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 YEAR ENDED DECEMBER 31, 2001
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: 856-727-1500
Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered:
Title of each class New York Stock Exchange
Common stock, $.20 par value Philadelphia Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark 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 March 7, 2002, the aggregate market value of SL common stock was
approximately $45,547,536.
The number of shares of common stock outstanding as of March 7, 2002, was
5,758,222.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The Registrant, through its subsidiaries, designs, manufactures and markets
power electronics, power motion and power protection equipment that is used in a
variety of aerospace, computer, datacom, industrial, medical, telecom,
transportation and utility equipment applications. Its products are incorporated
into larger systems to increase operating safety, reliability and efficiency.
The Registrant's products are largely sold to Original Equipment Manufacturers
("OEMs"), and to a lesser extent, to commercial distributors. 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.
In 1999, the Registrant changed the date of its fiscal year-end from July 31 to
December 31, commencing in January 2000. As a result, a transition period for
the five-month period ended December 31, 1999 was previously reported on a
transition report on Form 10-Q and is also presented herein. Consequently, the
consolidated balance sheets have been presented as of December 31, 2001 and
December 31, 2000. The consolidated statements of operations and cash flows
present information for the calendar years ended December 31, 2001 and December
31, 2000, the fiscal year ended July 31, 1999 and the five-month periods ended
December 31, 1999 and December 31, 1998.
On May 11, 1999, pursuant to a Share Purchase Agreement dated April 1, 1999, the
Registrant acquired 100% of the issued and outstanding shares of capital stock
of RFL Electronics Inc. ("RFL"). The Registrant paid $11,387,000 in cash and
issued promissory notes with an aggregate face amount of $75,000 at closing. In
addition, the Registrant paid a contingent payment of $1,000,000 in fiscal 1999
based upon the financial performance of RFL for its fiscal year ended March 31,
1999. RFL is a leading supplier of teleprotection and specialized communication
equipment primarily sold to the electric power utility industry.
On July 27, 1999, pursuant to an Asset Purchase Agreement dated July 13, 1999,
Condor D.C. Power Supplies, Inc. ("Condor"), a wholly-owned subsidiary of the
Registrant, acquired certain net operating assets of Todd Products Corporation
and Todd Power Corporation (together, "Todd Products"). The Registrant paid
$7,430,000, comprised of cash in the amount of $3,700,000 and assumption of debt
equal to approximately $3,730,000. Condor also entered into a ten-year
Consulting Agreement with the chief executive officer of Todd Products for an
aggregate fee of $1,275,000, which is paid in quarterly installments over three
years. Todd Products is a leading supplier of high quality power supplies to the
datacom, telecommunications and computer industries.
On March 22, 2001, the Registrant announced, among other things, that the Board
of Directors had completed a previously announced review of strategic
alternatives and had determined that it
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would explore a sale of the Registrant in order to maximize its value for
shareholders. Credit Suisse First Boston assisted the Registrant's Board of
Directors in its review and has been engaged to lead this process, which is
ongoing.
In July 2001, the Board of Directors authorized the disposition of the
Registrant's subsidiary, SL Waber, Inc. ("SL Waber"). On September 6, 2001,
pursuant to an Asset Purchase Agreement dated as of August 29, 2001, the
Registrant sold substantially all of the assets of SL Waber and all the stock of
SL Waber's subsidiary, Waber de Mexico S.A. de C.V. The Registrant received cash
in the amount of $1,053,000 at closing. In addition, the purchaser agreed to
assume certain liabilities and ongoing obligations of SL Waber. As a result of
the transaction, the Registrant recorded a pre-tax loss from the sale of
discontinued operations of approximately $2,745,000. The results of operations
of SL Waber are presented as discontinued operations for all periods presented
in the financial statements set forth herein.
In December 2001, the Registrant surrendered for cash substantially all of its
life insurance policies with a total surrender value of $11,109,000. Additional
policies with a cash surrender value of $450,000 were surrendered in February
2002. These policies insured the lives of former and present executives and key
employees and had been maintained as an internal mechanism to fund the
Registrant's obligations under its capital accumulation plan and deferred
compensation plan. Aggregate liabilities under those plans, which are owed to
former and current executives and key employees, amount to $3,120,000 as of
December 31, 2001. Proceeds from the life insurance policies were received in
December 2001, January 2002 and March 2002 and were used to pay down debt under
the Registrant's revolving credit facility. Beneficiaries under the capital
accumulation plan and deferred compensation plan remain general unsecured
creditors of the Registrant.
In December 2001, the Registrant sold back to the purchaser of a former
subsidiary a mortgage note in the outstanding principal amount of $2,200,000.
The mortgage note secured the real property of the former subsidiary. In January
2002, the Registrant received cash proceeds of $1,600,000 upon the sale of the
mortgage note, all of which were used to pay down debt under the Registrant's
revolving credit facility.
On January 22, 2002, the Registrant held its annual meeting of shareholders for
the 2001 calendar year. At the annual meeting, all eight members of the Board of
Directors stood for election. In addition, five nominees from a committee
comprised of representatives of two institutional shareholders (such committee,
the "RORID Committee"), stood for election to the Board of Directors. Upon the
certification of the election results on January 24, 2002, the five nominees of
the RORID Committee were elected (James Henderson, Glen Kassan, Warren
Lichtenstein, Mark Schwarz and Steven Wolosky), and three incumbent directors
were reelected (J. Dwane Baumgardner, Charles T. Hopkins and J. Edward
Odegaard). Shortly after the annual meeting, Messrs. Hopkins and Odegaard
resigned from the Board of Directors. On March 8, 2002, Richard Smith was
elected to the Board of Directors, filling one of the two vacant directorships.
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In 2001, the Registrant had entered into change-of-control agreements with Owen
Farren, the Chief Executive Officer at that time, David Nuzzo, the Vice
President-Finance and Administration, and Jacob Cherian, the Vice President and
Controller. Following the election of the five new directors as described above,
the Registrant made payments to such officers under these change-of-control
agreements in the respective amounts of $877,565, $352,556 and $250,000. Owen
Farren's employment with the Registrant was terminated effective February 4,
2002. For more information on the change-of-control agreements, see Item 11,
"Executive Compensation - Severance Agreements."
At the initial meeting of the new Board of Directors on January 24, 2002, Warren
Lichtenstein was elected Chairman of the Board. On February 4, 2002, Warren
Lichtenstein was elected Chief Executive Officer and Glen Kassan was elected
President of the Registrant. Additionally, David Nuzzo was reelected as Vice
President-Finance and Administration, Treasurer and Secretary and Jacob Cherian
was re-elected as Vice President and Controller. All senior divisional
management teams are continuing in their positions.
(b) FINANCIAL INFORMATION ABOUT SEGMENTS
Financial information about the Registrant's business segments is incorporated
herein by reference to Note 14 in the Notes to Consolidated Financial Statements
included in Part IV of this Annual Report on Form 10-K.
(c) NARRATIVE DESCRIPTION OF BUSINESS
SEGMENTS
During the fiscal year ended July 31, 1999, the five-month period ended December
31, 1999 and the year ended December 31, 2000, the Registrant was comprised of
six reportable business segments: Power Supplies, Power Conditioning and
Distribution Units ("PCDUs"), Motion Control Systems, Electric Utility Equipment
Protection Systems, Surge Suppressors and Other. During the fiscal year ended
July 31, 1998, the Registrant operated principally in one business segment; the
design, production and marketing of advanced power and data quality systems.
During the year ended December 31, 2001, the Registrant was comprised of five
business segments: Power Supplies, PCDUs, Motion Control Systems, Electric
Utility Equipment Protection Systems and Other. At year-end December 2001, the
Registrant changed the composition of its reportable segments to reflect
individual business units, as described below.
Condor DC Power Supplies ("Condor") - Condor produces a wide range of standard
and custom power supply products that convert AC or DC power to direct
electrical current to be used in customers' end products. Standard and custom
AC-DC and DC-DC power supplies in both linear and switching configurations are
produced, with ranges in power from 1 to 5000 watts, and are manufactured in
either commercial or medical configurations. Power supplies closely regulate and
monitor power outputs, using patented filter and other technologies, resulting
in little or no electrical interference. Power supplies are also used in drive
systems for electric equipment and other motion control systems. For the years
ended December 31, 2001, December 31, 2000 and
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the fiscal year ended July 31, 1999, net sales of Condor, as a percentage of
consolidated net sales from continuing operations, were 35%, 42% and 34%,
respectively. For the five-month periods ended December 31, 1999 and December
31, 1998, net sales of Condor, as a percentage of consolidated net sales from
continuing operations, were 43% and 36%, respectively.
Teal Electronics ("Teal") - Teal is a leader in the design and manufacture of
customized power conditioning and power distribution units. Products are
developed and manufactured for custom electrical subsystems for OEMs of
semiconductor, medical imaging, graphics and telecommunication systems.
Outsourcing the AC power system helps OEMs reduce cost and time to market, while
increasing system performance and customer satisfaction. Customers are also
helped by getting necessary agency approvals. Custom products are often called
"Power Conditioning and Distribution Units," which provide voltage conversion
and stabilization, system control, and power distribution for systems such as CT
and MRI scanners, chip testers and cellular radio systems. For the years ended
December 31, 2001, December 31, 2000 and the fiscal year ended July 31, 1999,
net sales of Teal, as a percentage of consolidated net sales from continuing
operations, were 10%, 15% and 17%, respectively. For the five-month periods
ended December 31, 1999 and December 31, 1998, net sales of Teal, as a
percentage of consolidated net sales from continuing operations, were 15% and
17%, respectively.
SL Montevideo Technology ("SL-MTI") - SL-MTI is a technological leader in the
design and manufacture of intelligent, high power density precision motors.
Important programs in both traditional and new market areas have been won as a
result of new motor and (patented and patent pending) motor control
technologies. New motor and motion controls are used in numerous applications,
including aerospace, medical and industrial products. Negotiations are
continuing with customers on advanced designs for numerous programs, including
fuel cell energy storage systems, high performance missile guidance motors, and
medical/surgical drills and saws. For the years ended December 31, 2001,
December 31, 2000 and the fiscal year ended July 31, 1999, net sales of SL-MTI,
as a percentage of consolidated net sales from continuing operations, were 14%,
10% and 17%, respectively. For the five-month periods ended December 31, 1999
and December 31, 1998, net sales of SL-MTI, as a percentage of consolidated net
sales from continuing operations, were 10% and 18%, respectively.
Elektro-Metall Export ("EME") - EME is based in Ingolstadt, Germany, with
low-cost manufacturing operations in Paks, Hungary. It is a leader in
electromechanical actuation systems, power drive units and complex wire harness
systems for use in the aerospace and automobile industries. Electromechanical
actuation systems for aerospace and ordnance applications are used in rudder
trim actuation, cargo manipulation and door control. Power drive units are
utilized for aircraft on-board cargo loading systems and electrical seat
actuation systems for aircraft business class seats. Wire harness systems 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. For the years ended December 31, 2001, December 31, 2000
and the fiscal year ended July 31, 1999, net sales of EME, as a percentage of
consolidated net sales from continuing operations, were 18%, 15% and 23%,
respectively. For the five-month periods ended December 31, 1999 and December
31, 1998, net sales of EME, as
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a percentage of consolidated net sales from continuing operations, were 14% and
26%, respectively.
RFL Electronics ("RFL") - RFL designs and manufactures teleprotection
products/systems that are used to protect electric utility transmission lines
and apparatus by isolating faulty transmission lines from a transmission grid.
These products are sophisticated communication systems that allow electric
utilities to manage their high-voltage power lines more efficiently, and include
a system that is a completely digital, fully-integrated relay/communications
terminal, suitable for high-speed protective relaying of overhead or underground
high-voltage transmission lines. RFL provides customer service and maintenance
for all electric utility equipment protection systems. For the years ended
December 31, 2001, December 31, 2000 and the fiscal year ended July 31, 1999,
net sales of RFL, as a percentage of consolidated net sales from continuing
operations, were 21%, 17%, and 6%, respectively. For the five-month periods
ended December 31, 1999 and December 31, 1998, net sales of RFL, as a percentage
of consolidated net sales from continuing operations, were 17% and 0%,
respectively.
SL Surface Technologies ("SurfTech") - SurfTech produces industrial coatings and
platings for equipment in the corrugated paper and telecommunications
industries. For the years ended December 31, 2001, December 31, 2000 and the
fiscal year ended July 31, 1999, net sales of SurfTech, as a percentage of
consolidated net sales from continuing operations, were 2%, 2% and 3%,
respectively. For the five-month periods ended December 31, 1999 and December
31, 1998, net sales of SurfTech, as a percentage of consolidated net sales from
continuing operations, were 2% and 3%, respectively.
SL Waber - SL Waber manufactured surge suppressors that were sold to protect
computers, audiovisual and other electronic equipment from sudden surges in
power. These products were sold to OEM customers, as well as to distributors and
dealers of electronics and electrical supplies, retailers and wholesalers of
office, computer, and consumer products. In September 2001, the Registrant sold
substantially all of the assets of SL Waber, including its name and goodwill as
a going concern. Since the decision was made to sell SL Waber in June 2001, it
has been reported on the Registrant's financial statements as a discontinued
operation for all periods presented. For the years ended December 31, 2001,
December 31, 2000 and the fiscal year ended July 31, 1999, net sales of SL Waber
were $10.3 million, $19.3 million, and $36.4 million, respectively. For the
five-month periods ended December 31, 1999 and December 31, 1998, net sales of
SL Waber were $11.9 million and $17.0 million, respectively.
RAW MATERIALS
Raw materials are supplied by various domestic and international vendors. In
general, availability for materials is not a problem for the Registrant.
However, in the fourth quarter of 2000, the Registrant experienced shortages in
the supply of certain strategic components for power supplies. During 2001,
there were no major disruptions in the supply of raw materials.
Raw materials are purchased directly from the manufacturer whenever possible to
avoid distributor mark-ups. Average lead times generally run from immediate
availability to eight
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weeks. Lead times can be substantially higher for strategic components subject
to industry shortages. In most cases, viable multiple sources are maintained for
flexibility and competitive leverage.
SEASONALITY
Generally, seasonality is not a factor in any of the Registrant's segments.
SIGNIFICANT CUSTOMERS
The Registrant has no customer that accounts for 10% or more of its consolidated
net sales from continuing operations. Each of Teal, SL-MTI, EME, RFL and
SurfTech has certain major customers, the loss of any of which would have a
material adverse effect on such entity.
BACKLOG
Backlog at March 1, 2002, March 9, 2001 and March 9, 2000, was $53,246,000,
$62,242,000 and $60,693,000, respectively. The lower backlog at March 1, 2002,
as compared to March 9, 2001, was principally the result of substantially
decreased orders from OEMs in the telecommunications and semiconductor
industries, offset in part by increased orders from aerospace customers.
COMPETITIVE CONDITIONS
The Registrant's businesses are in active competition with domestic and foreign
companies, some with national and international name recognition, offering
similar products or services, and with companies producing alternative products
appropriate for the same uses. In addition, Condor has experienced significant
off-shore competition for certain products in certain markets. Currently, the
Registrant's businesses are sourcing many components and products outside of the
United States. The uncertain commercial aerospace market as a result of the
terrorist attacks of September 11, 2001 has also created more competitive
conditions in that industry. The Registrant's businesses differentiate
themselves from their competition by concentrating on customized products based
on customer needs. The Registrant's businesses seek a competitive advantage
based on 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, Hungarian and German
environmental laws and regulations concerning emissions to the air, discharges
to surface and subsurface waters, and generation, handling, storage,
transportation, treatment and disposal of waste materials. The Registrant and
the industries are also subject to other federal, state and local environmental
laws and regulations, including those that require the Registrant to remediate
or mitigate the effects of the disposal or release of certain chemical
substances at various sites, including some where it has ceased
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operations. It is impossible to predict precisely what effect these laws and
regulations will have on the Registrant in the future.
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. For additional information
related to environmental issues, see "Item 3. Legal Proceedings."
EMPLOYEES
As of December 31, 2001, the Registrant had approximately 1,800 employees. Of
these employees, approximately 160 are subject to collective bargaining
agreements.
FOREIGN OPERATIONS
In addition to manufacturing operations in California, Minnesota, and New
Jersey, the Registrant manufactures substantial quantities of products in
premises leased or owned by the Registrant in Mexicali and Matamoros, Mexico;
Ingolstadt, Germany; and Paks, Hungary. These external and foreign sources of
supply present risks of interruption for reasons beyond the Registrant's
control, including political or economic instability and other uncertainties.
During the year ended December 31, 2001, the Registrant manufactured products in
two additional facilities in Mexico. The Condor plant in Reynosa, Mexico was
closed in March 2002, and the SL Waber plant in Nogales, Mexico was sold in
September 2001.
Generally, the Registrant's sales are priced in United States dollars and German
marks (European Union euros effective January 1, 2002), and its costs and
expenses are priced in United States dollars, Mexican pesos, German marks,
(European Union euros effective January 1, 2002) and Hungarian forints.
Accordingly, the competitiveness of Registrant's products relative to locally
produced products may be affected by the performance of the United States dollar
compared with that of its foreign customers' and competitors' currencies.
Foreign net sales comprised 27%, 23%, and 27% of net sales from continuing
operations for the years ended December 31, 2001 and December 31, 2000, and the
fiscal year ended July 31, 1999, respectively. Foreign net sales comprised 21%
and 29% of net sales from continuing operations for the five-month periods ended
December 31, 1999 and December 31, 1998, respectively.
Additionally, the Registrant is exposed to foreign currency transaction and
translation losses, which might result from adverse fluctuations in the values
of the Mexican peso, German mark, (European Union euro effective January 1,
2002) and Hungarian forint. At December 31, 2001, the Registrant had net
liabilities of $241,000 subject to fluctuations in the value of the Mexican
peso, net assets of $4,578,000 subject to fluctuations in the value of the
German mark and net assets of $507,000 subject to fluctuations in the value of
the Hungarian forint. Fluctuations in the value of the Mexican peso, German
mark, and Hungarian forint were not significant in 1999,
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2000 or 2001. However, there can be no assurance that the value of the Mexican
peso, European Union euro or Hungarian forint will continue to remain stable.
EME manufactures all of its products in Germany or Hungary and incurs its costs
in German marks (European Union euros effective January 1, 2002) or Hungarian
forints. EME's sales are priced in German marks (European Union euros effective
January 1, 2002) and United States dollars. Condor manufactures substantially
all of its products in Mexico and incurs its labor costs and supplies in Mexican
pesos. SL-MTI manufactures an increasing amount of its products in Mexico and
incurs related labor costs and supplies in Mexican pesos. Both Condor and SL-MTI
price their sales in United States dollars. EME maintains its books and records
in German marks (European Union euros effective January 1, 2002), and its
Hungarian subsidiary maintains its books and records in Hungarian forints. The
Mexican subsidiaries of Condor and SL-MTI maintain their books and records in
Mexican pesos. For additional information related to financial information about
foreign operations, see Notes 14 and 15 in the Notes to Consolidated Financial
Statements included in Part IV of this Annual Report on Form 10-K.
ADDITIONAL INFORMATION
Additional information regarding the development of the Registrant's businesses
during 2001 is contained in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Part II of this
Annual Report on Form 10-K.
RISK FACTORS
THE REGISTRANT IS CURRENTLY IN DEFAULT UNDER ITS REVOLVING CREDIT FACILITY; AND
THE REGISTRANT WILL BE ADVERSELY IMPACTED IF IT DOES NOT REFINANCE ITS REVOLVING
CREDIT FACILITY PRIOR TO MATURITY IN 2002.
The Registrant is party to a Second Amended and Restated Credit Agreement dated
as of December 13, 2001, as amended, by and among the Registrant, SL Delaware,
Inc., GE Capital CFE, Inc., Fleet National Bank and PNC Bank, National
Association as Banks, and GE Capital CFE, Inc. as Agent for the Banks (the
"Revolving Credit Facility"). The Revolving Credit Facility matures on December
31, 2002, and provides for the payment of a fee of approximately $780,000 in the
event that the facility is not retired on or before October 31, 2002.
Consequently, the Registrant will attempt to refinance its Revolving Credit
Facility prior to October 31, 2002. There can be no assurance that the
Registrant will refinance the Revolving Credit Facility prior to October 31,
2002, or that the Revolving Credit Facility will be refinanced successfully.
In addition, on March 1, 2002, the Registrant received a notice from its lenders
under the Revolving Credit Facility stating that it is currently in default
under the Revolving Credit Facility due to its failure to meet the previously
scheduled debt reduction to $25,500,000 on March 1, 2002. The Registrant's
outstanding debt under the Revolving Credit Facility was approximately
$26,200,000 as of April 1, 2002. Since such time, the lenders have not advanced
any additional funds and the Registrant has been financing its working capital
and other cash needs from cash on hand. Additionally, the Registrant did not
meet its net income covenant
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under the Revolving Credit Facility for the fourth quarter of 2001 due to the
charge recognized in connection with an impairment of the intangible assets of
Condor at December 31, 2001. The Registrant also may not be able to meet its net
income covenant for the first quarter of 2002 due to the operating charges
incurred in connection with the change-in-control payments and proxy cost
expenses. The opinion of the Registrant's auditors contains a qualification with
respect to the Registrant's ability to continue as a going concern, as set forth
below, which qualification, if not acceptable to its lenders, would be a
violation of a financial reporting covenant. The Registrant and its lenders are
currently in discussions to extend the deadline for the scheduled debt reduction
and to obtain waivers of such covenants. There can be no assurance that the
Registrant will be able to extend the period of its debt reduction or otherwise
obtain waivers of default from its lenders.
CURRENT FINANCIAL CONDITIONS RAISE CONCERNS ABOUT THE REGISTRANT'S ABILITY TO
CONTINUE AS A GOING CONCERN.
As set forth in the preceding Risk Factor and in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Liquidity and Capital Resources" included in
Part II of this Annual Report on Form 10-K, the Registrant is in default under
its Revolving Credit Facility and will require waivers of certain covenants.
There can be no assurance that the lenders under the Revolving Credit Facility
will waive compliance with the default and such covenants or any resulting
defaults. Accordingly, the Registrant may not be permitted to borrow any
additional amounts under the Revolving Credit Facility or be able to find
alternative sources of financing. In the event the Registrant is unable to fund
its working capital needs and other cash requirements through its available
funds at such time as its lenders are not advancing funds under the Revolving
Credit Facility, or in the event the Registrant is unable to refinance the
Revolving Credit Facility, there would be a material adverse effect upon the
financial condition of the Registrant.
The financial statements of the Registrant included in this report have been
prepared on the assumption that it will continue as a going concern. The
Registrant's auditors have issued an opinion that the current conditions raise
concerns about the Registrant's ability to continue as a going concern.
Additional financing is required if the Registrant is to continue as a going
concern. If additional funding is not obtained, the Registrant will be required
to scale back or discontinue its operations.
THE REGISTRANT MAY BE ADVERSELY IMPACTED BY FLUCTUATIONS IN CASH FLOWS,
LIQUIDITY, DEBT LEVELS, AND REFINANCING.
Working capital requirements and cash flows historically have been, and are
expected to continue to be, subject to quarterly and yearly fluctuations,
depending on such factors as levels of sales, timing and size of capital
expenditures, timing of deliveries and collection of receivables, inventory
levels, customer payment terms, customer financing obligations, and supplier
terms and conditions. The inability to manage cash flow fluctuations resulting
from such factors could have a material adverse effect on the Registrant's
business, results of operations,
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and financial condition. In order to finance the working capital requirements of
the Registrant's business, it has entered into the Revolving Credit Facility and
has borrowed funds thereunder. If operating cash flows are not sufficient to
meet operating expenses, capital expenditures and debt service requirements as
they become due, the Registrant may be required, in order to meet its debt
service obligations, to delay or reduce capital expenditures or the introduction
of new products, to sell assets, and/or to forego business opportunities
including research and development projects and product design enhancements.
THE REGISTRANT'S OPERATING RESULTS MAY FLUCTUATE, AND THERE MAY BE VOLATILITY IN
GENERAL INDUSTRY, ECONOMIC, AND MARKET CONDITIONS.
The results of operations for any quarter or year are not necessarily indicative
of results to be expected in future periods. Future operating results may be
affected by various trends and factors that must be managed in order to achieve
favorable operating results. The inability to accurately forecast and manage
these trends and factors could have a material adverse effect on the
Registrant's business, results of operations, and financial condition.
General economic conditions, and specifically market conditions in the
telecommunications and semiconductor industry in the United States and globally,
affect the Registrant's business. In addition, reduced capital spending and/or
negative economic conditions in the United States, Europe, Asia, Latin America
and/or other areas of the world could have a material adverse effect on the
Registrant's business, results of operations, and financial condition.
Gross margins may be adversely affected by increased price competition, excess
capacity, higher material or labor costs, warranty costs, obsolescence charges,
loss of cost savings on future inventory purchases as a result of high inventory
levels, introductions of new products, increased levels of customer services,
changes in distribution channels, and changes in product and geographic mix.
Lower than expected gross margins could have a material adverse effect on the
Registrant's business, results of operations, and financial condition.
THE REGISTRANT HAS BEEN INFORMED THAT IT IS NOT IN COMPLIANCE WITH NEW YORK
STOCK EXCHANGE LISTING STANDARDS, AND MAY BE DELISTED. IF THE REGISTRANT IS
DELISTED, ITS STOCK PRICE MAY SUFFER.
On October 17, 2001, the Registrant received official notification from the New
York Stock Exchange ("NYSE") that it was "below criteria" of certain of the
NYSE's continued listing standards. Pursuant to the request of the NYSE, the
Registrant submitted a business plan on February 22, 2002 for compliance with
the NYSE continued listing standards. The Registrant is currently working with
the NYSE to resolve this matter and maintain its listing on the NYSE. There can
be no assurance that the Registrant will be able to satisfy NYSE requirements
and continue to be listed on the NYSE, or in the event that it cannot continue
to be listed on the NYSE, that it will be able to alternatively list on another
exchange.
THE REGISTRANT EXPECTS FLUCTUATIONS IN OPERATING RESULTS AND STOCK PRICE.
Operating results for future periods are never perfectly predictable even in the
most certain of economic times, and the Registrant expects to continue to
experience fluctuations in its quarterly
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results. These fluctuations, which in the future may be significant, could cause
substantial variability in the market price of the Registrant's stock.
THE REGISTRANT'S OPERATING RESULTS AND STOCK PRICE MAY BE ADVERSELY AFFECTED BY
FLUCTUATIONS IN CUSTOMERS' BUSINESSES.
Business is dependent upon product sales to telecommunications, semiconductor,
medical imaging, aerospace and other businesses, who in turn are dependent for
their business upon orders from their customers. Any downturn in the business of
any of these parties affects the Registrant. Moreover, sales often reflect
orders shipped in the same quarter in which they are received, which makes sales
vulnerable to short-term fluctuations in customer demand and difficult to
predict. In general, customer orders may be cancelled, modified or rescheduled
after receipt. Consequently, the timing of these orders and any subsequent
cancellation, modification or rescheduling of these orders has affected, and
will in the future affect, results of operations from quarter to quarter. Also,
as the Registrant's customers typically order in large quantities, any
subsequent cancellation, modification or rescheduling of an individual order may
alone affect results of operations.
THE REGISTRANT HAS INCURRED, AND MAY IN THE FUTURE INCUR, INVENTORY-RELATED
CHARGES, THE AMOUNTS OF WHICH ARE DIFFICULT TO PREDICT ACCURATELY.
As a result of the business downturn in 2001, the Registrant has incurred
charges to align its inventory with actual customer requirements over the near
term. A rolling six-month forecast is utilized based on anticipated product
orders, product order history, forecasts, and backlog to assess inventory
requirements. The Registrant has incurred, and may in the future incur,
significant inventory-related charges. While the Registrant believes, based on
current information, that the inventory-related charges recorded in 2001 are
appropriate, subsequent changes to its forecast may indicate that these charges
were insufficient or even excessive.
FAILURE TO ACHIEVE ACCEPTABLE MANUFACTURING VOLUMES AND YIELDS MAY ADVERSELY
AFFECT THE REGISTRANT'S PROFITABILITY.
The ability to achieve profitability depends upon the Registrant's ability to
timely deliver products to its customers at acceptable cost levels. The
manufacture of the Registrant's products involves highly complex and precise
processes. Changes in manufacturing processes or those of suppliers, or their
inadvertent use of defective or contaminated materials, could significantly hurt
the Registrant's ability to meet its customers' product volume and quality
needs. Moreover, failure to receive a sufficient level of customer orders could
significantly hurt the Registrant's ability to meet its order volume and yield
targets. Under existing manufacturing techniques, which involve substantial
manual labor, failure to meet volume and yield targets could substantially
increase unit costs. Failure to meet unit costs would negatively impact
operating results and, thereby, could have a material adverse effect on the
Registrant's business, results of operations, and financial condition.
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FAILURE TO REMAIN COMPETITIVE COULD ADVERSELY IMPACT THE REGISTRANT'S OPERATING
RESULTS.
The markets in which the Registrant sells its products are highly competitive
and characterized by rapidly changing and converging technologies. The
Registrant faces intense competition from established competitors and the threat
of future competition from new and emerging companies in all aspects of
business. Among its current competitors are its customers, who are vertically
integrated and either manufacture and/or are capable of manufacturing some or
all of the Registrant's products sold to them. In addition to current
competitors, new competitors providing niche, and potentially broad, product
solutions will likely increase in the future. To remain competitive in both the
current and future business climates, the Registrant must maintain a substantial
commitment to focused research and development, improve the efficiency of its
manufacturing operations, and streamline its marketing and sales efforts and
attendant customer service and support. Among other things, the Registrant may
not be able to anticipate shifts in its markets or technologies, may not have
sufficient resources to continue to make the investments necessary to remain
competitive, or may not make the technological advances necessary to remain
competitive. In addition, notwithstanding its efforts, technological changes,
manufacturing efficiencies or development efforts by competitors may render the
Registrant's products or technologies obsolete or uncompetitive.
CONSOLIDATION IN THE INDUSTRY COULD INCREASE COMPETITIVE PRESSURES ON THE
REGISTRANT.
The industries in which the Registrant operates are consolidating, and will
continue to consolidate in the future as companies attempt to strengthen or hold
their market positions. Such consolidations may result in stronger competitors
that are better able to compete as sole-source vendors for customers. The
Registrant's relatively small size may increase competitive pressure for
customers seeking single vendor solutions. Such increased competition would
increase the variability of the Registrant's operating results and could
otherwise have a material adverse effect on the Registrant's business, results
of operations, and financial condition.
THE REGISTRANT IS DEPENDENT UPON THIRD PARTIES FOR PARTS AND COMPONENTS.
The ability to meet customer demand depends, in part, on the ability of the
Registrant to obtain timely and adequate delivery of parts and components from
suppliers and internal manufacturing capacity. The Registrant has experienced
significant shortages in the past and, although it works closely with its
suppliers to avoid shortages, there can be no assurance that it will not
encounter further shortages in the future. A further reduction or interruption
in component supplies or a significant increase in the price of one or more
components could have a material adverse effect on the Registrant's business,
results of operations and financial condition.
THE REGISTRANT MAY BE SUBJECT TO SIGNIFICANT COSTS IN COMPLYING WITH
ENVIRONMENTAL LAWS.
The Registrant's facilities are subject to a broad array of environmental laws
and regulations. The costs of complying with complex environmental laws and
regulations may be significant in the future. Present accruals for such costs
and liabilities may not be adequate in the future, since the estimates on which
the accruals are based depend on a number of factors, including the nature of
the problem, the complexity of the site, the nature of the remedy, the outcome
of
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discussions with regulatory agencies and other potentially responsible parties
("PRPs") at multiparty sites, and the number and financial viability of other
PRPs.
Additionally, the Registrant is the subject of various lawsuits and actions
relating to environmental issues, including administrative action in connection
with SurfTech's Pennsauken facility which could subject the Registrant to, among
other things, $9,266,000 in collective reimbursements (with other parties) to
NJDEP (as defined herein). There can be no assurance that the Registrant will be
able to successfully defend itself against or settle these or any other actions
to which it is a party. For additional information related to environmental
risks, see "Item 3. Legal Proceedings."
THE REGISTRANT MAY HAVE TO PAY SIGNIFICANT COSTS FOR REGULATORY COMPLIANCE AND
LITIGATION.
Rapid or unforeseen escalation of the cost of regulatory compliance and/or
litigation, including but not limited to, environmental compliance,
product-related liability, assertions related to intellectual property rights
and licenses, adoption of new accounting policies, or changes in current
accounting policies and practices and the application of such policies and
practices could have a material adverse effect on the Registrant's business.
Additionally, the Registrant is subject to certain legal actions involving
complaints by terminated employees and disputes with customers and suppliers.
One such claim has been brought against SL-MTI by a customer seeking $3,900,000
in compensatory damages. While it is management's opinion that such claims will
be successfully defended, there can be no assurance of the outcome in any
litigation. An adverse determination in any one or more legal actions could have
a material adverse effect on the Registrant's business, results of operations
and financial condition. See "Item 3 Legal Proceedings."
THE REGISTRANT'S FUTURE SUCCESS DEPENDS ON ITS ABILITY TO STAY CURRENT WITH
TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT.
The markets in which Condor and Teal operate are characterized by rapidly
changing technology and shorter product life cycles. The Registrant's future
success will continue to depend upon its ability to enhance its current products
and to develop new products that keep pace with technological developments and
respond to changes in customer requirements. Any failure by the Registrant to
respond adequately to technological changes and customer requirements or any
significant delay in new product introductions could have a material adverse
effect on the Registrants' business and results of operations. In addition,
there can be no assurance that new products to be developed by the Registrant
will achieve market acceptance.
THE REGISTRANT IS DEPENDENT UPON KEY PERSONNEL FOR THE MANAGEMENT OF ITS
OPERATIONS.
The Registrant's success depends in part upon the continued services of many of
the Registrant's highly skilled personnel involved in management, engineering
and sales, and upon its ability to attract and retain additional highly
qualified officers and employees. The loss of service of any of these key
personnel could have a material adverse effect on business. In addition, future
success will depend on the ability of officers and key employees to manage
operations successfully as
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the Registrant explores a sale of all or a part of its business, as well as the
Registrant's ability to effectively attract, retain, motivate and manage
employees during this period of uncertainty.
THE REGISTRANT'S COMMON STOCK IS SUBJECT TO PRICE FLUCTUATIONS.
The market price for the Registrant's common stock has been, and is likely to
continue to be, highly volatile. The market for the Registrant's common stock is
subject to fluctuations as a result of a variety of factors, including factors
beyond its control. These include:
- the Registrant's ability to obtain refinancing prior to October
31, 2002;
- additions or departures of key personnel;
- changes in market valuations of similar companies;
- announcements of new products or services by competitors or new
competing technologies;
- conditions or trends in the telecommunications and
semiconductors industries;
- announcements and expectations with respect to the sale of all
or part of the Registrant;
- general market and economic conditions; and
- other events or factors that are unforeseen.
FACTORS WHICH MAY AFFECT FUTURE RESULTS.
The risks and uncertainties described herein are not the only ones facing the
Registrant. Additional risks and uncertainties not presently known, or that may
now be deemed immaterial, may also impair business operations.
(d) FORWARD-LOOKING INFORMATION
From time to time, information provided by the Registrant, including written or
oral statements made by representatives, may contain forward-looking information
as defined in the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, contain forward-looking
information, particularly statements which address activities, events or
developments that the Registrant expects or anticipates will or may occur in the
future, such as expansion and growth of the Registrant's business, future
capital expenditures and the Registrant's prospects and strategy. In reviewing
such information, it should be kept in mind that actual results may differ
materially from those projected or suggested in such forward-looking
information. This forward-looking information is based on various factors and
was derived utilizing numerous assumptions. Many of these factors previously
have been identified in filings or statements made by or on behalf of the
Registrant.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in the general economy, changes in capital
investment and/or consumer spending, competitive factors and other factors
affecting the Registrant's business in or beyond the Registrant's control. These
factors include a change in the rate of inflation, a change in state or federal
legislation or regulations, an adverse determination with respect to a claim in
litigation or other claims (including environmental matters), the ability to
recruit and develop employees, the ability to successfully implement new
technology and the stability of product costs. These factors also include, in
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particular, whether or not a sale of all or part of the Registrant's business
can be successfully effected and the timing and degree of any business recovery
in certain of the Registrant's markets that are currently experiencing a
cyclical economic downturn.
Other factors and assumptions not identified above could also cause actual
results to differ materially from those set forth in the forward-looking
information. The Registrant 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.
Future factors include the effectiveness of cost reduction actions undertaken by
the Registrant; the timing and degree of any business recovery in certain of the
Registrant's markets that are currently experiencing economic uncertainty;
increasing price, products and services competition by U.S. and non-U.S.
competitors, including new entrants; rapid technological developments and
changes and the Registrant's ability to continue to introduce and develop
competitive new products and services on a timely, cost-effective basis;
availability of manufacturing capacity, components and materials; credit
concerns and the potential for deterioration of the credit quality of customers;
customer demand for the Registrant's products and services; ability of the
Registrant to refinance its debt on satisfactory terms; U.S. and non-U.S.
governmental and public policy changes that may affect the level of new
investments and purchases made by customers; changes in environmental and other
U.S. and non-U.S. governmental regulations; protection and validity of patent
and other intellectual property rights; compliance with the covenants and
restrictions of bank credit facilities; and outcome of pending and future
litigation and governmental proceedings. These are representative of the future
factors that could affect the outcome of the forward-looking statements. In
addition, such statements could be affected by general industry and market
conditions and growth rates, general U.S. and non-U.S. economic conditions,
including increased economic uncertainty and instability following the terrorist
attacks in the United States on September 11, 2001, the global economic slowdown
and interest rate and currency exchange rate fluctuations and other future
factors.
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ITEM 2. PROPERTIES
Set forth below are the properties where the Registrant conducts business as of
December 31, 2001.
Approx.
Square Owned or Leased And
Location General Character Footage Expiration Date
-------- ----------------- ------- ---------------
Montevideo, MN Manufacture of precision motors and 30,000 Owned
motion control systems (SL-MTI)
Matamoros, Mexico Manufacture of precision motors (SL-MTI) 15,000 Leased - 11/05/03
Oxnard, CA Manufacture and distribution of power 36,480 Leased - 02/28/03
supply products (Condor)
Reynosa, Mexico Manufacture and distribution of power 53,800 Leased - 03/31/02
supply products (Condor)
Mexicali, Mexico Manufacture and distribution of power Leased -
supply products (Condor) 40,000 monthly
21,150 monthly
San Diego, CA Manufacture of power distribution and 45,054 Leased - 03/22/07
conditioning units (Teal)
Ingolstadt, Germany Manufacture of actuation systems and 51,021 Owned
power distribution products (EME)
Paks, Hungary Manufacture of power distribution 12,916 Owned
products and wire harness systems (EME)
Boonton Twp., NJ Manufacture of electric utility 78,000 Owned
equipment protection systems (RFL)
Camden, NJ Industrial surface finishing (SurfTech) 15,800 Owned
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Pennsauken, NJ Industrial surface finishing warehouse 6,000 Owned
(SurfTech)
Forrest Hills, MD Industrial surface finishing (SurfTech) 11,000 Leased - 5/31/02
Mt. Laurel, NJ Corporate office (Other) 4,200 Leased - 11/30/02
All manufacturing facilities are adequate for current production requirements.
The Registrant believes that its facilities are sufficient for future
operations, maintained in good operating condition and adequately insured. Of
the owned properties, none are subject to a major encumbrance material to the
operations of the Registrant.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Registrant is subject to loss
contingencies pursuant to foreign and domestic federal, state and local
governmental laws and regulations and is also party to certain legal actions,
frequently involving complaints by terminated employees and disputes with
customers and suppliers. In the opinion of management, such claims are not
expected to have a material adverse effect on the financial condition or results
of operations of the Registrant.
The Registrant's subsidiary, SL-MTI, is currently defending a cause of action,
brought against it in the fall of 2000 in the federal district court for the
western district of Michigan. The lawsuit was filed by Eaton Aerospace LLC,
alleging breach of contract and warranty in the defective design and manufacture
of a high precision motor. The high precision motor was developed for use in an
aircraft actuation system intended for use by Vickers Corporation. The complaint
seeks compensatory damages of approximately $3,900,000. The Registrant believes
it has strong defenses to these claims and intends to defend them vigorously.
Both parties have filed, briefed and argued cross-motions for summary judgment.
Decision is pending. Trial is currently scheduled for June 2002, depending upon
the outcome of such motions.
In a November 1991 Administrative Directive, the New Jersey Department of
Environmental Protection ("NJDEP") alleged that SurfTech, formerly SL Modern
Hard Chrome, Inc., and 20 other respondents are responsible for a containment
plume which has affected the Puchack Wellfield in Pennsauken, New Jersey (which
supplies Camden, New Jersey). Three other actions have been initiated from the
underlying directive. The first is Supplemental Directive No. 1 issued by NJDEP
to the same parties in May 1992, which seeks a cost reimbursement of $8,655,000
for the construction of a treatment system at the Puchack site and an annual
payment of $611,000 for ongoing operation and maintenance of the treatment
system. The second matter is a lawsuit initiated by one of the parties named in
Directive No. 1 seeking to have the remainder of those parties, and more than
600 others, pay some or all of that party's cost of compliance with Directive
No. 1 and any other costs associated with its site. The third matter is
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a Spill Act Directive by NJDEP to SurfTech 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 Registrant's compliance with ECRA at the same site.
With regard to the $8,655,000 amount discussed in the preceding paragraph, in
the Registrant's view it is not appropriate to consider that amount as
"potential cost reimbursements." The SurfTech site, which is the subject of
these actions, has undergone remedial activities under NJDEP's supervision since
1983. The Registrant 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
containments at the SurfTech site. Based on this and other technical factors,
the Registrant 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 unlikely.
In May 2000, the Registrant discovered evidence of possible soil contamination
at its facility in Auburn, New York. The New York State Department of
Environmental Controls has been contacted and an investigation is currently
underway. Based upon the preliminary evidence, the Registrant does not believe
that it will incur material remediation costs at this site.
In December 2001, the Registrant received notice from the Connecticut Department
of Environmental Protection of an administrative hearing to determine
responsibility for contamination at a former industrial site located in New
Haven, Connecticut. The Registrant has requested an extension of time to
determine the nature of the alleged contamination and the extent of the
Registrant's responsibility. It is still very early in the investigation;
however, based upon the preliminary investigation, the Registrant does not
believe that remediation of this site would have a material adverse effect on
its business or operations.
The Registrant is investigating a possible ground water containment plume on its
property in Camden, New Jersey. At the present time the Registrant does not know
the extent of the contamination or the amount of the cost to remediate.
The Registrant filed claims with several of its insurers seeking reimbursement
for past and future environmental costs. In settlement of its claims, the
Registrant received aggregate cash payments of $2,400,000 prior to fiscal 1998
and commitments from three insurers to pay for a portion of environmental costs
associated with the SurfTech site of 15% of costs up to $300,000, 15% of costs
up to $150,000 and 20% of costs up to $400,000, respectively. In addition, the
Registrant received $100,000 during fiscal 1998, 1999, 2000 and 2001, as
stipulated in the settlement agreement negotiated with one of the three
insurers.
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 Registrant 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
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assessments and cleanups. Based upon investigations completed by the Registrant
and its independent engineering consulting firms to date, management has
provided an estimated accrual for all known costs believed to be probable in the
amount of $290,000. However, it is in the nature of environmental contingencies
that other circumstances might arise, the costs of which are indeterminable at
this time due to such factors as changing government regulations and stricter
standards, the unknown magnitude of defense and cleanup costs, the unknown
timing and extent of the remedial actions that may be required, the
determination of the Registrant's liability in proportion to other responsible
parties, and the extent, if any, to which such costs are recoverable from other
parties or from insurance. Although these contingencies could result in
additional expenses or judgments, or off-sets thereto, at present such expenses
or judgments are not expected to have a material effect on the consolidated
financial position or results of operations of the Registrant.
It is management's opinion that the impact of legal actions brought against the
Registrant and its operations will not have a material adverse effect on its
financial position or results of operations. However, the ultimate outcome of
these matters, as with litigation generally, is inherently uncertain, and it is
possible that some of these matters may be resolved adversely to the Registrant.
The adverse resolution of any one or more of these matters could have a material
adverse effect on the business, operating results, financial condition or cash
flows of the Registrant. Additional information pertaining to legal proceedings
is found in Note 11 in the Notes to the Consolidated Financial Statements
included in Part IV of this Annual Report on Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Registrant's Annual Meeting of Shareholders on January 22, 2002, the
Registrant's shareholders elected five new members to the Registrant's
eight-member Board of Directors. The five new directors (James Henderson, Glen
Kassan, Warren Lichtenstein, Mark Schwarz and Steven Wolosky) were nominees of
the RORID Committee, a committee comprised of representatives of two
institutional shareholders. Three incumbent directors were also reelected to the
Board of Directors (J. Dwane Baumgardner, Charles T. Hopkins and J. Edward
Odegaard). Shortly after the meeting, Messrs. Hopkins and Odegaard resigned. On
March 8, 2002, Richard Smith was elected to the Board of Directors, filling one
of the two vacant directorships.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's common stock is registered on both the NYSE and the
Philadelphia Stock Exchange.
Twelve Months Twelve Months
ended December 31, 2001 ended December 31, 2000
------------------------- -------------------------
HIGH LOW HIGH LOW
Stock Prices
1st Quarter........... $14.99 $10.875 $12.625 $ 8.875
2nd Quarter........... 13.00 11.10 10.00 8.375
3rd Quarter........... 11.10 5.60 13.00 9.375
4th Quarter........... 8.50 3.72 12.125 10.00
Dividends
Cash - November....... - $.05
Cash - June........... - $.05
As of February 27, 2002, there were approximately 954 registered shareholders.
The Registrant suspended dividend payments during 2001 and has no present
intention of making dividend payments in the foreseeable future, as, under the
terms of the Revolving Credit Facility, the Registrant is prohibited from paying
dividends.
On October 17, 2001, the Registrant received official notification from the NYSE
that it was "below criteria" of certain of the NYSE's continued listing
standards, and that, consequently, its stock may be delisted. Pursuant to the
request of the NYSE, the Registrant submitted a business plan of February 22,
2002 for compliance with the NYSE continued listing standards. The Registrant is
currently working with the NYSE to resolve this matter and maintain its listing
on the NYSE. There can be no assurance, however, that the Registrant will be
able to satisfy NYSE requirements and continue to be listed on the NYSE, or in
the event that it cannot continue to be listed on the NYSE, that it will be able
to alternatively list on another exchange.
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ITEM 6. SELECTED FINANCIAL DATA
Selected consolidated financial data with respect to the Registrant's calendar
years ended December 31, 2001 and 2000, the fiscal years ended July 31, 1999,
1998 and 1997 and the five-month periods ended December 31, 1999 and December
31, 1998 (unaudited) is set forth below. This data should be read in conjunction
with the Consolidated Financial Statements and related Notes thereto for the
corresponding periods contained in Part IV of this Annual Report on Form 10-K.
Twelve Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended
December 2001 December 2000 July 1999 July 1998
---------------------------------------------------------------
(amounts in thousands except per share data)
---------------------------------------------------------------
Net sales (1)..................... $138,467 $148,405 $ 88,694 $71,918
Income (loss) from continuing
operations........................ $ (6,703) $ 6,423 $ 5,799 $ 4,383
Income (loss) from discontinued
operations........................ $ (3,947) $ (4,723) $ (393) $ 930
Net income (loss) (2) $(10,650) $ 1,700 $ 5,406 $ 5,313
Diluted net income (loss) per
common share ..................... $ (1.87) $ 0.30 $ .92 $ .90
Shares used in computing diluted
net income (loss) per common
share............................. 5,698 5,757 5,876 5,897
Cash dividend per
Common share...................... -0- $ 0.10 $ 0.09 $ .08
YEAR-END FINANCIAL POSITION
Working capital................... $ 3,476 $ 31,180 $ 24,812 $21,344
Current ratio(3).................. 1.1 2.3 1.9 2.1
Total assets...................... $107,758 $113,481 $112,686 $80,915
Long-term debt ................... $ 1,009 $ 36,533 $ 31,984 $13,283
Shareholders' equity.............. $ 33,204 $ 43,350 $ 42,842 $38,345
Book value per share.............. $ 5.81 $ 7.69 $ 7.61 $ 6.84
OTHER
Capital expenditures(4)........... $ 2,342 $ 2,563 $ 1,901 $ 2,029
Depreciation and
amortization................... $ 4,587 $ 4,379 $ 3,092 $ 2,335
Twelve Months Five Months Five Months
Ended Ended Ended
July 1997 December 1999 December 1998
(Unaudited)
------------------------------------------------
(amounts in thousands except per share data)
-------------------------------------------------
Net sales (1)..................... $ 68,044 $ 59,032 $32,809
Income (loss) from continuing
operations........................ $ 6,720 $ 2,789 $ 1,258
Income (loss) from discontinued
operations........................ $ 1,095 $ (3,473) $ 703
Net income (loss) (2) $ 7,815 $ (684) $ 1,961
Diluted net income (loss) per
common share ..................... $ 1.30 $ (0.12) $ 0.33
Shares used in computing diluted
net income (loss) per common
share............................. 6,021 5,624 5,886
Cash dividend per
Common share...................... $ .07 $ 0.05 $0.04
YEAR-END FINANCIAL POSITION
Working capital................... $ 17,399 $ 33,042 $22,145
Current ratio(3).................. 1.8 2.2 2.1
Total assets...................... $ 66,804 $117,050 $78,929
Long-term debt ................... $ 700 $ 39,245 $12,255
Shareholders' equity.............. $ 36,492 $ 42,072 $40,546
Book value per share.............. $ 6.27 $ 7.48 $ 7.16
OTHER
Capital expenditures(4)........... $ 1,327 $ 849 $ 1,247
Depreciation and
amortization................... $ 2,102 $ 1,830 $ 1,246
(1) During 2001, the Company sold SL Waber and, accordingly, the operations of
SL Waber have been accounted for as discontinued operations in all periods
presented.
(2) Calendar 2001 includes pre-tax costs related to inventory write-offs of
$2,890,000, asset impairment charges of $4,145,000 and restructuring costs of
$3,683,000 related to Condor, inventory write-offs of $50,000, and restructuring
and intangible asset impairment charges of $185,000 and $125,000, respectively,
related to SurfTech. Calendar 2000 includes pre-tax income of $875,000 related
to the settlement of a class action suit against one of the Registrant's
insurers, pre-tax income of $650,000 related to the reduction of a contingency
reserve for environmental costs, and restructuring costs of $790,000 related to
SL Waber. The five-month period ended December 31, 1999 includes pre-tax
restructuring costs, inventory write-downs and loss on commitments of $4,273,000
related to SL Waber, and a pre-tax gain of $1,812,000 related to the
demutualization of one of the Registrant's life insurance carriers.
(3) The current ratio for 2001 includes all debt classified as current, due to
the December 31, 2002 maturity date of the Revolving Credit Facility (see Item 7
- Financial Condition)
(4) Excludes assets acquired in business combinations.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
In December 2001, the Securities and Exchange Commission ("SEC") issued
disclosure guidance for "critical accounting policies." The SEC defines
"critical accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.
The Registrant's significant accounting policies are described in Note 1 in the
Notes to Consolidated Financial Statements. Not all of these significant
accounting policies require management to make difficult, subjective or complex
judgments or estimates. However, the following policies could be deemed to be
critical within the SEC definition.
REVENUE RECOGNITION
Revenue from product sales is generally recognized at the time the product is
shipped, with provisions established for estimated product returns. Upon
shipment, the Registrant provides for the estimated cost that may be incurred
for product warranties. Rebates and other sales incentives offered by the
Registrant to its customers are recorded as a reduction of sales at the time of
shipment. Revenue recognition is significant because net sales is a key
component of results of operations. In addition, revenue recognition determines
the timing of certain expenses, such as commissions and royalties. The
Registrant follows generally accepted guidelines in measuring revenue; however,
certain judgments affect the application of its revenue policy. Revenue results
are difficult to predict, and any shortfall in revenue or delay in recognizing
revenue could cause operating results to vary significantly from quarter to
quarter and could result in future operating losses.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Registrant's estimate for its allowance for doubtful accounts related to
trade receivables is based on two methods. The amounts calculated from each of
these methods are combined to determine the total amount reserved. First, the
Registrant evaluates specific accounts where it has information that the
customer may have an inability to meet its financial obligations (bankruptcy,
etc.). In these cases, the Registrant uses its judgment, based on the best
available facts and circumstances, and records a specific reserve for that
customer against amounts due to reduce the receivable to the amount that is
expected to be collected. These specific reserves are reevaluated and adjusted
as additional information is received that impacts the amount reserved. Second,
a general reserve is established for all customers based on several factors,
including historical write-offs as a percentage of sales and anticipated returns
related to customer receivables. If circumstances change (i.e. higher than
expected defaults or an unexpected material adverse change in a major customer's
ability to meet its financial obligation to the
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Registrant), the Registrant's estimates of the recoverability of amounts due the
Registrant could be reduced by a material amount.
INVENTORIES
The Registrant ensures inventory is valued at the lower of cost or market, and
continually reviews the book value of discontinued product lines to determine if
these items are properly valued. The Registrant identifies these items and
assesses the ability to dispose of them at a price greater than cost. If it is
determined that cost is less than market value, then cost is used for inventory
valuation. If market value is less than cost, then the Registrant writes down
the related inventory to that value. If a write down to the current market value
is necessary, the market value cannot be greater than the net realizable value,
defined as selling price less costs to complete and dispose and cannot be lower
than the net realizable value less a normal profit margin. The Registrant also
continually evaluates the composition of its inventory and identifies
slow-moving and excess inventories. Inventory items identified as slow-moving or
excess are evaluated to determine if reserves are required. If the Registrant is
not able to achieve its expectations of the net realizable value of the
inventory at its current value, the Registrant would have to adjust its reserves
accordingly.
ACCOUNTING FOR INCOME TAXES
The Registrant's income tax policy records the estimated future tax effects of
temporary differences between the tax bases of assets and liabilities and
amounts reported in the accompanying consolidated balance sheets, as well as
operating loss and tax credit carryforwards. The Registrant follows generally
accepted guidelines regarding the recoverability of any tax assets recorded on
the balance sheet and provides any necessary allowances as required. As part of
the process of preparing its consolidated financial statements, the Registrant
is required to estimate its income taxes in each of the jurisdictions in which
it operates. This process involves estimating the actual current tax exposure,
together with assessing temporary differences resulting from the differing
treatment of certain items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included within the
consolidated balance sheet. Management must then assess the likelihood that
deferred tax assets will be recovered from future taxable income and to the
extent it believes that recovery is not likely, the Registrant must establish a
valuation allowance. To the extent the Registrant establishes a valuation
allowance or increases this allowance in a period, it must include an expense
within the tax provision in the consolidated statement of operations.
Significant management judgment is required in determining the provision for
income taxes, the deferred tax assets and liabilities and any valuation
allowance recorded against net deferred tax assets. As of December 31, 2001, the
Registrant has recorded a valuation allowance of $1,677,000, due to
uncertainties related to its ability to utilize some deferred tax assets,
primarily consisting of certain net operating loss carryforwards for state tax
purposes and foreign tax credits, before they expire. The valuation allowance is
based on estimates of taxable income by jurisdiction in which the Registrant
operates and the period over which deferred tax assets will
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be recoverable. In the event that actual results differ from these estimates or
these estimates are adjusted in future periods, the Registrant may need to
establish an additional valuation allowance that could materially impact its
consolidated financial position and results of operations.
The net deferred tax asset as of December 31, 2001 was $8,314,000, net of a
valuation allowance of $1,677,000. The carrying value of the Registrant's net
deferred tax assets assumes that it will be able to generate sufficient future
taxable income in certain tax jurisdictions, based on estimates and assumptions.
If these estimates and related assumptions change in the future, the Registrant
may be required to record additional valuation allowances against its deferred
tax assets resulting in additional income tax expense in the consolidated
statement of operations. Management evaluates the realizability of the deferred
tax assets quarterly, and assesses the need for additional valuation allowances
quarterly.
LEGAL CONTINGENCIES
The Registrant is currently involved in certain legal proceedings. As discussed
in Note 11 in the Notes to the Consolidated Financial Statements in Part IV of
this Annual Report on Form 10-K, the Registrant has accrued for its estimate of
the probable costs for the resolution of these claims. This estimate has been
developed in consultation with outside counsel handling the defense of these
matters and is based upon an analysis of potential results, assuming a
combination of litigation and settlement strategies. Management does not believe
these proceedings will have a material adverse effect on the Registrant's
consolidated financial position. It is possible, however, that future results of
operations for any particular quarterly or annual period could be materially
affected by changes in these assumptions, of the effectiveness of these
strategies, related to these proceedings
IMPAIRMENT OF LONG-LIVED ASSETS
The Registrant's long-lived assets include goodwill and other intangible assets.
At December 31, 2001, the Registrant had a book value of $14,799,000 for
goodwill and other intangible assets, accounting for approximately 14% of the
Registrant's total assets. The realizability of the goodwill and intangible
assets is dependent on the performance of the subsidiaries and businesses that
the Registrant has acquired.
In assessing the recoverability of the Registrant's goodwill and other
intangibles, the Registrant must make assumptions regarding estimated future
cash flows and other factors to determine the fair value of the respective
assets. If these estimates or related assumptions change in the future, the
Registrant may be required to record impairment charges for these assets not
previously recorded. During the year ended December 31, 2001, the Registrant
determined that the value of the intangible assets associated with the 1999
acquisition of Todd Products had been impaired as a result of the severe
downturn in the market for telecommunications products. These intangible assets
consisted of goodwill and a consulting agreement with net book values of
$3,179,000 and $966,000, respectively. Accordingly, the Registrant has recorded
a charge in the amount of $4,145,000 in recognition of this impairment.
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On January 1, 2002, the Registrant adopted certain provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets." In connection with the adoption of the remaining provisions of SFAS No.
142, the Registrant will be required to analyze its goodwill for impairment on
an annual basis and between annual tests in certain circumstances. Goodwill and
intangible assets that have indefinite useful lives will not be amortized.
DETERMINING FUNCTIONAL CURRENCIES FOR THE PURPOSE OF CONSOLIDATION
The Registrant has several foreign subsidiaries which together account for
approximately 27% of its net sales from continuing operations, 25% of its assets
and 18% of its total liabilities for the year ended December 31, 2001.
In preparing the consolidated financial statements, the Registrant is required
to translate the financial statements of the foreign subsidiaries from the
currency in which they keep their accounting records, generally the local
currency, into United States dollars. This process results in exchange gains and
losses which, under the relevant accounting guidance, are either included within
the consolidated statement of operations or as a separate part of net equity
under the caption "Accumulated other comprehensive (loss) income."
Under the relevant accounting guidance the treatment of these translation gains
or losses is dependent upon management's determination of the functional
currency of each subsidiary. The functional currency is determined based on
management's judgment and involves consideration of all relevant economic facts
and circumstances affecting the subsidiary. Generally, the currency in which the
subsidiary transacts a majority of its transactions, including billings,
financing, payroll and other expenditures, would be considered the functional
currency, but any dependency upon the parent and the nature of the subsidiary's
operations must also be considered.
If any subsidiary's functional currency is deemed to be the local currency, then
any gain or loss associated with the translation of that subsidiary's financial
statements is included in the cumulative translation adjustments. However, if
the functional currency is deemed to be the United States dollar, then any gain
or loss associated with the translation of these financial statements would be
included in the consolidated statement of operations. If the Registrant disposes
of any of its subsidiaries, any cumulative translation gains or losses would be
realized into the consolidated statement of operations. If there has been a
change in the functional currency of a subsidiary to the United States dollar,
any translation gains or losses arising after the date of change would be
included within the consolidated statement of operations.
The magnitude of these gains or losses is dependent upon movements in the
exchange rates of the foreign currencies in which the Registrant transacts
business against the United States dollar. These currencies include the European
Union euro, Hungarian forint and Mexican peso. Any future translation gains or
losses could be significantly higher than those experienced historically. In
addition, if there is a change in the functional currency of one of the
subsidiaries,
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the Registrant would be required to include any translation gains or losses from
the date of change in its consolidated statement of operations.
ENVIRONMENTAL EXPENDITURES
The Registrant (together with the industries in which it operates or has
operated) is subject to United States, Mexican, Hungarian and German
environmental laws and regulations concerning emissions to the air, discharges
to surface and subsurface waters, and generation, handling, storage,
transportation, treatment and disposal of waste materials. The Registrant and
the industries are also subject to other federal, state and local environmental
laws and regulations, including those that require the Registrant to remediate
or mitigate the effects of the disposal or release of certain chemical
substances at various sites, including some where it has ceased operations. It
is impossible to predict precisely what effect these laws and regulations will
have on the Registrant in the future.
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
generally expensed. 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 Registrant'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.
The above listing is not intended to be a comprehensive list of all of the
Registrant's accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternatives would not produce a materially different result. See the
Registrant's audited Consolidated Financial Statements and Notes thereto, which
begin on page F-1 of this Annual Report on Form 10-K, and contain accounting
policies and other disclosures required by generally accepted accounting
principles.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During the twelve months ended December 31, 2001 (2001), the net cash provided
by operating activities was $11,930,000, as compared to $3,988,000 for the
twelve months ended December 31, 2000 (2000). The 2001 increase resulted
primarily from non-cash restructuring charges, an inventory write-down and
impairment charges related to intangible assets and changes in net working
capital accounts, partially offset by losses incurred during the year. During
2001, the
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net cash used in investing activities of $370,000 was primarily related to
capital expenditures of $2,342,000, offset by the receipt of $1,053,000 from the
sale of assets of SL Waber and $880,000 from the proceeds from the surrender of
certain life insurance policies. During 2000, the net cash used in investing
activities of $2,873,000 was primarily related to capital expenditures and the
post-closing payments in connection with the acquisition of Todd Products.
During 2001, the net cash provided by financing activities of $2,725,000 was
primarily related to the Registrant's receipt of funds under its short-term debt
for working capital requirements. During 2000, the net cash used in financing
activities of $3,729,000 was primarily related to the Registrant's use of funds
to pay down the Revolving Credit Facility.
The Registrant is party to a Second Amended and Restated Credit Agreement dated
as of December 13, 2001 as amended, by and among the Registrant, SL Delaware,
Inc., GE Capital CFE, Inc., Fleet National Bank and PNC Bank, National
Association as Banks, and GE Capital CFE, Inc. as Agent for the Banks. Under the
terms of the Revolving Credit Facility, the Registrant can borrow for working
capital and, for other purposes, at the prime interest rate, plus 2%. The
Revolving Credit Facility contains limitations on borrowings and requires
maintenance of a certain level of net income and a minimum fixed charge coverage
ratio, which is the ratio of earnings before interest, taxes, depreciation and
amortization, plus operating rent, capital expenditures and interest charges.
The Registrant is also prohibited from paying dividends under the Revolving
Credit Facility.
As of December 31, 2001, outstanding borrowings under the Revolving Credit
Facility were $35,689,000. Available borrowings under the Revolving Credit
Facility were $1,268,000 as of December 31, 2001. The weighted average interest
rate on borrowings during the years ended December 31, 2001 and December 31,
2000 was 7.57% and 8.98%, respectively.
The Revolving Credit Facility matures on December 31, 2002, and provides for the
payment of a fee of approximately $780,000 in the event that the facility is not
retired on or before October 31, 2002. Consequently, the Registrant will attempt
to refinance its Revolving Credit Facility prior to October 31, 2002. There can
be no assurance that the Registrant will be able to refinance the Revolving
Credit Facility prior to October 31, 2002, or that the Revolving Credit Facility
will be refinanced successfully.
On March 1, 2002 the Registrant received a notice from its lenders under the
Revolving Credit Facility stating that it is currently in default under the
Revolving Credit Facility due to its failure to meet a scheduled debt reduction
to $25,500,000 on March 1, 2002. The Registrant's outstanding debt under the
Revolving Credit Facility was approximately $26,200,000 as of April 1, 2002. As
a result of the impairment charge related to the intangible assets of Condor
recognized at December 31, 2001, the Registrant was in violation of its net
income covenant for the fourth quarter of 2001. The Registrant also may not be
able to meet its net income covenant for the first quarter of 2002 due to the
operating charges relating to the change-in-control payments and proxy cost
expenses. The opinion of the Registrant's auditors contains a qualification with
respect to the Registrant's ability to continue as a going concern, which
qualification, if not acceptable to its lenders, would be a violation of a
financial
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reporting covenant. The Registrant and its lenders are currently in discussions
to extend the deadline for the scheduled debt reduction and to obtain waivers of
such covenants. There can be no assurance that the Registrant will be able to
extend the period of its debt reduction or otherwise obtain waivers of default
from its lenders.
The Registrant's German subsidiary also has $3,457,000 in lines of credit with
its banks that mature in 2002. Under the terms of its lines of credit, the
subsidiary can borrow for any purpose at interest rates ranging from 5.20% to
8.25%. No financial covenants are required. As of December 31, 2001 and 2000,
there were outstanding borrowings under these lines of credit of $1,367,000 and
$0, respectively.
The Registrant's current ratio was 1.1 to 1 at December 31, 2001, and 2.3 to 1
at December 31, 2000. The December 31, 2001 decrease, as compared to December
31, 2000, resulted from the reclassification of debt previously classified as
long-term debt as a current liability, due to the December 31, 2002 maturity
date for the Revolving Credit Facility.
As a percentage of total capitalization, consisting of debt and shareholders'
equity, total borrowings by the Registrant were 53.5% at December 31, 2001 and
46% at December 31, 2000. The 2001 increase in total borrowings, as compared to
2000, was primarily a result of the Registrant's increased use of the Revolving
Credit Facility.
Capital expenditures of $2,342,000 in 2001 and $2,563,000 in 2000 primarily
included improvement in process technology and productivity. During the year
ended December 31, 2002 ("2002"), capital expenditures are expected to be funded
through cash provided by operations.
The Registrant has been able to generate adequate amounts of cash to meet its
operating needs. During 2001, the Registrant experienced negative operating cash
flows at Condor and SL Waber as a result of a severe economic slowdown in the
telecommunications industry. As a result, the Registrant substantially reduced
planned capital expenditures during 2001.
With the exception of SurfTech and the segment reported as "other" (which
consists primarily of corporate office expenses) all of the Registrant's
remaining operating subsidiaries are profitable at the operating profit level
(operating profit excludes non-recurring charges and allocations during the
year) and are expected to remain so in 2002. The poor performance of Condor and
SL Waber during 2001 had an adverse effect on the Registrant's results, which
offset the aggregate favorable performance of the remaining subsidiaries. The
poor performance of these divisions was attributable to asset impairment and
restructuring charges, inventory devaluations and operating losses sustained
largely in the telecommunications market. The Registrant sold SL Waber in
September 2001. The Registrant has improved the performance of Condor by
downsizing and consolidating operations, reducing employee headcount and
eliminating administrative expenses. In addition, the underperformance of
SurfTech and the "other" segment adversely affected the Registrant's results.
SurfTech is facing historically low demand in its marketplace and its operations
have been consolidated to one facility. The performance of the "other" business
segment is largely the result of corporate overhead and expenses.
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During 2000, the net cash provided by operating activities was $3,988,000, as
compared to $1,369,000 provided during the twelve months ended July 31, 1999
(fiscal 1999). The 2000 increase, as compared to fiscal 1999, resulted primarily
from increased profitability and decreased receivables, offset by an increase in
inventories and a reduction of accounts payable and accruals. During 2000, the
net cash used in investing activities of $2,873,000 was primarily related to
capital expenditures. During fiscal 1999, the net cash used in investing
activities of $20,031,000 was primarily related to the acquisition of RFL, the
acquisition of Todd Products and capital expenditures, offset, in part, by the
proceeds received from the sale of land and buildings leased to a third party.
During 2000, the net cash used in financing activities of $3,729,000 was
primarily related to the net payment of long-term debt. During fiscal 1999, the
net cash provided by financing activities of $16,543,000 was primarily related
to the use of net proceeds under the Revolving Credit Facility for the RFL and
Todd Products acquisitions.
The Registrant's current ratio was 2.3 to 1 at December 31, 2000 and 2.2 to 1 at
December 31, 1999. The December 31, 2000 increase, as compared to December 31,
1999, resulted from a 9% decrease in current liabilities, which exceeded the 7%
decrease in current assets.
As a percentage of total capitalization, consisting of debt and shareholders'
equity, total borrowings by the Registrant were 46% at December 31, 2000 and 49%
at December 31, 1999. The 2000 decrease in total borrowings, as compared to
fiscal 1999, was primarily a result of the Registrant's partial repayment of the
Revolving Credit Facility. At December 31, 2000, the Registrant had $1,374,000,
net of outstanding trade letters of credit of $3,310,000, of this credit
facility available for use.
Capital expenditures of $2,563,000 in 2000 and $1,901,000 in fiscal 1999
primarily included improvement in process technology and increased production
capacity. Capital expenditures during the five months ended December 31, 1999 of
$849,000 and the five months ended December 31, 1998 of $1,247,000 primarily
included investments in new process technology and increased production
capacity.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 2001 (2001) COMPARED WITH TWELVE MONTHS ENDED
DECEMBER 31, 2000 (2000)
Consolidated net sales in 2001 of $138,467,000 decreased approximately 7%
($9,938,000), as compared to consolidated net sales in 2000. Consolidated net
sales for 2001 and 2000 do not include net sales of $10,316,000 and $19,341,000,
respectively, relating to SL Waber, since SL Waber's operating results are a
part of the net loss from discontinued operations. Net loss in 2001 was
$10,650,000, or $1.87 per diluted share, as compared to net income in 2000 of
$1,700,000, or $0.30 per diluted share. The net loss in 2001 included $4,270,000
relating to the impairment of intangible assets of Condor and SurfTech,
$3,868,000 for restructuring expenses of Condor and SurfTech, inventory
write-downs of $2,940,000 for Condor and SurfTech and a $3,947,000 net loss from
SL Waber (a discontinued operation).
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Condor's net sales in 2001 decreased approximately 22% ($13,825,000) and its
operating income decreased approximately 326% ($13,695,000), as compared to net
sales and operating income in 2000. Contributing to the decrease in net sales
was the major downturn in the market for telecommunication products, resulting
in significantly lower sales from the Todd Products division of Condor. The
decrease in operating income was primarily the result of the substantial
decrease in sales of telecommunications products, and includes charges in
connection with the write-down of telecommunications-related inventory in the
amount of $2,890,000, the restructuring expenditures to close two facilities and
lay-off 810 employees in the amount of $3,683,000 and the impairment of
intangible assets related to the 1999 Todd Products acquisition in the amount of
$4,145,000.
Teal's net sales in 2001 decreased approximately 39% ($8,512,000) and operating
income decreased approximately 84% ($3,200,000), as compared to 2000. The
decrease in net sales and operating income was due to the continued depressed
demand for semiconductor manufacturing equipment.
EME's net sales in 2001 increased approximately 14% ($3,068,000) and operating
income increased approximately 51% ($1,070,000), as compared to net sales and
operating income in 2000. Contributing to the increased net sales and operating
income were increased sales of actuation systems to the aerospace industry.
SL-MTI's net sales in 2001 increased approximately 36% ($5,061,000) and
operating income increased approximately 92% ($949,000), as compared to net
sales and operating income in 2000. Contributing to the increased net sales and
operating income were increased sales of precision motor products to the
aerospace industry.
RFL's net sales in 2001 increased approximately 17% ($4,021,000) and operating
income increased approximately 28% ($707,000), as compared to net sales and
operating income in 2000. Contributing to the increased net sales and operating
income were increased sales of teleprotection equipment and systems to the
electric utility industry.
SurfTech's net sales in 2001 increased approximately 9% ($249,000) and the
operating loss increased approximately 874% ($1,005,000), as compared to net
sales and operating loss in 2000. Contributing to the increased net sales and
decreased operating income was the continued development of its coatings and
platings sales and operations supporting the telecommunications industry, and
includes charges in connection with the write-down of inventory of $50,000 and
restructuring and impairment charges of $185,000 and $125,000, respectively.
SL Waber's net sales in 2001 decreased approximately 47% ($9,025,000) as
compared to 2000. This subsidiary was sold in September 2001 and is reported as
discontinued operations for all periods presented.
COST OF SALES
As a percentage of net sales, cost of products sold, including inventory charges
and losses on commitments, in 2001 was approximately 70%, as compared to
approximately 66% in 2000. The percentage increase was a result of (i) product
mix, which included a higher percentage of sales of lower margin products to the
aerospace, medical and industrial markets; and (ii) an
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increase in cost of sales due to a reserve at Condor of $2,890,000 for excess
and obsolete inventory relating to the telecommunications industry.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Engineering and product development expenses in 2001 were $8,768,000, a decrease
of approximately 9% ($903,000), as compared to 2000. As a percentage of net
sales, engineering and product development expenses in 2001 were 6%, as compared
to 7% in 2000. During 2001, decreases were primarily due to lower investments
made by the operating divisions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in 2001 were $28,405,000, an
increase of approximately 13% ($3,236,000), as compared to 2000. As a percentage
of net sales, selling, general and administrative expenses in 2001 and 2000 were
approximately 21% and 17%, respectively. The increase in 2001 was mainly due to
bank charges incurred as a result of the Registrant's amendment to its Revolving
Credit Facility and default of financial covenants thereunder, expenses
associated with the contested election of directors and legal fees and
consulting costs related to the restructuring of Condor.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses in 2001 were $4,587,000, an increase of
approximately 5% ($208,000), as compared to 2000. The increase in 2001 was
primarily related to the increased base of property, plant and equipment
depreciated during the year.
RESTRUCTURING COSTS AND IMPAIRMENT OF INTANGIBLES
During 2001, the Registrant recognized $8,138,000 of restructuring and
impairment costs that were related to Condor ($7,828,000), and SurfTech
($310,000). For additional information related to restructuring costs and
impairment charges, see Note 16 in the Notes to Consolidated Financial
Statements included in Part IV of this Annual Report on Form 10-K.
OTHER INCOME (EXPENSE)
In 2001, interest income remained consistent with 2000. Interest expense in 2001
increased, as compared to 2000, primarily due to the higher levels of borrowing
during 2001.
TAXES
The effective tax rate in 2001 was (38%), as compared to 36% in 2000. See Note 3
in the Notes to Consolidated Financial Statements.
TWELVE MONTHS ENDED DECEMBER 31, 2000 (2000) COMPARED WITH TWELVE MONTHS ENDED
JULY 31, 1999 (FISCAL 1999)
Consolidated net sales from continuing operations in 2000 of $148,405,000
increased approximately 67% ($59,711,000), as compared to consolidated net sales
in fiscal 1999. Consolidated net sales for 2000 included twelve months of RFL's
net sales of $24,426,000 and twelve months of Todd Products' net sales of
$26,412,000. Consolidated net sales in fiscal 1999 of $88,694,000 included
approximately three months of RFL's net sales of $5,274,000. Net
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income in 2000 was $1,700,000, or $0.30 per diluted share, as compared to net
income in fiscal 1999 of $5,406,000, or $0.92 per diluted share.
Condor's net sales in 2000 increased approximately 106% ($32,139,000) and its
operating income decreased approximately 27% ($1,573,000), as compared to net
sales and operating income in fiscal 1999. Contributing to the increase in net
sales was the inclusion of twelve months of Todd Products' net sales of
$26,412,000. The decrease in operating income in 2000 resulted primarily from
costs incurred with the integration of the operations of Todd Products during
the year.
Teal's net sales in 2000 increased approximately 44% ($6,676,000) and operating
income increased approximately 91% ($1,816,000), as compared to fiscal 1999. The
increase in net sales and operating income was due to increased demand for
semiconductor manufacturing equipment and higher margin products.
EME's net sales in 2000 increased approximately 13% ($2,549,000) and operating
income increased approximately 26% ($428,000), as compared to net sales and
operating income in fiscal 1999. Contributing to the increased net sales and
operating income were increased sales of actuation systems to the aerospace
industry.
SL-MTI's net sales in 2000 decreased approximately 6% ($880,000) and operating
income decreased approximately 16% ($191,000), as compared to net sales and
operating income in fiscal 1999. Contributing to the decreased net sales and
operating income were decreased sales of precision motor products to the
aerospace industry.
RFL's net sales in 2000 increased approximately 363% ($19,152,000) and operating
income increased approximately 395% ($2,013,000), as compared to net sales and
operating income in fiscal 1999. Contributing to the increased net sales and
operating income was inclusion of twelve months of net sales for RFL in 2000, as
compared to approximately three months in fiscal 1999.
SurfTech's net sales in 2000 increased approximately 3% ($75,000) and the
operating loss increased approximately 1,250% ($125,000), as compared to net
sales and operating income in 1999. Contributing to the increased net sales and
decreased operating income was the development of its coatings and platings
sales and operations supporting the telecommunications industry.
SL Waber's net sales in 2000 decreased approximately 47% ($17,093,000) as
compared to fiscal 1999. This subsidiary was sold in September 2001 and is
reported in these accounts as discontinued operations.
COST OF SALES
As a percentage of net sales, cost of products sold in 2000 was approximately
66%, as compared to approximately 63% in fiscal 1999. The percentage increase
was a direct result of
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product mix, which included a higher percentage of sales of lower margin
products such as actuators and power distribution systems.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Engineering and product development expenses in 2000 were $9,671,000, an
increase of approximately 61% ($3,665,000), as compared to fiscal 1999. As a
percentage of net sales, engineering and product development expenses in 2000
were approximately 6%, as compared to approximately 7% in fiscal 1999. During
2000, increased expenses were primarily related to additional investments made
by Condor, SL-MTI and EME, as well as additional investments made in connection
with the RFL and Todd Products acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in 2000 were $25,169,000, an
increase of approximately 87% ($11,721,000), as compared to fiscal 1999. As a
percentage of net sales, selling, general and administrative expenses in 2000
were approximately 17%, as compared to 15% in fiscal 1999. This includes a
reversal of a $650,000 reserve for environmental penalties in 2000, the chance
of payment of which is remote, based on consultation with legal counsel. The
increase was mainly due to the inclusion of the twelve-months results of RFL and
Todd Products.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses in 2000 were $4,379,000, an increase of
approximately 42% ($1,287,000) as compared to fiscal 1999. The increase in 2000
was primarily related to the depreciation of property, plant and equipment, the
amortization of computer software and the amortization of intangible assets
associated with the acquisitions of RFL and Todd Products.
INCOME FROM CLASS ACTION SUIT
During 2000, the Registrant received $875,000 in settlement of a class action
suit against one of its life insurance carriers.
OTHER INCOME (EXPENSE)
For the year 2000, interest income increased, as compared to fiscal 1999,
primarily due to higher cash balances maintained at EME. Interest expense in
2000 increased, as compared to fiscal 1999, primarily due to the higher levels
of borrowing during 2000 due to the acquisition of RFL and Todd Products.
TAXES
The effective tax rate in 2000 was 36%, as compared to 42% in fiscal 1999. This
decrease was primarily due to non-taxable income from the settlement of a life
insurance class action suit in 2000.
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FIVE MONTH PERIOD ENDED DECEMBER 31, 1999 (SHORT YEAR 1999) COMPARED WITH FIVE
MONTH PERIOD ENDED DECEMBER 31, 1998 (SHORT YEAR 1998)
Consolidated net sales in short year 1999 were $59,032,000, an increase of
approximately 80% ($26,223,000), as compared to short year 1998. Consolidated
net sales in short year 1999 included five months of RFL's net sales of
$10,073,000 and five months of Todd Product's net sales of $11,458,000. RFL and
Todd Products were acquired after short year 1998 and therefore the short year
1998 does not include the results of the two acquisitions. Net loss in short
year 1999 was $684,000, or $0.12 per diluted share, as compared to net income in
short year 1998 of $1,961,000, or $0.33 per diluted share.
Condor's net sales in short year 1999 increased approximately 115% ($13,563,000)
and its operating income decreased approximately 8% ($171,000), as compared to
net sales and operating income in short year 1998. Contributing to the increase
in net sales was the addition of net sales from the acquisition of Todd
Products. The decrease in operating income resulted from costs associated with
the integration of Todd Products during the short year 1999.
Teal's net sales in short year 1999 increased approximately 54% ($3,009,000) and
operating income increased approximately 218% ($926,000), as compared to short
year 1998. The increase in net sales and operating income was due to increased
sales of power conditioning units and systems. Operating income increased due to
increased sales of higher margin customized power conditioning and distribution
units.
EME's net sales in short year 1999 decreased approximately 3% ($272,000) and
operating income increased approximately 98% ($474,000), as compared to net
sales and operating income in short year 1998. Contributing to the decreased net
sales were decreased sales of actuation systems to the aerospace industry.
SL-MTI's net sales in short year 1999 decreased approximately 2% ($129,000) and
operating loss increased approximately 127% ($427,000), as compared to net sales
and operating income in short year 1998. Contributing to the decreased net sales
were decreased sales of precision motor products to the aerospace industry
because of customer requests to delay the shipment of orders.
RFL's net sales and operating income in short year 1999 included the financial
results of the RFL acquisition during 1999 after the short year 1998.
SurfTech's net sales in short year 1999 decreased approximately 2% ($21,000) and
the operating income increased approximately 944% ($85,000), as compared to net
sales and operating income in the short year 1998.
SL Waber was sold in September 2001 and is reported in these accounts as
discontinued operations.
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COST OF SALES
As a percentage of net sales, cost of products sold in short year 1999 was
approximately 66%, as compared to approximately 64% in short year 1998. The
percentage increase was a direct result of product mix, which included a higher
percentage of lower margin products such as actuators and power distribution
systems.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Engineering and product development expenses in short year 1999 were $4,150,000,
an increase of approximately 75% ($1,777,000), as compared to short year 1998.
As a percentage of net sales, engineering and product development expenses were
approximately 7% in both short year 1999 and short year 1998. During short year
1999, increased expenses were primarily related to additional investments
associated with the RFL and Todd Products acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in short year 1999 were $9,283,000,
an increase of approximately 78% ($4,072,000), as compared to short year 1998.
Increases were primarily due to the acquisition of RFL and Todd Products. As a
percentage of net sales, selling, general and administrative expenses in short
year 1999 and short year 1998 were approximately 16%.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses in short year 1999 were $1,830,000, an
increase of approximately 47% ($584,000), as compared to short year 1998. The
short year 1999 increase was primarily related to the depreciation of property,
plant and equipment, the amortization of computer software and the amortization
of intangible assets associated with the RFL and Todd Products acquisitions.
OTHER INCOME (EXPENSE)
Interest income in short year 1999 decreased, as compared to short year 1998,
due to lower cash balances. Interest expense in short year 1999 increased, as
compared to short year 1998, primarily due to the higher levels of borrowing due
to the acquisition of RFL and Todd Products.
GAIN FROM DEMUTUALIZATION OF LIFE INSURANCE COMPANY
The Registrant recorded a non-recurring gain in short year 1999 of $1,812,000
from the demutualization of a life insurance company.
TAXES
The effective tax rate in short year 1999 was 48%, as compared to 54% in short
year 1998. This decrease was primarily due to a loss benefit in short year 1999.
This difference resulted from the timing of certain tax-related expense
allocations with respect to discontinued operations (SL Waber).
ENVIRONMENTAL
See "Item 3. Legal Proceedings" in Part I of this Annual Report on Form 10-K.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant is exposed to market risk from changes in interest and foreign
currency exchange rates. Changes in the market rate affect both interest paid
and earned by the Registrant. The Registrant's investments and outstanding debt
bear variable interest rates. Debt consists primarily of a revolving credit
agreement with three United States banks, where the Registrant borrows at the
prime interest rate, plus 2%. The Registrant also maintains lines of credit with
German banks, where EME can borrow at interest rates ranging from 5.20% to 8.25%
per year. The Registrant manufactures some of its products in Mexico, Germany
and Hungary and purchases some components in foreign markets. With the exception
of component purchases made by EME, all other foreign market component purchases
are primarily invoiced in U.S. dollars. The EME foreign market component
purchases are primarily invoiced in German marks (European Union euros starting
on January 1, 2002). Changes in interest and foreign currency exchange rates did
not have a material impact on the reported earnings for the year ended December
31, 2001 and are not expected to have a material impact on reported earnings for
2002.
See generally, "Item 1. Description of Business - Risk Factors" and "Item 1.
Description of Business - Foreign Operations" in Part I of this Annual Report on
Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and supplementary data, together with the
reports of Arthur Andersen LLP, independent public accountants, are included in
Part IV of this Annual Report on Form 10-K.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of the directors and executive officers
of the Registrant, as such terms are defined in Items 401 and 402 of Regulation
S-K, and their principal occupations at present and for the past five years. In
a contested election on January 22, 2002, five directors were elected to the
Board: Warren Lichtenstein, Steven Wolosky, Glen Kassan, Mark Schwarz and James
Henderson. In connection with such election, the proxy statement pursuant to
which such directors were elected described a plan whereby each such director
was committed to maximizing value for all of the Registrant's stockholders.
There are, to the Registrant's knowledge, no other agreements or understandings
by which these individuals were selected. No family relationships exist between
any directors or executive officers.
Name Age Positions with the Registrant
---- --- -----------------------------
Warren Lichtenstein (1) 36 Chairman of the Board, Chief Executive Officer
Glen Kassan (1) 58 President, Director
David R. Nuzzo 44 Vice President - Finance and Administration, Secretary and Treasurer
Jacob Cherian, Jr. 49 Vice President, Corporate Controller
J. Dwane Baumgardner (2) 61 Director
James Henderson 44 Director
Mark E. Schwarz (1)(2)(3) 41 Director
Steven Wolosky (2)(3) 46 Director
Richard Smith 62 Director
BUSINESS BACKGROUND
Warren G. Lichtenstein was elected Chairman on January 24, 2002 and Chief
Executive Officer on February 4, 2002. Mr. Lichtenstein has served as the
Chairman of the Board, Secretary and the Managing Member of Steel Partners,
L.L.C., the general partner of Steel Partners II, L.P. ("Steel"), since January
1, 1996. Prior to such time, Mr. Lichtenstein was the Chairman and a director of
Steel Partners, Ltd., the general partner of Steel Partners Associates, L.P.,
which was the general partner of Steel, from 1993 until prior to January 1,
1996. Mr. Lichtenstein was the acquisition/risk arbitrage analyst at Ballantrae
Partners, L.P., a private investment partnership formed to invest in risk
arbitrage, special situations and undervalued companies, from 1988 to 1990. Mr.
Lichtenstein has served as a director of WebFinancial Corporation, a consumer
and commercial lender, since 1996 and as its President and Chief Executive
Officer since December 1997. He served as a director and the Chief Executive
Officer of Gateway Industries, Inc., a
-----------------------------
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
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provider of database development and Web site design and development services,
since 1994 and as the Chairman of the Board since 1995. Mr. Lichtenstein has
served as a Director and the President and Chief Executive Officer of CPX Corp.
since June 1999 and as its Secretary and Treasurer since May 2001. He has also
served as Chairman of the Board of Directors of Caribbean Fertilizer Group Ltd.,
a private company engaged in the production of agricultural products in Puerto
Rico and Jamaica, since June 2000. Mr. Lichtenstein is also a Director of the
following publicly held companies: TAB Products Co., a document management
company; Tandycrafts, Inc., a manufacturer of picture frames and framed art;
Puroflow Incorporated, a designer and manufacturer of precision filtration
devices; ECC International Corp., a manufacturer and marketer of
computer-controlled simulators for training personnel to perform maintenance and
operator procedures on military weapons; United Industrial Corporation, a
designer and producer of defense, training, transportation and energy systems;
and US Diagnostic Inc., an operator of outpatient medical diagnostic imaging and
related facilities.
Glen Kassan was elected as a Director on January 24, 2002 and as President of
the Registrant on February 4, 2002. Mr. Kassan has served as Executive Vice
President of Steel Partners Services, Ltd., a management and advisory company,
since June 2001 and Vice President since October 1999. Steel Partners Services,
Ltd. provides management services to Steel and other affiliates of Steel. Mr.
Kassan has served as Vice President, Chief Financial Officer and Secretary of
Gateway Industries, Inc., a provider of database development and Web site design
and development services, since June 2000. He has also served as Vice President,
Chief Financial Officer and Secretary of WebFinancial Corporation, a commercial
and consumer lender, since June 2000. Mr. Kassan has served as Vice Chairman of
the Board of Directors of Caribbean Fertilizer Group Ltd., a private company
engaged in the production of agricultural products in Puerto Rico and Jamaica,
since June 2000. From 1997 to 1998, Mr. Kassan served as Chairman and Chief
Executive Officer of Long Term Care Services, Inc., a privately owned healthcare
services company, which Mr. Kassan co-founded in 1994 and initially served as
Vice Chairman and Chief Financial Officer. Mr. Kassan is currently a Director of
Tandycrafts, Inc., a manufacturer of picture frames and framed art, Puroflow
Incorporated, a designer and manufacturer of precision filtration devices, and
the Chairman of the Board of US Diagnostic Inc., an operator of outpatient
diagnostic imaging.
David R. Nuzzo has been Vice President - Finance and Administration & Secretary
since December 1997 and Treasurer since January 2001. Prior thereto, he was a
Senior Partner with The Colchester Group, a financial and legal consulting firm
since April 1995. Mr. Nuzzo resigned effective January 23, 2002 and was
reappointed effective February 8, 2002.
Jacob Cherian, Jr. has been Vice President - Corporate Controller since January
1, 2001. Prior to joining the Registrant, Mr. Cherian was Corporate Controller
of Measurement Specialties, Inc. from November 1997 to November 2000. Prior
thereto, he was Corporate Controller of the Merdien/RST group of companies from
1988 to 1997. Mr. Cherian resigned effective January 23, 2002 and was
reappointed effective February 8, 2002.
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J. Dwane Baumgardner has been a Director since 1990. Mr. Baumgardner has been
the Chairman of Donnelly Corporation Inc., a manufacturing company in Holland,
Michigan from 1986 to the present, as well as the Chief Executive Officer of
that entity from 1982 to the present. Mr. Baumgardner was a Director of Walbro
Corporation and has been a Director of Westcast Industries, Inc. from 1997 to
the present.
James R. Henderson was elected as a Director on January 24, 2002. Mr. Henderson
has served as a Vice President of Steel Partners Services, Ltd., a management
and advisory company, since August 1999. Steel Partners Services, Ltd. provides
management services to Steel and other affiliates of Steel. He has also served
as Vice President of Operations of WebFinancial Corporation, a commercial and
consumer lender, since September 2001. From 1996 to July 1999, Mr. Henderson was
employed in various positions with Aydin Corporation, a defense-electronics
manufacturer, which included a tenure as President and Chief Operating Officer
from October 1998 to June 1999. Prior to his employment with Aydin Corporation,
Mr. Henderson was employed as an executive with UNISYS Corporation, an
e-business solutions provider. Mr. Henderson is a Director of ECC International
Corp., a manufacturer and marketer of computer-controlled simulators for
training personnel to perform maintenance and operator procedures on military
weapons.
Mark E. Schwarz was elected as a Director on January 24, 2002. Mr. Schwarz has
served as the general partner, directly or through entities he controls, of
Newcastle, a private investment firm, since 1993. As of December 2001, Mr.
Schwarz was the Managing Member of Newcastle Capital Group, L.L.C., the general
partner of Newcastle Capital Management, L.P., which is the general partner of
Newcastle. Mr. Schwarz was also Vice President and Manager of Sandera Capital,
L.L.C., a private investment firm affiliated with Hunt Financial Group, L.L.C.,
a Dallas-based investment firm associated with the Lamar Hunt family ("Hunt"),
from 1995 to September 1999. Mr. Schwarz currently serves as a Director of the
following companies: WebFinancial Corporation, a commercial and consumer lender;
Nashua Corporation, a specialty paper, label and printing supplies manufacturer;
Bell Industries, Inc., a computer systems integrator; and Tandycrafts, Inc., a
manufacturer of picture frames and framed art. Mr. Schwarz has also served as
Chairman of the Board of Directors of Hallmark Financial Services, Inc., a
property-and-casualty insurance holding company, since October 2001.
Steven Wolosky has been a partner of Olshan Grundman Frome Rosenzweig & Wolosky
LLP, counsel to Steel, for more than five years. Mr. Wolosky is also Assistant
Secretary of WHX Corporation, a NYSE listed holding company and a Director of
CPX Corp.
Richard A. Smith has been a financial consultant, private investor and trader
from 1993 to the present. Mr. Smith previously served in various management
positions with Morgan Stanley Inc., most recently as co-head of the Worldwide
Institutional Equity from 1989 to 1993. Mr. Smith is also a Director of CMT
Technologies.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
awarded to, earned by or paid to the Chief Executive Officer and each of the
Registrant's other executive officers whose total annual salary and bonus
exceeded $100,000 during the year 2001 (the "Named Executive Officers") for
services in all capacities during the years ended December 31, 2001 and
December 31, 2000, the fiscal year ended July 31, 1999, and for the five-month
period ended December 31, 1999. Owen Farren's employment with the Registrant was
terminated effective February 4, 2002.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Securities All Other
Name and Annual Compensation Underlying Compensation
Principal Position Year Salary ($) Bonus ($) Options/SARs (#) ($)(3)(4)
------------------ ---- ---------- --------- ---------------- ---------
Owen Farren 2001 281,423 0 20,000 30,315
President and CEO....... 2000 270,000 0 0 28,769
1999(1) 111,404 0 20,000 1,708
1999 252,231 238,275(2) 24,000 29,149
David R. Nuzzo 2001 171,000 0 17,000 19,567
Vice President-Finance and 2000 165,000 0 0 7,365
Administration, Treasurer and 1999(1) 68,300 0 12,500 2,071
Secretary............... 1999 155,708 58,000 7,500 8,298
Jacob Cherian 2001 119,808 0 17,000 20,056
Vice President 2000 --- --- --- ---
and Corporate 1999(1) --- --- --- ---
Controller.............. 1999 --- --- --- ---
(1) Salary information for the five-month period ended December 31, 1999.
(2) Includes $121,275, received under the terms of a special incentive program
for senior executives that was based on the Registrant's performance during
the three years ended July 31, 1998, and $117,000, which was based on the
performance of the Registrant and the achievement of individual goals during
fiscal 1999.
(3) Includes the Registrant's matching contributions and profit sharing
contributions made to the SL Industries Inc. Savings and Pension Plan for
Messrs. Farren and Nuzzo in fiscal year 1999 in the amounts of $7,353 and
$6,448, respectively; in fiscal year 1999 for Messrs. Farren, and Nuzzo in
the amounts of $8,249 and $7,398, respectively; in the five-month period for
1999
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for Messrs. Farren and Nuzzo in the amounts of $1,333 and $1,696,
respectively; in calendar year 2000 for Messrs. Farren and Nuzzo in the
amounts of $7,923 and $6,519, respectively; and in calendar year 2001 for
Messrs. Farren, Nuzzo and Cherian in the amounts of $8,500, $8,500 and
$5,990, respectively. The Registrant's contribution to the plan is based on
a percentage of the participant's elective contributions up to the maximum
defined under the plan and a fixed percentage, determined annually by the
Board of Directors, of the participant's total fiscal years 1998 and 1999
earnings. Under the plan, benefits are payable at retirement as a lump sum
or as an annuity.
(4) Includes premiums paid for group term life insurance for Messrs. Farren,
Nuzzo and Cherian, and premiums paid for an ordinary whole life insurance
policy on Mr. Farren's life in the face amount of $1,000,000, of which he is
the owner with the right to designate beneficiaries.
Pursuant to a standing resolution of the Board of Directors, upon the death of
any executive officer having more than five (5) years of service, the Registrant
will pay his spouse, over a 36-month period, an amount equal to the officer's
salary at his death.
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STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options to purchase Common
Stock granted under the Registrant's 1991 Long Term Incentive Plan in 2001 to
the named executive officers. Twenty percent of the options granted were
exercisable on the date of grant with the balance exercisable in twenty percent
increments, one, two, three and four years after the date of grant. The material
terms of such options appear in the following table.
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
-------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Stock Options
Underlying Granted to
Stock Options Employees in Exercise Expiration
Name Granted (#) Fiscal Year Price($/SH) Date 5%($) 10% ($)
---- ----------- ----------- ----------- --------------- ----- -------
Owen Farren 20,000 12% $ 5.75 09/25/2011 $ 72,323 $ 183,280
Jacob Cherian 7,000 4% $12.175 05/18/2011 $ 53,598 $ 135,827
Jacob Cherian 10,000 6% $ 5.75 09/25/2011 $ 36,161 $ 91,640
David R. Nuzzo 7,000 4% $12.175 05/18/2011 $ 53,598 $ 135,827
David R. Nuzzo 10,000 6% $ 5.75 09/25/2011 $ 36,161 $ 91,640
-------------------
(1) The Potential Realizable Value, determined in accordance with SEC rules,
assumes annualized market appreciation rates of 5% and 10%, respectively,
from a market value of $5.75/share and $12.175/share on September 25, 2011
and May 18, 2011 (the date of the grant) to September 25, 2011 and May 18,
2011 (the date of expiration of such options) for all optionees. These
assumptions are not intended to forecast the future price of the
Registrant's stock price. The real value of the options in this table
depends on the actual performance of the Registrant's Common Stock during
the applicable period, which may increase or decrease in value over the time
period set forth above. The Potential Realizable Value does not assume
future dividends, stock or cash. The option grant does not accrue cash
dividends unless the options are exercised, should dividends be declared.
AGGREGATED STOCK OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END STOCK OPTION VALUES
The following table sets forth the number of shares received upon exercise of
stock options by each of the Named Executive Officers during the last completed
fiscal year and the aggregate options to purchase shares of Common Stock of the
Registrant held by the Named Executive Officers at December 31, 2001.
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Number of Securities
Underlying Value of Unexercised
Unexercised Options In-The-Money Options
At Fiscal Year End (#) at Fiscal Year End ($)(1)
----------------------- -------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name Upon Exercise (#) Realized ($) Unexercisable Unexercisable
---- ----------------- ------------ ------------- -------------
Owen Farren N/A N/A 227,200/ 27,800 252,300/ 1,500
David R. Nuzzo N/A N/A 42,750/ 19,250 250/ 750
Jacob Cherian N/A N/A 9,900/ 22,100 0/ 0
(1) Computed by multiplying the number of options by the difference between (i)
the per share closing price at fiscal year-end and (ii) the exercise price per
share.
LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR
The Registrant did not grant awards to any of the Registrant's executive
officers under any long-term incentive plans during the year ended December 31,
2001.
DIRECTOR COMPENSATION
Outside (i.e., non-employee) directors receive the following fees:
- $4,375 quarterly retainer fee;
- $1,000 for each Board of Directors meeting attended; and
- $750 for each committee meeting attended.
In fiscal year 1993, the Board of Directors adopted a Non-Employee Director
Non-Qualified Stock Option Plan (the "Directors' Plan"), which was approved by
the shareholders at the Registrant's 1993 Annual Meeting. Under the Directors'
Plan, non-employee Directors have the right annually during the month of June to
elect to receive non-qualified stock options in lieu of all or a stated
percentage of upcoming yearly directors fees. The number of shares covered by
such options is determined at the time such fees would otherwise be payable
based upon the fair market value of the Registrant's Common Stock at such times,
except, with respect to an election to defer all such fees, such determination
shall be based upon 133% of fair market value at such times. Elections are
irrevocable.
Under the Directors' Plan, Messrs. Baumgardner and Caruso (Mr. Caruso served as
a director until January 2002), elected for 2001 to receive non-qualified stock
options in lieu of all such
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fees. In accordance with such elections, they received options to acquire 7,487
and 7,122 shares, respectively, during 2001.
EMPLOYMENT CONTRACTS, TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS.
In 2001, the Registrant entered into change-in-control agreements with senior
executives and other key personnel.
In January 2002, the five nominees of the RORID Committee were elected to the
Registrant's eight-member Board of Directors. Upon the occurrence of this event,
Messrs. Farren, Nuzzo and Cherian each received payment under his respective
change-in-control agreement. As a result, in January the Registrant paid to
Messrs. Farren, Nuzzo and Cherian, respectively, $877,565, $352,556 and $250,000
under such agreements. Under their respective change-in-control agreements,
these executives are not entitled to receive any further cash payments, but are
entitled to receive insurance benefits for specified time periods or until they
obtain new employment, whichever occurs first. See exhibits 10.33, 10.34 and
10.35 filed with the Registrant's Period Report on Form 10-Q for the quarter
ended September 30, 2001, and incorporated herein by reference, for a copy of
the change-in-control agreements.
Upon receiving their resignations, the Registrant exercised its rights under the
change-in-control agreements to require Messrs. Farren, Nuzzo and Cherian to
remain in their positions for up to ninety days. Mr. Farren was subsequently
terminated as Chief Executive Officer and President on February 4, 2002. Mr.
Nuzzo has continued in his position with the Registrant. Mr. Cherian has given
notice of his termination effective April 24, 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2001, the Compensation Committee members were J. Dwane Baumgardner
(Chairman), Richard E. Caruso and Walter I. Rickard, all of whom were
non-employee directors of the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of the
Registrant's Common Stock, as of March 7, 2002 (except as otherwise noted), by:
(i) each person or entity (including such person's or entity's address) who is
known by the Registrant to own beneficially more than five percent of the
Registrant's Common Stock, (ii) each of the Registrant's Directors and nominees
for Director who beneficially owns shares, (iii) each Named Executive Officer
(as defined under Executive Compensation) who beneficially owns shares, and (iv)
all executive officers and Directors as a group. The information presented in
the table is based upon the most recent filings with the Securities and Exchange
Commission by such persons or upon information otherwise provided by such
persons to the Registrant.
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Number of Shares
Name of Beneficial Owner Beneficially Owned(1) Percentage Owned(2)
Dimensional Fund Advisors, Inc. 296,900 (3) 5.2%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
The Gabelli Funds 1,469,567 (4) 25.6%
One Corporate Center
Rye, NY 10580-1435
Oaktree Capital Management, LLC 525,000 (5) 9.1%
333 South Grand Avenue
28th Floor
Los Angeles, CA 90071
Steel Partners II, L.P. 623,150 (6) 10.8%
150 East 52nd Street
21st Floor
New York, NY 10022
J. Dwane Baumgardner 64,639 (7) 1.1%
Jacob Cherian 10,327 (8) *
David R. Nuzzo 49,516 (9) *
Warren Lichtenstein 633,450 (10) 11.0%
Glen Kassan 0 *
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James Henderson 0 *
Mark E. Schwarz 217,350(11) 3.8%
Steven Wolosky 0 *
All Directors and Executive 975,282(12) 16.6%
Officers as a Group
* Less than one percent (1%).
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Under such rules, shares are deemed to be
beneficially owned by a person or entity if such person or entity has or shares
the power to vote or dispose of the shares, whether or not such person or entity
has any economic interest in such shares. Except as otherwise indicated, and
subject to community property laws where applicable, the persons and entities
named in the table above have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them. Shares of Common
Stock subject to options or warrants currently exercisable or exercisable within
60 days are deemed outstanding for purposes of computing the percentage
ownership of the person or entity holding such option or warrant but are not
deemed outstanding for purposes of computing the percentage ownership of any
other person or entity.
(2) Based upon 5,758,222 shares outstanding as of March 7, 2002.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 296,900 shares, as of January
30, 2002, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in series of
the DFA Investment Trust Company, a Delaware business trust, or the DFA Group
Trust and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(4) Based upon a Schedule 13D/A Amendment No. 19 dated January 17, 2002, filed
with the Securities and Exchange Commission by Gabelli Funds, LLC ("Gabelli
Funds"). Gabelli Group Capital Partners, Inc. ("Gabelli Partners") makes
investments for its own account and is the parent company of Gabelli Asset
Management Inc. ("GAMI"). Mario J. Gabelli is the Chairman of the Board of
Directors, Chief Executive Officer and majority shareholder of Gabelli Partners.
GAMI, a public company listed on the New York Stock Exchange, is the parent
company of a variety of companies engaged in the securities business, including
(i) GAMCO Investors, Inc.
--------------------------------------------------------------------------------
Page 46
("GAMCO"), a wholly-owned subsidiary of GAMI, an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act"), which
provides discretionary managed account services for employee benefit plans,
private investors, endowments, foundations and others; (ii) Gabelli Advisers,
Inc. ("Gabelli Advisers"), a subsidiary of GAMI, which provides discretionary
advisory services to The Gabelli Westwood Mighty Mites Fund; (iii) Gabelli
Performance Partnership L.P. ("GPP"), a limited partnership whose primary
business purpose is investing in securities (Mario J. Gabelli is the general
partner and a portfolio manager for GPP); (iv) Gabelli International Limited
("GIL"), a corporation whose primary business purpose is investing in a
portfolio of equity securities and securities convertible into, or exchangeable
for, equity securities offered primarily to persons who are neither citizens nor
residents of the United States; and (v) Gabelli Funds, LLC, an investment
adviser registered under the Advisers Act, which presently provides
discretionary managed account services for various registered investment
companies.
Includes the following shares deemed to be owned beneficially by the following
affiliates (the "Gabelli Affiliates"): 1,202,067 shares held by GAMCO; 107,000
shares held by GIL; 83,500 shares held by Gabelli Funds; 1,000 shares held by
Gabelli Foundation, Inc. ("Foundation"), a private foundation; 16,000 shares
held by Gabelli Advisers; and 60,000 shares held by GPP. Each of the Gabelli
Affiliates claims sole voting and dispositive power over the shares held by it.
The foregoing persons do not admit to constituting a group within the meaning of
Section 13(d) of the Exchange Act. Mario J. Gabelli is the Chief Investment
Officer of each of the Gabelli Affiliates; the majority stockholder and Chairman
of the Board of Directors and Chief Executive Officer of Gabelli Partners; the
President, a Trustee and the Investment Manager of the Foundation; and the
General Partner and Portfolio Manager for GPP.
GAMCO, Gabelli Advisors, and Gabelli Funds, each has its principal business
office at One Corporate Center, Rye, New York 10580. GPP has its principal
business office at 401 Theodore Freund Ave., Rye, New York 10580. GIL has its
principal business office at c/o Fortis Fund Services (Cayman) Limited, Grand
Pavilion, Commercial Centre, 802 West Bay Road, Grand Cayman, British West
Indies. The Foundation has its principal offices at 165 West Liberty Street,
Reno, Nevada 89501.
(5) Oaktree Capital Management, LLC, a California limited liability company
("Oaktree"), is deemed to have beneficial ownership of 525,000 shares as of June
30, 2001. The principal business of Oaktree is providing investment advice and
management services to institutional and individual investors. Oaktree's General
Partner is OCM Principal Opportunities Fund, L.P., a Delaware limited
partnership.
(6) Based on the Schedule 13D/A Amendment No. 9 dated December 17, 2001, filed
by Steel Partners II, L.P. ("Steel Partners II") and other persons.
(7) Includes 2,000 shares owned by Mr. Baumgardner and 62,639 shares, which Mr.
Baumgardner has the right to acquire at any time upon exercise of stock options.
--------------------------------------------------------------------------------
Page 47
(8) Includes 427 shares beneficially owned by Mr. Cherian as a participant in
the Registrant's Savings & Pension Plan and 9,900 shares which Mr. Cherian has
the right to acquire at any time upon exercise of stock options.
(9) Includes 4,500 shares owned by Mr. Nuzzo, 2,266 shares beneficially owned by
Mr. Nuzzo as a participant in the Registrant's Savings and Pension Plan, and
42,750 shares which Mr. Nuzzo has the right to acquire at any time upon exercise
of stock options.
(10) Includes the 623,150 shares of which, by virtue of his position as Chairman
of the Board, Chief Executive Officer and Secretary of Steel Partners II, L.P.
(as described in Note 6 above), Mr. Lichtenstein has the power to vote and
dispose.
(11) Includes 217,350 shares of which, by virtue of his position as Managing
Member of Newcastle Capital Group, L.L.C., which is the General Partner of
Newcastle Capital Management, L.P., which is the General Partner of Newcastle
Partners, L.P, Mr. Schwarz has the power to vote and dispose.
(12) Includes 115,289 shares which directors and executive officers have the
right to acquire, at any time, upon the exercise of nonqualified and incentive
stock options granted by the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Steven Wolosky, a director of the Registrant, is a partner at the law firm of
Olshan Grundman Frome Rosenzweig & Wolosky LLP ("Olshan"). Olshan has been
retained by the Registrant as outside counsel.
--------------------------------------------------------------------------------
Page 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) (1) FINANCIAL STATEMENTS
See Index to Financial Statements and Financial Statement Schedule at Page F-1.
(a) (2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule for the years ended December 31,
2001, and December 31, 2000, fiscal year ended July 31, 1999 and the five-month
periods ended December 31, 1999 and December 31, 1998 are submitted herewith:
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. See Index to Financial Statements at Page F-1.
(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
The following reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 2001:
On October 11, 2001, the Registrant filed a Current Report on Form 8-K, which
contained a press release issued by the Registrant on October 10, 2001. On that
date the Registrant announced the completion of its planned restructuring in
response to the slowdown in the telecommunications industry with the pending
closure of its manufacturing facility in Reynosa, Mexico and the consolidation
of those operations elsewhere. The Registrant also provided certain information
concerning its financial condition, the status of its revolving credit facility
and the status of the previously announced process to seek potential acquirers
for all or parts of its business.
On November 8, 2001, the Registrant filed a Current Report on Form 8-K, which
contained a press release issued by the Registrant on November 5, 2001. On that
date the Registrant announced financial results for its third quarter ended
September 30, 2001 and reported the status of efforts to sell the entire
business or portions of its business. The Registrant also announced it would
hold a Special Meeting of Shareholders on January 22, 2002 for the election of
directors
--------------------------------------------------------------------------------
Page 49
and that December 5, 2001 had been set as the record date for determination of
shareholders eligible to vote at the Special Meeting.
On December 26, 2001, the Registrant filed a Current Report on Form 8-K, which
contained a press release issued by the Registrant on December 20, 2001. On that
date, the Registrant announced revisions to its Revolving Credit Facility that
were effected on December 13, 2001. The revisions to the credit facility
included, among other things, a replacement of the financial covenants, a
reduction in the size of the facility, an acceleration of the maturity date to
December 31, 2002, and a pledge of additional collateral. The Registrant also
obtained a waiver from its bank lenders, effective for the quarter ended
September 30, 2001, with respect to its default for noncompliance with the
financial covenants to the Revolving Credit Facility as then in effect.
--------------------------------------------------------------------------------
Page 50
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)
By /s/ Warren Lichtenstein Date March 26, 2002
-----------------------
Warren Lichtenstein
POWER OF ATTORNEY
SL INDUSTRIES, INC. AND EACH OF THE UNDERSIGNED DO HEREBY APPOINT GLEN
KASSAN AND WARREN LICHTENSTEIN, AND EACH OF THEM SEVERALLY, ITS OR HIS TRUE AND
LAWFUL ATTORNEY TO EXECUTE ON BEHALF OF SL INDUSTRIES, INC. AND THE UNDERSIGNED
ANY AND ALL AMENDMENTS TO THIS ANNUAL REPORT ON FORM 10-K AND TO FILE THE SAME
WITH ALL EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION; EACH OF SUCH ATTORNEYS SHALL HAVE THE POWER
TO ACT HEREUNDER WITH OR WITHOUT THE OTHER.
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 AND IN THE CAPACITIES AND ON THE DATE INDICATED.
By /s/ Warren Lichtenstein Date March 26, 2002
--------------------------------------------------
Warren Lichtenstein - Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
By /s/ J. Dwane Baumgardner Date March 26, 2002
--------------------------------------------------
J. Dwane Baumgardner - Director
By /s/ David R. Nuzzo Date March 26, 2002
--------------------------------------------------
David R. Nuzzo - Vice President Finance and
Administration, Treasurer and Secretary
(Principal Financial Officer)
By /s/ James R. Henderson Date March 26, 2002
--------------------------------------------------
James R. Henderson - Director
By /s/ Jacob Cherian, Jr. Date March 26, 2002
--------------------------------------------------
Jacob Cherian, Jr. - Vice President and
Corporate Controller
By /s/ Glen Kassan Date March 26, 2002
--------------------------------------------------
Glen Kassan - President and Director
By /s/ Richard Smith Date March 26, 2002
--------------------------------------------------
Richard Smith - Director
By /s/ Mark E. Schwarz Date March 26, 2002
--------------------------------------------------
Mark E. Schwarz - Director
By /s/ Steven Wolosky Date March 26, 2002
--------------------------------------------------
Steven Wolosky - Director
--------------------------------------------------------------------------------
Page 51
SL Industries, Inc.
Index to Financial Statements and Financial Statement Schedule
Page number
in this report
Report of Independent Public Accountants F2
Consolidated Balance Sheets F3
Consolidated Statements of Operations F4
Consolidated Statements of Comprehensive Income (Loss) F4
Consolidated Statements of Shareholders' Equity F5
Consolidated Statements of Cash Flows F6
Notes to Consolidated Financial Statements F7 to F31
Financial Statement Schedule:
II. Valuation and Qualifying Accounts F32
F1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SL Industries, Inc.:
We have audited the accompanying consolidated balance sheets of SL Industries,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, comprehensive income (loss),
shareholders' equity and cash flows for the years ended December 31, 2001 and
2000 and July 31, 1999, and for the five months ended December 31, 1999. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial position of SL Industries,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years ended December 31, 2001 and 2000
and July 31, 1999, and for the five months ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company was in technical default under
its revolving credit facility at December 31, 2001 and an additional event of
default occurred on March 1, 2002. Due to these events of default, the lenders
that provide the revolving credit facility do not have to provide any further
financing and have the right to terminate the facility and demand repayment of
all amounts outstanding. The existence of these events of default raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and financial statement schedule is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
March 15, 2002
F2
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 6,577,000 $ 1,189,000
Receivables, net .................................................... 36,041,000 21,986,000
Inventories ......................................................... 20,497,000 23,491,000
Prepaid expenses .................................................... 815,000 1,140,000
Net current assets of discontinued operations ....................... -- 3,192,000
Deferred income taxes ............................................... 6,300,000 4,864,000
------------- -------------
Total current assets ............................................ 70,230,000 55,862,000
Property, plant and equipment, net ..................................... 18,829,000 19,781,000
Property, plant and equipment of discontinued operations, net .......... -- 980,000
Long-term note receivable .............................................. 6,000 2,118,000
Deferred income taxes .................................................. 2,014,000 1,629,000
Cash surrender value of life insurance policies ........................ 1,323,000 11,486,000
Intangible assets, net ................................................. 14,799,000 20,770,000
Other assets ........................................................... 557,000 855,000
------------- -------------
Total assets ................................................... $ 107,758,000 $ 113,481,000
============= =============
LIABILITIES
Current liabilities:
Short-term bank debt ................................................ $ 1,367,000 $ --
Long-term debt due within one year .................................. 35,829,000 186,000
Accounts payable .................................................... 8,149,000 11,309,000
Accrued income taxes ................................................ 2,019,000 724,000
Accrued liabilities:
Payroll and related costs ......................................... 7,609,000 5,070,000
Other ............................................................. 11,781,000 7,393,000
------------- -------------
Total current liabilities ...................................... 66,754,000 24,682,000
Long-term debt less portion due within one year ........................ 1,009,000 36,533,000
Deferred compensation and supplemental retirement benefits ............. 4,268,000 5,892,000
Other liabilities ...................................................... 2,523,000 3,024,000
------------- -------------
Total liabilities .............................................. $ 74,554,000 $ 70,131,000
------------- -------------
Commitments and contingencies (Note 11)
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized 6,000,000 shares; none issued $ -- $ --
Common stock, $.20 par value; authorized 25,000,0000 shares;
issued 8,298,000 shares .............................................. 1,660,000 1,660,000
Capital in excess of par value ......................................... 39,025,000 38,455,000
Retained earnings ...................................................... 8,897,000 19,547,000
Accumulated other comprehensive (loss) income .......................... (5,000) 62,000
Treasury stock at cost, 2,587,000 and 2,639,000 shares, respectively ... (16,373,000) (16,374,000)
------------- -------------
Total shareholders' equity ..................................... 33,204,000 43,350,000
------------- -------------
Total liabilities and shareholders' equity ..................... $ 107,758,000 $ 113,481,000
============= =============
See accompanying notes to consolidated financial statements
F3
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve-Months Ended Twelve-Months Ended Twelve-Months Ended
December 31, December 31, July 31,
2001 2000 1999
------------- ------------- -------------
Net sales .................................................. $ 138,467,000 $ 148,405,000 $ 88,694,000
------------- ------------- -------------
Cost and expenses:
Cost of products sold .................................... 96,403,000 97,295,000 55,395,000
Engineering and product development ...................... 8,768,000 9,671,000 6,006,000
Selling, general and administrative ...................... 28,405,000 25,169,000 13,448,000
Depreciation and amortization ............................ 4,587,000 4,379,000 3,092,000
Restructuring costs ...................................... 3,868,000 -- --
Impairment of intangibles ................................ 4,270,000 -- --
Settlement of class action suit .......................... -- (875,000) --
------------- ------------- -------------
Total cost and expenses .................................... 146,301,000 135,639,000 77,941,000
------------- ------------- -------------
Income (loss) from operations .............................. (7,834,000) 12,766,000 10,753,000
------------- ------------- -------------
Other income (expense):
Interest income .......................................... 366,000 344,000 250,000
Interest expense ......................................... (3,407,000) (3,045,000) (991,000)
Gain from demutualization of insurance company ........... -- -- --
------------- ------------- -------------
Income (loss) from continuing operations before income taxes (10,875,000) 10,065,000 10,012,000
Income tax provision (benefit) ............................. (4,172,000) 3,642,000 4,213,000
------------- ------------- -------------
Income (loss) from continuing operations ................... (6,703,000) 6,423,000 5,799,000
Income (loss) from discontinued operations (net of tax) .... (3,947,000) (4,723,000) (393,000)
------------- ------------- -------------
Net income (loss) .......................................... $ (10,650,000) $ 1,700,000 $ 5,406,000
============= ============= =============
Basic net income (loss) per common share:
Income (loss) from continuing operations ................... $ (1.18) $ 1.14 $ 1.03
Loss from discontinued operations (net of tax) ............. (0.69) (0.84) (0.07)
------------- ------------- -------------
Net income (loss) .......................................... $ (1.87) $ 0.30 $ 0.96
============= ============= =============
Diluted net income (loss) per common share:
Income (loss) from continuing operations ................... $ (1.18) $ 1.12 $ 0.99
Loss from discontinued operations (net of tax) ............. (0.69) (0.82) (0.07)
------------- ------------- -------------
Net income (loss) .......................................... $ (1.87) $ 0.30 $ 0.92
============= ============= =============
Shares used in computing basic net income (loss)
per common share ......................................... 5,698,000 5,635,000 5,643,000
Shares used in computing diluted net income (loss)
per common share ......................................... 5,698,000 5,757,000 5,876,000
Five-Months Ended Five-Months Ended
December 31, December 31,
1999 1998
------------- -------------
(Unaudited)
Net sales .................................................. $ 59,032,000 $ 32,809,000
------------- -------------
Cost and expenses:
Cost of products sold .................................... 39,198,000 20,998,000
Engineering and product development ...................... 4,150,000 2,373,000
Selling, general and administrative ...................... 9,283,000 5,211,000
Depreciation and amortization ............................ 1,830,000 1,246,000
Restructuring costs ...................................... -- --
Impairment of intangibles ................................ -- --
Settlement of class action suit .......................... -- --
------------- -------------
Total cost and expenses .................................... 54,461,000 29,828,000
------------- -------------
Income (loss) from operations .............................. 4,571,000 2,981,000
------------- -------------
Other income (expense):
Interest income .......................................... 75,000 120,000
Interest expense ......................................... (1,077,000) (391,000)
Gain from demutualization of insurance company ........... 1,812,000 --
------------- -------------
Income (loss) from continuing operations before income taxes 5,381,000 2,710,000
Income tax provision (benefit) ............................. 2,592,000 1,452,000
------------- -------------
Income (loss) from continuing operations ................... 2,789,000 1,258,000
Income (loss) from discontinued operations (net of tax) .... (3,473,000) 703,000
------------- -------------
Net income (loss) .......................................... $ (684,000) $ 1,961,000
============= =============
Basic net income (loss) per common share:
Income (loss) from continuing operations ................... $ 0.50 $ 0.23
Loss from discontinued operations (net of tax) ............. (0.62) 0.12
------------- -------------
Net income (loss) .......................................... $ (0.12) $ 0.35
============= =============
Diluted net income (loss) per common share:
Income (loss) from continuing operations ................... $ 0.50 $ 0.21
Loss from discontinued operations (net of tax) ............. (0.62) 0.12
------------- -------------
Net income (loss) .......................................... $ (0.12) $ 0.33
============= =============
Shares used in computing basic net income (loss)
per common share ......................................... 5,624,000 5,641,000
Shares used in computing diluted net income (loss)
per common share ......................................... 5,624,000 5,886,000
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Twelve-Months Ended Twelve-Months Ended Twelve-Months Ended
December 31, December 31, July 31,
2001 2000 1999
------------ ------------ ------------
Net income (loss) ..................................... $(10,650,000) $ 1,700,000 $ 5,406,000
Other comprehensive income (loss):
Currency translation adjustment, net of related taxes (67,000) 9,000 (31,000)
------------ ------------ ------------
Comprehensive income (loss) ........................... $(10,717,000) $ 1,709,000 $ 5,375,000
============ ============ ============
Five-Months Ended Five-Months Ended
December 31, December 31,
1999 1998
---------- -----------
(Unaudited)
Net income (loss) ..................................... $ (684,000) $ 1,961,000
Other comprehensive income (loss):
Currency translation adjustment, net of related taxes 4,000 72,000
---------- -----------
Comprehensive income (loss) ........................... $ (680,000) $ 2,033,000
========== ===========
See accompanying notes to consolidated financial statements.
F4
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock
-------------------------------------------------------------
Issued Held In Treasury
-------------------------- ------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
BALANCE JULY 31, 1998.......................................... 8,153,000 $ 1,631,000 (2,546,000) $ (13,903,000)
Net income....................................................
Cash dividends, $.09 per share................................
Other, including exercise of
employee stock options and
related income tax benefits................................. 87,000 17,000
Treasury stock sold.............................. ............ 71,000 390,000
Treasury stock purchased...................................... (133,000) (1,648,000)
Current year translation adjustment...........................
-------------------------------------------------------------
BALANCE JULY 31, 1999......................................... 8,240,000 $ 1,648,000 (2,608,000) $ (15,161,000)
Net loss......................................................
Cash dividends, $.05 per share................................
Other, including exercise of
employee stock options and
related income tax benefits................................. 32,000 6,000
Treasury stock sold........................................... 19,000 108,000
Treasury stock purchased...................................... (61,000) (763,000)
Current year translation adjustment...........................
-------------------------------------------------------------
BALANCE DECEMBER 31, 1999..................................... 8,272,000 $ 1,654,000 (2,650,000) $ (15,816,000)
Net income....................................................
Cash dividends, $.10 per share................................
Other, including exercise of
employee stock options and
related income tax benefits................................. 26,000 6,000
Treasury stock sold........................................... 159,000 967,000
Treasury stock purchased...................................... (148,000) (1,525,000)
Current year translation adjustment...........................
-------------------------------------------------------------
BALANCE DECEMBER 31, 2000..................................... 8,298,000 $ 1,660,000 (2,639,000) $ (16,374,000)
Net income....................................................
Other, including exercise of
employee stock options and
related income tax benefits.................................
Treasury stock sold........................................... 134,000 847,000
Treasury stock purchased...................................... (82,000) (846,000)
Current year translation adjustment...........................
-------------------------------------------------------------
BALANCE DECEMBER 31, 2001..................................... 8,298,000 $ 1,660,000 (2,587,000) $ (16,373,000)
=============================================================
Accumulated
Capital in Other
Excess of Retained Comprehensive
Par Value Earnings Income (Loss)
--------------------------------------------------------------
BALANCE JULY 31, 1998......................................... $ 36,061,000 $ 14,476,000 $ 80,000
Net income.................................................... 5,406,000
Cash dividends, $.09 per share................................ (507,000)
Other, including exercise of
employee stock options and
related income tax benefits................................. 373,000 (1,000)
Treasury stock sold........................................... 498,000
Treasury stock purchased......................................
Current year translation adjustment........................... (31,000)
--------------------------------------------------------------
BALANCE JULY 31, 1999......................................... $ 36,932,000 $ 19,374,000 $ 49,000
Net loss...................................................... (684,000)
Cash dividends, $.05 per share................................ (280,000)
Other, including exercise of
employee stock options and
related income tax benefits................................. 715,000
Treasury stock sold........................................... 124,000
Treasury stock purchased......................................
Current year translation adjustment........................... 4,000
--------------------------------------------------------------
BALANCE DECEMBER 31, 1999..................................... $ 37,771,000 $ 18,410,000 $ 53,000
Net income.................................................... 1,700,000
Cash dividends, $.10 per share................................ (563,000)
Other, including exercise of
employee stock options and
related income tax benefits................................. 320,000
Treasury stock sold........................................... 364,000
Treasury stock purchased......................................
Current year translation adjustment........................... 9,000
--------------------------------------------------------------
BALANCE DECEMBER 31, 2000................................. ... $ 38,455,000 $ 19,547,000 $ 62,000
Net income.................................................... (10,650,000)
Other, including exercise of
employee stock options and
related income tax benefits................................. 440,000
Treasury stock sold........................................... 130,000
Treasury stock purchased......................................
Current year translation adjustment........................... (67,000)
--------------------------------------------------------------
BALANCE DECEMBER 31, 2001..................................... $ 39,025,000 $ 8,897,000 $ (5,000)
===============================================================
See accompanying notes to consolidated financial statements.
F5
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve-Months Twelve-Months Twelve-Months
Ended Ended Ended
December 31, December 31, July 31,
2001 2000 1999
-----------------------------------------------------
OPERATING ACTIVITIES:
Income (loss) from continuing operations ............................ $ (6,703,000) $ 6,423,000 $ 5,799,000
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by operating activities:
Depreciation ..................................................... 3,001,000 2,808,000 1,961,000
Amortization ..................................................... 1,586,000 1,571,000 1,131,000
Restructuring charges ............................................ 3,868,000 -- --
Impairment of intangibles ........................................ 4,270,000 -- --
Write-down of inventory .......................................... 2,940,000 -- --
Provisions for losses on accounts receivable ..................... 469,000 389,000 40,000
Additions to other assets ........................................ (259,000) (610,000) (945,000)
Cash surrender value of life insurance policies .................. (981,000) (1,548,000) (753,000)
Deferred compensation and supplemental retirement benefits ....... 511,000 732,000 852,000
Deferred compensation and supplemental retirement benefit payments (440,000) (490,000) (620,000)
Decrease (increase) in deferred income taxes ..................... (3,715,000) (582,000) (765,000)
Discontinued product line expenses ............................... -- -- (141,000)
(Gain) loss on sales of equipment ................................ 13,000 (3,000) (13,000)
Investment in Kreiss Johnson ..................................... 107,000 69,000 (233,000)
Changes in operating assets and liabilities, excluding effects of
business acquisitions and dispositions:
Accounts receivable ............................................ (1,672,000) 1,110,000 (1,405,000)
Inventories .................................................... 2,701,000 (4,174,000) (70,000)
Prepaid expenses ............................................... 325,000 74,000 156,000
Accounts payable ............................................... 5,492,000 (761,000) (1,953,000)
Other accrued liabilities ...................................... 1,061,000 (1,125,000) (2,012,000)
Accrued income taxes ........................................... (644,000) 105,000 340,000
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ 11,930,000 $ 3,988,000 $ 1,369,000
------------ ------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of assets of subsidiary .......................... 1,053,000 -- --
Proceeds from sales of equipment .................................... 3,000 76,000 920,000
Purchases of property, plant and equipment .......................... (2,342,000) (2,563,000) (1,901,000)
Decrease (increase) in notes receivable ............................. 36,000 (10,000) 32,000
Payments for acquisitions, net of cash acquired ..................... -- (376,000) (19,082,000)
Proceeds from cash surrender value of life insurance policies ....... 880,000 -- --
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ................................. $ (370,000) $ (2,873,000) $(20,031,000)
------------ ------------ ------------
FINANCING ACTIVITIES:
Cash dividends paid ................................................. -- (563,000) (507,000)
Death Benefits from life insurance policy ........................... 256,000 -- --
Proceeds from short-term debt ....................................... 1,374,000 -- 21,863,000
Proceeds from long-term debt ........................................ 24,800,000 11,560,000 33,878,000
Payments on short-term debt ......................................... -- (809,000) (21,012,000)
Payments on long-term debt .......................................... (24,276,000) (13,936,000) (17,395,000)
Proceeds from stock options exercised ............................... 440,000 215,000 476,000
Treasury stock (acquired) sold ...................................... 131,000 (196,000) (760,000)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................... $ 2,725,000 $ (3,729,000) $ 16,543,000
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS ................ (8,694,000) 2,450,000 2,138,000
Effect of exchange rate changes on cash ............................... (203,000) 236,000 52,000
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................. 5,388,000 72,000 71,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 1,189,000 1,117,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 6,577,000 $ 1,189,000 $ 71,000
============ ============ ============
Five-Months Five-Months
Ended Ended
December 31, December 31,
1999 1998
--------------------------------------
(Unaudited)
OPERATING ACTIVITIES:
Income (loss) from continuing operations ............................ $ 2,789,000 $ 1,258,000
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by operating activities:
Depreciation ..................................................... 1,180,000 800,000
Amortization ..................................................... 650,000 446,000
Restructuring charges ............................................ -- --
Impairment of intangibles ........................................ -- --
Write-down of inventory .......................................... -- --
Provisions for losses on accounts receivable ..................... 10,000 13,000
Additions to other assets ........................................ (816,000) (425,000)
Cash surrender value of life insurance policies .................. (298,000) (249,000)
Deferred compensation and supplemental retirement benefits ....... 356,000 469,000
Deferred compensation and supplemental retirement benefit payments (219,000) (275,000)
Decrease (increase) in deferred income taxes ..................... (1,667,000) 526,000
Discontinued product line expenses ............................... -- --
(Gain) loss on sales of equipment ................................ 1,000 (11,000)
Investment in Kreiss Johnson .................................... 58,000 (257,000)
Changes in operating assets and liabilities, excluding effects of
business acquisitions and dispositions:
Accounts receivable ............................................ (3,041,000) 657,000
Inventories .................................................... (2,563,000) (332,000)
Prepaid expenses ............................................... (336,000) 261,000
Accounts payable ............................................... 235,000 (1,406,000)
Other accrued liabilities ...................................... (996,000) (3,296,000)
Accrued income taxes ........................................... 1,086,000 (1,037,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ................... $ (3,571,000) $ (2,858,000)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of assets of subsidiary .......................... -- --
Proceeds from sales of equipment .................................... 2,000 902,000
Purchases of property, plant and equipment .......................... (849,000) (1,247,000)
Decrease (increase) in notes receivable ............................. 28,000 37,000
Payments for acquisitions, net of cash acquired ..................... -- --
Proceeds from cash surrender value of life insurance policies ....... -- --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ................................. $ (819,000) $ (308,000)
------------ ------------
FINANCING ACTIVITIES:
Cash dividends paid ................................................. (280,000) (226,000)
Death benefits from life insurance policy ........................... -- --
Proceeds from short-term debt ....................................... -- 1,267,000
Proceeds from long-term debt ........................................ 15,279,000 11,443,000
Payments on short-term debt ......................................... -- --
Payments on long-term debt .......................................... (7,915,000) (12,500,000)
Proceeds from stock options exercised ............................... 257,000 108,000
Treasury stock (acquired) sold ...................................... (531,000) 287,000
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................... $ 6,810,000 $ 379,000
------------ ------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS ................ (1,683,000) 2,940,000
Effect of exchange rate changes on cash ............................... 309,000 (153,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................. 1,046,000 --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 71,000 --
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 1,117,000 $ --
============ ============
See accompanying notes to consolidated financial statements.
F6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE FIVE MONTHS ENDED DECEMBER 31, 1998 IS UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND: SL Industries, Inc. ("the Company"), a New Jersey corporation,
through its subsidiaries, designs, manufactures and markets power electronics,
power motion and power protection equipment that is used in a variety of
aerospace, computer, datacom, industrial, medical, telecom, transportation and
utility equipment applications. Its products are incorporated into larger
systems to increase operating safety, reliability and efficiency. The Company's
products are largely sold to original equipment manufacturers and, to a lesser
extent, commercial distributors.
On March 22, 2001, the Company announced, among other things, that the Board of
Directors had completed a previously announced review of strategic alternatives
and had determined that it would explore a sale of the Company in order to
maximize its value for shareholders. Credit Suisse First Boston assisted the
Company's Board of Directors in its review and has been engaged to lead this
process, which is ongoing.
LIQUIDITY AND GOING CONCERN: The Company is party to a Revolving Credit
Facility (as defined in Note 9) that allows the Company to borrow for working
capital and other purposes. The Revolving Credit Facility contains certain
financial and non-financial covenants, including requirements for certain
minimum levels of net income and a minimum fixed charge coverage ratio, as
defined, on a quarterly basis. As of December 31, 2001, the Company was in
violation of the net income covenant for the fourth quarter of 2001. The Company
also may not be able to meet its net income covenant for the first quarter of
2002 due to the operating charges incurred in connection with certain
change-in-control payments and proxy cost expenses. In addition, on March 1,
2002, the Company was notified that it was in default under the Revolving Credit
Facility due to its failure to meet the previously scheduled debt reduction to
$25,500,000 on March 1, 2002.
As a result of these covenant violations, the lender has all of the rights and
remedies available under the Revolving Credit Facility, including the ability to
demand immediate repayment of the outstanding balance. Management does not
believe that the lender will exercise its rights under the Revolving Credit
Facility to demand immediate repayment and plans to negotiate waivers of the
previous covenant violations, amendments to certain future required financial
covenants and an extension of the deadline for the scheduled debt reduction.
There can be no assurance that the lender will not demand immediate repayment of
the outstanding balance under the Revolving Credit Facility or that the Company
will be able to obtain waivers of default from its lender, amend certain future
required financial covenants, or extend the deadline for the scheduled debt
reduction.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
CONSOLIDATION: The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
REPORTING YEAR CHANGE: Pursuant to a resolution adopted by the Board of
Directors on September 24, 1999, the Company elected to change the date of its
fiscal year-end from July 31 to December 31 commencing January 1, 2000. As a
result, a transition period for the five-month period ended December 31, 1999,
was previously reported on a transition report on Form 10-Q and is also
presented herein. Consequently, the consolidated balance sheets have been
prepared as of December 31. The consolidated statements of operations, other
comprehensive income (loss) and cash flows present information for the calendar
years ended December 31, 2001
F7
("2001") and 2000 ("2000"), the fiscal year ended July 31, 1999 ("fiscal 1999"),
and the five months ended December 31, 1999 and 1998.
REVENUE RECOGNITION: Revenue from product sales is generally recognized at the
time the product is shipped, with provisions established for estimated product
returns. Upon shipment, the Company also provides for the estimated cost that
may be incurred for product warranties. Rebates and other sales incentives
offered by the Company to its customers are recorded as a reduction of revenue
at the time of sale.
In accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for
Shipping and Handling Fees and Costs", shipping and handling costs billed to
customers are included in net sales, while the costs of shipping and handling
incurred by the Company are included in the cost of products sold.
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 15 years for equipment and other property, and the lease
term for leasehold improvements.
INTANGIBLE ASSETS: Intangible assets consist primarily of goodwill, trademarks,
covenants not to compete, patents, and a consulting agreement. The goodwill
resulting from the 2000 and fiscal 1999 and 1998 acquisitions and the goodwill
and trademarks resulting from the May 1995 acquisition are being amortized over
30 years or less. Goodwill resulting from acquisitions made prior to November 1,
1970, of $429,000 is considered to have continuing value over an indefinite
period, and is not being amortized. Covenants not to compete are amortized over
the stated terms and patents are amortized over the remaining estimated useful
lives. The consulting agreement had an amortizable life of ten years. The
Company continually evaluates whether 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 is based on the valuation
method which management believes most closely approximates the fair value of the
intangible asset, which has historically been based upon future projected
discounted cash flows. Impairment charges totaling $4,270,000 were recognized in
2001 related to corporate restructuring efforts (see Notes 8 and 16).
ENVIRONMENTAL EXPENDITURES: Environmental 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 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.
F8
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 sale is recognized.
ADVERTISING COSTS: Advertising costs are expensed as incurred. For the years
ended December 31, 2001, December 31, 2000, and July 31, 1999, these costs were
$404,000, $663,000, and $642,000, respectively. For the five months ended
December 31, 1999 and December 31, 1998, these costs were $303,000 and $237,000,
respectively.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred. For the years ended December 31, 2001, December 31, 2000, and July 31,
1999, these costs were $2,946,000, $3,136,000, and $1,901,000, respectively. For
the five months ended December 31, 1999 and December 31, 1998, these costs were
$1,257,000 and $676,000, respectively.
INCOME TAXES: The Company utilizes the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
FOREIGN CURRENCY CONVERSION: The balance sheets and statements of operations of
the Company's Mexican subsidiaries are converted to US dollars at the year-end
rate of exchange and the monthly weighted average rate of exchange,
respectively. As the Mexican subsidiaries' functional currency is U.S. dollars,
conversion gains or losses resulting from these foreign currency transactions
are included in the accompanying consolidated statements of operations. The
functional currencies for the Company's German and Hungarian subsidiaries are
their local currencies. 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 shareholders' equity.
Through November 2001, a foreign currency loan was used to hedge the value of
the investment in the German subsidiary. Gains and losses on the translation of
this foreign currency loan to U.S. dollars were not included in the statement of
operations but shown as a separate component of shareholders' 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.
EUROPEAN MONETARY UNIT ("EURO"): In 1999, most member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the European Union's new currency, the euro. This conversion
permitted transactions to be conducted in either the euro or the participating
countries' national currencies. By February 28, 2002, all member countries are
expected to have permanently withdrawn their national currencies as legal tender
and replaced their currencies with euro notes and coins.
F9
The euro conversion may have a favorable impact on cross-border competition by
eliminating the effects of foreign currency translations, thereby creating price
transparency. The Company will continue to evaluate the accounting, tax, legal
and regulatory requirements associated with the euro introduction. The Company
does not expect the conversion to the euro to have a material adverse affect on
its consolidated financial position, results of operations, or cash flows.
NET INCOME (LOSS) PER COMMON SHARE: The Company determines net income (loss) per
share in accordance with Statement of Financial Accounting Standards No. 128
"Earnings per Share." Basic earnings per share is computed by dividing reported
earnings available to common shareholders by weighted average shares
outstanding. Diluted earnings per share 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.
The following table reconciles the numerators and denominators of the basic and
diluted net income (loss) per common share calculations:
Income (Loss) Shares Per share amount
-------------------------------------------------------
For the Year Ended December 31, 2001:
Basic net income (loss) per common share ... $(10,650,000) 5,698,000 $(1.87)
Effect of dilutive securities .............. -- -- --
-------------------------------------------------------
Dilutive net income (loss) per common share $(10,650,000) 5,698,000 $(1.87)
-------------------------------------------------------
For the Year Ended December 31, 2000:
Basic net income per common share .......... $ 1,700,000 5,635,000 $0.30
Effect of dilutive securities .............. -- 122,000 --
-------------------------------------------------------
Dilutive net income per common share ....... $ 1,700,000 5,757,000 $0.30
-------------------------------------------------------
For the Year Ended July 31, 1999:
Basic net income per common share .......... $ 5,406,000 5,643,000 $0.96
Effect of dilutive securities .............. -- 233,000 (0.04)
-------------------------------------------------------
Dilutive net income per common share ....... $ 5,406,000 5,876,000 $0.92
-------------------------------------------------------
For the Five Months Ended December 31, 1999:
Basic net income (loss) per common share ... $ (684,000) 5,624,000 $(0.12)
Effect of dilutive securities .............. -- -- --
-------------------------------------------------------
Dilutive net income (loss) per common share $ (684,000) 5,624,000 $(0.12)
-------------------------------------------------------
For the Five Months Ended December 31, 1998:
Basic net income per common share .......... $ 1,961,000 5,641,000 $0.35
Effect of dilutive securities .............. -- 245,000 (0.02)
-------------------------------------------------------
Dilutive net income per common share ....... $ 1,961,000 5,886,000 $0.33
-------------------------------------------------------
During the years ended December 31, 2001, December 31, 2000, and July 31, 1999,
1,268,000, 703,000, and 496,000 stock options, respectively, were excluded from
the dilutive computations because their effect would have been anti-dilutive.
During the five months ended December 31, 1999 and December 31, 1998, 793,000
and 508,000 stock options, respectively, were excluded from the dilutive
computations because their effect would have been anti-dilutive.
F10
RECENT ACCOUNTING PRONOUNCEMENTS: In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standard No.
141, "Business Combinations" ("SFAS No. 141"), which requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. As a result, use of the pooling-of-interests
method is prohibited for business combinations initiated thereafter. SFAS No.
141 also establishes criteria for the separate recognition of intangible assets
acquired in a business combination. In 2001, the Company adopted this statement,
which did not have any impact on its consolidated financial position or results
of operations.
In June 2001, the FASB issued Statement of Financial Accounting Standard No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which requires
that goodwill and certain other intangible assets having indefinite lives no
longer be amortized to earnings, but instead be subject to periodic testing for
impairment. Intangible assets determined to have definitive lives will continue
to be amortized over their useful lives. This statement is effective for the
Company's 2002 year. Effective January 1, 2002, the Company adopted SFAS No. 142
and implemented certain provisions, specifically the discontinuation of goodwill
amortization, and will implement the remaining provisions during 2002. In 2001,
the Company recorded goodwill amortization expense of approximately $808,000.
The Company is currently evaluating the remaining provisions of SFAS No. 142 to
determine the effect, if any, they may have on its consolidated financial
position or results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standard No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), which
provides the accounting requirements for retirement obligations associated with
tangible long-lived assets. This statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. This statement will be effective for the Company's 2003 year.
The adoption of SFAS No. 143 is not expected to have a material impact on the
Company's consolidated financial position or results of operations.
In October 2001, the FASB issued Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"), which excludes from the definition of long-lived assets goodwill and
other intangibles that are not amortized in accordance with SFAS No. 142. SFAS
No. 144 requires that long-lived assets to be disposed of by sale be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. SFAS No. 144 also
expands the reporting of discontinued operations to include components of an
entity that have been or will be disposed of rather than limiting such
discontinuance to a segment of a business. This statement will be effective for
the Company's 2002 year. The Company is currently evaluating the impact of SFAS
No. 144 to determine the effect, if any, it may have on the Company's
consolidated financial position or results of operations.
RECLASSIFICATIONS: Reclassifications, when applicable, are made to the prior
year consolidated financial statements to conform with current year
presentation.
F11
NOTE 2. ACQUISITIONS AND DISPOSITIONS
On May 11, 1999, pursuant to a Share Purchase Agreement dated April 1, 1999, the
Company acquired 100% of the issued and outstanding shares of capital stock of
RFL Electronics Inc. ("RFL"). The Company paid $11,387,000 in cash and gave
promissory notes with an aggregate face amount of $75,000 at closing. In
addition, in fiscal 1999 the Company paid a contingent payment of $1,000,000
based upon the financial performance of RFL for its fiscal year ended March 31,
1999. RFL is a leading supplier of teleprotection and specialized communication
equipment. The acquisition was accounted for using the purchase method.
Accordingly, the aggregate purchase price was allocated to the net assets
acquired based on their respective fair values at the date of acquisition. The
excess of the aggregate purchase price over the fair value of net tangible
assets acquired of $5,838,000 has been allocated to goodwill and is being
amortized on a straight-line basis over 30 years. The results of operations of
RFL, since the acquisition date, are included in the accompanying consolidated
financial statements.
On July 27, 1999, pursuant to an Asset Purchase Agreement dated July 13, 1999,
Condor D.C. Power Supplies, Inc. ("Condor"), a wholly-owned subsidiary of the
Company, acquired certain of the net operating assets of Todd Products
Corporation and Todd Power Corporation (together, "Todd Products"). The Company
paid $7,430,000 comprised of $3,700,000 in cash and assumption of debt equal to
approximately $3,730,000. There was also a contingent "earn-out" payment of
either $1,000,000, $3,000,000 or $5,000,000, payable in the event that sales
from the purchased assets were at least $30,000,000, $35,000,000 or $40,000,000
during the twelve-month period ended March 31, 2001. No contingent payment was
earned or paid. Condor also entered into a ten-year Consulting Agreement with
the chief executive officer of Todd Products for an aggregate consulting fee of
$1,275,000 to be paid in quarterly installments over three years. Todd Products
is a leading supplier of high quality power supplies to the datacom,
telecommunications and computer industries. The acquisition was accounted using
the purchase method. Accordingly, the aggregate purchase price was allocated to
the net assets acquired, based on their respective fair values at the date of
acquisition. The excess of the aggregate purchase price over the fair value of
net tangible assets acquired of $4,665,000 was allocated to goodwill
($3,390,000) and a consulting agreement ($1,275,000). During 2001, an evaluation
of the remaining value of the goodwill and the consulting agreement was
undertaken, resulting in the write off of the remaining unamortized balance of
$4,145,000 due to the impairment of assets acquired in connection with the
acquisition of Todd Products (see Notes 8 and 16).
In July 2001, the Board of Directors authorized the disposition of the Company's
SL Waber, Inc. ("SL Waber") subsidiary. Effective August 27, 2001, substantially
all of the assets of SL Waber and the stock of Waber de Mexico S.A. de C.V. were
sold for approximately $1,053,000. As part of this transaction, the purchaser
acquired the rights to the SL Waber name and assumed certain liabilities and
obligations of SL Waber. Subsequent to the sale, the Company changed the name of
SL Waber to SLW Holdings, Inc. ("SLW Holdings"). The net income or losses of
this subsidiary are included in the consolidated statements of operations under
discontinued operations for all periods presented. There was no activity from
operations of SLW Holdings during the fourth quarter of 2001. Net sales from
discontinued operations for the years ended December 31, 2001, December 31,
2000, and July 31, 1999 were $10,316,000, $19,341,000, and $36,434,000,
respectively. Net sales from discontinued operations for the five months ended
December 31, 1999 and December 31, 1998 were $11,938,000 and $17,007,000,
respectively. The after tax operating losses from discontinued operations for
the years ended December 31, 2001, December 31, 2000, and July 31, 1999, and the
five months ended December 31, 1999
F12
were $3,947,000, $4,723,000, $393,000, and $3,473,000, respectively. The
operating income from discontinued operations for the five months ended December
31, 1998 was $703,000. The provision for income or loss from discontinued
operations reflected in the accompanying consolidated statements of operations
includes the loss recognized in 2001 from the sale of the assets of SL Waber of
$2,745,000 and the income or losses of the subsidiary's operations during all
periods presented through December 31, 2001, net of the expected tax benefits
applicable thereto. As of December 31, 2001, the Company had approximately
$1,300,000 accrued for liabilities related to SL Waber.
NOTE 3. INCOME TAXES
Income (loss) from continuing operations before provision for income taxes
consists of the following:
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
-----------------------------------------------------------------------------
U.S. ....... $(16,405) $ 7,098 $ 8,039 $ 4,491 $ 2,153
Non U.S. ... 5,530 2,967 1,973 890 557
-----------------------------------------------------------------------------
$(10,875) $ 10,065 $ 10,012 $ 5,381 $ 2,710
=============================================================================
The provision (benefit) for income taxes consists of the following:
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
------------------------------------------------------------------------------------
Current:
Federal ..... $(2,114) $ 3,497 $ 2,503 $ 1,692 $ 604
International 677 1,214 876 317 212
State ....... 138 475 624 449 123
Deferred:
Federal ..... (2,231) (1,591) 173 40 453
International 2 (3) 1 99 22
State ....... (644) 50 36 (5) 38
------------------------------------------------------------------------------------
$(4,172) $ 3,642 $ 4,213 $ 2,592 $ 1,452
====================================================================================
The pre-tax domestic loss incurred in 2001 was carried back to prior years
resulting in recoverable income taxes of approximately $3,082,000.
The benefit for income taxes related to discontinued operations consists of
$1,193,000, $3,055,000, and $1,132,000 for the years ended December 31, 2001,
December 31, 2000, and July 31, 1999, respectively, and $2,904,000 and $434,000
for the five months ended December 31, 1999 and December 31, 1998, respectively.
F13
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 2001 and 2000 are as follows:
December 31, December 31,
2001 2000
--------------------------------
(In thousands)
Deferred tax assets:
Deferred compensation ................................... $ 1,900 $ 2,348
Liabilities related to environmental matters ............ 122 148
Inventory valuation ..................................... 1,405 569
Prepaid and accrued expenses ............................ 3,478 2,595
Assets and liabilities related to discontinued operations 136 1,006
State tax loss carryforwards ............................ 1,681 1,625
Intangibles ............................................. 1,723 --
Foreign tax credit carryforwards ........................ 1,272 --
--------------------------------
11,717 8,291
Less valuation allowances ............................... (1,677) --
--------------------------------
10,040 8,291
Deferred tax liabilities:
Accelerated depreciation and amortization ............... 1,696 1,738
Other ................................................... 30 60
--------------------------------
$ 8,314 $ 6,493
================================
As of December 31, 2001, the Company's net operating loss carryforwards
decreased by $4,778,000 to $0 for federal income tax purposes.
As of December 31, 2001, the Company generated foreign tax credits totaling
approximately $1,272,000, through the repatriation of earnings from its German
subsidiaries. These credits can be carried forward for five years and will
expire at the end of 2006.
The Company has assessed its past earnings history and trends, sales backlog,
budgeted sales, and expiration dates of carryforwards and has determined that it
is more likely than not that the $8,314,000 of net deferred tax assets as of
December 31, 2001 will be realized. In 2001, a valuation allowance of
approximately $1,677,000 was provided against gross deferred tax assets due to
the uncertainty of the realization of tax benefits for certain state net
operating loss carryforwards and foreign tax credits.
F14
Following is a reconciliation of income tax expense (benefit) at the applicable
federal statutory rate and the effective rates:
Twelve Twelve Twelve Five Five
Months Months Months Months Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
-------------------------------------------------------------------------
Statutory rate ...................................... (34%) 34% 34% 34% 34%
Tax rate differential on Foreign Sales
Corporation/Extraterritorial Income Exclusion benefit
earnings ............................................ 5 (1) -- -- (1)
International rate differences ...................... (1) 3 1 2 3
State income taxes, net of federal income tax ....... (1) 4 4 8 6
Non-taxable settlement of life insurance class action
suit ................................................ -- (5) -- -- --
Cumulative effect of reduction in German tax
rates ............................................... 9 -- -- -- --
Taxable gain from surrender of life insurance
policies ............................................ (14) -- -- -- --
Discontinued operations adjustments ................. (1) 1 2 3 11
Other ............................................... (1) -- 1 1 1
-------------------------------------------------------------------------
(38%) 36% 42% 48% 54%
========================================================================
NOTE 4. RECEIVABLES
Receivables consist of the following:
December 31, December 31,
2001 2000
-------------------------------------
(In thousands)
Trade receivables.......................... $ 20,189 $ 22,023
Less allowances for doubtful accounts ..... (568) (560)
-------------------------------------
19,621 21,463
Receivables for life insurance policies
surrendered ............................... 10,229 --
Recoverable income taxes .................. 4,355 --
Other ..................................... 1,836 523
-------------------------------------
$ 36,041 $ 21,986
=====================================
Cash surrender value of life insurance policies at December 31, 2000 of
$11,486,000 was reduced to $1,323,000 as of December 31, 2001 due to surrender
of policies aggregating $10,229,000 and other adjustments of $66,000
(see Note 10).
In December 2001, the Company sold back to the purchaser of a former subsidiary
a mortgage note in the outstanding principal amount of $2,200,000. The mortgage
note secured the real property of the former subsidiary. The Company received
cash proceeds of $1,600,000, which was included in other receivables as of
December 31, 2001, in January 2002, all of which were used to pay down
debt under the Company's Revolving Credit Facility (as defined in Note 9).
NOTE 5. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations 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.
F15
NOTE 6. INVENTORIES
Inventories consist of the following:
December 31, December 31,
2001 2000
-----------------------------------
(In thousands)
Raw materials.................................... $15,341 $17,419
Work in process.................................. 5,261 6,496
Finished goods................................... 3,401 2,065
-----------------------------------
24,003 25,980
Less allowances.................................. (3,506) (2,489)
-----------------------------------
$20,497 $23,491
===================================
The above includes certain inventories, which are valued using the LIFO method,
which aggregated $4,560,000 and $3,488,000 as of December 31, 2001 and 2000,
respectively. The excess of FIFO cost over LIFO cost as of December 31, 2001 and
2000 was approximately $335,000 and $507,000, respectively.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31, December 31,
2001 2000
-------------------------------
(In thousands)
Land ................................................ $4,654 $4,494
Buildings and leasehold improvements................. 10,406 10,550
Equipment and other property . ...................... 22,710 21,595
-------------------------------
37,770 36,639
Less accumulated depreciation. ...................... (18,941) (16,858)
-------------------------------
$18,829 $19,781
===============================
NOTE 8. INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31, December 31,
2001 2000
-------------------------------------
(In thousands)
Patents ............................... $ 932 $ 925
Covenants not to compete and consulting
agreement ........................... 2,980 4,255
Goodwill .............................. 15,463 19,523
Trademarks ............................ 920 920
Other ................................. 503 503
-------------------------------------
20,798 26,126
Less accumulated amortization ......... (5,999) (5,356)
-------------------------------------
$ 14,799 $ 20,770
=====================================
F16
During the year ended December 31, 2001, the Company determined that goodwill of
$3,179,000 and a consulting agreement of $966,000 related to the Todd Products
acquisition had become impaired (see Note 16). In addition, goodwill related
to SL Waber was written off in connection with the sale of substantially all of
its assets. A portion of the goodwill related to SL Surface Technologies, Inc.
("Surf Tech") was also written off in 2001.
NOTE 9. DEBT
Debt consists of the following:
December 31, December 31,
2001 2000
-----------------------------
(In thousands)
Short-term bank debt ........... $ 1,367 $ --
=============================
Revolving lines of credit ...... $35,689 $35,318
Mortgages payable .............. 237 437
Term loan ...................... 912 964
-----------------------------
36,838 36,719
Less portion due within one year 35,829 186
-----------------------------
Long-term bank debt ............ $ 1,009 $36,533
=============================
The Company is party to a Second Amended and Restated Credit Agreement dated as
of December 13, 2001, as amended (the "Revolving Credit Facility"). Under the
terms of the Revolving Credit Facility, the Company can borrow for working
capital and other purposes at the prime interest rate plus two percent.
Borrowings are collateralized by substantially all of the Company's assets. The
Revolving Credit Facility contains limitations on borrowings and requires
maintenance of certain financial and non-financial covenants, the most
restrictive of which require certain levels of quarterly net income and a
quarterly minimum fixed charge coverage, which is the ratio of earnings before
interest, taxes, depreciation and amortization, plus operating rent to operating
rent, capital expenditures and interest charges. In addition, the Company is
prohibited from paying dividends. The Revolving Credit Facility matures on
December 31, 2002 and provides for the payment of a fee of approximately
$780,000 in the event that the facility is not retired on or before October 31,
2002.
As of December 31, 2001, outstanding borrowings under the Company's Revolving
Credit Facility were $35,689,000. Available borrowings under the Company's
Revolving Credit Facility were $1,268,000 as of December 31, 2001. The weighted
average interest rate during the years ended December 31, 2001 and December 31,
2000 was 7.57% and 8.98%, respectively.
On March 1, 2002 the Company received a notice from its lenders under the
Revolving Credit Facility stating that it is currently in default under the
Revolving Credit Facility due to its failure to meet the previously scheduled
debt level to $25,500,000 on March 1, 2002. The Company's outstanding debt under
the Revolving Credit Facility was approximately $26,200,000 as of March 1, 2002.
Additionally, the Company did not meet its net income covenant under the
Revolving Credit Facility for the fourth quarter of 2001 due to the charge
related to the impairment of the intangible assets of Condor at December 31,
2001. Also, the Company may not be able to meet its net income covenant for the
first quarter of 2002. The Company and its lenders are currently in discussions
to extend the deadline for the scheduled debt reduction and to obtain a waiver
of the earnings covenant for the fourth quarter of 2001.
The Company's German subsidiary also has $3,457,000 in lines of credit with its
banks that mature in 2002. Under the terms of its lines of credit, the
subsidiary can borrow for any purpose at interest rates ranging from 5.2% to
8.25%. No financial covenants are required. As of December 31, 2001 and 2000,
outstanding borrowings under these facilities were $1,367,000 and $0,
respectively.
F17
As of December 31, 2001 and December 31, 2000, the Company's German subsidiary
had mortgages payable on building additions, at interest rates of 3.95% and
4.75%, respectively, that require principal repayments through 2002 to 2004.
Principal maturities of debt payable over the next three years are $35,829,000,
$996,000, and $13,000 in 2002, 2003, and 2004, respectively.
NOTE 10. RETIREMENT PLANS AND DEFERRED COMPENSATION
The Company maintains three noncontributory defined contribution pension plans
covering substantially all employees. The Company's contribution to its plans is
based on a percentage of employee elective contributions and, in one plan, plan
year gross wages, as defined. Contributions to plans maintained by Teal
Electronics Corporation ("Teal") and RFL are based on a percentage of employee
elective contributions. RFL also makes a profit sharing contribution annually.
Costs accrued under the plans during the years ended December 31, 2001, December
31, 2000 and fiscal year ended July 31, 1999 amounted to approximately
$1,307,000, $1,485,000, and $788,000, respectively. Costs for the five months
ended December 31, 1999 and December 31, 1998 amounted to $624,000 and $312,000,
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 $55,000,
$60,000, and $60,000 for the years ended December 31, 2001, December 31, 2000
and fiscal year ended July 31, 1999, respectively. For the five months ended
December 31, 1999 and December 31, 1998, the amounts were $21,000 and $26,000,
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 $396,000, $420,000,
and $438,000 for the years ended December 31, 2001, December 31, 2000 and fiscal
year ended July 31, 1999, respectively, and $168,000 and $230,000 for the five
months ended December 31, 1999 and December 31, 1998, 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
$115,000, $312,000, and $414,000 for the years ended December 31, 2001, December
31, 2000 and fiscal year ended July 31, 1999, respectively, and $188,000 and
$239,000 for the five months ended December 31, 1999 and December 31, 1998,
respectively.
The Company is the owner and beneficiary of life insurance policies on the lives
of a majority of the participants having a deferred compensation or supplemental
retirement agreement. As of
F18
December 31, 2001, the aggregate death benefit totaled $1,938,000, with the
corresponding cash surrender value of all policies totaling $1,323,000.
As of December 31, 2001, life insurance policies with a cash surrender value of
approximately $11,109,000 were surrendered to the life insurance company in
exchange for the cash proceeds from the build up of cash surrender value in the
policies. In December 2001 and January 2002, the Company received approximately
$880,000 and $10,229,000, respectively, from the surrender of these policies.
These funds were used to pay down debt under the Company's Revolving Credit
Facility.
As of December 31, 2001, certain agreements may restrict the Company from
utilizing cash surrender value totaling approximately $760,000 for purposes
other than the 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 expenses. Net
credits included in income in connection with the policies amounted to $789,000,
$1,399,000, and $354,000 for the years ended December 31, 2001, December 31,
2000 and fiscal year ended July 31, 1999, respectively, and $159,000 and $85,000
for the five months ended December 31, 1999 and December 31, 1998, respectively.
NOTE 11. COMMITMENTS AND CONTINGENCIES
For the years ended December 31, 2001, December 31, 2000 and fiscal year ended
July 31, 1999, rental expense applicable to continuing operations aggregated
approximately $1,696,000, $1,728,000, and $1,114,000, respectively. For the five
months ended December 31, 1999 and 1998, rental expense applicable to continuing
operations aggregated approximately $706,000 and $479,000, respectively. These
expenses are primarily for facilities and vehicles. The minimum rental
commitments as of December 31, 2001 are as follows:
(In thousands)
2002 $1,326
2003 866
2004 680
2005 665
2006 656
Thereafter 164
------
$4,357
======
As of December 31, 2001, the Company was contingently liable for $543,000 under
outstanding letters of credit issued for casualty insurance requirements.
LITIGATION: In the ordinary course of its business, the Company is subject to
loss contingencies pursuant to foreign and domestic federal, state and local
governmental laws and regulations and is also party to certain legal actions,
most frequently involving complaints by terminated employees and disputes with
customers and suppliers. It is management's opinion that the impact of these
legal actions will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
The Company's subsidiary, SL Montevideo Technology, Inc. ("SL-MTI"), is
currently defending a cause of action, brought against it in the fall of 2000 in
the federal district court for the western district of Michigan. The lawsuit was
filed by a customer, alleging breach of contract and warranty in the defective
design and manufacture of a high precision motor. The high precision
F19
motor was developed for use in an aircraft actuation system intended for use by
Vickers Corporation. The complaint seeks compensatory damages of approximately
$3,900,000. Management believes it has strong defenses to these claims and
intends to defend them vigorously.
ENVIRONMENTAL: Loss contingencies include potential obligations to investigate
and eliminate or mitigate the affects on the environment of the disposal or
release of certain chemical substances at various sites, such as Superfund sites
and other facilities, whether or not they are currently in 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 effect on the consolidated
financial position or results of operations of the Company.
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 an independent engineering consulting
firm. In fiscal 1991, 1996 and 1999, based upon estimates, the Company made
additional provisions of $480,000, $900,000 and $375,000, respectively. The
fiscal 1996 provision was necessary since, during the latter part of fiscal
1995, the New Jersey Department of Environmental Protection required the Company
to begin additional investigation of the extent of off-site contamination at its
former facility in Wayne, New Jersey, where remediation had been underway. Based
on the results of that investigation, which were received in fiscal 1996, the
Company determined that additional remediation costs of approximately $1,000,000
were probable.
The Company 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 received $100,000 during 2001, 2000, and fiscal 1999, as
stipulated in the settlement agreement negotiated with one of the three
insurers. During 2000, the Company reversed a separate accrual for a potential
environmental penalty after being advised by legal counsel that there was only a
remote chance such penalty would be enforced. As of December 31, 2001 and
December 31, 2000, the remaining environmental accrual was $290,000 and
$357,000, respectively, of which $190,000 and $257,000, respectively, have been
included in "Accrued Liabilities" and $100,000 and $100,000, respectively, in
"Other Liabilities" in the accompanying consolidated balance sheets.
The Company is the subject of various other lawsuits and actions relating to
environmental issues, including administrative action in connection with Surf
Tech's Pennsauken facility which
F20
could subject the Company to, among other things, $9,266,000 in collective
reimbursements (with other parties) to the New Jersey Department of
Environmental Protection. The Company believes that it has a significant defense
against all or any part of the claim and that any material impact is unlikely.
In May 2000, the Company discovered evidence of possible soil contamination at
its facility in Auburn, New York. The New York State Department of Environmental
Controls has been contacted and an investigation is currently underway. Based
upon the preliminary evidence, management does not believe that it will incur
material remediation costs at this site.
In December 2001, the Company received notice from the Connecticut Department of
Environmental Protection of an administrative hearing to determine
responsibility for contamination at a former industrial site located in New
Haven, Connecticut. The Company has requested an extension of time to determine
the nature of the alleged contamination and the extent of the Company's
responsibility. It is still very early in the investigation; however, based upon
the preliminary investigations, management does not believe that remediation of
this site will have a material adverse effect on its business or operations.
The Company is investigating a possible ground water containment plume on its
property in Camden, New Jersey. The Company does not know the extent of the
contamination or the amount of the cost to remediate.
EMPLOYMENT AGREEMENTS: In 2001, the Company entered into change-of-control
agreements with certain officers of the Company. On January 22, 2002, the
Company held its annual meeting of shareholders for 2001. At the annual meeting,
all eight members of the Board of Directors stood for election. In addition,
five nominees from a committee comprised of representatives of two institutional
shareholders (such committee, the "RORID Committee"), stood for election to the
Board of Directors. Upon the certification of the election results on January
24, 2002, the five nominees of the RORID Committee were elected and three
incumbent directors were re-elected. Following the election of the five new
directors, the Company made payments to such officers under these
change-of-control agreements totaling approximately $1,480,000.
The Company also entered into severance agreements with certain key employees in
2001 that provide for one-time payments in the event of a change in control, as
defined, if the employee is terminated within 12 months of the change. These
payments range from three to 24 months of the employee's base salary as of the
termination date, as defined. If the change in control had occurred on December
31, 2001, and these employees had been terminated, the payments would have
aggregated approximately $4,500,000. All senior divisional management teams are
continuing in their positions.
NOTE 12. 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 non-employee 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
F21
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 fiscal year ended July
31, 1999, the five months ended December 31, 1999, and years ended December 31,
2000 and December 31, 2001 with respect to the Director Plan is as follows:
SHARES OPTION PRICE
(In thousands, except for Option Price)
---------------------------------------
Outstanding and exercisable as of August 1, 1998 .. 54 $3.5625 to $14.625
Granted ........................................... 20 $11.1563 to $14.625
Cancelled ......................................... (6) $12.0313 to $14.625
---------------------------------------
Outstanding and exercisable as of July 31, 1999 ... 68 $3.5625 to $14.625
Granted ........................................... 8 $12.3125 to $13.875
---------------------------------------
Outstanding and exercisable as of December 31, 1999 76 $3.5625 to $14.625
Granted ........................................... 18 $9.1875 to $12.84
---------------------------------------
Outstanding and exercisable as of December 31, 2000 94 $3.5625 to $14.625
Granted ........................................... 16 $6.80 to $14.65
Exercised ......................................... (6) $9.1875 to $11.25
---------------------------------------
OUTSTANDING AND EXERCISABLE AS OF DECEMBER 31, 2001 104 $3.5625 to $14.625
=======================================
As of December 31, 2001 the number of shares available for grant was 54,000.
At the Company's 1991 Annual Meeting, the shareholders approved the adoption of
a Long Term Incentive Plan (the "1991 Plan") which provided for the granting of
options to officers and key employees of the Company to purchase up to 500,000
shares of the Company's common stock. At the 1995 Annual Meeting, the
shareholders approved an amendment to increase the number of shares subject to
options under the 1991 Plan from 500,000 to 922,650. At the 1998 Annual Meeting,
the shareholders approved an amendment to increase the number of shares subject
to options under the 1991 Plan from 922,650 to 1,522,650. The 1991 Plan enables
the Company to grant either nonqualified options, with an exercise price per
share established by the Board's Compensation Committee, or incentive stock
options, with an exercise price per share not less than the fair market value of
the Company's common stock on the date of grant, which are exercisable at any
time. Each option granted under the 1991 Plan expires no later than ten years
from date of grant, and no future options can be granted under the 1991 Plan as
a result of its expiration on September 25, 2001. Information for fiscal year
ended July 31, 1999, the five months ended December 31, 1999, and years ended
December 31, 2000 and December 31, 2001 with respect to the 1991 Plan is as
follows:
SHARES OPTION PRICE
(In thousands, except for Option Price)
---------------------------------------
Outstanding at August 1, 1998 ..... 422 $3.25 to $14.5625
Granted ........................... 174 $11.125 to $12.875
Exercised ......................... (63) $3.25 to $11.125
Cancelled ......................... (24) $9.375 to $11.125
---------------------------------------
Outstanding as of July 31, 1999 ... 509 $3.25 to $14.5625
Granted ........................... 140 $12.125 to $13.50
Exercised ......................... (22) $3.25 to $11.125
Cancelled ......................... (52) $11.00 to $14.5625
---------------------------------------
Outstanding as of December 31, 1999 575 $3.25 to $13.50
Granted ........................... 145 $9.781 to $12.00
Exercised ......................... (63) $3.25 to $9.375
Cancelled ......................... (34) $6.875 to $13.50
---------------------------------------
Outstanding as of December 31, 2000 623 $3.25 to $13.50
Granted ........................... 486 $5.75 to $12.175
Exercised ......................... (35) $6.875 to $13.50
Cancelled ......................... (18) $3.25 to $13.50
---------------------------------------
OUTSTANDING AS OF DECEMBER 31, 2001 1,056 $3.25 to $13.50
---------------------------------------
F22
The number of shares exercisable as of December 31, 2001 was 536,000.
During fiscal 1991, the Board of Directors approved the granting of nonqualified
stock options to purchase 110,000 shares at an option price of $4.13 to the
Chief Executive Officer of the Company. In fiscal 1992, an option to purchase
50,000 shares was granted to another officer of the Company at an option price
of $3.25, with an expiration date of November 30, 1998. Options for 25,100 and
24,900 shares were exercised during fiscal 1998 and 1999, respectively. In
fiscal 1996, an option to purchase 50,000 shares was granted to a subsidiary
officer at an option price of $8.375 and was exercisable 20% at July 31, 1997,
and 50%, 20% and 10% on or after October 13, 1997, April 13, 1998, and April 13,
1999, respectively, with no expiration date, except in the event of termination,
disability or death, provided that the subsidiary officer has been employed
through such date. Options for 8,000 shares, 10,000 shares and 34,000 shares
were exercised during the fiscal year ended July 31, 1998, the five months ended
December 31, 1999, and year ended December 31, 2000, respectively. 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 in the
accompanying consolidated statements of operations 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 (loss) and
net income (loss) per common share would have been as follows:
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
----------------------------------------------------------------------------------
Net income (loss) - as
reported .................. $(10,650,000) $1,700,000 $5,406,000 $(684,000) $1,961,000
Net income (loss) - pro forma $(11,389,000) $1,153,000 $4,799,000 $(909,000) $1,695,000
Diluted net income (loss) per
common share as reported ... $ (1.87) $ .30 $ .92 $ (.12) $ .33
Diluted net income (loss) per
common share pro forma ..... $ (2.00) $ .20 $ .82 $ (.16) $ .29
F23
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
---------------------------------------------------------------------------------------
Expected dividend yield ........... 0.0% .94% .73% .38% .33%
Expected stock price volatility ... 45.95% 29.58% 29.7% 29.58% 36.6%
Risk-free interest rate ........... 5.0% 6.3% 5.0% 6.1% 4.9%
Expected life of option ........... 7 years 7 years 7 years 7 years 7 years
Transactions from August 1, 1998 through December 31, 2001, under the above
plans, were as follows:
Number of Weighted Average
Shares Option Price Weighted Life Remaining
(In thousands) per Share Average Price (Years)
------------------------------------------------------------------------------
Outstanding as of August 1, 1998 .. 653 $3.25 to $14.625 $ 7.67 6.73
Granted ........................... 194 $11.125 to $14.625
Exercised ......................... (88) $3.25 to $11.125
Cancelled ......................... (30) $9.375 to $14.625
------------------------------------------------------------------------------
Outstanding as of July 31, 1999 ... 729 $3.25 to $14.625 $ 8.85 6.71
Granted ........................... 148 $12.125 to $13.875
Exercised ......................... (32) $3.25 to $11.156
Cancelled ......................... (52) $11.00 to $14.5625
------------------------------------------------------------------------------
Outstanding as of December 31, 1999 793 $3.25 to $14.625 $ 9.46 6.80
Granted ........................... 163 $9.1875 to $12.84
Exercised ......................... (97) $3.25 to $9.375
Cancelled ......................... (34) $6.875 to $13.50
------------------------------------------------------------------------------
Outstanding as of December 31, 2000 825 $3.25 to $14.625 $10.06 6.64
Granted ........................... 502 $5.75 to $12.175
Exercised ......................... (41) $6.875 to $13.50
Cancelled ......................... (18) $3.25 to $13.50
------------------------------------------------------------------------------
OUTSTANDING AS OF DECEMBER 31, 2001 1,268 $3.25 to $14.625 $ 9.56 7.98
------------------------------------------------------------------------------
EXERCISABLE AS OF DECEMBER 31, 2001 749 $3.25 to $14.625 $ 9.56
------------------------------------------------------------------------------
The following tables segregate the outstanding options and exercisable options
as of December 31, 2001, into five ranges:
Options Outstanding Range of Option Prices Weighted Weighted Average Life Remaining
(In thousands) per Share Average Price (Years)
-------------------------------------------------------------------------------------------------------------------
162 $3.25 to $5.6875 $ 4.074442 7.08
369 $5.75 to $10.875 $ 6.777959 8.46
288 $11.00 to $12.00 $11.379993 7.18
314 $12.0313 to $13.0625 $12.289174 8.77
135 $13.50 to $14.625 $13.571681 7.65
-----
1,268
-----
Options Exercisable Range of Option Prices Weighted
(In thousands) per Share Average Price
--------------------------------------------------------------------------------
163 $3.25 to $5.6875 $ 4.074442
165 $5.75 to $10.875 $ 7.544435
209 $11.00 to $12.00 $11.323752
127 $12.0313 to $13.0625 $12.437501
85 $13.50 to $14.625 $13.614000
-----
749
-----
F24
NOTE 13. 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 Standard No. 95, "Statement
of Cash Flows", cash flows from Elektro-Metall Export GmbH's ("EME") 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.
In November 2001, EME received approximately $4,100,000 as a progress payment
related to a customer contract. The contract requires that the cash received
from this progress payment be specifically utilized for expenditures related to
EME's performance under this program. As of December 31, 2001, approximately
$3,600,000 of this progress payment is included as a component of other accrued
liabilities in the accompanying consolidated balance sheet.
Supplemental disclosures of cash flow information:
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
-----------------------------------------------------------------------------
(In thousands)
Interest paid ..... $3,378 $3,026 $ 950 $ 970 $434
Income taxes paid . $1,891 $1,288 $3,208 $1,646 $509
Non-cash investing and financing activities:
During 2001, the Company sold substantially all of the assets of SL Waber and
the stock of Waber de Mexico S.A. de C.V. for $1,053,000. In conjunction with
this sale, net assets deconsolidated were as follows:
Book value of net assets sold ............. $3,798,000
Cash received ............................. $1,053,000
During fiscal 1999, Condor acquired certain of the net operating assets of Todd
Products for $7,430,000. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired .............. $12,738,000
Cash paid .................................. $ 7,430,000
Liabilities assumed ........................ $ 5,308,000
During fiscal 1999, the Company acquired all of the capital stock of RFL for
$12,462,000. In conjunction with the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired .............. $16,417,000
Cash paid .................................. $12,387,000
Liabilities assumed ........................ $ 5,166,000
F25
NOTE 14. INDUSTRY SEGMENTS
During the years ended December 31, 2000 and July 31, 1999 and the five months
ended December 31, 1999 and December 31, 1998, the Company was comprised of six
business segments: Power Supplies, Power Conditioning and Distribution Units,
Motion Control Systems, Electric Utility Equipment Protection Systems, Surge
Suppressors and Other. The Surge Suppressor segment was discontinued in 2001 as
a result of the sale of the assets of SL Waber. For the year ended December 31,
2001, the Company changed the composition of its reportable segments to
individual operating business units. Segment information for all periods
presented has been restated to conform with the December 31, 2001 presentation.
At December 31, 2001, the Company was comprised of six operating business units.
Condor produces a wide range of standard and custom power supply products that
convert AC or DC power to direct electrical current to be used in customers' end
products. Power supplies closely regulate and monitor power outputs, using
patented filter and other technologies, resulting in little or no electrical
interference. Teal is a leader in the design and manufacture of customized power
conditioning and power distribution units. Teal products are developed and
manufactured for custom electrical subsystems for Original Equipment
Manufacturers of semiconductor, medical imaging, graphics, and
telecommunications systems. SL-MTI is a technological leader in the design and
manufacture of intelligent, high power density precision motors. New motor and
motion controls are used in numerous applications, including aerospace, medical,
and industrial products. EME is a leader in electromechanical actuation systems,
power drive units, and complex wire harness systems for use in the aerospace and
automobile industries. RFL designs and manufactures teleprotection
products/systems that are used to protect utility transmission lines and
apparatus by isolating faulty transmission lines from a transmission grid. RFL
provides customer service and maintenance for all electric utility equipment
protection systems. SurfTech produces industrial coatings and platings for
equipment in the corrugated paper and telecommunications industries. The other
segment includes corporate related items not allocated to reportable segments
and the results of insignificant operations. The accounting policies of these
business units are the same as those described in the summary of significant
accounting policies (see Note 1 for additional information). The Company's
reportable business units are managed separately because each offers different
products and services and requires different marketing strategies.
Business unit operations are conducted through domestic and foreign
subsidiaries. For all periods presented, sales between business units were not
material. No single customer accounted for more than 10% of consolidated net
sales or a segment's net sales during 2001, 2000, fiscal 1999, or the five
months ended December 31, 1999 or December 31, 1998.
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
------------------------------------------------------------------------------
(In thousands)
NET SALES
Condor ..... $ 48,742 $ 62,567 $30,428 $25,341 $11,778
Teal ....... 13,320 21,832 15,156 8,609 5,600
SL-MTI ..... 19,262 14,201 15,081 5,765 5,894
EME ........ 25,609 22,541 19,992 8,122 8,394
RFL ........ 28,447 24,426 5,274 10,073 --
Surf Tech .. 3,087 2,838 2,763 1,122 1,143
------------------------------------------------------------------------------
Consolidated $138,467 $148,405 $88,694 $59,032 $32,809
==============================================================================
F26
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (In thousands)
Condor .................................. $ 1,226 $ 4,203 $ 5,776 $ 2,118 $2,289
Teal .................................... 603 3,803 1,987 1,350 424
SL-MTI .................................. 1,981 1,032 1,223 (91) 336
EME ..................................... 3,152 2,082 1,654 956 482
RFL ..................................... 3,230 2,523 510 1,167 --
Surf Tech ............................... (760) (115) 10 94 9
Other expenses and Corporate office ..... (6,188) (1,637) (407) (1,023) (559)
Write-down of inventory (a) ............. (2,940) -- -- -- --
Restructuring charges (b) ............... (3,868) -- -- -- --
Impairment of intangible assets (c) ..... (4,270) -- -- -- --
Settlement of class action suit ......... -- 875 -- -- --
------------------------------------------------------------------------------
Income (loss) from operations ........... (7,834) 12,766 10,753 4,571 2,981
Demutualization of life insurance company -- -- -- 1,812 --
Interest income ......................... 366 344 250 75 120
Interest expense ........................ (3,407) (3,045) (991) (1,077) (391)
------------------------------------------------------------------------------
Income (loss) from continuing operations
before taxes ............................ $(10,875) $10,065 $10,012 $ 5,381 $2,710
==============================================================================
(a) Includes $2,890 and $50 related to Condor and Surf Tech, respectively (see
Note 16).
(b) Includes $3,683 and $185 related to Condor and Surf Tech, respectively (see
Note 16).
(c) Includes $4,145 and $125 related to Condor and Surf Tech, respectively (see
Note 16).
As of As of
December 31, December 31,
2001 2000
-----------------------------
IDENTIFIABLE ASSETS (In thousands)
Condor ......................... $ 20,740 $ 31,889
Teal ........................... 9,834 11,108
SL-MTI ......................... 11,637 9,410
EME ............................ 23,524 18,215
RFL ............................ 17,445 16,193
Surf Tech ...................... 3,929 3,533
Other including Corporate Office 20,649 23,133
-------- --------
Consolidated ................... $107,758 $113,481
======== ========
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
------------------------------------------------------------------------------
CAPITAL EXPENDITURES(1) (In thousands)
Condor ......................... $ 578 $ 270 $ 203 $151 $ 136
Teal ........................... 11 122 235 121 158
SL-MTI ......................... 196 280 760 52 659
EME ............................ 632 398 340 128 130
RFL ............................ 195 434 151 297 --
Surf Tech ...................... 671 958 163 98 117
Other including Corporate Office 59 101 49 2 47
------------------------------------------------------------------------------
Consolidated ................... $2,342 $2,563 $1,901 $849 $1,247
==============================================================================
(1) Excludes assets acquired in business combinations.
F27
Twelve Months Twelve Months Twelve Months Five Months Five Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
-----------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION (In thousands)
Condor ......................... $1,745 $1,581 $ 679 $ 626 394
Teal ........................... 762 836 873 369 372
SL-MTI ......................... 395 403 378 173 163
EME ............................ 418 394 570 184 207
RFL ............................ 795 770 169 328 --
Surf Tech ...................... 386 301 252 106 110
Other including Corporate Office 86 94 171 44 --
-----------------------------------------------------------------------------
Consolidated ................... $4,587 $4,379 $3,092 $1,830 $1,246
=============================================================================
Financial information relating to the Company's segments by geographic area as
follows:
Twelve Twelve Twelve Five Five
Months Months Months Months Months
Ended Ended Ended Ended Ended
December 31, December 31, July 31, December 31, December 31,
2001 2000 1999 1999 1998
--------------------------------------------------------------------------
NET SALES(1) (In thousands)
United States ... $100,796 $113,731 $64,895 $46,354 $23,314
Germany ......... 20,762 17,856 14,917 6,378 7,019
Other Foreign ... 16,909 16,818 8,882 6,300 2,476
--------------------------------------------------------------------------
Consolidated .... $138,467 $148,405 $88,694 $59,032 $32,809
==========================================================================
LONG-LIVED ASSETS
United States ... $ 22,407 $ 28,961 $30,529 $28,146 $12,854
Germany ......... 9,407 9,215 9,639 9,454 10,034
Other Foreign ... 1,814 2,375 1,570 2,688 417
--------------------------------------------------------------------------
Consolidated .... $ 33,628 $ 40,551 $41,738 $40,288 $23,305
==========================================================================
(1) Net sales are attributed to countries based on location of customer.
NOTE 15. FOREIGN OPERATIONS
In addition to manufacturing operations in California, Minnesota, New Jersey and
Maryland, the Company manufactures substantial quantities of products in leased
premises located in Mexicali and Matamoros, Mexico; Ingolstadt, Germany; and
Paks, Hungary. These external and foreign sources of supply present risks of
interruption for reasons beyond the Company's control, including political and
other uncertainties. During the year ended December 31, 2001, the Company
manufactured products in two additional facilities in Mexico. The Condor plant
in Reynosa, Mexico was closed in March 2002, and the SLW Holdings plant in
Nogales, Mexico was sold in September 2001.
Generally, the Company's sales are priced in United States dollars and German
marks (European Union euros effective January 1, 2002), and its costs and
expenses are priced in United States dollars, Mexican pesos, German marks
(European Union euros effective January 1, 2002), and Hungarian forints.
Accordingly, the competitiveness of the Company's products relative to locally
produced products may be affected by the performance of the United States dollar
compared with that of its foreign customers' currencies. Foreign sales comprised
27%, 23% and 27% of sales for the years ended December 31, 2001 and December 31,
2000, and fiscal year
F28
ended July 31, 1999, respectively. Foreign sales comprised 21% and 29% of sales
for the five months ended December 31, 1999 and 1998, respectively.
Additionally, the Company is exposed to foreign currency transaction and
translation losses which might result from adverse fluctuations in the values of
the Mexican peso, German mark (European Union euro effective January 1, 2002),
and Hungarian forint. As of December 31, 2001, the Company had net liabilities
of $241,000 subject to fluctuations in the value of the Mexican peso, net assets
of $4,578,000 subject to fluctuations in the value of the German mark, and net
assets of $507,000 subject to fluctuations in the value of the Hungarian forint.
Fluctuations in the value of the Mexican peso, German mark, and Hungarian forint
have not been significant in 2000 and 2001. However, there can be no assurance
that the value of the Mexican peso, European Union euro, or Hungarian forint
will continue to remain stable.
EME manufactures all of its products in Germany or Hungary and incurs its costs
in German marks (European Union euros effective January 1, 2002) or Hungarian
forints. EME's sales are priced in German marks (European Union euros effective
January 1, 2002) and United States dollars. Condor manufactures substantially
all of its products in Mexico and incurs its labor costs and supplies in Mexican
pesos. SL-MTI manufactures an increasing amount of its products in Mexico and
incurs related labor costs and supplies in Mexican pesos. Both Condor and SL-MTI
price their sales in United States dollars. EME maintains its books and records
in German marks (European Union euros effective January 1, 2002), and its
Hungarian subsidiary maintains its books and records in Hungarian forints. The
Mexican subsidiaries of Condor and SL-MTI maintain their books and records in
Mexican pesos.
NOTE 16. RESTRUCTURING COSTS AND IMPAIRMENT CHARGES
The Company recorded restructuring, impairment charges, and inventory
write-downs during the year ended December 31, 2001 summarized as follows:
Impairment Inventory
Restructuring of Write-
Costs Intangibles downs
-------------------------------------------
(In thousands)
Condor - intangible asset impairment .... $ -- $4,145 $ --
Condor - workforce reduction and other .. 3,683 -- --
Condor - inventory write-off ............ -- -- 2,890
Surf Tech - intangible asset impairment . -- 125 --
Surf Tech - fixed asset write-offs ...... 125 -- --
Surf Tech - workforce reduction and other 60 -- --
Surf Tech - inventory write-off ......... -- -- 50
-------------------------------------------
Total restructuring and impairment
charges .............................. $3,868 $4,270 $2,940
===========================================
The Condor restructuring charge relates to the closure of its facility in
Reynosa, Mexico. The workforce reduction charges are primarily for severance
costs and are discussed more fully below.
During 2001, the Company implemented a plan to restructure certain of its
operations as a result of a significant reduction in the demand for products by
telecommunications equipment
F29
manufacturers. The sharp decrease in orders for telecommunications-related
products occurred abruptly in the first quarter and continued to the end of
2001. As a result, the Company needed to reduce its fixed costs and
manufacturing capacity in line with substantially lower sales forecasts.
The restructuring plan was designed to address these requirements in a
deliberate manner that would not overburden the Company's personnel and monetary
resources. It consisted of the following actions:
1) the closure of Condor's engineering and sales support facility
in Brentwood, New York;
2) the closure of Condor's manufacturing facility in Reynosa,
Mexico; and
3) the substantial reduction in employees and staff at Condor's
continuing manufacturing facilities in Mexicali, Mexico and
headquarters in Oxnard, California.
The charge for facility closures relates primarily to the write-off of equipment
and other fixed assets to be disposed of or abandoned. A portion of the charge
represents the Company's estimate of the future lease commitments and buyout
options for closed facilities. The Company anticipates that such facilities will
be closed and assets will be disposed of by the end of the second quarter of
2002. Lease payments for the closed facilities extend into 2003.
The restructuring plan included the termination of approximately 828 employees,
and payment of related severance benefits. Approximately 810 employees have been
terminated as of December 31, 2001. The remaining terminations and associated
termination payments are expected to be effected in the first quarter of 2002.
As of December 31, 2001, approximately $1,163,000 of the restructuring costs is
included as a component of other accrued liabilities in the accompanying
consolidated balance sheet.
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
March 31, 2001 June 30, 2001 September 30, 2001 December 31, 2001
------------------------------------------------------------------------------
(In thousands, except per share data)
TWELVE MONTHS ENDED DECEMBER 31, 2001
Net sales (a) ................................. $37,582 $32,479 $33,968 $34,438
Gross margin (b) .............................. $12,294 $ 7,102 $11,347 $11,321
Income (loss) from continuing operations before
income taxes (c) .............................. $ 1,359 $(4,734) $(1,489) $(6,011)
Net income (loss) (d) ......................... $ 479 $(5,312) $(2,710) $(3,107)
Diluted net income per common share ........... $ 0.08 $ (0.93) $ (0.47) $ (0.54)
(a) Excludes net sales from discontinued
operations of ............................. $ 6,145 $ 2,913 $ 1,258 $ --
(b) Excludes gross margin from discontinued
operations of ............................. $ 589 $ 393 $ (338) $ --
(c) Excludes income (losses) before income
taxes from discontinued operations of ..... $ (500) $(1,063) $(5,461) $ 1,884
(d) Includes income (losses) from
discontinued operations net of
tax ....................................... $ (32) $(2,586) $(1,626) $ 297
F30
----------------------------------------------------------------------------
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
March 31, 2000 June 30, 2000 September 30, 2000 December 31, 2000
----------------------------------------------------------------------------
(In thousands, except per share data)
TWELVE MONTHS ENDED DECEMBER 31, 2000
Net sales (e) .................................. $37,409 $39,098 $36,260 $35,638
Gross margin (f) ............................... $13,862 $13,985 $11,111 $12,152
Income from continuing operations
before income taxes (g) ................ $ 2,648 $ 2,899 $ 2,390 $ 2,128
Net income (loss)(h) ........................... $ 548 $ 796 $ 729 $ (373)
Diluted net income per common share ............ $ 0.09 $ 0.14 $ 0.13 $ (0.07)
(e) Excludes net sales from discontinued
operations of .............................. $ 6,128 $ 5,046 $ 4,582 $ 3,585
(f) Excludes gross margin from discontinued
operations of .............................. $ 1,201 $ 977 $ 325 $ (430)
(g) Excludes (losses) before income taxes
from discontinued operations of ............ $(1,567) $(1,546) $(1,763) $(2,902)
(h) Includes (losses) from discontinued
operations net of tax ...................... $(1,007) $ (996) $(1,119) $(1,601)
F31
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------------------------------------------------------------------------------------------------------
Additions
---------
Balance at Charged to Charged
Beginning Costs and to Other Balance at End of
Description of Period Expenses Accounts Deductions Period
---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
TWELVE MONTHS ENDED DECEMBER 31, 2001
Allowance for:
Doubtful accounts ............................ $560 $469 $ -- $461(b) $568
TWELVE MONTHS ENDED DECEMBER 31, 2000
Allowance for:
Doubtful accounts ............................ $416 $389 $ 40(a) $285(b) $560
TWELVE MONTHS ENDED JULY 31, 1999
Allowance for:
Doubtful accounts ............................ $233 $ 40 $142(a) $ 35(b) $380
FIVE MONTHS ENDED DECEMBER 31, 1999
Allowance for:
Doubtful accounts ............................ $380 $ 10 $ 58(a) $ 32(b) $416
FIVE MONTHS ENDED DECEMBER 31, 1998 (Unaudited)
Allowance for:
Doubtful accounts ............................ $233 $ 13 $ 32(a) $ 0(b) $278
(a) Due to reclassifications.
(b) Accounts receivable written off, net of recoveries.
F32
INDEX TO EXHIBITS
The exhibit number, description and sequential page number in the original copy
of this document where exhibits can be found as follows:
Exhibit # Description
3.1 Articles of Incorporation. Restated Articles of Incorporation.
Incorporated by reference to Exhibit 3.1 to the Registrant's
report on Form 10-K for the fiscal year ended December 31, 2000.
3.2 By-Laws. Restated By-Laws. Incorporated by reference to Exhibit
3.2 to the Registrant's report on Form 10-K for the fiscal
year ended December 31, 2000.
10.1 Supplemental Compensation Agreement for the Benefit of Byrne
Litschgi. Incorporated by reference to Exhibit 10.1 to the
Registrant's 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.
--------------------------------------------------------------------------------
Page 52
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
--------------------------------------------------------------------------------
Page 53
reference to Exhibit 10.26 to the Registrant's report on Form
10-K for the fiscal year ended July 31, 1997.
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.
10.28 Severance Pay Agreement with Jacob Cherian Jr. Incorporated by
reference to Exhibit 10.28 to the Registrant's report on Form
10-K for the fiscal year ended December 31, 2000.
10.29 Waiver and Amendment No. 1 to $40,000,000 Revolving Credit
Facility for SL Industries, Inc., Agented by Mellon Bank N.A.
Incorporated by reference to Exhibit 10 to the Registrant's
report on Form 8-K filed with the Securities and Exchange
Commission on July 11, 2001.
10.30 Change in Control Agreement between the Registrant and Mr. Owen
Farren. Incorporated by reference to Exhibit 10.1 to the
Registrant's report on Form 10-Q for the quarterly period ended
June 30, 2001.
10.31 Change in Control Agreement between the Registrant and Mr. David
R. Nuzzo. Incorporated by reference to Exhibit 10.2 to the
Registrant's report on Form 10-Q for the quarterly period ended
June 30, 2001.
10.32 Change in Control Agreement between the Registrant and Mr. Jacob
Cherian. Incorporated by reference to Exhibit 10.3 to the
Registrant's report on Form 10-Q for the quarterly period ended
June 30, 2001.
10.33 Amended Change in Control Agreement between the Registrant and
Mr. Owen Farren. Incorporated by reference to Exhibit 10.1 to
the Registrant's report on Form 10-Q for the quarterly period
ended September 30, 2001.
10.34 Amended Change in Control Agreement between the Registrant and
Mr. David R. Nuzzo. Incorporated by reference to Exhibit 10.2 to
the Registrant's report on Form 10-Q for the quarterly period
ended September 30, 2001.
10.35 Amended Change in Control Agreement between the Registrant and
Mr. Jacob Cherian. Incorporated by reference to Exhibit 10.3 to
the Registrant's report on Form 10-Q for the quarterly period
ended September 30, 2001.
10.36 Form of Amended and Restated Credit Agreement dated as of
December 13, 2001 among SL Industries, Inc., Mellon Bank N.A.,
as Agent, and certain other persons. Incorporated by reference
to Exhibit 10 to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission on December 26, 2001.
21 Subsidiaries of the Registrant (transmitted herewith)
23 Consent of Independent Accountants (transmitted herewith)
99.1 Executive Change in Control Rabbi Trust Agreement dated January
18, 2002. Incorporated by reference to Exhibit 99 to the
Registrant's report on Form 8-K filed with the Securities and
Exchange Commission on January 23, 2002.
99.2 Letter to the Securities and Exchange Commission from SL
Industries, Inc. pursuant to SEC Release No. 33-8070, dated
March 18, 2002 (transmitted herewith).
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