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 MARCH 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-4987
SL INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY 21-0682685
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer" and large accelerated filer in Rule 12b-2 of the Exchange Act).
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes No X
----- -----
The number of shares of common stock outstanding as of May 5, 2006 was
5,628,990.
1
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2006 (Unaudited) and December 31, 2005 .......... 1
Consolidated Statements of Income and Comprehensive Income
Three Months Ended March 31, 2006 and 2005 (Unaudited) .... 2
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2006 and 2005 (Unaudited) .... 3
Notes to Consolidated Financial Statements (Unaudited) ....... 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 ...... 29
Item 4. Controls and Procedures ......................................... 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 30
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds .......................................... 30
Item 5. Other Information ............................................... 30
Item 6. Exhibits ........................................................ 31
SIGNATURES .............................................................. 32
2
Item 1. Financial Statements
SL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2006 2005
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 9,985,000
Receivables, net 23,081,000 16,436,000
Notes receivable 1,137,000 --
Inventories, net 20,266,000 14,570,000
Prepaid expenses 1,909,000 632,000
Deferred income taxes, net 2,686,000 2,571,000
------------ ------------
Total current assets 49,079,000 44,194,000
------------ ------------
Property, plant and equipment, net 11,150,000 8,754,000
Deferred income taxes, net 7,019,000 3,409,000
Goodwill 16,805,000 10,303,000
Investments available for sale -- 670,000
Other intangible assets, net 1,057,000 1,085,000
Other assets and deferred charges 1,996,000 1,899,000
------------ ------------
Total assets $ 87,106,000 $ 70,314,000
============ ============
LIABILITIES
Current liabilities:
Debt, current portion $ -- $ --
Accounts payable 14,182,000 7,648,000
Accrued income taxes 849,000 417,000
Accrued liabilities
Payroll and related costs 6,278,000 6,229,000
Other 4,728,000 4,093,000
------------ ------------
Total current liabilities 26,037,000 18,387,000
------------ ------------
Debt, less current portion 7,973,000 --
Deferred compensation and supplemental retirement benefits 3,764,000 3,829,000
Other liabilities 1,389,000 1,453,000
------------ ------------
Total liabilities 39,163,000 23,669,000
------------ ------------
Commitments and contingencies (Note 10)
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized, 6,000,000 shares; none issued $ -- $ --
Common stock, $.20 par value; authorized, 25,000,000 shares;
issued, 8,298,000 shares 1,660,000 1,660,000
Capital in excess of par value 40,291,000 40,136,000
Accumulated other comprehensive income 6,000 67,000
Retained earnings 25,957,000 24,837,000
Treasury stock at cost, 2,684,000 and 2,701,000 shares, respectively (19,971,000) (20,055,000)
------------ ------------
Total shareholders' equity 47,943,000 46,645,000
------------ ------------
Total liabilities and shareholders' equity $ 87,106,000 $ 70,314,000
============ ============
See accompanying notes to consolidated financial statements.
1
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
-------------------------
2006 2005
----------- -----------
Net sales .............................................. $39,285,000 $32,456,000
Cost and expenses:
Cost of products sold ............................... 26,133,000 20,595,000
Engineering and product development ................. 3,079,000 2,323,000
Selling, general and administrative ................. 7,557,000 6,327,000
Depreciation and amortization ....................... 591,000 474,000
----------- -----------
Total costs and expenses ............................... 37,360,000 29,719,000
----------- -----------
Income from operations ................................. 1,925,000 2,737,000
Other income (expense):
Amortization of deferred financing costs ............ (22,000) (112,000)
Interest income ..................................... 28,000 29,000
Interest expense .................................... (129,000) (88,000)
----------- -----------
Income from continuing operations before income taxes .. 1,802,000 2,566,000
Income tax provision ................................... 569,000 597,000
----------- -----------
Income from continuing operations ...................... 1,233,000 1,969,000
Loss from discontinued operations (net of tax) ......... (112,000) (70,000)
----------- -----------
Net income ............................................. $ 1,121,000 $ 1,899,000
=========== ===========
BASIC NET INCOME (LOSS) PER COMMON SHARE
Income from continuing operations ................... $ 0.22 $ 0.36
Loss from discontinued operations (net of tax) ...... (0.02) (0.01)
----------- -----------
Net income .......................................... $ 0.20 $ 0.35
=========== ===========
DILUTED NET INCOME (LOSS) PER COMMON SHARE
Income from continuing operations ................... $ 0.21 $ 0.35
Loss from discontinued operations (net of tax) ...... (0.02) (0.01)
----------- -----------
Net income .......................................... $ 0.19 $ 0.34
=========== ===========
Shares used in computing basic net income (loss)
per common share .................................... 5,608,000 5,473,000
Shares used in computing diluted net income (loss)
per common share .................................... 5,788,000 5,624,000
SL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
-----------------------
2006 2005
---------- ----------
Net income ............................................ $1,121,000 $1,899,000
Other comprehensive income (net of tax):
Foreign currency translation ....................... 6,000 --
Investments available for sale ..................... (67,000) 13,000
---------- ----------
Comprehensive income .................................. $1,060,000 $1,912,000
========== ==========
See accompanying notes to consolidated financial statements.
2
SL INDUSTRIES, INC.
CONSDOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2006 2005 *
------------ -----------
OPERATING ACTIVITIES:
Net income ...................................................................... $ 1,121,000 $ 1,899,000
Add: losses from discontinued operations ..................................... 112,000 70,000
------------ -----------
Income from continuing operations ............................................... 1,233,000 1,969,000
------------ -----------
Adjustments to reconcile income from continuing operations to net cash used in
operating activities:
Depreciation ................................................................. 495,000 379,000
Amortization ................................................................. 96,000 95,000
Amortization of deferred financing costs ..................................... 22,000 112,000
Non-cash compensation expense (benefit) ...................................... 64,000 (8,000)
Stock-based compensation ..................................................... 16,000 --
Provisions for losses on accounts receivable ................................. 10,000 24,000
Deferred compensation and supplemental retirement benefits ................... 134,000 99,000
Deferred compensation and supplemental retirement benefit payments ........... (196,000) (135,000)
Deferred income taxes ........................................................ 138,000 (9,000)
Changes in operating assets and liabilities, excluding effects of business
acquisition:
Accounts receivable ........................................................ (448,000) (1,989,000)
Inventories ................................................................ (1,825,000) 591,000
Prepaid expenses ........................................................... (324,000) (357,000)
Other assets ............................................................... (41,000) (20,000)
Accounts payable ........................................................... (443,000) (468,000)
Accrued liabilities ........................................................ (1,095,000) (824,000)
Accrued income taxes ....................................................... 495,000 272,000
------------ -----------
Net cash used in operating activities from continuing operations ................ (1,669,000) (269,000)
Net cash (used in) provided by operating activities from discontinued
operations ................................................................... (6,000) 59,000
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES .............................................. (1,675,000) (210,000)
------------ -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment ...................................... (577,000) (263,000)
Acquisition of a business, net of cash acquired ................................. (15,951,000) --
Purchases of securities available for sale ...................................... -- (413,000)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES .............................................. (16,528,000) (676,000)
------------ -----------
FINANCING ACTIVITIES:
Payments of term loans .......................................................... -- (187,000)
Net borrowings from Revolving Credit Facility ................................... 7,973,000 --
Proceeds from stock options exercised ........................................... 167,000 275,000
Tax benefit from exercise of stock options ...................................... 25,000 --
Issuance of common stock options ................................................ 16,000 --
Treasury stock sales ............................................................ 31,000 65,000
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................................... 8,212,000 153,000
------------ -----------
Effect of exchange rate changes on cash ......................................... 6,000 --
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............................................ (9,985,000) (733,000)
------------ -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................................... 9,985,000 2,659,000
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................................... $ -- $ 1,926,000
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ..................................................................... $ 84,000 $ 154,000
Income taxes ................................................................. $ 61,000 $ 135,000
* Revised classification.
See accompanying notes to consolidated financial statements.
3
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, 2006. 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, 2005.
2. RECEIVABLES
Receivables at March 31, 2006 and December 31, 2005 consisted of the following:
March 31, December 31,
2006 2005
--------- ------------
(in thousands)
Trade receivables $24,228 $16,638
Less allowances for doubtful accounts (1,505) (569)
------- -------
22,723 16,069
Recoverable income taxes 1 2
Other 357 365
------- -------
$23,081 $16,436
======= =======
3. INVENTORIES
Inventories at March 31, 2006 and December 31, 2005 consisted of the following:
March 31, December 31,
2006 2005
--------- ------------
(in thousands)
Raw materials $15,142 $ 9,774
Work in process 6,204 4,699
Finished goods 3,131 1,926
------- -------
24,477 16,399
Less allowances (4,211) (1,829)
------- -------
$20,266 $14,570
======= =======
4
4. INCOME PER SHARE
The Company has presented net income per common share pursuant to Financial
Accounting Standards Board Statement of Financial Accounting Standard No. 128,
"Earnings per Share" ("SFAS 128"). Basic net income per common share is computed
by dividing reported net income 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 per
share:
Three Months Ended March 31,
---------------------------------------------------------
2006 2005
--------------------------- ---------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
(in thousands, except per share amounts)
Basic net income per common share $1,121 5,608 $ 0.20 $1,899 5,473 $ 0.35
Effect of dilutive securities -- 180 (0.01) -- 151 (0.01)
------ ----- ------ ------ ----- ------
Diluted net income per common share $1,121 5,788 $ 0.19 $1,899 5,624 $ 0.34
====== ===== ====== ====== ===== ======
For the three-month periods ended March 31, 2006 and March 31, 2005, stock
options of 6,250 and 79,503, respectively, were excluded from the dilutive
computations because the option exercise prices were greater than the average
market price of the Company's common stock.
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment ("SFAS No. 123(R)"), using the
modified prospective application method. Prior to adopting SFAS No. 123(R), the
Company followed the intrinsic value method of accounting for stock-based
employee compensation in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
The Company maintains two shareholder approved stock option plans: the
Non-Employee Director Nonqualified Stock Option Plan (the "Director Plan") and
the Long-Term Incentive Plan (the "1991 Incentive Plan"). Both plans have
expired, however, stock options issued under each plan remain outstanding.
The Director Plan provided 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 enabled 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
5
exercisable at any time. Each option granted under the Director Plan expires no
later than ten years from date of grant. The expiration date of the Director
Plan was May 31, 2003. The 1991 Incentive Plan enabled 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 Incentive Plan expires no later than ten years from date
of grant. The Plan expired on September 25, 2001 and no future options can be
granted under the Plan.
During 2005, the Company issued 25,000 options to a recently hired executive of
the Company in accordance with the rules and regulations of the Securities and
Exchange Commission.
For the three months ended March 31, 2006, the Company recognized stock-based
employee compensation expense of $16,000, less a related income tax benefit of
approximately $6,000 under the provisions of the SFAS No. 123(R). Also under the
new standard, excess income tax benefits related to share-based compensation
expense that must be recognized directly in equity are treated as cash flow from
financing rather than operating activities. For the three months ended March 31,
2005, no compensation expense was recognized for stock option awards granted at
fair market value under the provisions of APB No. 25. However, the Company has
recognized an expense of approximately $64,000 and a benefit of approximately
$8,000 related to certain stock based compensation arrangements in the
three-month periods ended March 31, 2006 and March 31, 2005, respectively. The
following table illustrates the pro forma effect on earnings per share if the
Company had accounted for its stock option plans prior to January 1, 2006, using
the fair value method of accounting under SFAS No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure."
6
Three Months Ended
March 31, 2005
------------------
(in thousands,
except per
share amounts)
Net income, as reported $1,899
Deduct: Stock-based employee compensation benefit included
in reported net income, net of related tax effects. (5)
------
1,894
Deduct: Total stock-based employee compensation expense
determined under fair value based method for awards
granted, modified, or settled, net of related tax
effects (22)
------
Pro forma net income 1,872
======
Earnings per common share:
Basic - as reported $ 0.35
Basic - pro forma $ 0.34
Diluted - as reported $ 0.34
Diluted - pro forma $ 0.33
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:
Three Months Ended
March 31, 2005
------------------
Expected dividend yield 0.0%
Expected stock price volatility 45.40%
Risk-free interest rate 4.13%
Expected life of stock option 5 years
The following table summarizes stock option activity for all plans:
7
Outstanding Weighted Average Weighted Average Aggregate Intrinsic
Options Exercise Price Remaining Life Value
-------------- ---------------- ---------------- -------------------
(in thousands) (in thousands)
Outstanding as of December 31, 2005 633 $10.41 4.78
Granted -- --
Exercised (16) $10.54
Forfeited -- --
Expired -- --
--- ------ ---- ------
Outstanding as of March 31, 2006 617 $10.40 4.56 $3,760
=== ====== ==== ======
Exercisable as of March 31, 2006 598 $10.20 4.56 $3,751
=== ====== ==== ======
At March 31, 2006, approximately $153,000 of total unrecognized compensation
expense associated with unvested stock options was expected to be recognized
over a period of 2.3 years. During the three month periods ended March 31, 2006
and March 31, 2005, the total intrinsic value of options exercised was $79,000
and $118,000, respectively, and the actual tax benefit realized for the tax
deduction from these option exercises was $25,000 and $42,000, respectively.
During the three months ended March 31, 2005, options to purchase 29,000 shares
of common stock with an aggregate exercise price of $265,000 were exercised by
option holders.
There were no options granted during the three months ended March 31, 2006 and
March 31, 2005.
5. INCOME TAX
The following is a reconciliation of income tax expense at the applicable
federal statutory rate and the effective rates:
Three Months Ended
March 31,
------------------
2006 2005
---- ----
Statutory rate 34% 34%
Tax rate differential on extraterritorial
income exclusion benefit earnings (1) (1)
Tax rate differential on domestic
manufacturing deduction (1) (1)
International rate differences 3 1
State income taxes, net of federal income
tax benefit 3 4
Research and development credits (6) (10)
Other -- (4)
--- ---
32% 23%
=== ===
During the quarter ended March 31, 2006, the Company recorded additional
benefits from research and development tax credits of $105,000. As of March 31,
2006, the Company's gross research and development tax credit carryforwards
totaled approximately $2,876,000. Of these credits, approximately $2,216,000 can
be carried forward for fifteen years and will expire between 2013 and 2021, and
approximately $660,000 can be carried forward indefinitely.
8
As of March 31, 2006, the Company's gross foreign tax credits totaled
approximately $975,000. These credits can be carried forward for ten years and
will expire between 2009 and 2016.
6. RECENT AND PROPOSED ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment
of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No.
43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage) and requires these costs be treated as current period charges. In
addition, SFAS 151 requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. These provisions of SFAS 151 are effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. The Company adopted
SFAS 151, and it did not have an impact on its financial position and results of
operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 amends the guidance
in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," which is based
on the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged, with certain exceptions. SFAS 153
amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. The
provisions of SFAS 153 are effective for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. The Company adopted SFAS 153
and it did not have an impact on its financial position and results of
operations.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"), which replaces APB Opinion No. 20, "Accounting
Changes," and SFAS No. 3 "Reporting Accounting Changes in Interim Financial
Statements" ("SFAS 3"). This Statement changes the requirements for the
accounting for and reporting of a change in accounting principles, and applies
to all voluntary changes in accounting principles, as well as changes required
by an accounting pronouncement in the unusual instance it does not include
specific transition provisions. Specifically, this Statement requires
retrospective application to prior periods' financial statements, unless it is
impracticable to determine the period-specific effects or the cumulative effect
of the change. When it is impracticable to determine the effects of the change,
the new accounting principle must be applied to the balances of assets and
liabilities as of the beginning of the earliest period for which retrospective
application is practicable and a corresponding adjustment must be made to the
opening balance of retained earnings for that period rather than being reported
in an income statement. When it is impracticable to determine the cumulative
effect of the change, the new principle must be applied as if it were adopted
prospectively from the earliest practicable date. This Statement also requires
that a change in depreciation, amortization or depletion method for long-lived,
non-financial assets be accounted for as a change in accounting estimate
effected by a change in accounting principle. This Statement is effective for
the Company for all accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. This Statement does not change the
transition provisions of any existing pronouncements. The Company adopted SFAS
154 and it did not have
9
an impact on its financial position and results of operations. The Statement
will have an impact in the future only if the Company has any changes or
corrections of errors.
7. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following:
March 31, 2006 December 31, 2005
---------------------------------- ----------------------------------
Gross Accumulated Gross Accumulated
Value Amortization Net Value Value Amortization Net Value
------- ------------ --------- ------- ------------ ---------
(in thousands)
Goodwill $16,805 $ 0 $16,805 $10,303 $ 0 $10,303
------- ---- ------- ------- ---- -------
Other intangible assets:
Patents 919 741 178 919 723 196
Trademarks 572 -- 572 572 -- 572
Licensing fees 355 62 293 355 53 302
Other 51 37 14 51 36 15
------- ---- ------- ------- ---- -------
Total other intangible assets 1,897 840 1,057 1,897 812 1,085
------- ---- ------- ------- ---- -------
$18,702 $840 $17,862 $12,200 $812 $11,388
======= ==== ======= ======= ==== =======
The other intangible assets that have definite lives are all amortizable and
have original estimated useful lives as follows: patents are amortized over
approximately 13 years, licensing fees over approximately 10 years, and
trademarks are not amortized. Amortization expense for intangible assets for
each of the three-month periods ended March 31, 2006 and 2005 was $28,000.
Amortization expense for intangible assets subject to amortization in each of
the next five fiscal years is estimated to be: $111,000 for the next two years,
$66,000 in the third year and $39,000 in the fourth and fifth years. Intangible
assets subject to amortization have a weighted average life of approximately
eleven years.
During the quarter ended March 31, 2006, the Company recorded preliminary
goodwill related to the acquisition of Ault Incorporated ("Ault") in the amount
of $6,502,000 (see Note 11).
8. DEBT
Debt consists of the following:
March 31, December 31,
2006 2005
--------- ------------
(in thousands)
Prime rate loan $4,173 $ 0
LIBOR rate loan 3,800 --
------ ---
7,973 --
Less current portion -- --
------ ---
Total long-term debt $7,973 $ 0
====== ===
On August 3, 2005, the Company entered into a revolving credit facility (the
"Revolving Credit Facility") with Bank of America, N.A. ("Bank of America"). The
Revolving Credit Facility (with a standby and commercial letter of credit
sub-limit of $5,000,000) provides for borrowings up to $25,000,000 and under
certain circumstances maximum borrowings of $30,000,000. The
10
Revolving Credit Facility expires on June 30, 2008. Borrowings under the
Revolving Credit Facility bear interest, at the Company's option, at the London
interbank offering rate ("LIBOR") plus a margin rate ranging from 0.9% to 1.9%,
or the higher of a Base Rate plus a margin rate ranging from 0% to 0.5%. The
Base Rate is equal to the higher of (i) the Federal Funds Rate plus 0.5%, or
(ii) Bank of America's publicly announced prime rate. The margin rates are based
on certain leverage ratios, as defined. The Company is subject to compliance
with certain financial covenants set forth in the Revolving Credit Facility,
including but not limited to, capital expenditures, consolidated net worth, and
certain interest and leverage ratios, as defined. As of March 31, 2006, the
Company had outstanding balances under its Revolving Credit Facility of
$4,173,000 at the Bank of America prime rate and $3,800,000 under the LIBOR
rate.
9. ACCRUED LIABILITIES - OTHER
Accrued liabilities - other consist of the following:
March 31, December 31,
2006 2005
--------- ------------
(in thousands)
Taxes (other than income) and insurance $ 449 $ 483
Commissions 779 451
Accrued litigation and legal fees 584 558
Other professional fees 331 484
Environmental 1,216 1,220
Warranty 1,048 851
Other 1,248 973
Reclassified to long-term liabilities (927) (927)
------ ------
$4,728 $4,093
====== ======
The Company's warranty reserve, which is included in "Accrued Liabilities -
Other" above, for the period ended March 31, 2006, is as follows:
March 31,
2006
--------------
(in thousands)
Liability, beginning of year $ 851
Expense for new warranties issued 278
Expense related to accrual revisions for prior year 14
Warranty claims (95)
------
Liability, end of period $1,048
======
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
In the ordinary course of its business, the Company is subject to loss
contingencies pursuant to foreign and domestic federal, state and local
governmental laws and regulations and is also party to certain legal actions,
which may occur in the normal operations of the Company's business. 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.
11
The Company, through its wholly-owned subsidiary SLW Holdings, Inc., has been a
party to an arbitration proceeding brought by Niles Audio, Inc. SLW Holdings,
Inc. was formerly known as SL Waber, Inc., all the assets of which were sold in
August 2001. Niles Audio, Inc. is a former customer of SL Waber, Inc. The
parties are currently in discussions to settle this dispute. The Company
believes that neither the results of arbitration nor the terms of a potential
settlement, as the case may be, will have a material adverse impact on its
consolidated financial position or results of operations of the Company.
On June 12, 2002, the Company and its wholly owned subsidiary, SL Surface
Technologies, Inc. ("SurfTech"), were served with notice of a class action
complaint filed in Superior Court of New Jersey for Camden County.
(Substantially all of the operating assets of SurfTech were sold in November
2003). The Company and SurfTech are currently two of approximately 39 defendants
in this action. The complaint alleges, among other things, that the plaintiffs
may suffer personal injuries as a result of consuming water distributed from the
Puchack Wellfield in Pennsauken, New Jersey (which supplied Camden, New Jersey).
This case arises from the same factual circumstances as current administrative
actions involving the Puchack Wellfield, to which the Company is a party. The
administrative actions are discussed below. The administrative actions and the
class action lawsuit both allege that SurfTech and other defendants contaminated
ground water through the disposal of hazardous substances at industrial
facilities in the area. SurfTech once operated a chrome-plating facility in
Pennsauken, New Jersey (the "SurfTech Site").
As with the administrative actions, the Company believes it has significant
defenses against the class action plaintiffs' 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 and there
are several other technical factors and defenses available to the Company. Based
on the foregoing, the Company has been advised by its outside counsel that it
has a strong defense against the claims alleged in the class action plaintiffs'
complaint, as well as the environmental administrative actions.
It is management's opinion that the impact of legal actions brought against the
Company and its operations will not have a material adverse effect on its
consolidated financial position or results of operations. However, the ultimate
outcome of these matters, as with litigation generally, is inherently uncertain,
and it is possible that some of these matters may be resolved adversely to the
Company. The adverse resolution of any one or more of these matters could have a
material adverse effect on the business, operating results, financial condition
or cash flows of the Company.
ENVIRONMENTAL
Loss contingencies include potential obligations to investigate and eliminate or
mitigate the 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 firms to date, management
has provided an estimated accrual for all known costs believed to be probable in
the amount of $1,216,000. However, it is
12
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 Company's consolidated financial position or results of operations. Most of
the Company's environmental costs relate to discontinued operations and such
costs have been recorded in discontinued operations.
The Company is the subject of various other lawsuits and actions relating to
environmental issues, including an administrative action in connection with the
SurfTech Site, which could subject the Company to, among other things,
$9,266,000 in collective reimbursements (with other parties) to the New Jersey
Department of Environmental Protection (the "NJDEP"). Technical data generated
as part of remedial activities at the SurfTech Site have not established offsite
migration of contaminants. Other technical factors and defenses are also
available to the Company. Based on the foregoing, the Company has been advised
by its outside counsel that it has significant defenses against all or any part
of the claim and that any material impact is unlikely.
The Company has reported a ground water contamination plume on its property in
Camden, New Jersey. In February 2006, the Company submitted to the NJDEP a plan
to certify the potential areas of concern for the site, which is currently under
review. Based on the information so far, the Company believes that the cost to
remediate the property should not exceed approximately $560,000, which has been
fully reserved. These costs have been recorded as a component of discontinued
operations.
The Company is investigating soil and ground water contamination on SL-MTI's
property in Montevideo, Minnesota. The Company has submitted to the Minnesota
Department of Environmental Protection a plan to remediate the site, which is
currently under review. The Company currently has an accrual of $216,000 for all
known costs believed to be probable related to this site. These costs are
recorded as a component of continuing operations.
The Company filed claims with several of its insurers seeking reimbursement for
past and future environmental costs. In settlement of its claims, the Company
received aggregate cash payments of $2,800,000 prior to fiscal 2001 and
contingent commitments from three insurers to pay for a portion of environmental
costs associated with the SurfTech Site equal to: 15% of costs up to $300,000,
15% of costs up to $150,000 and 20% of costs up to $400,000, respectively. The
Company has received from these three insurers a total of $785,000, as payment
of their contingent commitments through 2005, which have been recorded as
income, net of tax, in discontinued operations. The Company is still eligible to
receive $36,000 of cash payments from one insurer related to these environmental
costs.
As of March 31, 2006 and December 31, 2005, the Company has accrued $1,216,000
and $1,220,000, respectively, for known costs believed to be probable related to
environmental matters, which have been included in "Accrued Liabilities - Other"
(Note 9).
13
NOTE 11. ACQUISITION
On January 26, 2006, the Company, through a wholly-owned subsidiary, acquired
approximately 86.9% of the outstanding common stock of Ault at $2.90 per share.
The Company had previously purchased in the open market approximately 4.8% of
the outstanding common stock of Ault for an average price of $2.39 per share.
Immediately after acquiring the Ault shares, the Company's wholly-owned
subsidiary was merged with and into Ault. As a result, Ault became a
wholly-owned subsidiary of the Company, and the shares not tendered were
converted into the right to receive $2.90 per share in cash, without interest.
The total purchase price for the common stock of Ault was approximately
$13,986,000, which includes the shares already owned by the Company. The Company
also paid approximately $2,079,000, including interest, to acquire all of the
outstanding shares of Ault's preferred stock and incurred additional acquisition
related costs of $2,395,000 primarily related to legal and investment banking
fees, due diligence expenses and the payment of certain pre-acquisition
contingencies. The source of funds for the acquisition was a combination of the
Company's available cash and borrowings of approximately $5,900,000 from its
Revolving Credit Facility.
Ault is a leading manufacturer of external power conversion products and is a
major supplier to the original equipment manufacturers of medical, wireless and
wire line communications infrastructure, computer peripherals, handheld devices,
and industrial equipment. Ault is headquartered in Minneapolis, Minnesota and
has an engineering and sales office in Norwood, Massachusetts, and engineering,
sales and manufacturing facilities in the People's Republic of China. Ault's
operating results are reported in the Power Electronics Group from the date of
acquisition. At March 31, 2006, the purchase price allocated to assets acquired
and liabilities assumed are preliminary and are subject to the finalization of
independent appraisals of acquired tangible and intangible assets. The purchase
price of the Ault acquisition was preliminarily allocated as follows (in
thousands):
Accounts receivable, net $ 6,243
Inventory, net 3,871
Note receivable - short term 1,125
Other current assets 763
Deferred income taxes, net 3,739
Plant and equipment, net 2,323
Goodwill 6,502
Note receivable - long term 563
Other assets 110
Accounts payable (6,977)
Accrued compensation (547)
Other current liabilities (730)
-------
Total purchase price, net of cash acquired $16,985
Acquisition costs incurred in 2005 (1,034)
-------
Acquisition costs for the three months ended
March 31, 2006 $15,951
=======
The following unaudited pro forma financial information combines the
consolidated statements of income as if the acquisition of Ault had occurred as
of the beginning of the periods presented. The pro forma adjustments include
only the effects of events directly attributed to the transaction that are
factually supportable. The pro forma adjustments contained in the table below
include interest expense on the acquisition debt and the loss of interest income
on the available cash used
14
in the acquisition. Ault's discontinued operation was excluded from net income
because that operation was not part of the acquisition. All pro forma
adjustments have been tax effected at the statutory rate.
Three Months Ended March 31,
----------------------------
2006 2005
----------- -----------
(in thousands, except per
share amounts)
(unaudited)
Net sales $43,958,000 $41,397,000
Income from continuing operations 1,358,000 1,385,000
Loss from discontinued operations, net of tax (112,000) (70,000)
Net income $ 1,246,000 $ 1,315,000
Basic net income per common share $ 0.22 $ 0.24
Diluted net income per common share $ 0.22 $ 0.23
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the acquisition of Ault been consummated as of the beginning of the
periods presented, and such information is not indicative of future operating
results.
12. SEGMENT INFORMATION
The Company currently operates under five business segments: Condor D.C. Power
Supplies, Inc. ("Condor"), Teal Electronics Corp. ("Teal"), Ault Incorporated
("Ault"), SL Montevideo Technology, Inc. ("SL-MTI") and RFL Electronics Inc.
("RFL"). Management has combined Condor, Teal and Ault into one business unit
classified as the Power Electronics Group.
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 custom 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. Ault is a leading manufacturer of external power
conversion products and is a major supplier to the original equipment
manufacturers of medical, wireless and wire line communications infrastructure,
computer peripherals, handheld devices, and industrial equipment. SL-MTI is a
technological leader in the design and manufacture of intelligent, high power
density precision motors. These motor and motion controls are used in numerous
applications, including aerospace, medical, and industrial products. RFL designs
and manufactures communication and power protection products/systems that are
used to protect utility transmission lines and apparatus by isolating faulty
transmission lines from a transmission grid. RFL also provides customer service
and maintenance for all of its products. The Other segment includes corporate
related items, financing activities and other costs not allocated to reportable
segments, which includes but is not limited to certain legal, litigation and
public reporting charges and the results of insignificant operations.
15
The unaudited comparative results for the three-month periods ended March 31,
2006 and March 31, 2005 are as follows:
Three Months Ended
March 31,
------------------
2006 2005
------- -------
(in thousands)
NET SALES
Power Electronics Group:
Condor $ 9,636 $11,318
Teal 9,119 7,552
Ault 8,605 --
------- -------
Total 27,360 18,870
------- -------
SL-MTI 6,590 6,770
RFL 5,335 6,816
------- -------
Consolidated $39,285 $32,456
======= =======
Three Months Ended
March 31,
------------------
2006 2005
------- -------
(in thousands)
INCOME FROM OPERATIONS
Power Electronics Group:
Condor $ 449 $ 1,132
Teal 1,617 1,071
Ault 378 --
------- -------
Total 2,444 2,203
------- -------
SL-MTI 356 979
RFL 349 823
Other (1,224) (1,268)
------- -------
Consolidated $ 1,925 $ 2,737
======= =======
16
March 31, December 31,
2006 2005
--------- ------------
(in thousands)
TOTAL ASSETS
Power Electronics Group:
Condor $14,208 $13,330
Teal 13,306 12,574
Ault 25,501 --
------- -------
Total 53,015 25,904
------- -------
SL-MTI 12,303 12,495
RFL 17,160 15,825
Other 4,628 16,090
------- -------
Consolidated $87,106 $70,314
======= =======
March 31, December 31,
2006 2005
--------- ------------
(in thousands)
INTANGIBLE ASSETS, NET
Teal $ 5,804 $ 5,822
Ault 6,502 --
SL-MTI 14 15
RFL 5,542 5,551
------- -------
Consolidated $17,862 $11,388
======= =======
13. RETIREMENT PLANS AND DEFERRED COMPENSATION
The Company maintains four noncontributory, defined contribution pension plans
covering all of its full-time, US employees. The Company's contributions to
these plans are based on a percentage of employee contributions and/or plan year
gross wages, as defined. Condor, Teal, Ault, SL-MTI and the Corporate office
provide contributions to their plans based on a percentage of employee
contributions. Condor, SL-MTI, RFL and the Corporate office also provide profit
sharing contributions annually, based on plan year gross wages. Costs incurred
under these plans amounted to $234,000 and $321,000 during the three-month
periods ended March 31, 2006 and March 31, 2005, respectively.
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 at discount rates ranging from 6% to 12%. The amount charged to
income in connection with these agreements amounted to $109,000 and $73,000 for
the three-month periods ended March 31, 2006 and March 31, 2005, respectively.
14. RELATED PARTY TRANSACTIONS
The compensation committee has approved the payment of certain fees from the
Company to Steel Partners, Ltd. ("SPL"), a company controlled by the Chairman of
the Board of the Company, Warren Lichtenstein. These fees are in consideration
for the services of Mr.
17
Lichtenstein and the Company's Vice Chairman, Glen Kassan, as well as other
assistance provided by SPL from time to time. Until August 10, 2005, Mr.
Lichtenstein had been serving as both Chairman and Chief Executive Officer, and
Mr. Kassan had been serving as President of the Company. During the three-month
period ended March 31, 2006, the Company expensed $119,000 for SPL services. Of
this amount, $40,000 remained payable at March 31, 2006. The Company expensed
$119,000 for services performed for the three-month period ended March 31, 2005.
RFL has an investment of $15,000 in RFL Communications PLC ("RFL
Communications"), representing 4.5% of the outstanding equity thereof. RFL
Communications is a distributor of teleprotection and communication equipment
located in the United Kingdom. It is authorized to sell RFL products in
accordance with an international sales agreement. Sales to RFL Communications
for each of the three-month periods ended March 31, 2006 and March 31, 2005 were
$241,000 and $285,000, respectively. Accounts receivable due from RFL
Communications at March 31, 2006 were $119,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company, through its subsidiaries, designs, manufactures and markets power
electronics, motion control, power protection and specialized communication
equipment that is used in a variety of aerospace, computer, datacom, industrial,
medical, telecom, transportation and utility equipment applications. The Company
is comprised of five domestic business segments, two of which have significant
manufacturing operations in Mexico. With the acquisition of Ault on January 26,
2006, the Company added manufacturing capability in the People's Republic of
China. Most of the Company's sales are made to customers who are based in the
United States. However, over the years the Company has increased its presence in
international markets. The Company places an emphasis on high quality,
well-built, dependable products and continues its dedication to product
enhancement and innovations.
The Company's business strategy has been to enhance the growth and profitability
of each of its businesses through the penetration of attractive new market
niches, further improvement of operations and expansion of global capabilities.
The Company expects to achieve these goals through organic growth and strategic
acquisitions. The Company also continues to pursue strategic alternatives to
maximize the value of its businesses. Some of these alternatives have included,
and will continue to include, selective acquisitions, divestitures and sales of
certain assets. The Company has provided, and may from time to time in the
future provide, information to interested parties regarding portions of its
businesses for such purposes.
CRITICAL ACCOUNTING POLICIES
The Company's Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States. These
generally accepted accounting principles require management to make estimates
and assumptions that affect the amounts of reported and contingent assets and
liabilities at the date of the Consolidated Financial Statements and the amounts
of reported net sales and expenses during the reporting period.
The Company's significant accounting policies are described in Note 1 in the
Notes to Consolidated Financial Statements included in Part IV of the Company's
Annual Report on Form 10-K. Not all of these significant accounting policies
require management to make
18
difficult, subjective or complex judgments or estimates. However, the following
policies are deemed to be critical, as that term is defined by the Securities
and Exchange Commission.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time the product is shipped,
with provisions established for estimated product returns and returns related to
one business segment's stock scrap program with distributors. Upon shipment, the
Company provides for the estimated cost that may be incurred for product
warranties. Rebates and other sales incentives offered by the Company 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 Company follows generally accepted accounting
principles in measuring revenue. Revenue is recorded in accordance with Staff
Accounting Bulletin ("SAB") No. 104. 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 Company's estimate for the 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 Company
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 Company 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 re-evaluated 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. If circumstances change (e.g., higher than
expected defaults or an unexpected material adverse change in a major customer's
ability to meet its financial obligation), the Company's estimates of the
recoverability of amounts due could be reduced by a material amount.
INVENTORIES
The Company values inventory 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 Company 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 related inventory is adjusted 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, which is 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 Company 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 Company is not able to achieve its
expectations of the net realizable value of the inventory at current market
value, it adjusts its reserves accordingly.
19
ACCOUNTING FOR INCOME TAXES
The Company's income tax policy records the estimated future tax effects of
temporary differences between the tax basis of assets and liabilities and
amounts reported in the accompanying consolidated balance sheets, as well as
operating loss and tax credit carryforwards. The Company follows the guidelines
under Statement of Financial Accounting Standard No. 109 ("SFAS 109") in
determining 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 Company 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, to the extent it believes
that recovery is not likely, the Company must establish a valuation allowance.
To the extent it establishes a valuation allowance or increases or decreases
this allowance in a period, it must include expense or income, as the case may
be, within the tax provision in the consolidated statement of income.
Significant management judgment is required in determining the provision for
income taxes, the deferred tax assets and liabilities and any valuation
allowance recorded against deferred tax assets. As of March 31, 2006 and
December 31, 2005, the Company had recorded total valuation allowances of
$3,644,000 and $3,572,000, respectively, due to uncertainties related to the
utilization of some deferred tax assets, primarily consisting of certain
research and development tax credits, loss carryforwards and foreign tax
credits, before they expire. The valuation allowance is based on estimates of
taxable income, expenses and credits by the jurisdictions in which the Company
operates and the period over which deferred tax assets will be recoverable. In
the event that actual results differ from these estimates or these estimates are
adjusted in future periods, the Company may need to establish an additional
valuation allowance that could materially impact its consolidated financial
position and results of operations. The net deferred tax assets as of March 31,
2006 and December 31, 2005 were $9,705,000 and $5,980,000, respectively, net of
valuation allowances of $3,644,000 and $3,572,000, respectively. The carrying
value of the Company's net deferred tax assets assumes that the Company 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 Company may be required to record additional valuation
allowances against its deferred tax assets resulting in additional income tax
expense in the consolidated statement of income. Management evaluates the
ability to realize the deferred tax assets and assesses the need for additional
valuation allowances quarterly.
In accordance with SFAS 109 and Statement of Financial Accounts Standards No.
141, the Company has recorded separate from goodwill, as of the date of
acquisition of Ault, the deferred taxes related to Ault's federal and state net
operating loss carryforwards. At the date of acquisition, Ault's net operating
loss carryforwards were $10,622,000. The Company believes that these deferred
tax assets will more likely than not be realized.
The Company has made a provision for US and state income taxes for the
anticipated repatriation of its Mexican subsidiaries. The Company considers the
undistributed earnings of its
20
Chinese subsidiaries to be permanently reinvested. As of March 31, 2006,
$465,000 of such undistributed earnings was expected to be permanently
reinvested.
LEGAL CONTINGENCIES
The Company is currently involved in certain legal proceedings. As discussed in
Note 10 in the Notes to the Consolidated Financial Statements included in Part I
to this Quarterly Report on Form 10-Q, the Company has accrued an estimate of
the probable costs for the resolution of these claims. This estimate has been
developed after investigation 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 Company'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, or
the effectiveness of these strategies, related to these proceedings.
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
The Company's long-lived and intangible assets primarily consist of fixed
assets, goodwill and other intangible assets. Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") requires
that goodwill be tested for impairment at the reporting unit level (operating
segment or one level below an operating segment) on an annual basis and between
annual tests in certain circumstances. Application of the goodwill impairment
test requires judgment, including the identification of reporting units,
assigning assets and liabilities to reporting units, assigning goodwill to
reporting units, and determining the fair value of each reporting unit.
Significant judgments are required to estimate the fair value of reporting
units, including an estimate of future cash flows, a determination of
appropriate discount rates and other assumptions. Changes in these estimates and
assumptions could materially affect the determination of fair value for each
reporting unit.
The Company periodically reviews the carrying value of its long-lived assets
held and used, other than goodwill and intangible assets with indefinite lives,
and assets to be disposed, whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company assesses the
recoverability of the asset by estimated cash flows and at times by independent
appraisals. It compares estimated cash flows expected to be generated from the
related assets, or the appraised value of the asset, to the carrying amounts to
determine whether impairment has occurred. If the estimate of cash flows
expected to be generated changes in the future, the Company may be required to
record impairment charges that were not previously recorded for these assets. If
the carrying value of a long-lived asset is considered impaired, an impairment
charge is recorded for the amount by which the carrying value of the long-lived
asset exceeds its fair value.
ENVIRONMENTAL EXPENDITURES
The Company is subject to United States and Mexican 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 Company is also subject to other federal,
state and local environmental laws and regulations, including those that require
it to remediate or mitigate the effects of the disposal or release of certain
chemical substances at various sites, including some where the Company has
ceased operations. It is impossible to predict precisely what effect these laws
and regulations will have in the future.
21
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 are expensed and recorded as part of discontinued
operations. Expenditures include costs of remediation and legal fees to defend
against claims for environmental liability. 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, and they are not reduced by potential claims for recovery from
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
Company'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 Company's
audited Consolidated Financial Statements and Notes thereto included in Part IV
of its Annual Report on Form 10-K, which contain accounting policies and other
disclosures required by generally accepted accounting principles.
LIQUIDITY AND CAPITAL RESOURCES
March 31, December 31,
2006 2005 $ Variance % Variance
--------- ------------ ---------- ----------
(in thousands)
Cash and cash equivalents $ 0 $ 9,985 ($9,985) (100%)
Bank debt $ 7,973 $ 0 $ 7,973 100%
Working capital: (Less cash) $23,042 $15,822 $ 7,220 46%
Shareholders' equity $47,943 $46,645 $ 1,298 3%
During the three-month period ended March 31, 2006, the net cash used in
operating activities from continuing operations was $1,669,000, as compared to
net cash used by operating activities from continuing operations of $269,000
during the three-month period ended March 31, 2005. The primary uses of cash
from operating activities for the three-month period ended March 31, 2006 were
an increase in inventory of $1,825,000 and a reduction of accrued liabilities of
$1,095,000. These uses of cash were partially offset by income from continuing
operations of $1,233,000. All of the operating entities had increases in their
levels of inventory. Condor's inventory level increased $689,000, which was
caused by an increase in current period bookings and a shift in existing orders.
SL-MTI's inventory level increased by $510,000, primarily due to a customer
deferral of a large order and, to a lesser extent, a customer redesign of a
product. RFL's inventory increased as a result of a large international order
that was shipped in April 2006. Teal's inventory increased by $212,000,
primarily due to its relatively high backlog. The decrease in accrued
liabilities is primarily due to the payment of legal and other professional fees
related to the acquisition of Ault and the payment of the Company's executive
and middle management bonuses before the end of March 2006. The primary uses of
cash from operating activities for the three-month period ended March 31, 2005
were an increase in accounts receivable in the amount of $1,989,000. The
increase of accounts receivable was largely
22
attributable to the timing of sales at Condor and Teal during the quarter ended
March 31, 2005, compared to the quarter ended December 31, 2004. Accrued
liabilities decreased by $824,000, primarily due to payments made in March 2005
related to the Company's executive bonus program. These uses of cash were
partially offset by net income from continuing operations of $1,969,000 and a
decrease in inventories of $591,000 from 2004 year-end levels.
During the three-month period ended March 31, 2006, net cash used in investing
activities was $16,528,000. The primary uses of cash in investing activities
during the period were related to the purchase of Ault on January 26, 2006 in
the amount of $15,951,000, net of cash acquired, (cash in the amount of
$1,034,000 was used in 2005. See Note 11). In addition, the Company purchased
machinery and equipment in the amount of $577,000. During the three-month period
ended March 31, 2005, net cash used in investing activities was $676,000. The
uses of cash in investing activities were related to purchases of securities
available for sale in the amount of $413,000 and the purchase of machinery and
equipment in the amount of $263,000.
During the three-month period ended March 31, 2006, net cash provided by
financing activities was $8,212,000. This source of cash was principally related
to proceeds from the Company's Revolving Credit Facility in the amount of
$7,973,000. Of this amount approximately $5,900,000 was used in the acquisition
of Ault. Also $167,000 was received as proceeds from the exercise of stock
options. During the three-month period ended March 31, 2005, net cash provided
by financing activities was $153,000, principally due to the proceeds from the
exercise of stock options of $275,000. These sources of cash were partially
offset by payments made against the Company's former credit facility in the
amount of $187,000.
The Company's current ratio was 1.88 to 1 at March 31, 2006 and 2.40 to 1 at
December 31, 2005. The current ratio changed primarily due to a reduction in
cash and cash equivalents of $9,985,000. Current assets increased by $4,885,000
from December 31, 2005, while current liabilities increased by $7,650,000 during
the same period. The increase in current liabilities is primarily related to the
acquisition of Ault.
As a percentage of total capitalization, consisting of debt and shareholders'
equity, total borrowings by the Company were 14% at March 31, 2006 and 0% at
December 31, 2005. During the first three months of 2006, total debt increased
by $7,973,000.
Capital expenditures of $577,000 were made during the first three months of
2006. These expenditures primarily related to computer equipment and factory
machinery and equipment. Capital expenditures for the period represent a
$314,000 increase from the comparable period in 2005.
During the first three months of 2006, the Company, through a combination of
available cash and borrowings available under the Revolving Credit Facility, was
able to obtain adequate amounts of cash to meet its operating needs, purchase
Ault for $15,951,000 (see note 11), net of cash acquired, purchase machinery and
equipment in the amount of $577,000 and fund its inventory levels. All of the
Company's operating segments had income from operations for the three months
ended March 31, 2006.
Management believes that cash from operations and funds expected to be available
under the Revolving Credit Facility will be sufficient to fund the Company's
operations, working capital requirements and strategic objectives.
23
CONTRACTUAL OBLIGATIONS
The following is a summary of the Company's contractual obligations that existed
as of March 31, 2006:
Less Than 1 to 3 4 to 5 After
1 Year Years Years 5 Years Total
--------- ------- ------ ------- -------
(in thousands)
Operating Leases $1,947 $ 2,001 $1,189 $ 3 $ 5,140
Debt -- 7,973 -- -- 7,973
Capital Leases 51 -- -- -- 51
Other Obligations 52 178 138 146 514
------ ------- ------ ---- -------
$2,050 $10,152 $1,327 $149 $13,678
====== ======= ====== ==== =======
OFF-BALANCE SHEET ARRANGEMENTS
It is not the Company's usual business practice to enter into off-balance sheet
arrangements, such as guarantees on loans and financial commitments,
indemnification arrangements, and retained interests in assets transferred to an
unconsolidated entity for securitization purposes. Consequently, the Company has
no off-balance sheet arrangements, except for operating lease commitments
disclosed in the table above, that have, or are reasonably likely to have, a
material current or future effect on its financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006, COMPARED WITH THREE MONTHS ENDED MARCH 31,
2005
The table below shows the comparison of net sales for the quarter ended March
31, 2006 ("2006") and the quarter ended March 31, 2005 ("2005"). Ault's sales
are reflected from the date of acquisition (January 26, 2006) to March 31, 2006.
Three Months Three Months $ Variance % Variance
Ended Ended Over Over
March 31, March 31, Same Quarter Same Quarter
2006 2005 Last Year Last Year
------------ ------------ ------------ ------------
(in thousands)
Power Electronics Group:
Condor $ 9,636 $11,318 ($1,682) (15%)
Teal 9,119 7,552 1,567 21%
Ault 8,605 -- 8,605 n/a
------- ------- ------- ---
Total 27,360 18,870 8,490 45%
------- ------- ------- ---
SL-MTI 6,590 6,770 (180) (3%)
RFL 5,335 6,816 (1,481) (22%)
------- ------- ------- ---
Total $39,285 $32,456 $ 6,829 21%
======= ======= ======= ===
24
The table below shows the comparison of income from operations for 2006 and
2005. Ault's income from operations is reflected from the date of acquisition to
March 31, 2006:
Three Months Three Months $ Variance % Variance
Ended Ended Over Over
March 31, March 31, Same Quarter Same Quarter
2006 2005 Last Year Last Year
------------ ------------ ------------ ------------
(in thousands)
Power Electronics Group:
Condor $ 449 $ 1,132 ($683) (60%)
Teal 1,617 1,071 546 51%
Ault 378 -- 378 n/a
------- ------- ----- ---
Total 2,444 2,203 241 11%
------- ------- ----- ---
SL-MTI 356 979 (623) (64%)
RFL 349 823 (474) (58%)
Other (1,224) (1,268) 44 3%
------- ------- ----- ---
Total $ 1,925 $ 2,737 ($812) (30%)
======= ======= ===== ===
Consolidated net sales for 2006 increased by $6,829,000, or 21%, compared to the
same period in 2005. On a comparative basis, without the sales of Ault,
consolidated sales decreased by $1,776,000, or 5%. Teal experienced a
significant increase in sales of $1,567,000, or 21%. The remaining business
segments experienced a decline in sales ranging from 3% to 22%, which is
discussed more fully below.
The Company had income from operations of $1,925,000 for the period ended 2006,
as compared to income from operations of $2,737,000 for the corresponding period
last year, a decrease of $812,000, or 30%. On a comparative basis without the
inclusion of Ault, income from operations decreased by $1,190,000, or 43%.
Income from continuing operations was $1,233,000, or $0.21 per diluted share in
2006, compared to $1,969,000, or $0.35 per diluted share in 2005. Income from
continuing operations decreased $736,000, or 37%. Without the positive
contribution of Ault, the decrease would have been $921,000, or 47% in 2006,
compared to 2005. The Company's business segments and the components of
operating expenses are discussed more fully in the following sections.
The Power Electronics Group, which is now comprised of Condor, Teal and Ault,
recorded a sales increase of $8,490,000, or 45%. Without Ault, sales would have
decreased by $115,000, or approximately 1%. Income from operations without Ault
decreased by $137,000, or 6%. Condor experienced a decrease in sales of
$1,682,000, or 15%, and a decrease in income from operations of $683,000, or
60%. Condor experienced a decrease in sales to manufacturers of industrial
equipment of $426,000, or 11%, and reduced sales of its medical product line by
approximately $1,035,000, or 15%. Condor's decrease in income from operations is
primarily due to its decrease in sales, partially offset by a decrease in
general and administrative expenses. Condor's international sales remained
relatively flat in 2006, compared to 2005. Teal experienced a sales increase of
$1,567,000, or 21%, and an increase in income from operations of $546,000, or
51%. Teal's sales increase was primarily attributable to its medical product
line, which had an increase of $1,177,000, or 19%. Teal also experienced an
increase in sales in its
25
semiconductor product line of $379,000, or 42%. Teal's increase in income from
operations is primarily due to the significant increase in sales, as operating
costs remained relatively constant.
SL-MTI's sales decreased $180,000, or 3%, while income from operations decreased
$623,000, or 64%. The decrease in sales was driven by decreases in sales to
customers in the defense industry of $449,000, or 10%, while all other markets
had modest increases. Sales of SL-MTI's windings product line decreased by
$198,000, or 12%, and DC Brush and Brushless Motors decreased by $138,000, or
3%, compared to 2005. The decrease in income from operations is primarily due to
the decrease in plant productivity and an increase in engineering and product
development expenses, as billable research and development cost decreased
significantly compared to 2005.
RFL's sales decreased by $1,481,000, or 22%, during 2006 compared to 2005.
Income from operations decreased by $474,000, or 58%, for the comparable
periods. Sales of RFL's carrier communications product line decreased by
$1,251,000, or 33%, compared to 2005. Except protection relays, all of RFL's
product lines experienced decreased sales compared to 2005. Protection relays
increased by $166,000, or 69%, primarily attributable to one international
customer. The decrease in income from operations is not as pronounced in dollar
amounts as the decrease in sales, primarily due to reduced cost of products sold
and a significant decrease in general and administrative expenses.
COST OF PRODUCTS SOLD
As a percentage of net sales, cost of products sold for 2006 and for 2005 was
approximately 67% and 64%, respectively. Without the Ault operations, the
comparable percentages were 65% and 64%. Condor's cost of products sold
percentage increased to 66% from 64% as a result of a 15% decrease of its sales
volume in 2006. Teal's cost of products sold percentage improved to 66% from 67%
primarily due to its 21% sales volume increase. Not withstanding Teal's
improvement, raw material prices continue to have a negative impact on its
product costs. Copper prices, in particular, increased approximately 15% in
three months ended March 31, 2006. In an effort to improve its labor costs, Teal
is in the process of moving a significant portion of its manufacturing
operations to Tecate, Mexico. In 2006 SL-MTI recorded an increase in its cost of
products sold, as a percentage of net sales, to 74%, compared to 67% in the same
period last year. This increase was primarily due to lower plant productivity
and higher overhead costs, which resulted in less absorption of fixed overhead.
To a lesser extent, SL-MTI incurred additional training costs and operational
inefficiencies related to the transfer of new programs to its manufacturing
facility in Matamoros, Mexico, which also contributed to higher costs of product
sold. In an effort to reduce costs in line with its current backlog
requirements, in April 2006, SL-MTI announced a lay-off of approximately 52
employees at its Matamoros facility and approximately 37 employees at its
Montevideo facility. This planned layoff will be completed in the second quarter
of 2006 with estimated separation payments of approximately $115,000. RFL's cost
of products sold, as a percentage of sales, improved slightly in 2006, compared
to 2005. RFL's improvement is attributable to a favorable product mix.
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES
Engineering and product development expenses for each of 2006 and 2005 were
approximately 8% and 7% of net sales, respectively. Engineering and product
development expenses in 2006 increased by $756,000, or 33%, of which Ault added
$551,000. Engineering and product development expenditures increased at all of
the Company's business segments in 2006, compared to 2005. The largest increase
was at SL-MTI, which had an increase of $130,000, or
26
22%, as billable research and development costs decreased significantly compared
to 2005. During 2006, MTI had 44% more research and development jobs open and
less customer funded programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, as a percentage of net sales, for
2006 and 2005 were 19% and 20%, respectively. These expenses increased by
$1,230,000, or 19%, with Ault contributing $1,548,000 of the increase. Selling,
general and administrative expenses, without Ault, decreased by $318,000, or 5%.
Condor, SL-MTI and RFL experienced decreases in selling, general and
administrative expenses on reduced sales levels. Teal experienced a modest
increase of 5% on increased sales of 21%. Corporate office expenses remained
relatively flat in 2006, as compared to 2005.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses remained relatively constant at
approximately 2% of net sales for each of 2006 and 2005.
AMORTIZATION OF DEFERRED FINANCING COSTS
In connection with entering into a senior credit facility with LaSalle Business
Credit LLC on January 6, 2003, the Company incurred costs of approximately
$1,342,000. These costs had been deferred and were being amortized over the
three-year term of the facility. On August 2, 2005, the Company terminated such
facility and, accordingly, wrote off the remaining deferred financing costs
related to this facility. In connection with entering into the Revolving Credit
Facility on August 3, 2005, the Company incurred costs of approximately
$258,000. These costs have been deferred and are being amortized over the
three-year term of the Revolving Credit Facility. For 2006, amortization of
deferred financing costs was $22,000, all of which related to the current
Revolving Credit Facility. For 2005, amortization of deferred financing assets
was $112,000, all of which related to the former line of credit with LaSalle
Business Credit LLC.
INTEREST INCOME (EXPENSE)
Interest income for 2006 was $28,000, compared to $29,000 in the same period
last year. Interest expense was $129,000 for 2006, compared to $88,000 for 2005.
This increase is primarily related to debt incurred as a result of the
acquisition of Ault.
TAXES
The effective tax rate for 2006 was approximately 32%. The effective tax rate
reflects the statutory rate after adjustments for state and international tax
provisions, offset by the recording of benefits primarily related to research
and development tax credits. The effective tax rate for the comparable period in
2005 was approximately 23%. The effective tax rate reflected the statutory rate
after adjustments for state and international tax provisions, offset by the
recording of benefits from research and development tax credits primarily
related to the prior year.
DISCONTINUED OPERATIONS
For 2006, the Company recorded a loss from discontinued operations, net of tax,
of $112,000. This amount includes current legal and environmental charges
related to discontinued operations. For 2005, the Company recorded a loss from
discontinued operations, net of tax, of $70,000. This amount included legal and
environmental charges related to discontinued operations.
27
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 that address activities, events or
developments that the Company expects or anticipates will or may occur in the
future, such as expansion and growth of the Company's business, future capital
expenditures and the Company's prospects and strategy. In reviewing such
information, it should be kept in mind that actual results may differ materially
from those projected or suggested in such forward-looking information. This
forward-looking information is based on various factors and was derived
utilizing numerous assumptions. Many of these factors previously have been
identified in filings or statements made by or on behalf of the Company.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in the general economy, changes in capital
investment and/or consumer spending, competitive factors and other factors
affecting the Company's business in or beyond the Company's control. These
factors include a change in the rate of inflation, a change in state or federal
legislation or regulations, an adverse determination with respect to a claim in
litigation or other claims (including environmental matters), the ability to
recruit and develop employees, the ability to successfully implement new
technology and the stability of product costs. These factors also include 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; increasing price, products and services competition by U.S. and
non-U.S. competitors, including new entrants; rapid technological developments
and changes and the Company's ability to continue to introduce and develop
competitive new products and services on a timely, cost-effective basis;
availability of manufacturing capacity, components and materials; credit
concerns and the potential for deterioration of the credit quality of customers;
customer demand for the Company's products and services; ability of the Company
to continue to finance its operations on satisfactory terms; U.S. and non-U.S.
governmental and public policy changes that may affect the level of new
investments and purchases made by customers; changes in environmental and other
U.S. and non-U.S. governmental regulations; protection and validity of patent
and other intellectual property rights; compliance with the covenants and
restrictions of bank credit facilities; and outcome of pending and future
litigation and governmental proceedings. These are representative of the future
factors that could affect the outcome of the forward-looking statements. In
addition, such statements could be affected by general industry and market
conditions and growth rates, general U.S. and non-U.S. economic conditions,
including increased economic uncertainty and instability, and interest rate and
currency exchange rate fluctuations and other future factors.
28
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, 2005,
Part I, Item 1 - Risk Factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative market risk
from the disclosure contained in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2005, which is incorporated herein by
reference.
ITEM 4. CONTROLS AND PROCEDURES
The Company, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the design and operation of the
Company's "disclosure controls and procedures," as such term is defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") as of this Quarterly Report on Form 10-Q (this
"Report"). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this Report to
provide reasonable assurance that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. There have been no
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.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected.
29
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please see Note 13 to the Consolidated Financial Statements and the Company's
Annual Report on Form 10-K for the twelve months ended December 31, 2005.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On December 12, 2003, the Company announced that its Board of Directors had
authorized the repurchase of up to 10% of the outstanding shares of common stock
of the Company. Any repurchases are to be made on the open market or in
negotiated transactions. For the three months ended March 31, 2006 and March 31,
2005, the Company did not purchase any shares pursuant to the repurchase
program; however, it did purchase 6,200 and 1,700 shares, respectively, through
its deferred compensation plans during these periods.
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number Maximum Number
of Shares of Shares That May
Total Purchased as Part Yet Be Purchased
Number of Average of Publicly under Publicly
Shares Price Paid Announced Plans Announced Plans or
Period Purchased per Share or Programs Programs
------ --------- ---------- ----------------- ------------------
January 2006 -- -- -- 48,024
February 2006 -- -- -- 48,024
March 2006 6,200(1) $15.06 -- 48,024
----- ------ ---
Total 6,200 $15.06 --
===== ====== ===
(1). The Company purchased these shares other than through a publicly announced
plan or program in open market transactions or in negotiated transactions.
ITEM 5. OTHER INFORMATION
Pursuant to Section 10A(i)(2) of the Exchange Act, the Company is responsible
for listing the non-audit services approved in the first quarter of 2006 by its
Audit Committee to be performed by Grant Thornton, the Company's external
auditor. During the first quarter of 2006, no non-audit services were performed
by Grant Thornton.
30
ITEM 6. EXHIBITS
31.1 Certification by Principal Executive Officer pursuant to Rule 13a-15(e) or
15(d)-15(e) of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted
herewith).
31.2 Certification by Principal Financial Officer pursuant to Rule 13a-15(e) or
15(d)-15(e) of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (transmitted
herewith).
32.1 Certification by Principal Executive Officer pursuant to Rule 13a or 15(d)
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (transmitted herewith).
32.2 Certification by Principal Financial Officer pursuant to Rule 13a or 15(d)
of the Securities Exchange Act of 1934, as amended, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 (transmitted herewith).
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 11, 2006 SL INDUSTRIES, INC.
(Registrant)
By: /s/ James C. Taylor
------------------------------------
James C. Taylor
Chief Executive Officer
(Principal Executive Officer)
By: /s/ David R. Nuzzo
------------------------------------
David R. Nuzzo
Chief Financial Officer
(Principal Accounting Officer)
32