SL INDUSTRIES, INC. (NYSE MKT: SLI); (“SLI” or the “Company”) operating results for the second quarter and six months ended June 30, 2014 are summarized in the following paragraphs. Please read the Company's Form 10-Q, which can be found at www.slindustries.com, for a full discussion of the operating results.

Second Quarter Results

Net sales for the quarter ended June 30, 2014, were $56.7 million, compared with net sales for the quarter ended June 30, 2013 of $49.8 million.

Income from continuing operations for the quarter ended June 30, 2014 was $5.7 million, or $1.36 per diluted share, compared to income from continuing operations of $2.3 million, or $0.54 per diluted share, for the quarter ended June 30, 2013. Income from continuing operations for the quarter ended June 30, 2014 included a $1.0 million or $0.24 per diluted share, after-tax gain from the sale of common stock classified as available-for-sale securities.

Net income for the quarter ended June 30, 2014 was $5.5 million, or $1.33 per diluted share, compared to net income of $2.0 million, or $0.48 per diluted share, for the quarter ended June 30, 2013. Net income for the quarter ended June 30, 2014 included a net loss from discontinued operations of $0.1 million, or $0.03 per diluted share, compared to a net loss from discontinued operations of $0.2 million, or $0.06 per diluted share, for the second quarter of 2013.

The Company generated EBITDA from continuing operations of $9.1 million for the second quarter of 2014, as compared to $3.9 million for the same period in 2013, an increase of $5.2 million, or 133%. The Company generated Adjusted EBITDA from continuing operations of $7.6 million for the second quarter of 2014, compared to $4.3 million for the same period in 2013, an increase of $3.3 million, or 77%. See “Note Regarding Use of Non-GAAP Financial Measurements” below for the definitions of EBITDA and Adjusted EBITDA.

Full Year Results

Net sales for the six months ended June 30, 2014 were $109.3 million compared with net sales for the six months ended June 30, 2013 of $98.9 million.

Income from continuing operations for the six months ended June 30, 2014 were $8.3 million, or $2.00 per diluted share, compared to income from continuing operations of $5.2 million, or $1.25 per diluted share, for the six months ended June 30, 2013.

Net income for the first six months ended June 30, 2014 was $8.1 million, or $1.93 per diluted share, compared to net income of $4.8 million, or $1.14 per diluted share, for the first six months ended June 30, 2013. Net income for the first six months ended June 30, 2014 included a net loss from discontinued operations of $0.3 million, or $0.07 per diluted share, compared to a net loss from discontinued operations of $0.5 million, or $0.11 per diluted share, for the first six months ended June 30, 2013. The loss from discontinued operations in 2014 and 2013 primarily relates to environmental remediation costs, consulting fees and legal expenses associated with the past operations of the Company’s five environmental sites.

The Company generated EBITDA from continuing operations of $13.9 million for the six months ended 2014, as compared to $8.5 million for the same period in 2013, an increase of $5.4 million, or 64%. See "Note Regarding Use of Non-GAAP Financial Measurements" below for the definition of EBITDA and Adjusted EBITDA.

At June 30, 2014, the Company reported $15.8 million of cash and cash equivalents, compared to $7.2 million of cash and cash equivalents as of December 31, 2013. Cash and cash equivalents increased in 2014 primarily due to $9.8 million of cash provided by operating activities from continuing operations. Also, the Company received proceeds from the sale of available-for-sale securities in the amount of $4.0 million.

Updated Guidance 2014

The Company anticipates, based on current information, full-year 2014 Net Sales, EBITDA, and Adjusted EBITDA from continuing operations in the ranges of $202 million to $235 million, $24 million to $28 million, and $24 million to $28 million, respectively. The Company's outlook for the third quarter of 2014 is Net Sales, EBITDA, and Adjusted EBITDA from continuing operations in the ranges of $51.1 million to $56.5 million, $5.0 million to $5.5 million, and $5.2 million to $5.7 million, respectively.

Financial Summary
 
SUMMARY CONSOLIDATED BALANCE SHEETS
   
June 30, December 31,
2014   2013
(In thousands)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 15,790 $ 7,163
Receivables, net 34,876 30,765
Inventories, net 23,076 22,963
Other current assets   5,021     9,972
Total current assets   78,763     70,863
Property, plant and equipment, net 10,772 10,790
Intangible assets, net 19,968 20,012
Other assets and deferred charges, net   10,757     11,669
Total assets $ 120,260   $ 113,334
 
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities $ 39,635 $ 33,812
Long-term liabilities 14,094 20,347
Shareholders' equity   66,531     59,175
Total liabilities and shareholders' equity $ 120,260   $ 113,334
 
 
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
  Three Months Ended   Six Months Ended
June 30, June 30,
2014   2013   2014   2013
(In thousands, except per share amounts)
   
Net sales $ 56,749 $ 49,786 $ 109,334 $ 98,881
Cost and expenses:
Cost of products sold 36,686 32,764 71,863 64,963
Engineering and product development 3,097 3,672 6,395 7,175
Selling, general and administrative 9,555 9,104 18,179 17,911
Depreciation and amortization 636 615 1,250 1,215
Restructuring charges   -       -       463       -  
Total cost and expenses   49,974       46,155       98,150       91,264  
Income from operations 6,775 3,631 11,184 7,617
 
Other income (expense):
Amortization of deferred financing costs (22 ) (20 ) (43 ) (39 )
Interest income 1 2 3 3
Interest expense (8 ) (15 ) (43 ) (50 )
Other gain (loss), net   1,729       (301 )     1,479       (327 )
Income from continuing operations before income taxes 8,475 3,297 12,580 7,204
Income tax provision   2,820       1,045       4,260       1,968  
Income from continuing operations 5,655 2,252 8,320 5,236
(Loss) from discontinued operations, net of tax   (127 )     (237 )     (265 )     (455 )
Net income $ 5,528     $ 2,015  

 
$ 8,055     $ 4,781  
 
Basic net income (loss) per common share
Income from continuing operations $ 1.37 $ 0.54 $ 2.01 $ 1.26
(Loss) from discontinued operations, net of tax   (0.03 )     (0.06 )     (0.06 )     (0.11 )
Net income $ 1.34     $ 0.48     $ 1.95     $ 1.15  
 
Diluted net income (loss) per common share
Income from continuing operations $ 1.36 $ 0.54 $ 2.00 $ 1.25
(Loss) from discontinued operations, net of tax   (0.03 )     (0.06 )     (0.07 )     (0.11 )
Net income $ 1.33     $ 0.48     $ 1.93     $ 1.14  
 
Shares used in computing basic net income (loss)
per common share 4,138 4,157 4,133 4,148
Shares used in computing diluted net income (loss)
per common share 4,168 4,204 4,163 4,189
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
2014   2013   2014   2013
(In thousands)
 
Net income $ 5,528 $ 2,015

 
$ 8,055 $ 4,781
Other comprehensive income, net of tax:
Foreign currency translation 152 17

 
118 93
Net unrealized gain on available-for-sale securities 130 -

 
- -

Net unrealized gain reclassified into income on sale of

available-for-sale securities
  (1,028 )     -  

 
  (1,094 )     -  
Comprehensive income $ 4,782     $ 2,032  

 
$ 7,079     $ 4,874  
 

Segment Results (Unaudited)
  Three Months Ended   Six Months Ended
June 30, June 30,
2014   2013   2014   2013
(In thousands)   (In thousands)
Net sales    
SLPE $ 19,099 $ 18,386 $ 36,683 $ 35,980
High Power Group 22,452 17,607 42,762 34,700
SL-MTI 10,118 9,060 20,970 18,154
RFL   5,080       4,733       8,919       10,047  
Net sales   56,749       49,786       109,334       98,881  
 
Income from operations
SLPE 2,293 1,131 3,232 2,181
High Power Group 3,921 2,038 6,838 4,152
SL-MTI 1,808 1,569 3,903 2,882
RFL 479 393 440 1,329
Unallocated Corporate Expenses   (1,726 )     (1,500 )     (3,229 )     (2,927 )
Income from operations   6,775       3,631       11,184       7,617  
 
Other income (expense):
Amortization of deferred financing costs (22 ) (20 ) (43 ) (39 )
Interest income 1 2 3 3
Interest expense (8 ) (15 ) (43 ) (50 )
Other gain (loss), net   1,729       (301 )     1,479       (327 )
Income from continuing operations before income taxes $ 8,475     $ 3,297     $ 12,580     $ 7,204  

Supplemental Non-GAAP Disclosures EBITDA and Adjusted EBITDA (Unaudited)
  Three Months Ended   Six Months Ended
June 30, June 30,
2014   2013   2014   2013
(In thousands)   (In thousands)
   
Income from continuing operations, net of tax $ 5,655 $ 2,252 $ 8,320 $ 5,236
 
Add (deduct):
Interest income (1 ) (2 )

 
(3 ) (3 )
Interest expense 8 15

 
43 50
Income tax provision 2,820 1,045

 
4,260 1,968
Depreciation and amortization 636 615

 
1,250 1,215
Amortization of deferred financing costs   22       20  

 
  43       39  
EBITDA from continuing operations   9,140       3,945       13,913       8,505  
 
 
(Gain) on sale of available-for-sale securities (1,585 ) - (1,691 ) -
Unrealized (gain) loss on foreign exchange contracts (142 ) 301 221 327
Non-cash stock-based compensation expense 225 210 334 332
Restructuring costs - - 463 -
China work stoppage costs   -       (199 )     -       535  
Adjusted EBITDA from continuing operations $ 7,638     $ 4,257     $ 13,240     $ 9,699  

Note Regarding Use of Non-GAAP Financial Measurements

The financial data contained in this press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission (“SEC”), including “EBITDA” and “Adjusted EBITDA”. The Company is presenting EBITDA and Adjusted EBITDA because it believes that it provides useful information to investors about SLI, its business and its financial condition. The Company defines EBITDA as net income from continuing operations before the effects of interest income, interest expense, income taxes, depreciation and amortization, and the amortization of deferred financing costs. The Company defines Adjusted EBITDA as EBITDA before the effects of certain items, including gain on sale of available-for-sale securities, unrealized (gain) loss on foreign exchange contracts, non-cash stock-based compensation expense, restructuring costs, and China work stoppage costs. The Company believes EBITDA and Adjusted EBITDA are useful to investors because they are key measures used by the Company's Board of Directors and management to evaluate its business, including internal management reporting, budgeting and forecasting processes, in comparing operating results across the business, as an internal profitability measure, as a component in evaluating the ability and the desirability of making capital expenditures and significant acquisitions, and as an element in determining executive compensation.

However, EBITDA and Adjusted EBITDA are not measures of financial performance under generally accepted accounting principles in the United States of America (“GAAP”), and the items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing financial performance. Therefore, EBITDA and Adjusted EBITDA should not be considered a substitute for net income (loss) or cash flows from operating, investing, or financing activities. Because EBITDA and Adjusted EBITDA are calculated before recurring cash items, including interest income, interest expense, and income taxes, and is not adjusted for capital expenditures or other recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business. There are a number of material limitations to the use of EBITDA and Adjusted EBITDA as an analytical tool, including the following:

  • EBITDA and Adjusted EBITDA do not reflect the Company's interest income and interest expense;
  • EBITDA and Adjusted EBITDA do not reflect the Company's income tax expense or the cash requirements to pay its income taxes;
  • Although depreciation and amortization are non-cash expenses in the period recorded, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect the cash requirements for such replacement;
  • EBITDA and Adjusted EBITDA do not include the amortization of deferred financing costs;
  • EBITDA and Adjusted EBITDA do not include discontinued operations;
  • Adjusted EBITDA does not include gain on sale of available-for-sale securities;
  • Adjusted EBITDA does not include (gain) loss, realized or unrealized, on foreign exchange contracts;
  • Adjusted EBITDA does not include non-cash charges for stock-based compensation;
  • Adjusted EBITDA does not include restructuring charges;
  • Adjusted EBITDA does not include work stoppage costs.

The Company compensates for these limitations by relying primarily on its GAAP financial measures and by using EBITDA and Adjusted EBITDA only as supplemental information. The Company believes that consideration of EBITDA and Adjusted EBITDA, together with a careful review of its GAAP financial measures, is the most informed method of analyzing SLI.

The Company reconciles EBITDA and Adjusted EBITDA to net income from continuing operations, and that reconciliation is set forth above. Because EBITDA and Adjusted EBITDA are not a measurement determined in accordance with GAAP and is susceptible to varying calculations, EBITDA and Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Net sales and expenses are measured in accordance with the policies and procedures described in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

About SL Industries, Inc.

SL Industries, Inc., designs, manufactures and markets power electronics, motion control, power protection, power quality electromagnetic and specialized communication equipment that is used in a variety of medical, commercial and military aerospace, solar, computer, datacom, industrial, telecom, transportation, utility, rail and highway equipment applications. For more information about SL Industries, Inc. and its products, please visit the Company’s web site at www.slindustries.com.

Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect SLI's current expectations and projections about its future results, performance, prospects, and opportunities. SLI has tried to identify these forward-looking statements by using words such as "may," "should," "expect," "hope," "anticipate," "believe," "intend," "plan," "estimate," and similar expressions. These forward-looking statements are based on information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause its actual results, performance, prospects, or opportunities in 2014 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These factors include, without limitation: the effectiveness of the cost reduction initiatives undertaken by the Company, changes in demand for the Company's products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, constraints on supplies of critical components, excess or shortage of production capacity, difficulties encountered in the integration of acquired businesses and other risks discussed from time to time in the Company's Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. Although SLI believes that the expectations reflected in these forward-looking statements are reasonable and achievable, such statements involve significant risks and uncertainties, and no assurance can be given that the actual results will be consistent with these forward-looking statements. Except as otherwise required by Federal securities laws, SLI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason.

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