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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-4987
SL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 21-0682685
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 FELLOWSHIP ROAD, SUITE A114, MT. LAUREL, NJ 08054
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 856-727-1500
Securities registered pursuant to Section 12(b) of the Act: 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____
The number of shares of common stock outstanding as of November 4, 2002
were 5,895,436.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001.........................1
Consolidated Statements of Operations
Three Months Ended September 30, 2002 and 2001
and Nine Months Ended September 30, 2002 and 2001..............2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001..................3
Notes to Consolidated Financial Statements..........................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................18
Item 3. Quantitative and Qualitative Disclosures about Market Risk ...........26
Item 4. Controls and Procedures...............................................26
PART II. OTHER INFORMATION..................................................26
SIGNATURES....................................................................28
ITEM 1. FINANCIAL STATEMENTS
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,644,000 $ 6,577,000
Receivables, net 20,687,000 36,041,000
Inventories, net 18,929,000 20,497,000
Prepaid expenses 1,116,000 815,000
Deferred income taxes 6,364,000 6,300,000
------------- -------------
Total current assets 52,740,000 70,230,000
Property, plant and equipment, less accumulated depreciation
of $21,608,000 and $18,941,000, respectively 18,197,000 18,829,000
Deferred income taxes 2,003,000 2,014,000
Cash surrender value of life insurance policies 962,000 1,323,000
Intangible assets, less accumulated amortization
of $6,316,000 and $6,017,000, respectively 14,505,000 14,799,000
Other assets 569,000 563,000
------------- -------------
Total assets $ 88,976,000 $ 107,758,000
============= =============
LIABILITIES
Current liabilities:
Short-term bank debt $ 4,109,000 $ 1,367,000
Long-term debt due within one year 20,149,000 35,829,000
Accounts payable 5,736,000 8,149,000
Accrued income taxes 356,000 2,019,000
Accrued liabilities:
Payroll and related costs 5,710,000 7,609,000
Other 10,814,000 11,781,000
------------- -------------
Total current liabilities 46,874,000 66,754,000
Long-term debt less portion due within one year 38,000 1,009,000
Deferred compensation and supplemental retirement benefits 4,276,000 4,268,000
Other liabilities 2,952,000 2,523,000
------------- -------------
Total liabilities 54,140,000 74,554,000
------------- -------------
Commitments and contingencies (Note 8)
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued -- --
Common stock, $.20 par value; authorized, 25,000,000 shares;
issued, 8,298,000 shares 1,660,000 1,660,000
Capital in excess of par value 38,763,000 39,025,000
Retained earnings 9,401,000 8,897,000
Accumulated other comprehensive income (loss) 305,000 (5,000)
Treasury stock at cost, 2,407,000 and 2,587,000 shares, respectively (15,293,000) (16,373,000)
------------- -------------
Total shareholders' equity 34,836,000 33,204,000
------------- -------------
Total liabilities and shareholders' equity $ 88,976,000 $ 107,758,000
============= =============
See accompanying notes to consolidated financial statements.
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three-Months Ended* Nine-Months Ended*
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $34,580,000 $33,968,000 $101,937,000 $104,029,000
----------- ----------- ------------ ------------
Cost and expenses:
Cost of products sold 22,616,000 22,571,000 67,319,000 70,345,000
Write-down of inventory -- 50,000 -- 2,940,000
Engineering and product development 2,114,000 1,979,000 6,165,000 6,560,000
Selling, general and administrative 7,936,000 6,836,000 22,853,000 20,325,000
Depreciation and amortization 911,000 1,169,000 2,655,000 3,482,000
Special charges -- -- 1,834,000 --
Restructuring costs -- 1,783,000 265,000 2,891,000
----------- ----------- ------------ ------------
Total cost and expenses 33,577,000 34,388,000 101,091,000 106,543,000
----------- ----------- ------------ ------------
Income (loss) from operations 1,003,000 (420,000) 846,000 (2,514,000)
Other income (expense):
Interest income 31,000 99,000 171,000 278,000
Interest expense (443,000) (1,168,000) (1,428,000) (2,628,000)
----------- ----------- ------------ ------------
Income (loss) from continuing operations before income taxes 591,000 (1,489,000) (411,000) (4,864,000)
Income tax provision (benefit) 8,000 (405,000) (602,000) (1,565,000)
----------- ----------- ------------ ------------
Income (loss) from continuing operations 583,000 (1,084,000) 191,000 (3,299,000)
----------- ----------- ------------ ------------
Discontinued operations (net of tax) -- (1,626,000) 313,000 (4,244,000)
Net income (loss) $ 583,000 $(2,710,000) $ 504,000 $ (7,543,000)
=========== =========== ============ ============
BASIC NET INCOME (LOSS) PER COMMON SHARE
Income (loss) from continuing operations $ 0.10 $ (0.19) $ 0.03 $ (0.58)
Discontinued operations (net of tax) -- (0.28) 0.06 (0.74)
----------- ----------- ------------ ------------
Net income (loss) $ 0.10 $ (0.47) $ 0.09 $ (1.32)
=========== =========== ============ ============
DILUTED NET INCOME (LOSS) PER COMMON SHARE
Income (loss) from continuing operations $ 0.10 $ (0.19) $ 0.03 $ (0.58)
Discontinued operations (net of tax) -- (0.28) 0.06 (0.74)
----------- ----------- ------------ ------------
Net income (loss) $ 0.10 $ (0.47) $ 0.09 $ (1.32)
=========== =========== ============ ============
Shares used in computing basic net income (loss)
per common share 5,892,000 5,707,000 5,856,000 5,695,000
Shares used in computing diluted net income (loss)
per common share 5,894,000 5,707,000 5,896,000 5,695,000
* RECLASSIFIED FOR COMPARATIVE PURPOSES ONLY.
See accompanying notes to consolidated financial statements.
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
Three-Months Ended Nine-Months Ended
September 30, September 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net Income (loss) $ 583,000 $(2,710,000) $ 504,000 $(7,543,000)
Other comprehensive income (loss):
Currency translation adjustment, net of related taxes (92,000) 160,000 310,000 225,000
----------- ----------- ----------- -----------
Comprehensive income (loss) $ 491,000 $(2,550,000) $ 814,000 $(7,318,000)
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
2002 2001
-------------- -------------
OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 191,000 $ (3,299,000)
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by operating activities:
Depreciation 2,192,000 2,263,000
Amortization 463,000 1,219,000
Restructuring charges 265,000 2,891,000
Write-down of inventory -- 2,940,000
Provisions for losses on accounts receivable (41,000) 154,000
Additions to other assets (163,000) (206,000)
Cash surrender value of life insurance premiums 16,000 (781,000)
Deferred compensation and supplemental retirement benefits 411,000 427,000
Deferred compensation and supplemental retirement benefit payments (1,919,000) (357,000)
(Increase) decrease in deferred income taxes 554,000 (3,620,000)
(Gain) loss on sales of assets,net (141,000) 1,000
Investment in Kreiss Johnson -- 107,000
Changes in operating assets and liabilities, excluding effects of business dispositions:
Accounts receivable 1,456,000 (1,665,000)
Inventories 2,008,000 (513,000)
Prepaid expenses (281,000) 66,000
Accounts payable (1,573,000) (3,320,000)
Other accrued liabilities (3,564,000) (2,948,000)
Accrued income taxes 2,910,000 2,948,000
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,784,000 (3,683,000)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sales of assets 167,000 1,035,000
Purchases of property, plant, and equipment (1,409,000) (1,911,000)
Decrease in notes receivable 1,000 29,000
Proceeds from cash surrender life insurance policies 10,676,000 --
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 9,435,000 (847,000)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from life insurance policy -- 256,000
Proceeds from short-term debt 2,428,000 1,144,000
Proceeds from long-term debt 15,100,000 16,100,000
Payments on long-term debt (31,733,000) (12,632,000)
Proceeds from stock options exercised 756,000 449,000
Treasury stock sold 62,000 89,000
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (13,427,000) 5,406,000
------------ ------------
NET CASH PROVIDED BY(USED IN) DISCONTINUED OPERATIONS 25,000 (827,000)
Effect of exchange rate changes on cash 250,000 206,000
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (933,000) 255,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,577,000 1,189,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,644,000 $ 1,444,000
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,655,000 $ 2,680,000
Income taxes $ 1,703,000 $ 1,387,000
See accompanying notes to consolidated financial statements.
SL INDUSTRIES, INC.
Notes to Consolidated Financial Statements -- Unaudited
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. Operating results for interim
periods are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002. These financial statements should be read in
conjunction with the Company's audited financial statements and notes thereon
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001.
LIQUIDITY: The Company is party to a Second Amended and Restated Credit
Agreement, dated December 13, 2001, as amended (the "Revolving Credit
Facility"), 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 therein, 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. 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.
On May 23, 2002, the Company and its lenders reached an agreement pursuant to
which the lenders granted a waiver of default and amendments to the violated
financial covenants, so that the Company would be in full compliance with the
Revolving Credit Facility. The agreement provides, among other things, for the
Company to pay-down outstanding borrowings by $689,000 to $25,500,000 and for
the payment to the lenders of an amendment fee of $130,000.
The Revolving Credit Facility matures on December 31, 2002 and provides for the
payment of a facility fee of $780,000 in the event that the Revolving Credit
Facility is not repaid by October 31, 2002. The Company did not repay the
Revolving Credit Facility prior to October 31, 2002 and paid such facility fee.
The Company is currently negotiating to refinance the Revolving Credit Facility,
although there can be no assurance that the Company will be able to refinance
the Revolving Credit Facility prior to December 31, 2002 or that the Revolving
Credit Facility will be refinanced successfully (See Note 6).
In connection with the refinancing of the Company's Revolving Credit Facility,
the Company signed a commitment letter with a nationally recognized lending
institution to refinance its existing Revolving Credit Facility, such commitment
letter terminates on November 18, 2002. The Company had also signed a commitment
letter with Steel Partners II, LP, an entity controlled by the Company's
Chairman and Chief Executive Officer, to provide a subordinated
-4-
loan in the amount of $5,000,000 in connection with the refinancing of the
Revolving Credit Facility. As the refinancing did not occur, the subordinated
loan was not made.
The accompanying 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.
2. RECEIVABLES
Receivables at September 30, 2002 and December 31, 2001 consisted of the
following:
September 30, December 31,
2002 2001
(in thousands)
----------------------------
Trade receivables $ 20,738 $ 20,189
Less allowances for doubtful accounts
(310) (568)
-------- --------
20,428 19,621
Receivables for life insurance policies
surrendered -- 10,229
Recoverable income taxes 259 4,355
Other -- 1,836
-------- --------
$ 20,687 $ 36,041
======== ========
In January 2002, the Company received $10,229,000 from the surrender value of
life insurance policies. In June 2002 the Company received a $2,200,000 United
States tax refund. In July 2002 the Company received a $1,400,000 German tax
refund both of which were classified as recoverable income taxes at December 31,
2001. These funds were used principally to pay down debt under the Company's
Revolving Credit Facility (See Notes 1 and 6).
3. INVENTORIES
Inventories at September 30, 2002 and December 31, 2001 consisted of the
following:
September 30, December 31,
2002 2001
(in thousands)
----------------------------
Raw materials $ 13,502 $ 15,341
Work in process 5,952 5,261
Finished goods 2,490 3,401
------ ------
21,944 24,003
Less allowances (3,015) (3,506)
------ ------
$ 18,929 $ 20,497
======== ========
4. INCOME (LOSS) PER SHARE
The Company has presented net income (loss) per common share pursuant to the
Financial Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 128,
-5-
"Earnings per Share." Basic net income (loss) per common share is computed by
dividing reported net income (loss) available to common shareholders by the
weighted average number of shares outstanding for the period. Diluted net income
per common share is computed by dividing reported net income available to common
shareholders by the weighted average shares outstanding for the period, adjusted
for the dilutive effect of common stock equivalents, which consist of stock
options, using the treasury stock method.
The table below sets forth the computation of basic and diluted net income
(loss) per share:
Three Months Ended September 30,
2002 2001
----------------------------------------- ---------------------------------------
(in thousands, except per share amounts)
Net Income from Per Share Net (Loss) from Per Share
Continuing Amount Continuing Shares Amount
Operations Shares Operations
---------------------------------------------------------------------------------------
Basic net income (loss)
per common share $ 583 5,892 $0.10 $(1,084) 5,707 $ (0.19)
Effect of dilutive
securities -- 2 -- -- -- --
-------- ------ ----- ------- ----- ------
Diluted net income (loss)
per common share $ 583 5,894 $0.10 $(1,084) 5,707 $ (0.19)
======== ====== ===== ======= ===== ========
Nine Months Ended September 30,
2002 2001
----------------------------------------- ----------------------------------------
(in thousands, except per share amounts)
Net Income from Per Share Net (Loss) from
Continuing Amount Continuing Per Share
Operations Shares Operations Shares Amount
----------------------------------------------------------------------------------------
Basic net income (loss)
per common share $ 191 5,856 $ 0.03 $(3,299) 5,695 $(0.58)
Effect of dilutive
securities -- 40 -- -- -- --
------- ----- ------ ------- ----- ------
Diluted net income (loss)
per common share $ 191 5,896 $ 0.03 $(3,299) 5,695 $(0.58)
======= ===== ====== ======= ===== ======
For the three month and nine-month periods ended September 30, 2001, common
stock options of 1,527,066 and 351,658, respectively, were outstanding but were
excluded from the diluted
-6-
computation because the Company incurred a net loss
and the effect of including the options would be anti-dilutive.
For the three-month and nine-month periods ended September 30, 2002, options to
purchase 586,784 and 539,264 shares of stock, respectively, were excluded from
the diluted computation because the option exercise prices were greater than the
average market price of the Company's common stock during these periods.
5. 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 June
2001, the Company adopted this statement, which did not have any impact on its
consolidated financial position or results of operations.
In June 2001, 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 estimated useful lives. This statement is effective
for the Company's 2002 fiscal 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. The Company conducted its initial test for impairment in
the second quarter of 2002. The Company allocated its adjusted goodwill balance
to its reporting units and conducted the transitional impairment tests required
by SFAS No. 142. The fair values of the reporting units were estimated using a
combination of the expected present values of future cash flows and an
assessment of comparable market values. No impairment charges were recorded
during the quarter. The Company will test for impairment after the annual
forecasting process is completed which will occur in the fourth quarter of the
year or as impairment indicators arise.
There were no changes in the classifications of intangible assets or their
remaining useful lives upon adoption of this pronouncement.
The components of intangible assets are as follows:
INTANGIBLE ASSETS:
September 30, 2002 December 31, 2001
Accumulated Accumulated
Gross Value Amortization Net Value Gross Value Amortization Net Value
----------- ------------ --------- ----------- ------------ ---------
(in thousands)
Goodwill 15,482 2,192 13,290 15,482 2,192 13,290
------ ----- ------ ------ ----- ------
Patents 936 507 429 932 454 478
Covenant Not To Compete 2,980 2,875 105 2,980 2,660 320
Trademarks 922 273 649 921 245 676
Other 501 469 32 501 466 35
------ ----- ------ ------ ----- ------
20,821 6,316 14,505 20,816 6,017 14,799
------ ----- ------ ------ ----- ------
-7-
Amortization expense for intangible assets subject to amortization in each of
the next five fiscal years is estimated to be $154,000 in 2003, $112,100 in
years 2004 through 2006 and $111,000 in 2007.
The following table reflects the adjustment to exclude goodwill amortization
expense (including related tax effects) recognized in the prior periods as
presented (in thousands, except per share amounts):
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income (loss) $ 583 $ (2,710) $ 504 $ (7,543)
Add back goodwill amortization -- 127 -- 363
--------- --------- ------------- ---------
Adjusted net income (loss) $ 583 $ (2,583) $ 504 $ (7,180)
--------- --------- ------------- ---------
Income (loss) per share - basic
Reported net income (loss) $ .10 $ (.47) $ .09 $ (1.32)
Goodwill amortization -- .02 -- .06
--------- --------- ------------- ---------
Adjusted net income (loss) $ .10 $ (.45) $ .09 $ (1.26)
--------- --------- ------------- ---------
Income (loss) per share - diluted
Reported net income (loss) $ .10 $ (.47) $ .09 $ (1.32)
Goodwill amortization -- .02 -- .06
--------- --------- ------------- ---------
Adjusted net income (loss) $ .10 $ (.45) $ .09 $ (1.26)
--------- --------- ------------- ---------
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 is effective for the
Company's 2002 fiscal year. Effective January 1, 2002, the Company adopted this
Statement, which did not have an impact on its consolidated financial position
or results of operations.
6. DEBT
Debt consists of the following:
September 30, December 31,
2002 2001
---- ----
(in thousands)
Short-term bank debt $ 4,109 $ 1,367
-------- --------
Revolving lines of credit $ 20,057 $ 35,689
Mortgages payable 130 1,149
-------- --------
20,187 36,838
Less portion due within one year (20,149) (35,829)
-------- --------
Long-term bank debt $ 38 $ 1,009
======== ========
-8-
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 under the Revolving Credit Facility 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
ratio, which is the ratio of earnings before interest, taxes, depreciation and
amortization, plus operating rent, to the sum of operating rent, capital
expenditures and interest charges. In addition, the Company is prohibited under
the Revolving Credit Facility from paying dividends. The Revolving Credit
Facility matures on December 31, 2002 and provides for the payment of a Facility
fee of approximately $780,000 in the event that the "Facility" is not repaid by
October 31, 2002. The Company did not refinance the Revolving Credit Facility by
October 31, 2002 and paid the Facility fee on November 4, 2002, which will be
recorded as interest expense in the fourth quarter of the year.
As of September 30, 2002, outstanding borrowings under the Company's Revolving
Credit Facility were $20,057,000. The Company had available borrowings of
$4,900,000 under the Revolving Credit Facility as of September 30, 2002.
The Company's German subsidiary Elektro-Metall Export GmbH ("EME") also has
$5,570,000 in lines of credit with several banks in Germany. One of those banks,
Deutsche Bank, has indicated that it will terminate its line in two stages,
December 31, 2002 and the remainder of the line at March 31, 2003. EME's
management is presently engaged in discussions with its other two existing
lenders to extend and increase their lines of credit, which expire March 31,
2003. Under the terms of its current lines of credit, EME can borrow for any
purpose at interest rates ranging from 7.125% to 8.25%. No financial covenants
are required.
7. ACCRUED LIABILITIES OTHER
Accrued liabilities and Other at September 30, 2002 and December 31, 2001
consisted of the following:
September 30, December 31,
2002 2001
------- -------
(in thousands)
Taxes other than income $ 867 $ 902
Insurance -- 479
Advertising and promotions 69 79
Interest 53 280
Commissions 503 543
Royalties 84 64
Professional fees and other expenses 904 1,389
Reserves for other fees and services 2,034 1,374
Deferred revenue 2,761 3,760
Other 3,539 2,911
------- -------
$10,814 $11,781
======= =======
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
-9-
specifically utilized for expenditures related to EME's performance under this
program. As of September 30, 2002, $2,761,000 and at December 31, 2001,
$3,760,000 of this progress payment was classified as deferred revenue and
included in other accrued liabilities in the accompanying Consolidated Balance
Sheets. EME is also restricted as to the use of the cash related to this
progress payment. As of September 30, 2002, $2,638,000 of the Company's cash
balance is restricted for use on this customer contract only.
Also included in the above accruals is a restructuring reserve of $274,000 at
September 30, 2002 (there are no remaining severance payments to be made against
this reserve) and $1,163,000 at December 31, 2001. During the third quarter of
2002, $26,000 was charged against the restructuring reserve, all of which were
cash items. The restructuring reserve established during the year ended December
31, 2001 was primarily in response to a significant reduction in the demand for
products by telecommunication equipment manufacturers.
8. COMMITMENTS AND CONTINGENCIES
In the ordinary course of 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.
LITIGATION
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 Eaton Aerospace LLC ("Eaton") 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.
As part of pre-trial motions, both parties filed, briefed and argued
cross-motions for summary judgment. On July 18, 2002, Eaton's motion for partial
summary judgment was granted to the limited extent that the court found that
SL-MTI sold motors to Eaton with an express warranty and an implied warranty of
merchantability. Eaton's motion was denied in all other respects with the court
indicating that the nature and extent of those warranties would have to be
decided by a jury at trial. The trial commenced on October 28, 2002 and is
expected to conclude during the first week of November 2002.
On June 12, 2002, the Company and its subsidiary SL Surface Technologies, Inc.
("SurfTech") were served with notice of class action complaint filed in Superior
Court of New Jersey for Camden County. The Company and SurfTech are currently
two of approximately 39 defendants in this action. The complaint alleges, among
other things, that plaintiffs suffered personal injuries as a result of
consuming contaminated water distributed from the Puchack Wellfield in
Pennsauken, New Jersey (which supplies Camden, New Jersey).
This case arises from the same factual circumstances as the current
administrative actions involving the Puchack Wellfield, which is described under
Commitments & Contingencies-Environmental below. The administrative actions and
the class action lawsuit both allege that SurfTech and other defendants
contaminated ground water through the disposal of hazardous
-10-
substances at industrial facilities in the area. SurfTech once operated a
chrome-plating facility in Pennsauken (the "SurfTech Site").
As with the administrative actions, the Company believes it has significant
defenses against the class action plaintiff's claims and intends to pursue them
vigorously. Technical data generated as part of remedial activities at the
SurfTech Site have not established offsite migration of contaminants. Based on
this and other technical factors, the Company has been advised by its outside
counsel that it has a strong defense against the claims alleged in the class
action plaintiff's complaint, as well as the environmental administrative
actions discussed below.
On August 9, 2002, the Company received a "Demand for Arbitration" with respect
to a claim of $578,000 from a former vendor of SL Waber. The claim concerns a
dispute between SL Waber and an electronics manufacturer based in Hong Kong for
alleged failure to pay for goods under a Supplier Agreement. The Company
believes this claim is without merit and intends to vigorously pursue defenses
with respect to these claims and may bring counter claims against the vendor.
Notwithstanding the outcome of these allegations, the Company does not believe
that this arbitration will have a material adverse effect on its business or
operations.
ENVIRONMENTAL
Loss contingencies include potential obligations to investigate and eliminate or
mitigate the effects on the environment of the disposal or release of certain
chemical substances at various sites, such as Superfund sites and other
facilities, whether or not they are currently in operation. The Company is
currently participating in environmental assessments and cleanups at a number of
sites under these laws and may in the future be involved in additional
environmental assessments and cleanups. Based upon investigations completed by
the Company and its independent engineering consulting firm, to date, management
has provided an estimated 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 offsets 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 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.
-11-
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.
The Company is a party to an administrative action in connection with Surf
Tech's Pennsauken facility, which could subject the Company to, among other
things, $9,266,000 in collective reimbursements (with other parties) to the New
Jersey Department of Environmental Protection. The Company believes that it has
a significant defense against all or any part of the claim and that any material
impact is unlikely.
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 filed motions with the administrative court
denying responsibility in this matter. Regardless of the court decision, the
Company does not believe that remediation of this site will have a material
adverse effect on its business or operations.
The Company is investigating a ground water contamination with respect to its
property in Camden, New Jersey. While a final determination of the extent of the
contamination has not been made, the Company has been informed that the cost to
remediate the property should not exceed $500,000. The Company recorded a
provision for this amount during the first quarter of 2002.
Various legal actions, environmental investigations, proceedings and claims are
pending, including those as mentioned above, or may be instituted or asserted in
the future against the Company. Litigation is subject to many uncertainties, and
the outcome of any individual matter cannot be predicted with assurance. The
Company has established reserves for certain of the matters discussed in the
foregoing paragraphs, where losses are deemed probable. It is possible, however,
that some of the matters discussed in the foregoing paragraphs for which
reserves have not been established could be decided unfavorably and require the
Company to pay damages and other expenditures. Although the Company expects,
based on analysis and recommendations from various outside counsels and other
experts, that it has established adequate reserves for certain other matters, an
unfavorable decision in any individual matter could exceed the estimated
reserve. While management believes the Company has strong defenses in each of
these actions, an unfavorable decision in any one of these actions could have a
material adverse effect on the Company's financial condition.
-12-
EMPLOYMENT AGREEMENTS: The Company entered into severance agreements with
certain key employees in 2001 and in prior years, that provide for one-time
payments in the event that the employee is terminated within 12 months of a
change in control, as defined. These payments range from three to 24 months of
the employee's base salary as of the termination date, as defined. All senior
divisional management teams are continuing in their positions.
9. SPECIAL CHARGES
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 re-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 (which included related benefits) to such officers under these
change-of-control agreements totaling approximately $1,631,000 in the first
quarter of 2002 and incurred additional proxy and legal costs of approximately
$203,000.
10. NEW ACCOUNTING PRONOUNCEMENT NOT YET ADOPTED
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 April 2002, the FASB adopted Statement of Financial Accounting Standards 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("SFAS No. 145"). SFAS No. 145 rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, FASB Statement No. 64, and Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB
Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. SFAS No. 145 is effective for fiscal years beginning after May 15,
2002. The Company is currently evaluating the impact, if any, that
implementation of this statement will have on its results of operations or
financial position.
In June 2002, the FASB issued Statement 146 "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force
-13-
(EITF) Issues No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." The principal difference between this Statement and Issue
94-3 relates to its requirements for recognition of a liability for a cost
associated with an exit or disposal activity is recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue
94-3 was recognized at the date of an entity's commitment to an exit plan. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company is currently evaluating the
impact if any, that implementation of this statement will have on its results of
operations or financial position.
11. SEGMENT INFORMATION
Under the disclosure requirements of Statement of Financial Accounting Standard
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
the Company classifies its operations into the following six operating business
units: Condor D.C. Power Supplies, Inc. ("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
Electronics Corporation ("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 Montevideo Technology, Inc. ("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.
Elektro-Metall Export GmbH ("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 Electronics Inc. ("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. SL Surface Technologies, Inc.
("Surf Tech") 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 Company's reportable business units are managed
separately because each offers different products and services and requires
different marketing strategies.
The three-month and nine month periods ended September 30, 2001 have been
reclassified to conform to the current reporting structure. The unaudited
comparative results for the three-month and nine-month periods are as follows:
-14-
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands)
Net sales from continuing operations:
Condor $ 10,575 $ 10,527 $ 27,773 $ 38,760
Teal 5,295 3,293 14,384 9,508
SL-MTI 4,788 5,257 16,738 13,560
EME 7,495 6,445 19,394 20,089
RFL 5,873 7,641 21,906 19,870
Surf Tech 554 805 1,742 2,242
Other -- -- -- --
-------- -------- -------- --------
Consolidated $ 34,580 $ 33,968 $101,937 $104,029
======== ======== ======== ========
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands)
Operating income (loss) from continuing operations:
Condor $ 849 $ (969) $ 1,044 $(4,687)
Teal 620 21 1,387 543
SL-MTI 174 268 1,113 967
EME 1,005 897 1,687 2,902
RFL 586 942 2,798 2,263
Surf Tech (156) (23) (642) (319)
Other (2,075) (1,556) (6,541) (4,183)
------- ------- ------- -------
Consolidated $ 1,003 $ (420) $ 846 $(2,514)
======= ======= ======= =======
Included in "Other" for the three months ended September 30, 2002 are corporate
expenses, environmental charges, professional and legal fees and other costs
incurred, which are Company related costs not specifically allocated to the
reportable business units. These charges were partially offset by a gain
recorded by the Company related to the sale of real property located in Auburn,
New York. There were no significant restructuring or special charges recorded
during the current quarter.
-15-
Included in "Other" for the nine months ended September 30, 2002 were special
charges of $1,834,000 related to change-of-control and proxy costs, a $772,000
addition to the reserve for environmental matters, professional, legal fees and
other expenses not specifically allocated to the reportable business units.
These charges were partially offset by the gain on the sale of real property
mentioned above.
September 30, December 31,
2002 2001
------------- ------------
(in thousands)
Identifiable assets:
Condor $ 18,669 $ 20,740
Teal 11,383 9,834
SL-MTI 9,536 11,637
EME 23,860 23,524
RFL 16,193 17,445
Surf Tech 3,133 3,929
Other 6,202 20,649
-------- --------
Consolidated $ 88,976 $107,758
======== ========
12. DISCONTINUED OPERATIONS
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 its subsidiary, Waber de Mexico
S.A. de C.V. were sold. As part of this transaction, the purchaser acquired the
rights to the SL Waber name and assumed certain liabilities and obligations of
SL Waber. Subsequent to the sale, the Company changed the name of the SL Waber
subsidiary 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. During the three months ended
March 31, 2002, the Company, based upon a review of potential liabilities,
reduced the accrual for the liabilities (excluding accrued income taxes) related
to SLW Holdings by $450,000.
As of September 30, 2002, the Company had $760,000 accrued for any liabilities
(excluding accrued income taxes) related to SLW Holdings, compared to $1,519,000
at December 31, 2001.
13. SALE OF BUSINESS AND SELECT ASSETS
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 ("CSFB")
assisted the Company's Board of Directors in its review and had been engaged to
lead this process until July 2002.
On July 17, 2002, the Company received notification from CSFB that CSFB was
terminating its engagement as financial advisor to the Company. The termination
was primarily the result of CSFB's internal reorganization and does not
specifically relate to the Company.
-16-
The Company's Board of Directors has determined to continue to explore a sale of
the Company of one or more of its divisions in order to maximize shareholder
value. On August 8, 2002, Imperial Capital, LLC was engaged to spearhead the
Company's initiative to explore a sale of some or all of its businesses and will
also assist management in its ongoing efforts to secure new long term debt to
refinance the Company's current Revolving Credit Facility.
On July 18, 2002 the Company sold its real property located in Auburn, New York
for $175,000 in cash. The Auburn property is the former industrial site of SL
Auburn, Inc., a manufacturer of spark plugs and ignition systems. SL Auburn,
Inc. was sold by the Company in May 1997. The gain from this transaction has
been recorded in the Company's third quarter financial results.
14. RELATED PARTY TRANSACTIONS
During the current year the Company has been billed $219,000 in legal fees by
Olshan Grundman Frome Rosenzweig & Wolosky LLP, a law firm in which a director
of the Company is a senior partner.
In connection with the refinancing of the Revolving Credit Facility, the Company
executed a commitment letter with Steel Partners II, L.P., an entity controlled
by the Company's Chairman and Chief Executive Officer. The commitment letter was
provided in the amount of $5,000,000 by Steel Partners to make a subordinated
loan in connection with the refinancing of the Revolving Credit Facility. As the
refinance did not occur, the subordinated loan was not made.
15. SUBSEQUENT EVENTS
The Company filed a registration statement with the Securities and Exchange
Commission on October 11, 2002 relating to an anticipated distribution to its
shareholders of subscription rights to purchase additional shares of common
stock of the Company. Upon the effectiveness of the registration statement, the
Company will distribute to its shareholders of record as of the record date,
which has not yet been determined, a fixed amount of non-transferable rights to
subscribe for shares of its common stock. It is anticipated that each right will
entitle the holder to purchase one share of the Company's common stock at a
subscription price to be determined. The number of rights to be issued with
respect to each outstanding share on the record date is also to be determined.
Steel Partners II, L.P., an entity controlled by the Company's Chairman and
Chief Executive Officer, has agreed to purchase any shares of common stock of
the Company available under the rights offering that are not purchased by the
Company's shareholders, subject to a $5,000,000 limit.
The Company anticipates that the rights offering will begin promptly following
the effectiveness of the registration statement filed with the Securities and
Exchange Commission, and will continue for thirty days thereafter. The proceeds
of the rights offering will be used to fund working capital requirements.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and growth primarily
through funds generated from operations and borrowings under the Revolving
Credit Facility, as such term is defined in Note 1 in the Notes to Consolidated
Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
During the nine months ended September 30, 2002, the net cash provided by
operating activities was $2.8 million, as compared to net cash used by operating
activities of $3.7 million during the nine months ended September 30, 2001. The
increase, as compared to the same period last year, resulted primarily from
improved operating results, significant reductions in inventory and collections
of receivables, particularly collection of recoverable income taxes, partially
offset by payments under deferred compensation and retirement plans and
reductions in accrued liabilities.
During the nine months ended September 30, 2002, the net cash provided by
investing activities was $9.4 million. This was primarily generated by the
proceeds from the surrender of life insurance policies of $10.7 million received
during the first quarter of the year. In the nine-month period ended September
30,2001, the Company used $0.8 million of net cash, principally due to the
purchase of equipment offset by the proceeds from the sale of assets.
During the nine months ended September 30, 2002, net cash used by financing
activities was $13.4 million, primarily related to the pay down of the Revolving
Credit Facility in the net amount of $15.6 million. In the comparable period
last year, financing activities provided cash of $5.4 million, principally due
to net borrowings from the Revolving Credit Facility of $3.5 million.
As of September 30, 2002, the Company had principal debt outstanding of $20.0
million under the Revolving Credit Facility, as compared to $35.7 million at
December 31, 2001. The reduction in the Revolving Credit Facility balance is due
primarily to improved operating performance, the $10.7 million receipt of the
cash surrender value of life insurance policies and $3.6 million in tax refunds.
The Revolving Credit Facility provides for the Company to borrow up to $25.5
million, subject to commitment fees, but not compensating balances. The
Revolving Credit Facility contains limitations on borrowings and requires
maintenance of certain levels of quarterly net income and a minimum fixed charge
coverage ratio, which is the ratio of earnings before interest, taxes,
depreciation and amortization, plus operating rent, to the sum of operating
rent, capital expenditures and interest charges. The Company is also prohibited
from paying dividends under the Revolving Credit Facility. The Company had $4.9
million available for borrowings under its Revolving Credit Facility as of
September 30, 2002.
The Revolving Credit Facility matures on December 31, 2002 and provides for the
payment of a facility fee of $780,000 in the event that the Revolving Credit
Facility is not repaid by October 31, 2002. The Company did not repay the
Revolving Credit Facility prior to October 31, 2002 and paid such facility fee.
The Company is currently negotiating to refinance the Revolving Credit Facility,
although there can be no assurance that the Company will be able to refinance
the Revolving Credit Facility prior to December 31, 2002 or that the Revolving
Credit Facility will be refinanced successfully.
- 18 -
In connection with the refinancing of the Company's Revolving Credit Facility,
the Company signed a commitment letter with a nationally recognized lending
institution to refinance its existing Revolving Credit Facility, such commitment
letter terminates on November 18, 2002. The Company had also signed a commitment
letter with Steel Partners II, LP, an entity controlled by the Company's
Chairman and Chief Executive Officer, to provide a subordinated loan in the
amount of $5,000,000 in connection with the refinancing of the Revolving Credit
Facility. As the refinancing did not occur, the subordinated loan was not made.
The Company has retained Imperial Capital, LLC to spearhead the Company's
initiative to explore a sale of some or all of its businesses and to assist
management in its ongoing efforts to secure new long term debt to refinance the
Company's current Revolving Credit Facility which matures on December 31, 2002.
The Company's German subsidiary, EME, also has $5.6 million in lines of credit
with its banks in Germany. One of those banks, Deutsche Bank, has indicated that
it will terminate its line in two stages, December 31,2002 and the remainder of
the line on March 31,2003. EME's management is presently engaged in discussions
with its other two existing lenders to extend and increase their lines of
credit, which expire March 31, 2003. Under the terms of its current lines of
credit, EME can borrow for any purpose at interest rates ranging from 7.125% to
8.25%. No financial covenants are required.
The Company's current ratio was 1.1 to 1 at September 30, 2002 and December 31,
2001. This ratio was maintained for the period ended September 30, 2002,
primarily due to the receipt of life insurance proceeds of $10,676,000 used to
pay down current debt, principally the Revolving Credit Facility, which was
classified as current debt as of December 31, 2001.
As a percentage of total capitalization, consisting of debt and shareholders'
equity, total borrowings by the Company were 41% at September 30, 2002 and 54%
at December 31, 2001. During the first nine months of 2002 total borrowings
decreased by $13,909,000.
Capital expenditures of $1,409,000 made during the first nine months of 2002
primarily related to improvements in process technology, equipment and building
repairs. During the remaining quarter of 2002, the Company plans to incur up to
$1,300,000 of capital expenditures. This amount is subject to change depending
upon a number of factors including certain market conditions within the
Company's business segments and availability of financing.
During the first nine months of 2002, the Company has been able to generate
adequate amounts of cash to meet its operating needs. During the first nine
months of 2002, Teal, RFL and MTI had produced positive cash flow, aggregating
approximately $5,300,000. Condor, EME and Surf Tech experienced negative cash
flow for the same period. Condor's cash flow was negatively impacted by payments
made against its restructuring reserve of $600,000 and deferred compensation
payments of $1,252,000. Without these cash payments, Condor would have been cash
flow positive. EME experienced negative cash flow primarily due to the pay down
of accounts payable and performance under a long-term contract for which they
received a large
- 19 -
cash advance in 2001 (See Note.7). Surf Tech's negative cash flow was primarily
due to its move to consolidate into one location.
With the exception of Surf Tech and the segment reported as "Other" (which
consists primarily of corporate office expenses and accruals not specifically
allocated to the reportable business units), all of the Company's operating
segments were profitable at the operating level for the first nine months of
2002. Surf Tech's operating loss was $642,000. Surf Tech is facing historically
low demand in its marketplace and its operations have been consolidated into one
facility. Included in "Other" are special charges for the nine months ended
September 30, 2002 of $1,834,000 related to the change-of-control and proxy
costs (see Note 9). Also in "Other" is a $772,000 addition to the reserve for
environmental matters, professional and legal fees and other expenses not
allocated to the reportable business units.
The following is a summary of the Company's contractual obligations for the
periods indicated that existed as of September 30, 2002:
LESS THAN 1 TO 3 4 TO 5 AFTER 5
1 YEAR YEARS YEARS YEARS TOTAL
--------- ------ ------ ------- ------
(in thousands)
Operating Leases 920 1,396 1,332 166 3,814
Debt 24,258 38 0 0 24,296
Capital Leases 152 286 194 0 632
Standby Letter Of Credit 543 0 0 0 543
------ ------ ------ ------ ------
TOTAL 25,873 1,720 1,526 166 29,285
------ ------ ------ ------ ------
Assuming no further significant slowdown of economic activity in the markets in
which the Company conducts business, management believes that projected cash
from operations and funds expected to be available under the Revolving Credit
Facility will be sufficient to fund the Company's operations and working capital
requirements through December 31, 2002. The Revolving Credit Facility matures
December 31, 2002. The Company is currently negotiating to refinance the
Revolving Credit Facility. A failure to refinance the Revolving Credit Facility
would have a material adverse effect on the Company.
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. On February 28, 2002, these countries permanently withdrew their
national currencies as legal tender and replaced their currencies with euro
notes and coins.
- 20 -
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 is continuing 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 effect on
its consolidated financial position, results of operations, or cash flows.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 2001
The table below shows the comparison of net sales from continuing operations for
the quarter ended September 30, 2002, and the quarter ended September 30, 2001:
Increase/ Increase/ Three Months Three Months
(Decrease) over (Decrease) over Ended Ended
same quarter same quarter September 30, September 30,
last year last year 2002 2001
--------- --------- ------ ------
Percent Amount Amount Amount
------- ------ ------ ------
(in thousands)
Condor 0.5% $ 48 $ 10,575 $ 10,527
Teal 60.8 2,002 5,295 3,293
SL-MTI (8.9) (469) 4,788 5,257
EME 16.3 1,050 7,495 6,445
RFL (23.1) (1,768) 5,873 7,641
Surf Tech (31.2) (251) 554 805
------ ------- ------- -------
TOTAL 1.8% $ 612 $34,580 $33,968
------ ------- ------- -------
Consolidated net sales from continuing operations for the three-month period
ended September 30, 2002 increased by $.6 million, or 1.8%, compared to the same
quarter last year. This increase was due to significant increases in sales at
Teal and EME offset by a significant decrease in RFL and to a lesser extent MTI
and Surf Tech. Sales at Condor were relatively flat on a comparative basis,
which reflects improved productivity over the prior year since it substantially
reduced the breadth of its telecommunications-related product line. Teal's
increase is related to a significant increase in its medical imaging business.
EME's increase is primarily attributable to its wire harness business. The
decrease in RFL is a combination of the following factors: lower international
sales and a slow down in revenues from domestic utility customers and a
relatively high sales volume in the prior year quarter.
The Company had income from operations of $1,003,000 for the three-month period
ended September 30, 2002, as compared to an operating loss of $420,000 for the
corresponding prior year period. During the quarter ended September 30, 2001,
the Company recorded a charge of $1,783,000 as a result of the restructuring
charges and asset write-downs primarily at Condor and MTI. Without these charges
the Company would have recorded operating income of $1,363,000 for the quarter
ended September 30, 2001. There were no significant restructuring charges and
write-downs recorded in the current year quarter. Included in "Other" are
corporate expenses, environmental charges, legal and professional fees and other
costs incurred, which are Company related costs not allocated to the Company's
reportable business units. The current
- 21 -
quarter's operating income was positively affected by the implementation of SFAS
No. 142, which required the discontinuation of goodwill amortization effective
January 1, 2002 (see Note 5). The gross amount of goodwill amortized in the
prior year quarter was $210,000.
Cost of products sold for the three-month period remained about the same as
compared to the same period last year even as sales increased 1.8%, as a
percentage of net sales, cost of products sold for the three-month period was
65%, as compared to 67% during the same period last year. Condor's cost of sales
decreased from 71% in 2001 to 62% in 2002 due to manufacturing efficiencies as a
result of the termination of a substantial portion of its telecommunications-
related product line and improved manufacturing. The remaining business
segments' cost of sales remained relatively constant as a percentage of sales,
as compared to the prior year quarter, except MTI and Surf Tech. MTI experienced
lower sales volume, which effected manufacturing productivity. Surf Tech's
business is a relatively minor portion of the consolidated operations.
Engineering and product development expenses for the three-month period
increased by 7%, as compared to the same period last year. MTI's expenses were
slightly higher than last year and Condor's expenses were lower due primarily to
the consolidation of engineering facilities. The overall increase was $135,000.
As a percentage of net sales, engineering and product development expenses for
the comparable three months ended September 30, 2002 and 2001 were 6%.
Selling, general and administrative expenses for the three-month period
increased 16%, or $1,100,000 as compared to the same period last year. As a
percentage of net sales, selling, general and administrative expenses for the
three months ended September 30, 2002 were 23%, as compared to 20% for the same
period last year. The increased cost was primarily due to increased legal fees
and expenses and higher commissions and bonus accruals due to increased
operating profits.
Depreciation and amortization expenses for the current three-month period
decreased by $258,000, or 22%, due to the reduced fixed asset base. Also
effective January 1, 2002, the Company adopted SFAS No. 142 and implemented
certain provisions of this statement, specifically the discontinuance of
goodwill amortization, which was $210,000 in the third quarter of 2001.
For the three-month period ended September 30, 2001, the Company recorded a
restructuring charge of $1,783,000 and an inventory write down of $50,000. There
were no significant charges of this nature recorded during the quarter ended
September 30, 2002.
Interest income decreased for the current three-month period by $68,000, as
compared to the same period last year. Interest expense for the current
three-month period decreased by $725,000, or 62%, due primarily to the
significant reduction of debt as compared to the prior year quarter and lower
interest rates in the current quarter.
The effective tax rate for the three-month period ended September 30, 2002, was
less than the statutory rate primarily due to the recovery of tax benefits not
previously recognized.
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NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2001
The table below shows the comparison of net sales from continuing operations for
the nine months ended September 30, 2002 and September 30, 2001:
Increase/ Increase/ Nine Months Nine Months
(Decrease) over (Decrease) over Ended Ended
same period same period September 30, September 30,
last year last year 2002 2001
--------- --------- ------ ------
Percent Amount Amount Amount
------- ------ ------ ------
(in thousands)
Condor (28.3)% $(10,987) $ 27,773 $ 38,760
Teal 51.3 4,876 14,384 9,508
SL-MTI 23.4 3,178 16,738 13,560
EME (3.5) (695) 19,394 20,089
RFL 10.2 2,036 21,906 19,870
Surf Tech (22.3) (500) 1,742 2,242
-------- -------- -------- --------
TOTAL (2.0)% $ (2,092) $101,937 $104,029
-------- -------- -------- --------
Consolidated net sales from continuing operations for the nine months ended
September 30, 2002 decreased by $2.1 million, or 2%, compared to the same period
last year. This decrease was due mainly to decreases at Condor of $11.0 million,
or 28%, and at EME of $0.7 million, or 4%. These decreases were partially offset
by relatively strong performances by the other business segments except Surf
Tech, which represents only 2% of consolidated sales. Condor sales were
adversely impacted by its reduction of a significant amount of its products
offered under its telecommunications-related product line. EME's sales were
principally affected by lower sales in the European commercial aerospace market.
The Company had operating income of $846,000 for the nine months ended September
30, 2002, as compared to an operating loss of $2,514,000 for the corresponding
prior year period. During the nine months ended September 30, 2002, the Company
recorded (a) a charge of $265,000 as a result of the restructuring charges
recorded at Condor, (b) special charges of $1,834,000 related to
change-of-control and proxy costs and (c) a $500,000 addition to the reserve for
environmental matters. Without these charges the Company would have had an
operating profit of $3,445,000. In the comparable period last year the Company
recorded restructuring charges of $2,891,000 and an inventory write down of
$2,940,000. Without these charges the Company would have had an operating profit
of $3,317,000. Included in "Other" are the special charges, the environmental
charge, additional costs for professional fees and other costs incurred, which
are Company related costs not specifically allocated to continuing operations.
The current period nine month operating income was positively affected by the
implementation of SFAS No. 142, which required the discontinuation of goodwill
amortization effective January 1, 2002 (see Note 5). Related amortization
charged to last years operating costs was $599,000.
Cost of products sold for the nine months ended September 30, 2002 decreased by
4%, as compared to the same period last year. As a percentage of net sales, cost
of products sold for the current nine-month period was 66%, as compared to 67%
during the same period last year.
- 23 -
Significant improvements were made at Condor which improved its costs of
products sold to 66% in the current year compared to 74% last year. Condor
improved its cost of products sold in the current year as a result of a
substantial reduction of the breadth of its telecommunications-related product
line, as well as improved manufacturing efficiencies. Teal's costs of products
sold went from 58% last year to 65% in the current year due to product mix.
Earlier in the year Teal began a new major program with one customer, which
included volume price discounts and had significant sales and increased
production prototypes. All other reporting business unit's cost of sales
percentages were relatively constant as compared to last year.
Engineering and product development expenses for the nine months ended September
30, 2002 decreased 6%, as compared to the same period last year, due primarily
to the consolidation of engineering facilities at Condor. As a percentage of net
sales, engineering and product development expenses for the nine months ended
September 30, 2002 were 6%, as compared to 6% for the same period last year.
Selling, general and administrative expenses for the nine months ended September
30, 2002 increased 13%, as compared to the same period last year. As a
percentage of net sales, selling, general and administrative expenses for the
nine months ended September 30, 2002 were 22%, as compared to 20% for the same
period last year. The percentage increase was primarily due to lower sales, a
$500,000 addition to the reserve for environmental matters recorded in the first
quarter of 2002 and increased bonus accruals based on significantly improved
operating results.
Depreciation and amortization expenses for the nine months ended September 30,
2002 decreased by $827,000, or 24%, due to the reduced fixed asset base and
intangible impairment write-offs at Condor in 2001. Also effective January 1,
2002, the Company adopted SFAS No. 142 and implemented certain provisions of
this statement, specifically the discontinuance of goodwill amortization, which
amounted to $599,000 for the nine months ended September 30, 2001 (see Note 5).
Interest income for the nine months ended September 30, 2002 decreased by
$107,000, as compared to the same period last year. Interest expense for the
nine-month period decreased by $1,200,000, or 46%, due primarily to the
significant reduction of debt as compared to the prior year period.
The effective tax rate for the nine-month period ended September 30, 2002, was
less than the statutory rate primarily due to the recovery of tax benefits not
previously recognized.
FORWARD-LOOKING INFORMATION
From time to time, information provided by the Company, including written or
oral statements made by representatives, may contain forward-looking information
as defined in the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, contain forward-looking
information, particularly statements which address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, such as expansion and growth of the Company's business, future capital
expenditures and the Company's prospects and strategy. In reviewing such
information, it should be kept in mind that
- 24 -
actual results may differ materially from those projected or suggested in such
forward-looking information. This forward-looking information is based on
various factors and was derived utilizing numerous assumptions. Many of these
factors previously have been identified in filings or statements made by or on
behalf of the Company.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in the general economy, changes in capital
investment and/or consumer spending, competitive factors and other factors
affecting the Company's business in or beyond the Company's control. These
factors include a change in the rate of inflation, a change in state or federal
legislation or regulations, an adverse determination with respect to a claim in
litigation or other claims (including environmental matters), the ability to
recruit and develop employees, the ability to successfully implement new
technology and the stability of product costs. These factors also include, in
particular, whether or not a sale of all or part of the Company's business can
be successfully effected and the timing and degree of any business recovery in
certain of the Company's markets that are currently experiencing a cyclical
economic downturn.
Other factors and assumptions not identified above could also cause actual
results to differ materially from those set forth in the forward-looking
information. The Company does not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
information.
Future factors include the effectiveness of cost reduction actions undertaken by
the Company; the timing and degree of any business recovery in certain of the
Company's markets that are currently experiencing economic uncertainty;
increasing price, products and services competition by U.S. and non-U.S.
competitors, including new entrants; rapid technological developments and
changes and the Company's ability to continue to introduce and develop
competitive new products and services on a timely, cost-effective basis;
availability of manufacturing capacity, components and materials; credit
concerns and the potential for deterioration of the credit quality of customers;
customer demand for the Company's products and services; ability of the Company
to 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, the global economic slowdown and interest
rate and currency exchange rate fluctuations and other future factors.
For a further description of future factors that could cause actual results to
differ materially from such forward-looking statements, see the discussion in
the Company's Annual Report on Form 10-K for the year ended December 31, 2001,
Part I, Item 1 - Risk Factors.
- 25 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative market risk
from the disclosure contained in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2001, which is incorporated herein by
reference.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing of this
Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer
have concluded the Company's disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are
effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 12, 2002, the Company and its subsidiary SL Surface Technologies, Inc.
("SurfTech") were served with notice of class action complaint filed in Superior
Court of New Jersey for Camden County. The Company and SurfTech are currently
two of approximately 39 defendants in this action. The complaint alleges, among
other things, that plaintiffs suffered personal injuries as a result of
consuming contaminated water distributed from the Puchack Wellfield in
Pennsauken, New Jersey (which supplies Camden, New Jersey). This case arises
from the same factual circumstances as the current administrative actions
involving the Puchack Wellfield, which is described in Note 8. "Environmental"
included in the Consolidated Financial Statements in Part I of this Quarterly
Report on Form 10-Q. The administrative actions and the class action lawsuit
both allege that SurfTech and other defendants contaminated ground water through
the disposal of hazardous substances at industrial facilities in the area.
SurfTech once operated a chrome-plating facility in Pennsauken (the "SurfTech
Site").
As disclosed in the Company's Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q filed with the Securities and Exchange Commission, SL-MTI is
currently defending a cause of action, brought against it in the fall of 2000 in
federal district court for the western district of Michigan. The lawsuit was
filed by Eaton Aerospace LLC ("Eaton"), alleging breach of contract and warranty
in the defective design and manufacture of a high precision motor. The complaint
seeks compensatory damages of approximately $3,900,000. Both parties filed,
briefed and argued cross-motions for summary judgement. On July 18, 2002,
Eaton's motion for partial summary judgement was granted to the limited extent
that the court found that SL-MTI sold motors to Eaton with an express warranty
and an implied warranty of merchantability and the motion was denied in all
other respects, the court indicating that the nature and extent of those
warranties would have to be decided by the jury at trial. The trial commenced on
October 28, 2002 and is expected to conclude during the first week of November
2002.
On August 9, 2002, the Company received a "Demand for Arbitration" with respect
to the claim of a former vendor of SL Waber. The claim concerns a dispute
between SL Waber and an
- 26 -
electronics manufacturer based in Hong Kong for alleged failure to pay for goods
under a Supplier Agreement. The Company believes this claim is without merit and
may bring counter claims against the vendor and will vigorously pursue defenses
with respect to these claims.
There have been no other material changes to the information previously reported
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001. See Part I, Item 3 - Legal Proceedings of such Annual Report and Note 9 to
the Consolidated Financial Statements included herein for additional information
on these matters.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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. On May 23, 2002, the Company and
its lenders reached an agreement, pursuant to which the lenders granted a waiver
of default and amendments to the violated financial covenants, so that upon
effectiveness of the waiver, the Company was in full compliance with the
Revolving Credit Facility. For additional information on this matter see the
Company's filing on Form 8-K dated May 23, 2002. Also, see Notes 1 and 6 in the
Notes to Consolidated Financial Statements included in Part I of this Quarterly
Report on Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
99.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002).
99.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Company during the period
covered by this report:
On July 22, 2002, the Company filed a current Report on Form 8-K under Item 4
which related to a "Change in Registrant's Certifying Accountants." The Company
dismissed Arthur Andersen LLP as its independent accountants and engaged Grant
Thornton LLP as its new independent accountants. On July 31, 2002 the Company
filed a Report on Form 8-K/A, related to this matter.
On July 25, 2002 the Company filed a current Report on Form 8-K under Item 5
announcing certain recent developments.
On August 15, 2002, the Company filed a Form 8-K under Item 5 announcing it
retained Imperial Capital, LLC to act as its financial advisory.
On August 28, 2002, the Company filed a Form 8-K under Item 7 and Item 9
announcing its financial results for the second quarter ended June 30, 2002.
- 27 -
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: November 5, 2002 SL INDUSTRIES, INC.
------------------------
(Company)
By: /s/ Warren Lichtenstein
---------------------------
Warren Lichtenstein
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ David R. Nuzzo
---------------------------
David R. Nuzzo
Chief Financial Officer
(Principal Accounting Officer)
- 28 -
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350)
I, WARREN LICHTENSTEIN, certify that:
1. I have reviewed this quarterly report of Form 10-Q of SL Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 3a-14 and l5d-14) for the registrant and
we have:
a) designed such disclosed controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process,
- 29 -
summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 5, 2002 By: /s/
---------------------------------
WARREN LICHTENSTEIN
Chairman of the Board and
Chief Executive Officer
- 30 -
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350)
I, DAVID R. NUZZO, certify that:
1. I have reviewed this quarterly report of Form 10-Q of SL Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 3a-14 and l5d-14) for the registrant and
we have:
a) designed such disclosed controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's Board of Directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process,
- 31 -
summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 5, 2002 By: /s/
-------------------------------
DAVID R. NUZZO
Chief Financial Officer
- 32 -