market Value" shall mean: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period -21- 22 preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board in good faith. (i) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in subclauses (b)(i) and (ii) of subparagraph (3) of this paragraph B shall include the common shares retained by the holders of such shares. (5) Powers of Disinterested Directors. A majority of the Disinterested Directors of the corporation shall have the power and duty to determine for the purposes of this Article XII, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Shareholder, (b) the number of common shares beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another and (d) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more; and the good faith determination of a majority of the Disinterested Directors on -22- 23 such matters shall be conclusive and binding for all purposes of this Article XII. (6) No Effect on Fiduciary Obligations of Interested Shareholders. Nothing contained in this Article XII shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. C. Alteration, Amendment, Repeal, etc. Notwithstanding any other provisions of this restated certificate of incorporation or the By-Laws of the corporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of common shares required by law or this restated certificate of incorporation, the affirmative vote of the holders of 75% or more of the outstanding common shares, shall be required to alter, amend or repeal, or adopt any provisions inconsistent with, this Article XII of this restated certificate of incorporation. XIII. Captions. The captions contained in this restated certificate are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this restated certificate of incorporation. IN WITNESS WHEREOF, the corporation has executed this document on the 1st day of March , 1985. SL INDUSTRIES, INC. BY: /s/ JOHN C. INSTONE ------------------------- JOHN C. INSTONE, President 0129c 11585 -23- 24 SL INDUSTRIES, INC. FILED CERTIFICATE OF AMENDMENT DEC 2 1985 OF JANE BURGIO Secretary of CERTIFICATE OF INCORPORATION State
Pursuant to the provisions of Section 14A:9-4(3) of the New Jersey Business Corporation Act, the undersigned corporation hereby executes the following Certificate: 1. The name of the corporation is SL INDUSTRIES, INC. 2. Article Fourth of the Restated Certificate of Incorporation of SL Industries, Inc. is amended in its entirety to read as set forth on Exhibit A, attached hereto and made a part hereof as if set forth in full herein. 3. The Amendment to the Restated Certificate of Incorporation was adopted by the shareholders at the annual meeting held on November 21, 1985. 4. At the time of the adoption of the Amendment to the Restated Certificate of Incorporation, 3,566,574 common shares were entitled to vote thereon. 5. At the time of adoption of the Amendment to the Restated Certificate of Incorporation, 2,213,652 common shares (84.37% of the votes cast) were voted in favor of adoption of the Amendment and 410,147 shares were voted against adoption of the Amendment. IN WITNESS WHEREOF, the undersigned has caused this Certificate of Amendment to be executed this 27th day of November, 1985. SL INDUSTRIES, INC. BY: /s/John C. Instone ------------------------- JOHN C. INSTONE, President 25 EXHIBIT A TEXT OF AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION OF SL INDUSTRIES, INC. IV. Shares. The total number of shares of all classes of stock which the corporation shall be authorized to issue is twelve million (12,000,000) shares, divided into six million (6,000,000) shares of Preferred Stock, without par value (herein called "Preferred Stock"), and six million (6,000,000) shares of Common Stock, of the par value of twenty cents ($0.20) per share (herein called "Common Stock"). A. Preferred Stock. 1. The Preferred Stock may be issued in one or more series. The designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of the Preferred Stock of each series shall be such as are stated and expressed herein and, to the extent not stated and expressed herein, shall be such as may be fixed by the Board of Directors (authority so to do being hereby expressly granted) and stated and expressed in a resolution or resolutions adopted by the Board of Directors providing for the issue of Preferred Stock of such series. Such resolution or resolutions shall (a) specify the series to which such Preferred Stock shall belong, (b) state whether a dividend shall be payable in cash, stock or otherwise, whether such dividend shall be cumulative or noncumulative and whether the Preferred Stock of such series shall rank on a parity with or junior to other series of Preferred Stock as to dividends, and fix the dividend rate therefor (or the manner of computing the rate of such dividends thereon) (c) fix the amount which the holders of the Preferred Stock of such series shall be entitled to be paid in the event of a voluntary or involuntary liquidation, dissolution or winding up of the corporation, (d) state whether or not the Preferred Stock of such series shall be 26 redeemable and at what times and under what conditions and the amount or amounts payable thereon in the event of redemption; and may, in a manner not inconsistent with the provisions of this Article IV, (i) limit the number of shares of such series which may be issued, (ii) provide for a sinking fund for the purchase or redemption, or a purchase fund for the purchase, of shares of such series and the terms and provisions governing the operation of any such fund and the status as to reissuance of shares of Preferred Stock purchased or otherwise reacquired or redeemed or retired through the operation thereof, and that so long as the corporation is in default as to such sinking or purchase fund the corporation shall not (with such exceptions, if any, as may be provided) pay any dividends upon or purchase or redeem shares of capital stock ranking junior to the Preferred Stock with respect to dividends or distribution of assets upon liquidation (referred to in this Paragraph A of Article IV as "stock ranking junior to the Preferred Stock"), (iii) grant voting rights to the holders of shares of such series in addition to those required by law, (iv) impose conditions or restrictions upon the creation of indebtedness of the corporation or upon the issue of additional Preferred Stock or other capital stock ranking on a parity therewith or prior thereto with respect to dividends or distribution of assets upon liquidation, (v) impose conditions or restrictions upon the payment of dividends upon, or the making of other distributions to, or the acquisition of, stock ranking junior to the Preferred Stock, (vi) grant to the holders of the Preferred Stock of such series the right to convert such stock into other securities, and (vii) grant such other special rights to the holders of shares of such series as the Board of Directors may determine and as shall not be inconsistent with the provisions of this Article IV. The term "fixed for such series" and similar terms as used in this Paragraph A shall mean stated and expressed herein or in a resolution or resolutions adopted by the Board or Directors providing for the issue of Preferred Stock of the series referred to therein. 27 2. In the event of any liquidation, dissolution or winding up of the affairs of the corporation, then, before any distribution or payment shall be made to the holders of any class of stock of the corporation ranking junior to the Preferred Stock, the holders of the Preferred Stock of the respective series shall be entitled to be paid in full the respective amounts fixed for such series. After such payment shall have been made in full to the holders of the Preferred Stock, the remaining assets and funds of the corporation shall be distributed among the holders of the stocks of the corporation ranking junior to the Preferred Stock according to their respective rights. In the event that the assets of the corporation available for distribution to holders of Preferred Stock shall not be sufficient to make the payment herein required to be made in full, such assets shall be distributed to the holders of the respective shares of Preferred Stock pro rata in proportion to the amounts payable hereunder upon each share thereof. 3. Except as otherwise provided in any resolution of the Board of Directors providing for the issuance of any particular series of Preferred Stock, shares of Preferred Stock redeemed or otherwise acquired by the corporation shall assume the status of authorized but unissued Preferred Stock and may thereafter, subject to the provisions of this Paragraph A and of any restrictions contained in any resolution of the Board of Directors providing for the issue of any particular series of Preferred Stock, be reissued in the same manner as other authorized but unissued Preferred Stock. B. COMMON STOCK 1. All or any part of the authorized shares of Common Stock of the corporation may be issued from time to time and for such consideration, not less than the par value thereof, as may be determined and fixed from time to time by the Board of Directors, as provided by law. 2. Subject to the prior and superior rights of the Preferred Stock and on the conditions set forth in the foregoing Paragraph A of this Article IV or in any resolution of the Board of 28 Directors providing for the issuance of any particular series of Preferred Stock, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on the Common Stock from time to time out of any funds legally available therefor. 3. Subject to the provisions of this Article IV, the holders of Common Stock shall be entitled to one vote for each share held at all meetings of the shareholders of the corporation. 4. After payment shall have been made in full to the holders of the Preferred Stock in the event of any liquidation, dissolution or winding up of the affairs of the corporation, the remaining assets and funds of the corporation shall be distributed among the holders of the Common Stock according to their respective shares. C. GENERAL PROVISIONS 1. At all elections of directors of the corporation, each holder of a class or series of stock entitled to vote for all or some of the directors shall be entitled to as many votes as shall equal the number of votes which he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by such class or series, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. 2. No shareholder shall be entitled as a matter of right to subscribe for or receive additional shares of any class of stock of the corporation, whether now or hereafter authorized or any bonds, debentures or other securities convertible into stock, but such additional shares of stock or other securities convertible into stock may be issued or disposed of by the Board of Directors to such persons and on such terms as in its discretion it shall deem advisable. 29 SL INDUSTRIES, INC. F I L E D NOV 24 1986 CERTIFICATE OF AMENDMENT OF JANE BURGIO CERTIFICATE OF INCORPORATION Secretary of State
Pursuant to the provisions of Section 14A:9-4(3) of the New Jersey Business Corporation Act, the undersigned corporation hereby executes the following Certificate: 1. The name of the corporation is SL INDUSTRIES, INC. 2. The first sentence of Article Fourth of the Restated Certificate of Incorporation of SL Industries, Inc. is amended in its entirety to read as follows: "FOURTH: The total number of shares of all classes of stock which the corporation shall be authorized to issue is thirty-one million (31,000,000) shares, divided into six million (6,000,000) shares of Preferred Stock, without par value (herein called "Preferred Stock"), and twenty-five million (25,000,000) shares of Common Stock, of the par value of twenty cents ($0.20) per share (herein called "Common Stock"). 3. The Amendment to the Restated Certificate of Incorporation was adopted by the shareholders at the annual meeting held on November 20, 1986. 4. At the time of the adoption of the Amendment to the Restated Certificate of Incorporation 5,055,606 common shares were entitled to vote thereon. 5. At the time of the adoption of the Amendment to the Certificate of Incorporation, 3,652,264 common shares (94.9% of the votes cast) were voted in favor of the adoption of the Amendment and 149,844 shares were voted against adoption of the Amendment. IN WITNESS WHEREOF, the undersigned has caused this Certificate of Amendment to be executed this 21st day of NOVEMBER, 1986. SL INDUSTRIES, INC. By: /s/ John C. Instone ---------------------- John C. Instone, President 30 SL INDUSTRIES, INC. FILED CERTIFICATE OF AMENDMENT NOV 20 1987 OF JANE BURGIO Secretary of CERTIFICATE OF INCORPORATION State
Pursuant to the provisions of Section 14A:9-4(3) of the New Jersey Business Corporation Act, the undersigned corporation hereby executes the following Certificate. ONE: The name of the corporation is SL INDUSTRIES, INC. TWO: Article VIII of the Restated Certificate of Incorporation is amended in its entirety to read as set forth on Exhibit A, attached hereto and made a part hereof as if set forth in full herein. THREE: The Amendment to the Restated Certificate of Incorporation was approved by the Board of Directors and thereafter adopted by the Shareholders at the annual meeting held on November 19, 1987. FOUR: At the time of the adoption of the Amendment to the Restated Certificate of Incorporation, 5,377,555 shares of common stock were entitled to vote thereon. FIVE: At the time of the adoption of the Amendment to the Restated Certificate of Incorporation, 3,830,492 common shares (86.8% of the votes cast) were voted in favor of adoption of the Amendment, 467,779 shares were voted against adoption of the Amendment, and 114,738 shares abstained from voting. IN WITNESS WHEREOF, the undersigned has caused this Certificate of Amendment to be executed this 19th day of November, 1987. SL INDUSTRIES, INC. By: /s/ Charles A. Shipley --------------------------- Charles A. Shipley, Vice President 31 EXHIBIT A "VIII. Director and Officer Liability and Indemnification. A. To the fullest extent that the laws of the State of New Jersey, as they exist or may hereafter be amended, permit the limitation or elimination of the liability of directors and officers, no director or officer of this Corporation shall be liable to the Corporation or its shareholders for damages or breach of any duty owed to the Corporation or its shareholders. B. The Corporation shall indemnify any and all persons whom it has the power to indemnify pursuant to the New Jersey Business Corporation Act against any and all expenses, judgments, fines, amounts paid in settlement, and any other liabilities to the fullest extent permitted by such law and may, in the discretion of the Board of Directors, purchase and maintain insurance, at its expense, to protect itself and such persons against any such expense, judgment, fine, amount paid in settlement, or other liability, whether or not the Corporation would have the power to so indemnify such person under the New Jersey Business Corporation Act. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person or any such expenses to the full extent permitted by law nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, vote of shareholders or directors or otherwise, both as to acts in his official capacity and as to action in another capacity while holding such office. C. No amendment to or repeal of this Article VIII shall apply to or have any effect on the liability or alleged liability of any director or officer of this Corporation for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal, or any indemnification right of any person arising from any matter occurring prior to such amendment or repeal." 32 FILED NOV 20 1987 JANE BURGIO CERTIFICATE OF AMENDMENT Secretary of State OF CERTIFICATE OF INCORPORATION OF SL INDUSTRIES, INC.
SL INDUSTRIES, INC., a New Jersey corporation (the "Corporation"), certifies as follows: FIRST: The name of the corporation is SL Industries, Inc. SECOND: Under the authority contained in Article IV, Section A.1 of the charter of the Corporation, the Board of Directors of the Corporation on June 4, 1987 classified 250,000 unissued shares of the Preferred Stock of the Corporation as 250,000 shares of "Series A Junior Participating Preferred Stock." THIRD: A description of the Series A Junior Participating Preferred Stock including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption as set or changed by the Board of Directors of the Corporation is as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Stock"), without par value, and the number of shares constituting such series shall be 250,000. 33 Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of preferred stock ranking prior and superior to the shares of Series A Stock with respect to dividends, the holders of shares of Series A Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, semi-annual dividends payable in cash during the months of May and November, in each year (each such date being referred to herein as a "Semi-Annual Dividend Payment Date"), commencing on the first Semi-Annual Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $8.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $.20 per share, of the Corporation (the "Common Stock") since the immediately preceding Semi-Annual Dividend Payment Date, or with respect to the first Semi-Annual Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Stock. In the event the Corporation shall at any time after December 13, 1987 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding 34 immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Semi-Annual Dividend Payment Date and the next subsequent Semi-Annual Dividend Payment Date, a dividend of $8.00 per share on the Series A Stock shall nevertheless be payable on such subsequent Semi-Annual Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Stock from the Semi-Annual Dividend Payment Date next preceding the date of issue of such shares of Series A Stock, unless the date of issue of such shares is prior to the record date for the first Semi-Annual Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Semi-Annual Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Stock entitled to receive a semi-annual dividend and before such Semi-Annual Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Semi-Annual Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Stock entitled to receive 35 payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series A Stock shall be in arrears in an amount equal to three semi-annual dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous semi-annual dividend periods and for the current semi-annual dividend period on all shares of Series A Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of 36 preferred stock (including holders of the Series A Stock) with dividends in arrears in an amount equal to three semi-annual dividends thereon, voting as a class, irrespective of series, shall have the right to elect two Directors. (ii) During any default period, such voting rights of the holders of Series A Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting rights nor the right of the holders of any other series of preferred stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of 10% in number of shares of the preferred stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of preferred stock of such voting right. At any meeting at which the holders of preferred stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two Directors or, if such right is exercised at an annual meeting, to elect two Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the preferred stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the preferred stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of preferred stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Stock. 37 (iii) Unless the holders of preferred stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than 10% of the total number of shares of preferred stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of preferred stock, which meeting shall thereupon be called by the President, a Vice-President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of preferred stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of preferred stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than 10% of the total number of shares of preferred stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of preferred stock shall have exercised their right to elect two Directors voting as a class, after the exercise of which right (y) the Directors so elected by the holders of preferred stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (z) any vacancy in he Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a 38 majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (z) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of preferred stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of preferred stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the charter or by-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the charter or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, holders of Series A Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever semi-annual dividends or other dividends or distributions payable on the Series A Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Stock; 39 (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Stock, except dividends paid ratably on the Series A Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Stock, or any shares of stock ranking on a parity with the Series A Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 40 Section 5. Reacquired Shares. Any shares of Series A Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of preferred stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Stock unless, prior thereto, the holders of shares of Series A Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii) being hereinafter referred to as the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Stock and Common Stock, respectively, holders of Series A Stock and holders of shares of Common Stock shall receive their ratable and proportionate share 41 of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect the Series A Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock that were outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock, securities, cash or any other property, or any combination thereof, then in any such case the shares of Series A Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash or any 42 other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Stock shall not be redeemable. Section 9. Ranking. The Series A Stock shall rank junior to all other series of the Corporation's preferred stock as to the payments of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The charter of the Corporation shall not be further amended in any manner that would materially alter or change the powers, preferences or special rights of the Series A Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Stock, voting separately as a class. Section 11. Fractional Shares. Series A Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Stock. FOURTH: The Restated Certificate of Incorporation of SL Industries, Inc., is amended so that the designation and number of shares of Series A Junior Participating Preferred Stock, and 43 the relative rights, preferences and limitations of the Series A Junior Participating Preferred Stock, are as stated in paragraph Third. IN WITNESS WHEREOF, the Corporation has caused this Amendment to be signed in its name and on its behalf on this 19th day of November, 1987. SL INDUSTRIES, INC. By /s/ Charles A. Shipley, V.P. ------------------------------ 44 SL INDUSTRIES, INC. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3), Corporations, General, of the New Jersey Statutes, the undersigned corporation executes the following Certificate of Amendment to its Certificate of Incorporation: ONE: The name of the corporation is SL INDUSTRIES, INC. TWO: The following amendment to the Certificate of Incorporation was approved by the directors and thereafter duly adopted by the shareholders of the corporation on the 21st day of November, 1997: RESOLVED, that Article IV of the Certificate of Incorporation be amended by deleting Section C1, relating to cumulative voting, in its entirety and renumbering Section C2 as Section C1. THREE: The number of shares outstanding at the time of the adoption of the amendment was 5,539,937. The total number of shares entitled to vote thereon was 5,487,280. FOUR: The number of shares voting for and against such amendment is as follows:
Number of Shares Voting for Amendment Against Amendment Number of Shares Voting - ------------------------------------------------------- ----------------------- 2,812,339 988,478
FIVE: The effective date of this Amendment to the Certificate of Incorporation shall be the date of filing. Dated this 22nd day of October, 1998. SL INDUSTRIES, INC. By: /s/ James E. Morris ----------------------------------------- James E. Morris Vice President, Corporate Controller and Treasurer EX-10.1 3 AGREEMENT REGARDING SEVERANCE BENEFIT 1 EXHIBIT 10.1 AGREEMENT REGARDING SEVERANCE BENEFIT This AGREEMENT REGARDING SEVERANCE BENEFIT ("Agreement") is made as of the 1st day of December, 1997, by and between SL INDUSTRIES, INC. (the "Company"), a New Jersey corporation, and DAVID R. NUZZO ("Employee"). BACKGROUND A. Employee has this date commenced employment with the Company as its Vice President - Finance and Administration and Secretary. B. In connection with his employment with the Company, Employee, because of the at-will nature of his employment, has requested, and the Company has agreed to provide, the following Severance Benefit (as defined below) in the event of a change in control of the Company. NOW, THEREFORE, for good and valuable consideration and intending to be legally bound hereby, the undersigned agree as follows: 1. In the event that any action or series of actions shall take place which shall result in a change in the control of the Company, Employee shall be entitled to receive the Severance Benefit, upon Employee's termination of employment with the Company, within six months of such change in control. The Severance Benefit shall be an amount equal to Employee's annual base salary for a period not greater than 24 months, or until he secures new employment, whichever comes first, but, in any event, not less than 12 months (the "Severance Benefit"). The Severance Benefit shall be paid to Employee at the same time and in the same manner as Employee's base salary was paid to Employee, immediately prior to termination, and shall be subject to deduction for any amounts that are required to be withheld or deducted according to applicable law. Employee shall be entitled to receive the Severance Benefit regardless of whether his employment is terminated voluntarily or involuntarily, or with or without cause. 2. As consideration for the payment of the Severance Benefit, Employee shall provide to the Company a general release from all liability, in form and substance satisfactory to the Company in its reasonable discretion. 3. This Agreement may not be modified or amended except by writing signed by both parties; shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns; sets forth 2 the entire agreement and understanding of the parties hereto with respect to the specific subject matter hereof and supersedes any and all prior discussions, agreements or understandings, whether oral or written; may be executed in counterparts and delivered by facsimile transmission or comparable means; and, shall be governed by and construed in accordance with the laws of the State of New Jersey without reference to any principles of conflicts of law. This Agreement is hereby executed and delivered by the undersigned as of the date and year first above written. SL INDUSTRIES, INC. By: /s/OWEN FARREN /s/ DAVID R. NUZZO --------------------------- --------------------- Owen Farren, President David R. Nuzzo and Chief Executive Officer 2 EX-11 4 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (In Thousands, Except Per Share Data)
Years Ended July 31, --------------------------------------------------- 1998 1997 1996 ---- ---- ---- Net Income...................................... $5,313 $7,815 $3,498 ====== ====== ====== Shares Outstanding: Weighted average number of common shares used in calculation for basic net income per common share........................................... 5,598 5,776 5,701 Add: shares of common stock equivalents......... 299 245 249 --- --- --- Weighted average number of common shares used in calculation of diluted net income per common share.................................... 5,897 6,021 5,950 ===== ===== ===== Basic net income per common share............... $.95 $1.35 $.61 ==== ===== ==== Diluted net income per common share............. $.90 $1.30 $.59 ==== ===== ====
EX-13 5 PORTIONS OF 1998 ANNUAL REPORT 1 SL INDUSTRIES, INC. EXHIBIT 13 PDQ SOLUTIONS SL Industries designs and manufactures advanced power products and systems to ensure power and data quality (PDQ) for today's complex electronic equipment and systems that require a stable and reliable source of power for proper operation. The market for PDQ products and technology now exceeds $10 billion worldwide, and is expected to grow at an average annual rate of 8% to 10% over the next five years. PDQ SOLUTIONS The demand for PDQ solutions is driven by the increasing sophistication and application of electronic equipment and consumer products. As electronic devices incorporate a greater degree of computing capability, power irregularities pose a greater threat of damage and data loss. The Company produces a wide range of power supplies, power conditioners, motion control systems, power distribution units, surge protection devices and other systems designed to ensure the safe and reliable operation of sophisticated equipment. The Company's products are sold in the medical, aerospace, telecommunications, industrial and consumer industries. SL Industries engineers its PDQ solutions for the world community. Its products are sold, directly and through representatives, primarily to original equipment manufacturers (OEMs) and distributors with global sales and operations. In order to meet the demands of its multinational customers, the Company has acquired a thorough knowledge of the diverse energy problems and performance standards in effect in local and regional markets throughout the world. SL Industries' PDQ products are designed to operate under the wide range of power conditions found around the world, and comply with international safety agency requirements. The acquisition of ELEKTRO-METALL EXPORT GMBH (EME) furthers the Company's plans to establish international manufacturing and engineering capabilities and direct foreign sales channels for its global products. MASS CUSTOMIZATION SL Industries implements its PDQ technology through its strategy called "mass customization." Mass customization at SL is the process of configuring its portfolio of PDQ solutions (products) to meet specific customer requirements or market applications. This strategy enables the Company to establish strong customer relationships and respond better to market developments, as well as to reduce costs for both the Company and its customers. Among SL's competitive advantages is its ability to rapidly deliver comprehensive power solutions. In response to the market's demands for greater functionality, energy efficiency and power density, OEMs are increasingly integrating the design of power systems and electronics into their end products. At the same time, just-in-time production methods are creating incentives for OEMs to partner with a smaller number of qualified vendors. Thus, by providing complete PDQ systems, the Company is able to strengthen and expand its relationships with established customers and to penetrate new markets for value-added applications of its technology. In fiscal 1998, SL Industries realized a number of important product developments. The following is a highlight of some of the Company's recent developments and achievements: 4 2 SL INDUSTRIES, INC. POWER SUPPLIES SL Industries produces a wide range of standard and custom power supplies that convert AC or DC power to required levels of direct electrical current for use in customers' end products. CONDOR designs and manufactures linear and switching AC power supplies, primarily in the 7 watt to 700 watt power range. The CONDOR product line is noted for its innovation and highly efficient designs and dominates the market for low voltage power supplies for medical equipment. The Company has incorporated its advanced technology and designs into products for the telecom, instrumentation and industrial equipment markets. CONDOR'S highly responsive product teams effectively partner with established customers and have enabled CONDOR to penetrate new market applications for its products, including home health care, air filtration systems, chemical and genetic analysis equipment, and telecom and datacom interface equipment. [POWER SUPPLY PHOTO] [CAPTION] During fiscal 1998, CONDOR introduced 11 new power supply products and is currently developing new products at the rate of one every four to six weeks. CONDOR has ongoing plans to develop external power supplies and DC to DC converters and to expand the power range of its PDQ solutions. The Company is currently engineering new power supply products to meet the growing needs of OEMs in the emerging telemedicine industry. POWER CONDITIONING AND DISTRIBUTION UNITS SL Industries has established a prominent position in the growing market for power conditioning and distribution units (PCDUs). PCDUs are used to filter out noise from power lines, as well as for voltage conversion and stabilization, system control and power distribution. In addition, PCDUs enhance the quality and reliability of equipment and systems by providing the precise power and distribution features required for dependable operation. TEAL ELECTRONICS is a leader in the design and manufacture of custom power systems for OEMs in the medical imaging, telecommunications and semiconductor production equipment markets. In fiscal 1998, TEAL successfully developed and introduced a new line of PCDUs with voltage regulation. The technology developed by TEAL and its well-recognized PCDU product line constitutes an excellent platform to penetrate markets for more value-added and cost-effective solutions in the medical, semiconductor, telecommunications and graphic arts industries. [POWER CONDITIONER PHOTO] [CAPTION] 5 3 SL INDUSTRIES, INC. SL WABER designs and manufactures power distribution units that safely convert a high power input into user specified output ranges. These units distribute power evenly and conveniently throughout the customer's system. In fiscal 1998, SL WABER began working with its customers to develop advanced microprocessor controlled systems that can satisfy the demanding new performance requirements that are expected to be caused by utility deregulation. EME power distribution equipment can be found in aerospace applications such as passenger entertainment units, and in automotive applications used in mirror controls and general power wiring systems throughout the vehicle. UNINTERRUPTIBLE POWER SUPPLIES Uninterruptible power supply (UPS) products provide back-up power in the event of a power failure. Dependable back-up power supplies prevent the loss of data transmissions due to sudden power shortages and ensure an orderly system shutdown in the event of an extended energy failure. UPS products also recharge batteries and, in some applications, provide a direct power supply to connected equipment. [UNINTERRUPTIBLE POWER SUPPLY PHOTO] [CAPTION] SL WABER back-up power supplies include the Upstart Network series, which are designed for computers operating in a network environment. These units incorporate sophisticated software for managing, saving and restoring files. SL WABER expanded its product line into higher power ranges with the introduction of its 650va UPS unit during the past fiscal year, and is expected to introduce its 850va UPS unit in the first half of fiscal 1999. CONDOR has continued its expansion into custom back-up power supplies that incorporate UPS and battery charging technology. These products are required by OEMs that manufacture and sell medical and telecom equipment and other critical industrial applications where the consequences of on-line interruption are unacceptable. Applications for this capability are expected to proliferate in the future, as sophisticated capital equipment in a wide range of industries is designed to process information within wide and local area networks. [REMOTE CONTROL AIR PLANE PHOTO] [CAPTION] 6 4 SL INDUSTRIES, INC. MOTION CONTROL SYSTEMS SL Industries' competitive advantage in motion control systems lies in its cutting-edge designs. SL-MTI's new motor and motion controls are used in numerous applications, including aerospace, medical and industrial products, which require extremely high reliability under demanding operating conditions. SL-MTI's proprietary motor/generator technology is employed in jet engines, electric vehicles, hand-held precision tools and advanced flywheel systems for telecommunications and utility markets. [PASSENGER AIR PLANE PHOTO] [CAPTION] In fiscal 1998, SL-MTI's power and drive systems were incorporated into the ground breaking "Personal Transit Module" electronic vehicle manufactured by Corbin industries. The acquisition of EME in June 1998 further expands the market for the Company's motion control systems. EME designs and manufactures actuators and power distribution units used in a variety of aerospace and industrial applications. The synergies between EME and each of the Company's other strategic business units, particularly SL-MTI, will enable SL Industries to provide its customers with more comprehensive PDQ solutions. SURGE SUPPRESSORS AND OTHER SL Industries has a well-established reputation in the design and manufacture of surge suppressors and surge suppression technologies. These devices are sold to protect computers, audiovisual and other electronic equipment from damage or destruction due to sudden power surges. SL WABER is a leader in the design and manufacture of surge suppressors for the custom, OEM and retail marketplaces. Surge suppression and other types of noise filtration technology are generally incorporated into many of the Company's more advanced PDQ products. [EME PHOTO] [CAPTION] REPRESENTATIVE CUSTOMER LIST SL Industries provides power and data quality solutions for world-class customers in many industries. Some of the customers for the Company's PDQ solutions over the past year include:
AKSYS Federal Express Newark Electronics Airbus Industries Future Electronics Office Depot Allied Signal GEC Marconi Philips Audi General Electric Raytheon Avnet/Allied Electronics Healthdyne Schlumberger Bell/Milgray Electronics Hewlett Packard Siemens B.F. Goodrich/Aerospace Home Depot Teradyne Digi-Key Lucas Aerospace Textron Digital Equipment Motorola 3M Corporation Ericsson Nellcor/Puritan Bennett Toshiba
7 5 SL INDUSTRIES, INC. SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------------- Years ended July 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) SUMMARY OF OPERATIONS Net sales.................................................................. $ 118,212 $ 115,687 $ 117,313 Income before cumulative effect of changes in accounting principles (1) ... $ 5,313 $ 7,815 $ 3,498 Cumulative effect of change in accounting for income taxes................. - - - -------------------------------------- Net income................................................................. $ 5,313 $ 7,815 $ 3,498 ====================================== Diluted net income per common share: (2) Income before cumulative effect of changes in accounting principles (1) ... $ .90 $ 1.30 $ .59 Cumulative effect of change in accounting for income taxes................. - - - -------------------------------------- Diluted net income......................................................... $ .90 $ 1.30 $ .59 ====================================== Shares used in computing diluted net income per common share (2) .......... 5,897 6,021 5,950 Cash dividend per common share............................................. $ .08 $ .07 $ .06 YEAR-END FINANCIAL POSITION Working capital............................................................ $ 21,344 $ 17,399 $ 20,765 Current ratio.............................................................. 2.1 1.8 2.3 Total assets............................................................... $ 80,915 $ 66,804 $ 64,175 Long-term debt............................................................. $ 13,283 $ 700 $ 13,186 Shareholders' equity....................................................... $ 38,345 $ 36,492 $ 28,680 Book value per share....................................................... $ 6.84 $ 6.27 $ 4.98 OTHER Capital expenditures (3) .................................................. $ 2,756 $ 2,097 $ 2,219 Depreciation and amortization.............................................. $ 3,043 $ 2,700 $ 2,584 -------------------------------------- - ------------------------------------------------------------------------------------------------------------- Years ended July 31, 1995 1994 - ------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) Summary of operations Net sales.................................................................. $ 91,125 $ 76,593 Income before cumulative effect of changes in accounting principles (1) ... $ 3,677 $ 1,951 Cumulative effect of change in accounting for income taxes................. - 603 ------------------------------ Net income................................................................. $ 3,677 $ 2,554 ============================== Diluted net income per common share: (2) Income before cumulative effect of changes in accounting principles (1) ... $ .62 $ .32 Cumulative effect of change in accounting for income taxes................. - .10 ------------------------------ Diluted net income......................................................... $ .62 $ .42 ============================== Shares used in computing diluted net income per common share (2) .......... 5,940 6,152 Cash dividend per common share............................................. $ .06 $ .06 Year-end financial position Working capital............................................................ $ 21,929 $ 21,125 Current ratio.............................................................. 2.5 2.9 Total assets............................................................... $ 62,156 $ 52,397 Long-term debt............................................................. $ 17,373 $ 11,918 Shareholders' equity....................................................... $ 24,930 $ 23,577 Book value per share....................................................... $ 4.43 $ 3.93 Other Capital expenditures (3) .................................................. $ 1,736 $ 1,446 Depreciation and amortization.............................................. $ 2,108 $ 1,868 ------------------------------
(1) Fiscal 1997 includes pre-tax gain, net of severance, facility closing, legal and other costs, on disposition of subsidiary of $5,888,000, increasing net income by $3,556,000, or $.59 per common share. Fiscal 1995 includes pre-tax gain, net of severance, legal and other costs, on disposition of subsidiary of $818,000, increasing net income by $1,100,000, or $.19 per common share. (2) The effect of outstanding dilutive stock options is not material for fiscal 1995 and is antidilutive for fiscal 1994; and is not included in the calculations for these years. (3) Excludes assets acquired in business combinations. 6 SL INDUSTRIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES During fiscal 1998, the net cash provided by operating activities was $6,621,000, as compared to $3,266,000 and $4,687,000 provided in fiscal 1997 and 1996, respectively. The fiscal 1998 increase, as compared to fiscal 1997, resulted primarily from increased income from operations, and decreased receivables and inventories, offset, in part, by decreased accounts payable and accrued liabilities. The fiscal 1997 decrease, as compared to fiscal 1996, resulted primarily from increased inventories at current operations, offset, in part, by increased accounts payable. During fiscal 1998, the net cash used in investing activities of $13,634,000 was primarily related to the acquisition of all of the issued and outstanding common shares of Elektro-Metall Export GmbH ("EME") and capital expenditures. During fiscal 1997, the net cash provided by investing activities of $9,399,000 was primarily related to the sale of substantially all of the assets of SL Auburn, Inc. ("Auburn"), offset, in part, by capital expenditures. During fiscal 1996, the net cash used in investing activities of $1,240,000, was primarily related to capital expenditures, offset, in part, by the sale of substantially all of the assets of SL Piping Systems, Inc. ("Piping"), net of certain liabilities. During fiscal 1998, the net cash provided by financing activities of $7,000,000 was primarily related to the use of the Company's revolving line of credit for the EME acquisition, offset, in part, by the purchase of 375,500 shares of the Company's common stock. During fiscal 1997 and 1996, the net cash used in financing activities of $12,665,000 and $4,024,000 was primarily related to payments made to reduce the Company's long-term debt obligation. The Company's current ratio was 2.1 to 1 at July 31, 1998, 1.8 to 1 at July 31, 1997, and 2.3 to 1 at July 31, 1996. The fiscal 1998 increase, as compared to fiscal 1997, resulted from a 7% increase in current assets and a 5% decrease in current liabilities. The increase in current assets resulted primarily from the addition of inventories at EME. The decrease in current liabilities resulted primarily from the payment of vendor invoices, offset, in part, by the addition of liabilities at EME. The fiscal 1997 decrease, as compared to fiscal 1996, resulted from a 28% increase in current liabilities, as compared to a 3% increase in current assets. The increase in current liabilities resulted primarily from increased accounts payable. As a percentage of total capitalization, consisting of long-term debt and shareholders' equity, total borrowings by the Company were 27% at July 31, 1998, 2% at July 31, 1997, and 32% at July 31, 1996. The fiscal 1998 increase in total borrowings, as compared to fiscal 1997, was primarily a result of the Company's use of its revolving line of credit to purchase all of the issued and outstanding common shares of EME and 375,500 shares of the Company's common stock. The fiscal 1997 decrease in total borrowings, as compared to fiscal 1996, was primarily a result of payments made to reduce the outstanding balance of the Company's revolving line of credit. On July 21, 1998, the Company amended its revolving credit agreement in the amount of $25,000,000 with three participating banks to provide for multi-currency borrowing and international acquisitions, and to extend the agreement's maturity date to October 31, 2001. At July 31, 1998, the Company had $12,280,000, net of outstanding trade letters of credit of $920,000, of this revolving line of credit available for use. See Note 8 to the consolidated financial statements for additional information about the credit agreement. The Company's borrowing capacity at July 31, 1998, remained considerably above its use of outside financing. Capital expenditures were $2,756,000 in 1998, as compared to $2,097,000 in 1997, and $2,219,000 in 1996. Expenditures during the three-year period have primarily included investments in new process technology and increased production capacity. Fiscal 1999 capital expenditures are planned to be approximately $3,963,000, and the Company expects to fund the expenditures with cash provided by operations. The Company is not aware of any demands, commitments, trends or uncertainties, which are reasonably likely, in the normal course, to impair its ability to generate or obtain adequate amounts of cash to meet its future needs. RESULTS OF OPERATIONS FISCAL 1998 COMPARED TO FISCAL 1997 Fiscal 1998 consolidated net sales of $118,212,000 increased approximately 2% ($2,525,000), as compared to fiscal 1997 consolidated net sales. Fiscal 1998 and 1997 consolidated net sales included one month of EME's net sales of $1,831,000 and nine months of Auburn's net sales of $8,489,000, respectively. Fiscal 1998 net income was $5,313,000, or a diluted $.90 per share, as compared to fiscal 1997 net income of $7,815,000, or a diluted $1.30 per share. Fiscal 1997 net income included a gain, net of severance, facility closing, legal and other costs, from the sale of substantially all of the assets of Auburn of $3,556,000 or a diluted $.59 per share. If the gain is excluded from fiscal 1997 net income, fiscal 1998 net income increased approximately 25% ($1,054,000). Fiscal 1998 power and data quality net sales increased approximately 10% ($11,014,000), as compared to fiscal 1997. Contributing to this increase were increased net sales of linear and switching power supplies, power conditioning and distribution units and precision motor products, which resulted primarily from technology improvements, new customer programs and increased demand, offset, in part, by decreased demand for surge protectors and uninterruptible power supplies, which resulted primarily from reduced demand because of competitive pressures within the retail marketplace. Fiscal 1998 power and data quality operating income increased approximately 25% ($2,433,000), as compared to fiscal 1997. The increase in fiscal 1998 operating income resulted from the increased net sales and operational efficiencies realized by the power and data quality businesses. COST OF SALES As a percentage of net sales, fiscal 1998 and 1997 costs of products sold were approximately 63% and 64%, respectively. The Company continues to make investments to improve operational efficiencies that should reduce cost of products sold as a percentage of net sales. ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES Fiscal 1998 engineering and product development expenses of $6,167,000 increased approximately 17% ($884,000), as compared to fiscal 1997. As a percentage of net sales, fiscal 1998 and 1997 engineering and product development expenses were approximately 5%. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Fiscal 1998 selling, general and administrative expenses of $25,576,000 decreased approximately 3% ($788,000), as compared to fiscal 1997. The fiscal 1998 decrease was primarily related to decreased selling expenses. As a percentage of net sales, fiscal 1998 selling, general and 9 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SL INDUSTRIES, INC. administrative expenses were approximately 22%, as compared to 23% in fiscal 1997. DEPRECIATION AND AMORTIZATION EXPENSE Fiscal 1998 depreciation and amortization expense of $3,043,000 increased approximately 13% ($343,000), as compared to fiscal 1997. The increase was primarily related to depreciation and amortization of computer hardware and software, respectively. OTHER INCOME (EXPENSE) Fiscal 1998 other income (expense) consisted entirely of interest income and expense. Fiscal 1997 other income (expense) included the gain from the Auburn asset sale, as well as interest income and expense. Fiscal 1998 interest income decreased, as compared to fiscal 1997, because of less cash available for investment. Fiscal 1998 interest expense decreased, as compared to fiscal 1997, primarily because of a lower average debt balance. TAXES The fiscal 1998 effective tax rate on pre-tax income was 38%, as compared to 39% in fiscal 1997. The fiscal 1997 effective tax rate included incremental taxes associated with the gain realized from the Auburn asset sale. FISCAL 1997 COMPARED TO FISCAL 1996 Fiscal 1997 consolidated net sales of $115,687,000 decreased approximately 1% ($1,626,000), as compared to fiscal 1996 consolidated net sales. Fiscal 1997's consolidated net sales included nine months of Auburn's net sales of $8,489,000 and fiscal 1996 consolidated net sales included twelve months of Auburn's net sales of $10,766,000 and approximately seven months of Piping's net sales of $2,964,000. Fiscal 1997 net income was $7,815,000, or a diluted $1.30 per share, as compared to fiscal 1996 net income of $3,498,000, or a diluted $.59 per share. Fiscal 1997 net income included a gain, net of severance, facility closing, legal and other costs, from the sale of substantially all of the assets of Auburn of $3,556,000 or a diluted $.59 per share. If the gain is excluded from fiscal 1997 net income, net income increased approximately 22% ($761,000). The power and data quality segment's fiscal 1997 net sales and operating income increased approximately 3% ($3,616,000) and 5% ($463,000), respectively, as compared to fiscal 1996 net sales and operating income. Contributing to these increases were increased net sales of linear and switching power supplies, power conditioning and distribution units and precision motor products which resulted from increased market share, offset by decreased sales of surge protectors and uninterruptible power supplies because of a flat retail market. The increase in fiscal 1997 operating income resulted from the increased net sales realized by the businesses within this segment. The specialty products segment's fiscal 1997 net sales and operating income decreased approximately 38% ($5,242,000), and increased approximately 92% ($272,000), respectively, as compared to fiscal 1996 net sales and operating income. Fiscal 1997 and 1996's net sales and operating income included the results of Auburn and, in fiscal 1996, also included the results of Piping. COST OF SALES As a percentage of net sales, fiscal 1997 cost of products sold was approximately 64%, as compared to approximately 65% in fiscal 1996. The percentage decrease was a direct result of improved operational efficiencies contributed by the power and data quality segment's product lines. ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES Fiscal 1997 engineering and product development expenses of $5,283,000 increased approximately 12% ($570,000), as compared to fiscal 1996. As a percentage of net sales, fiscal 1997 engineering and product development expenses were 5%, as compared to 4% in fiscal 1996. The fiscal 1997 increases were primarily related to additional investments made by the businesses within the power and data quality segment. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Fiscal 1997 selling, general and administrative expenses of $26,364,000 decreased approximately 2% ($520,000), as compared to fiscal 1996. As a percentage of net sales, fiscal 1997 and 1996 selling, general and administrative expenses were approximately 23% for both years. DEPRECIATION AND AMORTIZATION EXPENSE Fiscal 1997 depreciation and amortization expense of $2,700,000 increased approximately 4% ($116,000), as compared to fiscal 1996. The slight fiscal 1997 increase was primarily related to the depreciation of equipment within the power and data quality segment. OTHER INCOME (EXPENSE) Fiscal 1997 other income (expense) included the gain from the Auburn asset sale, as well as interest income and expense, as compared to fiscal 1996 other income (expense), which consisted entirely of interest income and expense. Fiscal 1997 interest income increased, as compared to fiscal 1996, because of additional cash available for investment. Fiscal 1997 interest expense decreased, as compared to fiscal 1996, primarily because of a reduction in the Company's long-term debt obligation. TAXES The fiscal 1997 effective tax rate on pre-tax income was 39%, as compared to 35% in fiscal 1996. This increase was primarily related to taxes associated with the Company's Mexican operations, the gain realized from the Auburn asset sale and state income tax refunds included in fiscal 1996. ENVIRONMENTAL During fiscal 1998, 1997 and 1996, investigation or remediation activities, or both, were continued at sites owned, leased or previously utilized by the Company. During the latter part of fiscal 1995, the New Jersey Department of Environmental Protection ("NJDEP") required the Company to begin additional investigation of the extent of off-site contamination at its former facility in Wayne, New Jersey, where remediation had been underway for several years. Based on the results of that investigation, which were received in fiscal 1996, the Company determined that additional remediation costs of approximately $1,000,000 were probable; therefore, in fiscal 1996, the Company made an additional provision of $900,000. In a November 1991, Administrative Directive, NJDEP alleged that SL Surface Technologies, Inc. ("STI"), formerly SL Modern Hard Chrome, Inc., and 20 other respondents are responsible for a contaminant plume which has affected the Puchack Wellfield in Pennsauken, New Jersey (which supplies Camden, New Jersey). Three other actions have been 10 8 SL INDUSTRIES, INC. initiated from the underlying directive. The first is Supplemental Directive No. 1 issued by NJDEP to the same parties in May 1992, which seeks a cost reimbursement of $8,655,000 for the construction of a treatment system at the Puchack site and an annual payment of $611,000 for ongoing operation and maintenance of the treatment system. The second matter is a lawsuit initiated by one of the parties named in Directive No. 1 seeking to have the remainder of those parties and more than 600 others pay some or all of that party's cost of compliance with Directive No. 1 and any other costs associated with its site. The third matter is a Spill Act Directive by NJDEP to STI alone, regarding similar matters at its site. The state has not initiated enforcement action regarding any of its three Directives. There also exists an outstanding enforcement issue regarding the Company's compliance with ECRA at the same site. With regard to the $8,655,000 amount, in the Company's view it is not appropriate to consider that amount as "potential cost reimbursements". The STI site, which is the subject of these actions, has undergone remedial activities under NJDEP's supervision since 1983. The Company believes that it has a significant defense against all or any part of the $8,655,000 claim since technical data generated as part of previous remedial activities indicate that there is no offsite migration of contaminants at the Company's STI site. Based on this and other technical factors, the Company has been advised by its outside technical consultant, with the concurrence of its outside counsel, that it has a significant defense to Directive No. 1 and any material exposure is remote. Although these contingencies could result in additional expenses or judgments, or offsets, thereto, at present such expenses or judgments are not expected to have a material affect on the Company's consolidated financial position or results of earnings. The Company filed claims with its insurers seeking reimbursement for past and future environmental costs and it received $900,000 from one insurer during fiscal 1996 and a commitment to pay 15% of the environmental costs associated with the STI site, up to an aggregate of $300,000. During fiscal 1997, the Company received $1,500,000 from three additional insurers and from two of those insurers, commitments to pay 15% and 20% of the environmental costs associated with the same location, up to an aggregate of $150,000 and $400,000, respectively. In addition, the Company received $100,000 during fiscal 1998 and will receive $100,000 during the fiscal years 1999, 2000 and 2001, as stipulated in the settlement agreement negotiated with one of the three insurers. See Note 10 to the consolidated financial statements for additional information. YEAR 2000 The Year 2000 issue is the result of computer programs using two digits rather than four to define the applicable year. Computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations leading to disruptions in a company's operations. The Company has taken actions to address and complete the work associated with the Year 2000. Executive management and information system employees at each of its business units have been contacted regarding Year 2000 readiness, either through on-site visits or intercompany correspondence. Each of its business units and corporate headquarters have established, or are in the process of establishing, teams to identify and correct Year 2000 issues. Attention is being given to computer hardware and software, communications equipment, manufacturing equipment and facilities and products sold, if any, to achieve compliance in all these areas. The teams are also charged with investigating the Year 2000 capabilities of suppliers, customers and other external entities, and with developing contingency plans where necessary. Three of the Company's business units implemented new enterprise software packages during the last two years that their suppliers have stated are Year 2000 compliant. A detailed accounting and assessment of all computer systems and most application software utilized throughout the Company's operations has been completed, and plans for establishing compliance are either in process or have been developed. These plans identify or will identify which non-compliant hardware and software will be remediated, upgraded or replaced and the timetable and resource requirements to achieve those objectives. Remediation and testing activities have been completed or are in the process of being completed at all of the Company's business units and at corporate headquarters. The Company does not expect Year 2000 spending to materially affect consolidated profitability or liquidity. This expectation assumes that its existing forecast of costs to be incurred contemplates all significant actions required, and that the Company will not be obligated to incur significant Year 2000 related costs on behalf of its customers or suppliers. TRENDS AND PROSPECTS At the present time, all of the Company's businesses are profitable and are expected to remain so, and it is anticipated that the Company's fiscal year 1999 consolidated financial results should continue to show improvements. FORWARD-LOOKING INFORMATION From time to time, information provided by the Company, including written or oral statements made by its representatives, may contain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as expansion and growth of the company's business, future capital expenditures and the Company's prospects and Year 2000 strategy, contain forward-looking information. In reviewing such information, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. This forward-looking information is based on various factors and was derived utilizing numerous assumptions. Many of these factors have previously been identified in filings or statements made by or on behalf of the Company. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking information include changes in the general economy, changes in consumer spending, competitive factors and other factors affecting the Company's business in or beyond the Company's control. These factors include changes in the rate of inflation, changes in state or federal legislation or regulation, adverse determinations with respect to litigation or other claims (including environmental matters), adverse effects of failure to achieve Year 2000 compliance, the Company's ability to recruit and develop employees, its ability to successfully implement new technology and stability of product costs. Other factors and assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking information. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information. 11 9 SL Industries, Inc. CONSOLIDATED STATEMENTS OF EARNINGS
- -------------------------------------------------------------------------------------------------------------------------------- Years ended July 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Net sales......................................................$ 118,212,000 $ 115,687,000 $ 117,313,000 ----------------------------------------------------------------- Cost and expenses: Cost of products sold........................................ 74,646,000 74,085,000 76,773,000 Engineering and product development.......................... 6,167,000 5,283,000 4,713,000 Selling, general and administrative expenses................. 25,576,000 26,364,000 26,884,000 Depreciation and amortization................................ 3,043,000 2,700,000 2,584,000 ----------------------------------------------------------------- Total cost and expenses........................................ 109,432,000 108,432,000 110,954,000 ----------------------------------------------------------------- Income from operations......................................... 8,780,000 7,255,000 6,359,000 Other income (expense): Gain on disposition of subsidiary............................ - 5,888,000 - Interest income.............................................. 214,000 301,000 159,000 Interest expense............................................. (427,000) (680,000) (1,123,000) ----------------------------------------------------------------- Income before income taxes..................................... 8,567,000 12,764,000 5,395,000 Provision for income taxes..................................... 3,254,000 4,949,000 1,897,000 ----------------------------------------------------------------- Net income......................................................$ 5,313,000 $ 7,815,000 $ 3,498,000 ================================================================= Basic net income per common share.............................. $ .95 $ 1.35 $ .61 ================================================================= Diluted net income per common share............................ $ .90 $ 1.30 $ .59 ================================================================= Shares used in computing basic net income per common share..... 5,598,000 5,776,000 5,701,000 ================================================================= Shares used in computing diluted net income per common share... 5,897,000 6,021,000 5,950,000 ================================================================= See accompanying notes to consolidated financial statements.
12 10 SL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------- July 31, 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents................................................... $ - $ - Receivables, less allowances of $2,045,000 and $1,790,000, respectively................................ 18,886,000 18,141,000 Inventories................................................................. 18,538,000 16,505,000 Prepaid expenses............................................................ 972,000 712,000 Deferred income taxes....................................................... 3,014,000 3,168,000 ------------------------------------------ Total current assets.................................................. 41,410,000 38,526,000 ------------------------------------------ Property, plant and equipment, net............................................ 13,977,000 6,296,000 Assets held for future sale................................................... 913,000 958,000 Long-term note receivable..................................................... 2,201,000 2,234,000 Deferred income taxes......................................................... 1,865,000 2,442,000 Cash surrender value of life insurance policies............................... 8,657,000 7,627,000 Intangible assets, net........................................................ 10,705,000 7,594,000 Other assets.................................................................. 1,187,000 1,127,000 ------------------------------------------ Total assets.......................................................... $ 80,915,000 $ 66,804,000 ========================================== LIABILITIES Current liabilities: Debt due within one year.................................................... $ 727,000 $ 133,000 Accounts payable............................................................ 5,982,000 8,839,000 Accrued income taxes........................................................ 2,105,000 770,000 Accrued liabilities: Payroll and related costs................................................. 4,851,000 5,331,000 Other..................................................................... 6,401,000 6,054,000 ------------------------------------------ Total current liabilities............................................. 20,066,000 21,127,000 ------------------------------------------ Long-term debt less portion due within one year............................... 13,283,000 700,000 Deferred compensation and supplemental retirement benefits.................... 4,667,000 4,133,000 Other liabilities............................................................. 4,554,000 4,352,000 ------------------------------------------ Total liabilities..................................................... $ 42,570,000 $ 30,312,000 ------------------------------------------ Commitments and contingencies (Note 10) SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized, 6,000,000 shares; none issued...... $ - $ - Common stock, $.20 par value; authorized, 25,000,000 shares; issued, 1998 - 8,153,000 shares, 1997 - 7,958,000 shares.................... 1,631,000 1,592,000 Capital in excess of par value................................................ 36,061,000 34,695,000 Retained earnings............................................................. 14,476,000 9,607,000 Translation adjustment........................................................ 80,000 - Treasury stock at cost, 1998 - 2,546,000 shares, 1997 - 2,141,000 shares...... (13,903,000) (9,402,000) ------------------------------------------ Total shareholders' equity............................................ $ 38,345,000 $ 36,492,000 ------------------------------------------ Total liabilities and shareholders' equity............................ $ 80,915,000 $ 66,804,000 ==========================================
See accompanying notes to consolidated financial statements. 13 11 SL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock ------------------------------------------------------- Retained Issued Held In Treasury Capital in Earnings -------------------------- --------------------------- Excess of (Accumulated Translation Shares Amount Shares Amount Par Value Deficit) Adjustment --------------------------------------------------------------------------------------------- Balance August 1, 1995............. 7,773,000 $ 1,555,000 (2,141,000) $ (9,402,000) $33,735,000 $ (958,000) $ - Net income ........................ 3,498,000 Cash dividends, $.06 per share..... (343,000) Other, including exercise of employee stock options and related income tax benefits...... 126,000 25,000 571,000 (1,000) --------------------------------------------------------------------------------------------- Balance july 31, 1996.............. 7,899,000 1,580,000 (2,141,000) (9,402,000) 34,306,000 2,196,000 - Net income......................... 7,815,000 Cash dividends, $.07 per share..... (405,000) Other, including exercise of employee stock options and related income tax benefits...... 59,000 12,000 389,000 1,000 --------------------------------------------------------------------------------------------- Balance July 31, 1997.............. 7,958,000 1,592,000 (2,141,000) (9,402,000) 34,695,000 9,607,000 - Net income......................... 5,313,000 Cash dividends, $.08 per share..... (445,000) Other, including exercise of employee stock options and related income tax benefits...... 195,000 39,000 1,366,000 1,000 Treasury stock purchased........... (405,000) (4,501,000) Current year translation adjustment....................... 80,000 --------------------------------------------------------------------------------------------- BALANCE JULY 31, 1998.............. 8,153,000 $ 1,631,000 (2,546,000) $ (13,903,000) $36,061,000 $ 14,476,000 $ 80,000 =============================================================================================
14 See accompanying notes to consolidated financial statements. 12 SL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------- Years ended July 31, 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income.............................................................. $ 5,313,000 $ 7,815,000 $ 3,498,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................................ 2,023,000 1,889,000 1,869,000 Amortization........................................................ 1,020,000 811,000 715,000 Provisions for losses on accounts receivable........................ 52,000 63,000 151,000 Additions to other assets........................................... (1,366,000) (820,000) (259,000) Cash surrender value of life insurance premiums..................... (656,000) (534,000) (499,000) Deferred compensation and supplemental retirement benefits.......... 1,158,000 942,000 863,000 Deferred compensation and supplemental retirement benefit payments.. (611,000) (499,000) (449,000) Decrease (Increase) in deferred income taxes........................ 731,000 (1,454,000) (1,148,000) Gain on the sale of equipment....................................... (13,000) (23,000) (5,000) Discontinued product line expenses.................................. (168,000) (143,000) (246,000) Gain on disposition of subsidiary................................... - (5,888,000) - Changes in operating assets and liabilities, net of the effect of acquisition and dispositions: Receivables....................................................... 2,495,000 (3,073,000) (5,000,000) Inventories....................................................... 1,068,000 (1,718,000) 2,682,000 Prepaid expenses.................................................. 181,000 135,000 11,000 Accounts payable.................................................. (3,588,000) 3,633,000 444,000 Accrued liabilities............................................... (1,978,000) 2,025,000 2,325,000 Accrued income taxes.............................................. 960,000 105,000 (265,000) -------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES......................... $ 6,621,000 $ 3,266,000 $ 4,687,000 -------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment.................... 18,000 29,000 151,000 Purchases of property, plant and equipment.............................. (2,756,000) (2,097,000) (2,219,000) Proceeds from notes receivable.......................................... 32,000 74,000 7,000 Payments for acquisitions, net of cash acquired......................... (10,928,000) (823,000) (533,000) Proceeds from disposition of subsidiaries............................... - 12,216,000 1,354,000 -------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............... $ (13,634,000) $ 9,399,000 $ (1,240,000) -------------------------------------------------------- FINANCING ACTIVITIES: Cash dividends paid..................................................... (445,000) (405,000) (343,000) Proceeds from long-term debt............................................ 17,550,000 2,200,000 600,000 Payments on long-term debt.............................................. (6,722,000) (14,740,000) (4,786,000) Proceeds from stock options exercised................................... 1,118,000 280,000 505,000 Treasury stock acquired................................................. (4,501,000) - - -------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... $ 7,000,000 $ (12,665,000) $ (4,024,000) -------------------------------------------------------- Effect of exchange rate changes on cash................................. $ 13,000 $ - $ - -------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. - - (577,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ - - 577,000 -------------------------------------------------------- CASH AND CASH EQUIVALENTS AT YEAR END..................................... $ - $ - $ - ========================================================
See accompanying notes to consolidated financial statements. 15 13 SL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENT 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation: The consolidated financial statements include the accounts of SL Industries, Inc. and its wholly-owned subsidiaries ("the Company"). All intercompany accounts and transactions have been eliminated in consolidation. Revenue recognition: Sales are recognized upon shipment of products. Inventories: Inventories are valued at the lower of cost or market. Cost is primarily determined using the first-in, first-out ("FIFO") method. Cost for certain inventories is determined using the last-in, first-out ("LIFO") method. Property, plant and equipment: Property, plant and equipment are carried at cost and include expenditures for new facilities and major renewals and betterments. Maintenance, repairs and minor renewals are charged to expense as incurred. When assets are sold or otherwise disposed of, any gain or loss is recognized currently. Depreciation is provided primarily using the straight-line method over the estimated useful lives of the assets, which range from 25 to 40 years for buildings, 3 to 10 years for equipment and other property and the lease term for leasehold improvements. Intangible assets: Intangible assets consist primarily of goodwill, trademarks, covenants not to compete and patents. The goodwill resulting from the fiscal 1998 acquisition and the goodwill and trademarks resulting from the May 1995 acquisition are being amortized over 30 years or less. Goodwill resulting from acquisitions made prior to November 1, 1970, of $955,000, is considered to have continuing value over an indefinite period, and is not being amortized. Covenants are amortized over their stated terms and patents are amortized over their remaining lives. Subsequent to its acquisitions, the Company continually evaluates whether later events or circumstances have occurred that would indicate that the remaining estimated useful life of an intangible asset may warrant revision or that the remaining balance may not be recoverable. When factors indicate that intangible assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted cash flows over the remaining life of the intangible asset to measure recoverability. If impairment exists, measurement of the impairment will be based on the valuation method which management believes most closely approximates the fair value of the intangible asset. Environmental expenditures: Expenditures that relate to current operations are charged to expense or capitalized, as appropriate. Expenditures that relate to an existing condition caused by past operations, which do not contribute to future revenues, are charged to expense. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. The liability for remediation expenditures includes, as appropriate, elements of costs such as site investigations, consultants' fees, feasibility studies, outside contractor expenses and monitoring expenses. Estimates are not discounted, nor are they reduced by potential claims for recovery from the Company's insurance carriers. The liability is periodically reviewed and adjusted to reflect current remediation progress, prospective estimates of required activity and other relevant factors including changes in technology or regulations. Product warranty costs: The Company offers various warranties on its products. The Company provides for its estimated future warranty obligations in the period in which the related sales are recognized. Advertising costs: Advertising costs are expensed as incurred. For the fiscal years ended July 31, 1998, 1997 and 1996, these costs were $2,128,000, $2,287,000 and $2,322,000, respectively. Research and development costs: Research and development costs are expensed as incurred. For the fiscal years ended July 31, 1998, 1997 and 1996, these costs were $1,756,000, $1,405,000 and $1,245,000, respectively. Income taxes: Deferred income taxes are provided to reflect the tax effect of temporary differences in reporting income and deductions for tax and financial statement purposes. Foreign currency conversion: The balance sheets and statements of earnings of the Company's Mexican subsidiaries are converted at the year-end rate of exchange and the monthly weighted average rate of exchange, respectively, except for those items requiring conversion at historical rates of exchange, as the Mexican subsidiaries' functional currency is U.S. dollars. Gains or losses resulting from these foreign currency conversions are included in the accompanying consolidated statements of earnings. Since the functional currency for the Company's German subsidiary is its local currency, the translation from the local currency to U.S. dollars is performed for balance sheet accounts using the current exchange rate in effect at the balance sheet date and for earnings using the monthly weighted average exchange rate during the period. Gains or losses resulting from such translation are included in a separate component of stockholders' equity. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant areas which require the use of management estimates relate to product warranty costs, allowance for doubtful accounts, allowance for inventory obsolescence and environmental costs. Net income per common share: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings per Share ("SFAS No. 128")", which the Company adopted for both interim and annual periods ending after December 15, 1997. SFAS No. 128 simplifies 16 14 SL INDUSTRIES, INC. the Earnings per Share ("EPS") calculation by replacing primary EPS with basic EPS. Basic EPS is computed by dividing reported earnings available to common shareholders by weighted average shares outstanding. Fully diluted EPS, now called diluted EPS, is computed by dividing reported earnings available to common shareholders by weighted average shares outstanding plus the effect of outstanding dilutive stock options, using the treasury method. New accounting pronouncements: In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121")." SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill. The Company adopted SFAS No. 121, effective August 1, 1996. The adoption had no effect on the Company's financial condition or results of operations during fiscal 1997 and 1998. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation ("SFAS No. 123")." SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. This statement also applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. The Company adopted SFAS No. 123, effective August 1, 1996. The Company has elected to adopt the disclosure requirement of this Statement with respect to its valuation of stock options. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income ("SFAS No. 130")", which the Company is required to adopt for its fiscal year ended July 31, 1999. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in interim and annual financial statements. The adoption of SFAS No. 130 is expected to have no effect on the Company's presentation of its financial statements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information ("SFAS No. 131")", which the Company is required to adopt for its July 31, 1999, financial statements. SFAS No. 131 establishes standards for the reporting of information about operating segments in interim and annual financial statements. Management is in the process of analyzing the impact of the adoption of SFAS No. 131. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132 "Employers" Disclosures about Pensions and Other Postretirement Benefits ("SFAS No. 132")", which the Company is required to adopt for annual periods beginning after December 15, 1997. SFAS No. 132 establishes new standards for disclosing pension and other postretirement benefits in financial statements. Reclassifications: Reclassifications, when applicable, are made to the prior year consolidated financial statements to conform with current year presentation. 2. ACQUISITIONS AND DISPOSITIONS On February 20, 1996, the Company sold substantially all the assets of its wholly-owned subsidiary, SL Piping Systems, Inc., for $1,354,000 and the assumption of certain liabilities. The sale had no material impact on the Company's consolidated financial position or income from operations. On May 1, 1997, the Company sold substantially all the assets, excluding real property, of its wholly-owned subsidiary, SL Auburn, Inc., for $12,216,000. For financial reporting purposes, the sale resulted in a pre-tax gain, net of severance, facility closing, legal and other costs of $5,888,000, increasing net income by $3,556,000, or $.59 per common share. On July 10, 1998, pursuant to a Purchase Agreement dated June 30, 1998, the Company, through its wholly-owned subsidiary formed solely for such purpose, SL Industries Vertrieb, GmbH, a German Corporation, acquired 100% of the issued and outstanding Common Shares of Elektro-Metall Export GmbH ("EME"), a German Corporation. The Company paid $9,500,000 in cash at closing. EME is a leading German based designer and manufacturer of power quality products. The acquisition was accounted for using the purchase method; therefore, the aggregate purchase price has been allocated to the net assets acquired based on their respective fair values at date of acquisition. The excess of the aggregate purchase price over the fair value of net tangible assets acquired of $2,589,000 has been allocated to goodwill and is being amortized on a straight-line basis over 30 years. The results of operations of EME, since the acquisition date, are included in the accompanying consolidated financial statements. Unaudited pro forma consolidated results of operations, which included a $3,556,000 after-tax gain from the sales of substantially all of the assets of SL Auburn, Inc. in fiscal 1997, as though the Company acquired EME on August 1 of each fiscal year are as follows:
----------------------------------------- 1998 1997 ----------------------------------------- (In thousands, except per share data) Net sales. . . . . . . . . . . . . . $138,526 $140,974 Net income . . . . . . . . . . . . . $5,847 $8,769 Basic net income per common share. . $1.04 $1.52 Diluted net income per common share. $.99 $1.46
The unaudited pro forma consolidated results of operations include the amortization of goodwill, and additional interest and depreciation expense as if these acquisition related expenses had been incurred from the beginning of the respective periods. The unaudited pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the purchase actually been made at the beginning of the respective periods, or of results which may occur in the future. 3. INCOME TAXES The provision for federal and state income taxes consists of the following:
--------------------------------- 1998 1997 1996 --------------------------------- (In thousands) Current: Federal . . . . . . . . . . . . . $2,642 $ 5,288 $2,584 State . . . . . . . . . . . . . . 521 1,115 461 Deferred: Federal . . . . . . . . . . . . . 36 (1,182) (1,038) State . . . . . . . . . . . . . . 55 (272) (110) ------------------------------ $3,254 $ 4,949 $1,897 ==============================
17 15 16 SL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant components of the Company's deferred tax assets and liabilities at July 31, 1998 and 1997, are as follows:
---------------------- 1998 1997 ---------------------- (In thousands) Deferred tax assets: Deferred compensation. . . . . . . $1,883 $1,681 Liabilities related to discontinued product line. . . . 313 366 Liabilities related to environmental matters. . . . . . 145 304 Inventory valuation. . . . . . . . 615 514 Prepaid and accrued expenses . . . 3,306 3,484 Other. . . . . . . . . . . . . . . 17 17 --------------------- 6,279 6,366 Deferred tax liabilities: Accelerated depreciation and amortization . . . . . . . . . . 1,400 756 --------------------- $4,879 $5,610 =====================
Following is a reconciliation between the amount of income tax expense at the applicable federal statutory rate and the effective rates:
------------------------------ 1998 1997 1996 ------------------------------ Federal statutory rate. . . . . . . . 34% 34% 34% Tax rate differential on Foreign Sales Corporation earnings. . . . . (1) - (1) State income taxes, net of federal income tax benefit. . . . . 4 4 4 Other . . . . . . . . . . . . . . . . 1 1 (2) ------------------------------ 38% 39% 35% ==============================
4. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentration of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across many industries and geographic regions. 5. INVENTORIES Inventories consist of the following:
---------------------------- 1998 1997 ---------------------------- (In thousands) Raw materials. . . . . . . . . . $10,543 $ 7,691 Work in process. . . . . . . . . 3,611 2,283 Finished goods . . . . . . . . . 4,384 6,531 ---------------------------- $18,538 $16,505 ============================
The above includes certain inventories, which are valued using the LIFO method, which aggregated $3,009,000 and $2,254,000 at July 31, 1998 and 1997, respectively. The excess of FIFO cost over LIFO cost at July 31, 1998 and 1997, was approximately $455,000 and $446,000, respectively. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
------------------------- 1998 1997 ------------------------- (In thousands) Land . . . . . . . . . . . . . . . $ 3,553 $ 58 Buildings and leasehold improvements . . . . . . . . . 5,622 2,873 Equipment and other property . . . . . . . . . . . . . 16,844 15,240 ----------------------- 26,019 18,171 Less accumulated depreciation. . . 12,042 11,875 ----------------------- $13,977 $ 6,296 =======================
"Assets held for future sale" at July 31, 1998 and 1997, are not included above and relate to assets remaining after the 1989 relocation of a power and data quality operation. The assets remaining consist primarily of land, building and building improvements which are being leased to a third party. The building and building improvements are being depreciated and accounted for as an operating lease. Aggregate accumulated depreciation for the building and building improvements at July 31, 1998 and 1997, was $527,000 and $483,000, respectively. Aggregate minimum rental income for fiscal 1998 and 1997 was $131,000 and $123,000, respectively. Aggregate minimum rental income for the remaining lease period will be $138,000 and $81,000 in 1999 and 2000, respectively. The net book values of these assets are less than the estimated net realizable value based on a market survey received from an independent third party. 7. INTANGIBLE ASSETS Intangible assets consist of the following:
----------------------------- 1998 1997 ----------------------------- (In thousands) Patents . . . . . . . . . . . . . . $ 895 $ 873 Covenants not to compete. . . . . . 2,980 2,980 Goodwill . . . . . . . . . . . . . 8,204 4,447 Trademarks . . . . . . . . . . . . 920 920 Other . . . . . . . . . . . . . . . 398 386 ----------------------------- 13,397 9,606 Less accumulated amortization . . . 2,692 2,012 ----------------------------- $10,705 $7,594 =============================
The fiscal 1998 increase in goodwill included $2,589,000 from the EME acquisition (see Note 2 for additional information about the acquisition) and $1,168,000 from the payment of additional 18 17 SL INDUSTRIES, INC. purchase price as required by the May 1, 1995 Asset Purchase Agreement between the Company and Teal Electronics Corporation. The Agreement includes a provision to pay additional purchase price equal to 50% of the annual net profits of the acquired business in excess of $1,100,000 for each of the five twelve-month periods beginning May 1, 1995. 8. DEBT Debt consists of the following:
--------------------- 1998 1997 --------------------- (In thousands) Note payable . . . . . . . . . . . . . $ 557 $ - Mortgage payable. . . . . . . . . . . . 465 - Revolving lines of credit . . . . . . . 12,926 700 Industrial revenue bonds, repaid in fiscal 1998 . . . . . . . . . . . . . - 133 Other . . . . . . . . . . . . . . . . . 62 - -------------------- 14,010 833 Less portion due within one year . . . 727 133 -------------------- $13,283 $700
==================== The Company's German subsidiary has a note payable at an interest rate of 4.5% that is due within 15 days of borrowing, unless extended and a mortgage payable on a building addition, which has a fixed interest rate of 4.75% and requires principal repayment through 2002. On July 21, 1998, the Company amended its $25,000,000 revolving credit agreement with its participating banks, which now expires on October 31, 2001. Under the terms of this agreement, the Company can borrow for acquisitions, working capital and, for other purposes, at either a "CD or LIBOR rate," as defined, or prime interest rate. The agreement contains limitations on borrowings and requires maintenance of specified ratios, the most restrictive of which is the ratio of total funded debt plus standby letters of credit to earnings before interest, taxes, depreciation and amortization. At July 31, 1998, the Company is in compliance with the above covenants. In lieu of compensating balances, the Company pays commitment fees as defined under the agreement. The Company's German subsidiary also has $4,785,000 in lines of credit with its banks. Under the terms of its lines of credit, the subsidiary can borrow for any purpose at interest rates of 5.35% to 7%. No financial covenants are required. Under the terms of the industrial revenue bond installment loan agreements, interest was payable quarterly on the outstanding principal at 65% of the prevailing prime rate, adjusted monthly. Generally the banks had the right and option to call each loan, at specified dates, if certain levels of shareholders' equity, as defined, were not maintained. Principal maturities of long-term debt payable over the next five years are $113,000 in 2000, $11,919,000 in 2001, $125,000 in 2002 and zero in 2003 and 2004. 9. RETIREMENT PLANS AND DEFERRED COMPENSATION The Company maintains two noncontributory defined contribution pension plans covering substantially all employees. The Company's aviation igniter subsidiary also had a noncontributory defined contribution plan covering all its employees. The Company's contribution to its plans is based on a percentage of employee elective contributions and, in one plan, calendar year gross wages, as defined. The power conditioner subsidiary's contribution to its plan is based on a percentage of employee elective contributions. The aviation igniter subsidiary's contribution to its plan was based on a percentage of salary, as defined in the plan. Costs accrued under the plans for fiscal 1998, 1997 and 1996 amounted to approximately $671,000, $531,000 and $508,000, respectively. It is the Company's policy to fund its accrued retirement income costs. In addition, the Company makes contributions, based on rates per hour, as specified in two union agreements, to two union administered defined benefit multi-employer pension plans. Contributions to these plans amounted to $64,000, $55,000 and $52,000 in 1998, 1997 and 1996, respectively. Under the Multi-employer Pension Plan Amendments Act of 1980, an employer is liable upon withdrawal from or termination of a multi-employer plan for its proportionate share of the plan's unfunded vested benefits liability. The Company's share of the unfunded vested benefits liabilities of the union plans to which it contributes is not material. The Company has agreements with certain active and retired directors, officers and key employees providing for supplemental retirement benefits. The liability for supplemental retirement benefits is based on the most recent mortality tables available and discount rates of 6%, 8%, 10% and 12%. The amount charged to income in connection with these agreements amounted to $456,000, $491,000 and $398,000 in 1998, 1997 and 1996, respectively. In addition, the Company has agreements with certain active officers and key employees providing for deferred compensation benefits. Benefits to be provided to each participant are stated in separate elective salary deferral agreements. The amount charged to income in connection with these agreements amounted to $702,000, $451,000 and $465,000 in 1998, 1997 and 1996, respectively. The Company is the owner and beneficiary of insurance policies on the lives of a majority of the participants having a deferred compensation or supplemental retirement agreement. At July 31, 1998, the aggregate death benefit totaled $17,048,000 with the corresponding cash surrender value totaling $8,657,000. At July 31, 1998, certain agreements may restrict the Company from utilizing cash surrender value totaling $1,958,000 for purposes other than satisfaction of the specific underlying deferred compensation agreements, if benefits are not paid by the Company. The Company nets the dividends realized from the insurance policies with premium expense. Net amounts included in income in connection with the policies amounted to $261,000, $257,000 and $337,000 in 1998, 1997 and 1996, respectively. 10. COMMITMENTS AND CONTINGENCIES For the fiscal years ended July 31, 1998, 1997 and 1996, rental expense applicable to continuing operations aggregated $1,701,000, $1,602,000 and $2,000,000, respectively. These expenses are primarily for facilities and vehicles. The minimum rental commitments as of July 31, 1998, are as follows: (In thousands) 1999 . . . . . . . $1,855 2002 . . . . . . . 982 2000 . . . . . . . 1,331 2003 . . . . . . . 394 2001 . . . . . . . 1,157 Thereafter . . . . 47 ------ $5,766 ======
At July 31, 1998, the Company was contingently liable for $1,077,000, under outstanding letters of credit issued primarily for inventory purchases from foreign suppliers and settlement of a civil lawsuit. 19 18 SL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the ordinary course of its business, the Company is subject to loss contingencies pursuant to foreign and domestic federal, state and local governmental laws and regulations and is also party to certain legal actions, most frequently complaints by terminated employees. It is management's opinion that the impact of these legal actions will not have a material affect on the consolidated financial position or results of operations of the Company. Loss contingencies include potential obligations to investigate and eliminate or mitigate the affects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other facilities, whether or not they are currently in operation. The Company is currently participating in environmental assessments and cleanups at a number of sites under these laws and may in the future be involved in additional environmental assessments and cleanups. Based upon investigations completed by the Company and its independent engineering consulting firm to date, management has provided an estimated accrual for all known costs believed to be probable. However, it is in the nature of environmental contingencies that other circumstances might arise, the costs of which are indeterminable at this time due to such factors as changing government regulations and stricter standards, the unknown magnitude of defense and cleanup costs, the unknown timing and extent of the remedial actions that may be required, the determination of the Company's liability in proportion to other responsible parties, and the extent, if any, to which such costs are recoverable from other parties or from insurance. Although these contingencies could result in additional expenses or judgments, or off-sets thereto, at present such expenses or judgments are not expected to have a material affect on the Company's consolidated financial position or results of operations. In the fourth quarter of fiscal year 1990, the Company made a provision of $3,500,000 to cover various such environmental costs for six locations, based upon estimates prepared at that time by the independent engineering consulting firm. In fiscal 1991 and 1996, the Company made additional provisions of $480,000 and $900,000, respectively, based upon new estimates. The fiscal 1996 provision was necessary since, during the latter part of fiscal 1995, the New Jersey Department of Environmental Protection required the Company to begin additional investigation of the extent of off-site contamination at its former facility in Wayne, New Jersey, where remediation had been underway. Based on the results of that investigation, which were received in fiscal 1996, the Company determined that additional remediation costs of approximately $1,000,000 were probable. From fiscal 1993 through 1998, the Company incurred environmental related capital expenditures of approximately $416,000. The Company filed claims with its insurers seeking reimbursement for many of these costs, and received $900,000 from one insurer during fiscal year 1996 and a commitment to pay 15% of the environmental costs associated with one location up to an aggregate of $300,000. During fiscal 1997, the Company received $1,500,000 from three additional insurers and from two of those insurers, commitments to pay 15% and 20% of the environmental costs associated with the same location up to an aggregate of $150,000 and $400,000, respectively. In addition, the Company will receive $100,000 during fiscal years 1999, 2000 and 2001, as stipulated in the settlement agreement negotiated with one of the three insurers. At July 31, 1998 and 1997, the remaining environmental accrual was $678,000 and $1,075,000, respectively, of which $250,000 and $400,000, respectively, have been included in "Accrued Liabilities" and $428,000 and $675,000, respectively, in "Other Liabilities" in the accompanying consolidated balance sheets. 11. STOCK OPTIONS AND CAPITAL STOCK At the Company's 1993 Annual Meeting, the shareholders approved a Nonemployee Director Nonqualified Stock Option Plan (the "Director Plan"), which was effective June 1, 1993. The Director Plan provides for the granting of nonqualified options to purchase up to 250,000 shares of the Company's Common Stock to nonemployee directors of the Company in lieu of paying quarterly retainer fees and regular quarterly meeting attendance fees, when elected. The Director Plan enables the Company to grant options, with an exercise price per share not less than fair market value of the Company's Common Stock on the date of grant, which are exercisable at any time. Each option granted under the Director Plan expires no later than ten years from date of grant and no options can be granted under the Director Plan after its May 31, 2003, expiration date. Information for the years 1996, 1997 and 1998 with respect to the Director Plan is as follows:
--------------------------------------- Shares Option Price --------------------------------------- (In thousands, except for option price) Outstanding and exercisable at August 1, 1995 . . . . . . . . . 51 $3.5625 to $5.125 Granted . . . . . . . . . . . . . . . 39 $5.6875 to $10.50 Exercised . . . . . . . . . . . . . . (14) $3.5625 to $5.125 Outstanding and exercisable at July 31, 1996. . . . . . . . . . 76 $3.5625 to $10.50 Granted . . . . . . . . . . . . . . . 27 $7.1875 to $9.6875 Outstanding and exercisable at July 31, 1997. . . . . . . . . . 103 $3.5625 to $10.50 Granted . . . . . . . . . . . . . . . 22 $10.1875 to $14.625 Exercised . . . . . . . . . . . . . . (71) $3.5625 to $12.0313 OUTSTANDING AND EXERCISABLE AT JULY 31, 1998. . . . . . . . . . 54 $3.5625 TO $14.625
As of July 31, 1998, 1997 and 1996, the number of shares available for grant were 110,000, 133,000 and 160,000, respectively. At the Company's 1991 Annual Meeting, the shareholders approved the adoption of a Long Term Incentive Plan (the "1991 Plan") which provides for the granting of options to officers and key employees of the Company to purchase up to 500,000 shares of the Company's Common Stock. At the 1995 Annual Meeting, the shareholders approved an amendment to increase the number of shares subject 20 19 20 SL INDUSTRIES, INC. to options under the 1991 Plan from 500,000 to 922,650. The 1991 Plan enables the Company to grant either nonqualified options, with an exercise price per share established by the Board's Compensation Committee, or incentive stock options, with an exercise price per share not less than the fair market value of the Company's Common Stock on the date of grant, which are exercisable at any time. Each option granted under the 1991 Plan expires no later than ten years from date of grant and no options can be granted under the 1991 Plan after its September 25, 2001, expiration date. Information for the years 1996, 1997 and 1998 with respect to the 1991 Plan is as follows:
--------------------------------------- Shares Option Price --------------------------------------- (In thousands, except for option price) Outstanding and exercisable at August 1, 1995 . . . . . . . . . 301 $3.25 to $4.50 Granted . . . . . . . . . . . . . . . 83 $6.875 Exercised . . . . . . . . . . . . . . (95) $3.25 to $6.875 Cancelled . . . . . . . . . . . . . . (2) $3.25 to $6.875 Outstanding at July 31, 1996. . . . . 287 $3.25 to $6.875 Granted . . . . . . . . . . . . . . . 133 $7.25 to $9.375 Exercised . . . . . . . . . . . . . . (59) $3.25 to $9.375 Cancelled . . . . . . . . . . . . . . (13) $3.25 to $9.375 Outstanding at July 31, 1997. . . . . 348 $3.25 to $9.375 Granted . . . . . . . . . . . . . . . 189 $11.00 to $14.5625 Exercised . . . . . . . . . . . . . . (90) $3.25 to $11.00 Cancelled . . . . . . . . . . . . . . (25) $4.25 to $11.00 OUTSTANDING AT JULY 31, 1998. . . . . 422 $3.25 TO $14.5625
The number of shares exercisable at July 31, 1998 and 1997, were 244,000 and 259,000, respectively. As of July 31, 1998, 1997, and 1996 the number of shares available for grant were 217,000, 381,000, and 501,000, respectively. The Company's 1981 Incentive Stock Option Plan for officers and employees expired on July 31, 1991. The Plan provided that option prices were equivalent to 100% of market value at date of grant. All options granted under the Plan were exercisable three years from date of grant and expired five years after date of grant. Information for the year 1996 with respect to the Plan is as follows:
--------------------------------------- Shares Option Price --------------------------------------- (In thousands, except for option price) Outstanding at August 1, 1995 . . . . 17 $5.90 Exercised . . . . . . . . . . . . . . (1) $5.90 Expired . . . . . . . . . . . . . . . (16) $5.90 Outstanding at July 31, 1996 . . . . 0
During fiscal 1991, the Board of Directors approved the granting of nonqualified stock options to purchase 110,000 shares at an option price of $4.13, and 15,000 shares at an option price of $ 5.25 to the Chief Executive Officer of the Company and a subsidiary president, respectively. The option for 15,000 shares was exercised during fiscal 1996. In fiscal 1992, an option to purchase 50,000 shares was granted to another officer of the Company at an option price of $3.25 and was exercisable at July 31, 1998, with an expiration date of November 30, 1998. Options for 25,100 shares were exercised during fiscal 1998. In fiscal 1996, an option to purchase 50,000 shares was granted to a subsidiary officer at an option price of $8.375 and was exercisable 20% at July 31, 1997, and 50%, 20% and 10% on or after October 13, 1997, April 13, 1998, and April 13, 1999, respectively, with no expiration date, except in the event of termination, disability or death provided that the subsidiary officer has been employed through such date. Options for 8,000 shares were exercised during fiscal 1998. The remaining options are exercisable at any time after the date of grant with no expiration date, except in the event of termination, disability or death. All of the option prices are equivalent to 100% of market value at date of grant. The Company applies Accounting Principles Board opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and net income per common share would have been reduced in 1998 and 1997 as follows:
----------------------------- 1998 1997 ----------------------------- Net income - as reported . . . . . . . . . . . . $5,313,000 $7,815,000 Net income - pro forma . . . . . . . . . . . . . $4,908,000 $7,617,000 Diluted net income per common share - as reported . . . . . . . . . . . . . . . . . $.90 $1.30 Diluted net income per common share - pro forma . . . . . . . . . . . . . . . . . . $.83 $1.27
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
----------------------------- 1998 1997 ----------------------------- Expected dividend yield. . . . . . . . . . . . . .61% .98% Expected stock price volatility. . . . . . . . . 32.7% 31.0% Risk-free interest rate. . . . . . . . . . . . . 6.1% 6.7% Expected life of option. . . . . . . . . . . . . 7 YEARS 7 years
Transactions from August 1, 1995 through July 31, 1998, under the above plans were as follows:
------------------------------------------------------------------------------------- Weighted Average Life Number of Shares Option Price Weighted Remaining (In thousands) per Share Average Price (Years) ------------------------------------------------------------------------------------- Options at August 1, 1995 . . 545 $3.25 to $5.90 $3.76 7.53 Granted . . . . . . 172 $5.6875 to $10.50 $7.48 Exercised . . . . . (126) $3.25 to $5.90 $3.87 Expired . . . . . . (16) $5.90 $5.90 Cancelled . . . . . (2) $3.25 to $6.875 $5.27 Outstanding at July 31, 1996. . . 573 $3.25 to $10.50 $4.87 7.18 Granted . . . . . . 160 $7.1875 to $9.6875 $8.84 Exercised . . . . . (59) $3.25 to $9.375 $4.69 Cancelled . . . . . (13) $3.25 to $9.375 $7.26 Outstanding at July 31, 1997. . . 661 $3.25 to $10.50 $5.78 6.83 Granted . . . . . . 211 $10.1875 to $14.625 $11.95 Exercised . . . . . (194) $3.25 to $12.0313 $5.75 Cancelled . . . . . (25) $4.25 to $11.00 $8.65 OUTSTANDING AT JULY 31, 1998. . . 653 $3.25 TO $14.625 $7.67 6.73 EXERCISABLE AT JULY 31, 1998. . . 470 $3.25 TO $14.625 $6.29
21 21 SL INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table segregates the outstanding options at July 31, 1998, into three ranges:
---------------------------------------------------------------------------- Weighted Options Range of Option Weighted Average Life Outstanding Prices Average Remaining (In thousands) per Share Price (Years) ---------------------------------------------------------------------------- 223 $3.25 to $4.125 $3.75 3.69 229 $4.1875 to $9.375 $7.69 7.43 201 $9.6875 to $14.625 $12.00 9.31 --- 653 ===
12. CASH FLOW INFORMATION For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments, purchased with an original maturity of three months or less, to be cash equivalents. In accordance with Statement of Financial Accounting Standards No. 95, Statement of Cash Flows, cash flows from EME's operations are calculated based on their reporting currencies. As a result, amounts related to assets and liabilities reported on the consolidated cash flows will not necessarily agree with the translation adjustment recorded on the consolidated balance sheet. The effect of exchange rate changes on cash balances held in foreign currencies is reported on a separate line in the statement of cash flows. Supplemental disclosures of cash flow information:
------------------------------- 1998 1997 1996 ------------------------------- (In thousands) Interest paid . . . . . . . . . $368 $735 $1,158 Income taxes paid . . . . . . . $2,225 $6,431 $3,312
Non-cash investing and financing activities: During fiscal 1996, the Company received a $2,300,000 note as part of the consideration for a sale of property, plant and equipment. During fiscal 1998, the Company acquired all of the capital stock of EME for $9,500,000. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired . . . . . . $15,729,000 Cash paid for the capital stock . . . . . $ 9,500,000 Liabilities assumed . . . . . . . . . . . $ 6,229,000
13. INDUSTRY SEGMENTS The Company's operations are conducted through domestic and foreign subsidiaries. During fiscal 1997 and 1996 sales between segments were not material. No single customer accounts for more than 10% of consolidated sales nor are export sales material thereto.
----------------------------------------------------- 1998 1997(1) 1996(1) ----------------------------------------------------- (In thousands) NET SALES Power and data quality . . . . . $118,212 $107,198 $103,582 Specialty products . . . . . . . - 8,489 13,731 ----------------------------------------------------- Consolidated . . . . . . . . . . $118,212 $115,687 $117,313 ==================================================== OPERATING INCOME Power and data quality . . . . . $12,112 $ 9,679 $ 9,216 Specialty products . . . . . . . - 569 297 Corporate. . . . . . . . . . . . (3,332) (2,993) (3,154) ----------------------------------------------------- Total. . . . . . . . . . . . . 8,780 7,255 6,359 Gain on disposition. . . . . . . - 5,888 - Interest income. . . . . . . . . 214 301 159 Interest expense . . . . . . . . (427) (680) (1,123) ----------------------------------------------------- Consolidated income before income taxes. . . . . $ 8,567 $12,764 $ 5,395 ==================================================== IDENTIFIABLE ASSETS Power and data quality . . . . . $62,569 $48,634 $41,863 Specialty products . . . . . . . 2,253 2,366 5,711 ----------------------------------------------------- Consolidated segment totals. . . 64,822 51,000 47,574 Corporate. . . . . . . . . . . . 16,093 15,804 16,601 ----------------------------------------------------- Consolidated assets. . . . . . . $80,915 $66,804 $64,175 ==================================================== CAPITAL EXPENDITURES (2) Power and data quality . . . . . $2,545 $2,002 $1,917 Specialty products . . . . . . . - 50 168 Corporate. . . . . . . . . . . . 211 45 134 ---------------------------------------------------- Total. . . . . . . . . . . . . . $2,756 $2,097 $2,219 ==================================================== DEPRECIATION AND AMORTIZATION Power and data quality . . . . . $2,853 $2,396 $2,097 Specialty products . . . . . . . - 179 313 Corporate. . . . . . . . . . . . 190 125 174 ---------------------------------------------------- Total. . . . . . . . . . . . . . $3,043 $2,700 $2,584 ====================================================
(1) Reclassified to conform with current year's presentation. (2) Excludes assets acquired in business combinations. 22 22 SL INDUSTRIES, INC. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SL INDUSTRIES, INC.: We have audited the accompanying consolidated balance sheets of SL Industries, Inc. and subsidiaries as of July 31, 1998 and 1997, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended July 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SL Industries, Inc. and subsidiaries as of July 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP /s/ARTHUR ANDERSEN LLP - ---------------------- Philadelphia, PA September 10, 1998 23 23 S/L INDUSTRIES, INC. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
--------------------------------------------------------------------------------------------- Quarter Ended --------------------------------------------------------------------------------------------- October 31, January 31, April 30, July 31, --------------------------------------------------------------------------------------------- 1997 1996 1998 1997 1998 1997 (1) 1998 1997 --------------------------------------------------------------------------------------------- (In thousands, except per share data) Net sales .................. $29,455 $27,844 $28,559 $29,253 $29,340 $29,773 $30,858 $28,817 Gross margin................ $10,491 $ 9,665 $10,096 $10,069 $10,635 $10,085 $10,981 $10,517 Income before income taxes.. $ 1,893 $ 1,416 $ 2,023 $ 1,619 $ 2,249 $ 7,526 $ 2,402 $ 2,203 Net income.................. $ 1,182 $ 880 $ 1,225 $ 964 $ 1,405 $ 4,572 $ 1,501 $ 1,399 Diluted net income per common share................ $ 0.20 $ 0.15 $ 0.21 $ 0.16 $ 0.24 $ 0.76 $ 0.25 $ 0.23
(1) Includes pre-tax gain, net of severance, facility closing, legal and other costs, on disposition of subsidiary of $5,888,000, increasing net income by $3,556,000, or $.59 per common share. See Note 2 to consolidated financial statements. 24 EX-22 6 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 22 SUBSIDIARIES OF THE REGISTRANT
State or other Jurisdiction of Subsidiaries Incorporation ------------ ------------- Cedar Corporation Nevada Cedro de Mexico, S.A. De C.V. Mexico Condor D.C. Power Supplies, Inc. California Elecktro-Metall Export GmbH Germany Industrias SL, S.A. de C.V Mexico PDQ Corporation New Jersey SL Ameritech Plastics, Inc. New York SL Auburn, Inc. (a) New York SL Delaware, Inc. Delaware SL Industries Deutschland GmbH Germany SL Industries Holding GmbH Germany SL Industries Vertrieb GmbH Germany SL International (FSC), Inc. U.S. Virgin Islands SL Surface Technologies, Inc. (b) New Jersey SL Montevideo Technology, Inc. Minnesota SL Piping Systems, Inc. (c) Delaware SL Waber, Inc. New Jersey Teal Electronics Corporation California Waber de Mexico, S.A. De C.V. Mexico Waber Power, LTD(d) Connecticut
All of the registrant's subsidiaries are included in the consolidated financial statements for the year ended July 31, 1998. - --------------------- (a) Disposed on May 1, 1997. (b) Formerly SL Modern Hard Chrome, Inc. (c) Disposed on February 20, 1996. (d) Formerly SL Electrostatic Technology, Inc. EX-24 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports incorporated by reference or included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-53274, 33-63681, 33-65445 and 33-00269. ARTHUR ANDERSEN LLP Philadelphia, PA October 29, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF EARNINGS, CONSOLIDATED BALANCE SHEET & CONSOLIDATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10K YEAR ENDED JULY 31, 1998. 1,000 YEAR JUL-31-1998 AUG-01-1997 JUL-31-1998 0 0 20,931 2,045 18,538 41,410 26,019 12,042 80,915 20,066 0 0 0 1,631 38,345 80,915 118,212 118,212 74,646 109,432 0 52 427 8,567 3,254 0 0 0 0 5,313 .95 .90
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