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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5005
SELAS CORPORATION OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1069060
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
DRESHER, PENNSYLVANIA 19025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(215) 646-6600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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.
(X) YES ( ) NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT MAY 6, 1995
COMMON SHARES, $1.00 PAR VALUE 3,460,050 (exclusive of 242,376
treasury shares)
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SELAS CORPORATION OF AMERICA
I N D E X
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1995 and December 31, 1994. . . . . . . . 3, 4
Consolidated Statements of Operations for
the Three Months Ended March 31, 1995
and 1994. . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . 6
Consolidated Statement of Shareholders' Equity
for the Three Months Ended March 31, 1995 . . . . . 7
Notes to Consolidated Financial Statements . . . . 8, 9, 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . 11, 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . 13
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SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Assets
March 31, December 31,
1995 1994
(Unaudited) (Audited)
Current assets
Cash, including cash equivalents of
$2,454,000 in 1995 and
$4,497,000 in 1994 . . . . . . . . . . $ 5,640,303 $ 5,812,508
Accounts receivable (including unbilled
receivables of $7,267,000 in 1995 and
$1,695,000 in 1994 less allowance for
doubtful accounts of $552,000 in 1995
and $513,000 in 1994) . . . . . . . . . 27,276,031 21,480,083
Inventories . . . . . . . . . . . . . . . 8,411,524 8,210,027
Deferred income taxes . . . . . . . . . . 1,428,305 1,189,942
Other current assets . . . . . . . . . . . 1,576,108 1,414,952
Total current assets . . . . . . . . . 44,332,271 38,107,512
Investment in unconsolidated affiliates. . . 1,024,384 1,705,080
Property, plant and equipment
Land . . . . . . . . . . . . . . . . . . . 1,164,615 1,102,963
Buildings . . . . . . . . . . . . . . . . 11,922,510 11,332,798
Machinery and equipment . . . . . . . . . 15,833,260 15,162,425
28,920,385 27,598,186
Less: Accumulated depreciation . . . . . 11,978,744 11,291,064
Net property, plant and equipment . . . 16,941,641 16,307,122
Deferred pension cost. . . . . . . . . . . . 365,399 379,178
Notes receivable . . . . . . . . . . . . . . 1,261,484 376,996
Excess of cost over net assets of acquired
subsidiaries, less accumulated amortiza-
tion of $559,000 and $476,000 . . . . . . 12,707,106 12,790,019
Other assets including patents, less
amortization . . . . . . . . . . . . . . . 451,847 454,416
$77,084,132 $70,120,323
=========== ===========
(See accompanying notes to the consolidated financial statements)
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SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
March 31, December 31,
1995 1994
(Unaudited) (Audited)
Current liabilities
Notes payable . . . . . . . . . . . . . $ 2,862,103 $ --
Current maturities of long-term debt . . . 2,415,953 2,389,664
Accounts payable . . . . . . . . . . . . . 12,616,270 10,563,966
Federal, state and foreign income taxes . . 922,377 446,624
Customers' advance payments on contracts . 1,198,996 761,792
Guarantee obligations and estimated future
costs of service . . . . . . . . . . . . 1,376,459 1,156,296
Other accrued liabilities . . . . . . . . . 4,292,608 4,853,978
Total current liabilities . . . . . . . 25,684,766 20,172,320
Long-term debt . . . . . . . . . . . . . . . 10,934,492 11,136,028
Pension plan obligation . . . . . . . . . . . 478,021 491,800
Other postretirement benefit obligations. . . 3,966,627 3,939,303
Deferred income taxes . . . . . . . . . . . . 1,342,852 1,282,959
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 3,702,426 and 3,697,426
shares issued, respectively . . . . . . . 3,702,426 3,697,426
Additional paid-in capital . . . . . . . . 13,512,005 13,484,640
Retained earnings . . . . . . . . . . . . . 15,859,356 14,886,035
Foreign currency translation adjustment . . 2,098,147 1,524,372
Minimum pension liability adjustment . . . (112,623) (112,623)
Less: 242,376 common shares held in
treasury, at cost . . . . . . . . . . . . (381,937) (381,937)
Total shareholders' equity . . . . . . 34,677,374 33,097,913
$77,084,132 $70,120,323
=========== ===========
(See accompanying notes to the consolidated financial statements)
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31, March 31,
1995 1994
Sales, net . . . . . . . . . . . . . . $21,471,505 $22,086,038
Operating costs and expenses
Cost of sales . . . . . . . . . . . . 15,942,679 16,896,313
Selling, general and
administrative expenses . . . . . 3,727,919 3,559,889
Operating income . . . . . . . . . . . 1,800,907 1,629,836
Interest (expense) . . . . . . . . . (281,320) (347,769)
Interest income . . . . . . . . . . . 75,884 53,070
Other income, net . . . . . . . . . . 139,460 63,031
Income before income taxes . . . . . . 1,734,931 1,398,168
Income taxes . . . . . . . . . . . . . 571,308 507,262
Net income . . . . . . . . . . . . . . $ 1,163,623 $ 890,906
=========== ===========
Earnings per common and common
equivalent share . . . . . . . . . . $.34 $.26
=========== ===========
Weighted average common shares
outstanding . . . . . . . . . . . . 3,457,000 3,452,000
(See accompanying notes to the consolidated financial statements)
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, March 31,
1995 1994
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 1,163,623 $ 890,906
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization. . . . . . . . 679,441 721,909
Equity in (income) loss of unconsolidated
affiliates . . . . . . . . . . . . . . . 14,683 (27,940)
(Gain) on sale of property and equipment . . (9,017) (4,851)
Deferred taxes . . . . . . . . . . . . . . . (78,258) (84,747)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (4,211,089) (6,539,819)
(Increase) in inventories . . . . . . . . (148,138) (898,824)
(Increase) in other assets . . . . . . . (361,215) (77,205)
Increase in accounts payable . . . . . . 913,113 4,591,746
Increase (decrease) in accrued expenses. (42,460) 487,025
Increase (decrease) in customer advances 369,057 (26,337)
Increase in other liabilities . . . . . 11,449 11,449
Net cash (used) by operating
activities . . . . . . . . . . . . . (1,698,811) (956,688)
Cash flows from investing activities:
Purchases of property, plant and equipment . . . (567,877) (443,974)
Proceeds from sale of property, plant
and equipment . . . . . . . . . . . . . . . . 15,191 21,105
Investment in subsidiary . . . . . . . . . . . . -- (9,167)
Net cash (used) by investing
activities. . . . . . . . . . . . . . (552,686) (432,036)
Cash flows from financing activities:
Proceeds from short-term bank borrowings . . . . 2,482,835 1,152,255
Repayments of short-term bank borrowings . . . . -- (285,787)
Repayments of long-term debt . . . . . . . . . . (472,885) (465,665)
Proceeds from exercise of stock options . . . . 28,281 113,125
Payment of dividends . . . . . . . . . . . . . . (190,303) (172,652)
Net cash provided by financing
activities . . . . . . . . . . . . . 1,847,928 341,276
Effect of exchange rate changes on cash . . . . . 231,364 12,894
Net (decrease) in cash and cash equivalents . . . (172,205) (1,034,554)
Cash and cash equivalents, beginning of period . . 5,812,508 7,147,358
Cash and cash equivalents, end of period . . . . . $ 5,640,303 $ 6,112,804
=========== ===========
(See accompanying notes to the consolidated financial statements)
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SELAS CORPORATION OF AMERICA
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 1995
(Unaudited)
Common Stock
Additional
Number of Paid-In
Shares Amount Capital
Balance, January 1, 1995 3,697,426 $3,697,426 $13,484,640
Net income
Exercise of 5,000 stock
options 5,000 5,000 27,365
Cash dividends paid
($.055 per share)
Translation gain
Balance, March 31, 1995 3,702,426 $3,702,426 $13,512,005
=========== ========== ===========
Foreign Minimum
Currency Pension
Retained Translation Liability
Earnings Adjustment Adjustment
Balance, January 1, 1995 $14,886,035 $1,524,372 $(112,623)
Net income 1,163,623
Exercise of 5,000 stock
options
Cash dividends paid
($.055 per share) (190,302)
Translation gain 573,775
Balance, March 31, 1995 $15,859,356 $2,098,147 $(112,623)
=========== ========== =========
Total
Treasury Shareholders'
Stock Equity
Balance, January 1, 1995 $(381,937) $33,097,913
Net income 1,163,623
Exercise of 5,000 stock
options 32,365
Cash dividends paid
($.055 per share) (190,302)
Translation gain 573,775
Balance, March 31, 1995 $(381,937) $34,677,374
========= ===========
(See accompanying notes to the consolidated financial statements)
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)
1. In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly Selas Corporation of
America's consolidated financial position as of March 31, 1995 and December
31, 1994, and the consolidated results of its operations for the three
months ended March 31, 1995 and 1994 and consolidated statements of
shareholders' equity and cash flows for the three months then ended.
2. The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1994 Selas Corporation of America
Annual Report.
3. As discussed in note 2 of the 1994 Annual Report, on October 20, 1993, the
Company acquired all of the outstanding capital stock of Resistance
Technology, Inc. (RTI), a manufacturer of precision electromechanical and
plastic component parts predominantly for the hearing aid industry. RTI's
results of operations have been included in the consolidated results of
operations since the date of acquisition.
4. Inventories consist of the following:
March 31, December 31,
1995 1994
Raw material $2,735,915 $2,281,342
Work-in-process 1,616,846 2,200,579
Finished products and
components 4,058,763 3,728,106
Total $8,411,524 $8,210,027
========== ==========
5. Income Taxes
Consolidated income taxes for the three months ended March 31, 1995 and
1994 are $571,000 and $507,000 which result in effective tax rates of 32.9%
and 36.3% respectively. The rate of tax in relation to pre-tax income in
1995 is lower because certain domestic and foreign net operating loss
carryforward benefits have been utilized.
6. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 210 lawsuits as of December 31, 1994 (650 as of December 31,
1993) alleging that plaintiffs have or may have contracted asbestos-related
diseases as a result of exposure to asbestos products or equipment
containing asbestos sold by one or more named defendants. Due to the
noninformative nature of the complaints, the Company does not know whether
any of the complaints state valid claims against
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)-
(Continued)
6. Legal Proceedings (Continued)
the Company. The Company is also one of approximately 500 defendants in a
class action on behalf of approximately 2700 present or former employees of
a Texas steel mill alleging that products supplied by the defendants
created a poisoned atmosphere that caused unspecified physical harm. These
cases are being defended by one or more of the Company's insurance carriers
presently known to be "at risk". Through October 1993, the legal costs of
defense of the asbestos and steel mill cases were shared among the
insurance carriers (92%) and the Company (8%). The lead insurance carrier
settled a number of the cases in 1993 and requested that the Company pay a
portion of the settlement amount. The Company declined to do so because no
such payment is required by the express terms of the policies. The lead
carrier then purported in October 1993 to abrogate the arrangement under
which the defense costs had been shared, and the Company responded by
tendering all of the cases to the lead carrier and demanding that the lead
carrier honor its obligations under its policies to pay 100% of the costs
of defense and 100% of all settlements and judgments up to the policy
limits. The lead carrier has settled approximately 450 claims in 1994 with
no request for the Company to participate in any settlement. Management is
of the opinion that the disposition of these lawsuits will not materially
affect the Company's consolidated financial position or results of
operation.
The Company is also involved in other lawsuits arising in the normal course
of business. While it is not possible to predict with certainty the
outcome of these matters, management is of the opinion that the disposition
of these lawsuits will not materially affect the Company's consolidated
financial position or results of operation.
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)-
(Continued)
7. Statements of Cash Flows
Supplemental disclosures of cash flow information:
Three Months Ended
March 31, March 31,
1995 1994
Interest received . . . . . . . $ 71,341 $ 37,749
Interest paid . . . . . . . . . $ 247,404 $ 405,571
Income taxes paid . . . . . . . $ 237,308 $ 44,737
8. Accounts Receivable
At March 31, 1995, the Company had $2,236,257 of trade accounts receivable
due from the major U.S. automotive manufacturers and $2,532,019 of trade
accounts receivable due from hearing aid manufacturers. The Company also
had $15,414,833 in receivables from long-term contracts for customers in
the steel industry in North America, Europe and Asia.
9. Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share are computed based on the
weighted average number of shares outstanding each quarter, giving effect
to outstanding stock options, where dilutive.
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated net sales for the three months ended March 31, 1995 were $21.5
million compared to $22.1 million for the same period in 1994. Net sales of the
Company's heat processing segment for the first quarter of 1995 were $11 million
compared to $12.6 million for the same period in 1994. The lower sales of $1.6
million in the current period is due primarily to one large engineered contract
in Turkey which generated strong sales in the first half of 1994. This contract
is still in progress, but due to the current status of this contract (nearer
completion), it is not generating the same revenues it did last year. Sales and
earnings of large engineered contracts are recognized on the percentage-of-
completion method and generally require more than twelve months to complete.
Consolidated backlog at March 31, 1995 for the heat processing business is $12.4
million compared to $13.3 million at March 31, 1994. Net sales for the
precision electromechanical and plastic components segment were $5.9 million for
the three months ended March 31, 1995 compared to $5.4 million for the same
period in 1994. The improvement of $.5 million in sales is due to higher unit
sales of components and systems to the hearing instrument industry. Net sales
for the tire holders, lifts and related products segment increased to $4.5
million for the first quarter of 1995 from $4.1 million for the same period in
1994. The increase in sales for the current quarter is due to higher tire lift
sales to the automotive manufacturers.
The Company's consolidated gross profit margin as a percentage of sales
increased to 25.7% for the first quarter of 1995 from 23.5% for the same period
in 1994. The Company's heat processing segment improved to 23.5% in the first
quarter of 1995 compared to 20.8% in the same period in 1994. The higher gross
profit margin in the first quarter of 1995 is due to the mix of products sold
compared to the same period in 1994. Heat processing gross profit margins vary
markedly from contract to contract depending on customer specifications and
other conditions related to the contract. Gross profit margins for the
precision electromechanical and plastic components segment were 33.4% for the
first quarter of 1995 compared to 33.5% for the first quarter of 1994. The
gross profit margins for the Company's tire holders, lifts and related products
segment improved to 20.9% for the first quarter of 1995 compared to 18.7% for
the first quarter of 1994. The improvement in gross profit margins is due to
higher production levels and improved production efficiencies.
Selling, general and administrative expenses increased 4.7% to $3,728,000 in the
first three months of 1995 compared to $3,560,000 for the same period in 1994.
The increase of $168,000 is due to expanded sales and administrative programs
for the precision electromechanical and plastic components segment which is up
$189,000 in the current quarter over the same period last year.
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Interest income increased to $76,000 for the first quarter of 1995 from $53,000
for the same period of 1994, due primarily to higher interest rates on short-
term investments. Interest expense decreased to $281,000 for the first three
months of 1995 compared to $348,000 for the same period in 1994. The lower
interest expense is due primarily to lower long-term debt outstanding in 1995.
Other income (expense) includes gains on foreign exchange of $15,000 for the
first quarter of 1995 and $80,000 for the same period in 1994. Also included in
other income for the first quarter of 1995 is a gain of $144,000 on the sale of
the Company's interest in a joint venture, ISIGLASS, located in Este, Italy to
the Finand Group, one of the partners in the joint venture.
Consolidated income taxes for the three months ended March 31, 1995 and 1994 are
$571,000 and $507,000 which result in effective tax rates of 32.9% and 36.3%
respectively. The rate of tax in relation to pre-tax income in 1995 is lower
because certain domestic and foreign net operating loss carryforward benefits
have been utilized.
Consolidated net income for the first quarter of 1995 was $1,164,000 compared to
$891,000 for the same period in 1994. All three business segments -- precision
electromechanical and plastic components; tire holders, lifts and other related
products; and, heat processing -- had higher earnings through improved sales or
improved gross profit margins in the first three months of 1995 compared to the
same period in 1994. Also impacting the first quarter of 1995 compared to the
first quarter of 1994 was the $144,000 gain on the sale of the Company's
interest in the ISIGLASS joint venture.
In 1992, the Company was informed by its largest automotive customer that it
will not supply tire lifts for one of its major vehicles for the 1995 model
year. The Company will continue to supply this model until the change is made,
which is expected by mid-year 1995.
Liquidity and Capital Resources
Consolidated net working capital increased to $18.5 million for the first
quarter of 1995 from $17.9 million at December 31, 1994. The improvement in net
working capital is due to the net earnings of approximately $1.2 million,
partially offset by dividend payments of $.2 million and long-term debt payments
of $.4 million. The largest changes in the components of working capital were
higher receivables of $5.8 million, higher current liabilities of $5.5 million
and higher inventories of $.2 million.
The Company believes that its present working capital position, combined with
funds expected to be generated from operations and the available borrowing
capacity through its revolving credit loan facilities, will be sufficient to
meet its anticipated cash requirements for operating needs and capital
expenditures for 1995.
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SELAS CORPORATION OF AMERICA
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended March 31, 1995.
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SELAS CORPORATION OF AMERICA
SIGNATURE
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.
SELAS CORPORATION OF AMERICA
(Registrant)
Date: May 11, 1995
Robert W. Ross
Vice President and Chief
Financial Officer
