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 SEPTEMBER 30, 1996
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 OCTOBER 28, 1996
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
September 30, 1996 and December 31, 1995 . . . . . 3, 4
Consolidated Statements of Operations for the
Three Months Ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1996 and 1995. . . 6
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1996 and 1995 . . . . . . . . . . . . . . . . . . 7
Consolidated Statement of Shareholders' Equity
for the Nine Months Ended September 30, 1996 . . . 8
Notes to Consolidated Financial Statements . . . 9, 10, 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 12, 13, 14
PART II - OTHER INFORMATION
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 15, 16, 17
Item 6. Exhibits and Reports on Form 8-K . . . . . 18
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SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Assets
September 30, December 31,
1996 1995
(Unaudited) (Audited)
Current assets
Cash, including cash equivalents of
$1,417,000 in 1996 and $1,865,000
in 1995 . . . . . . . . . . . . . . $10,425,524 $ 3,912,364
Accounts receivable (including unbilled
receivables of $9,128,000 in 1996
and $980,000 in 1995, less allowance
for doubtful accounts of $758,000 in
1996 and $792,000 in 1995) . . . . . 23,856,119 20,227,323
Inventories . . . . . . . . . . . . . 8,671,222 7,792,134
Deferred income taxes . . . . . . . . 1,643,546 1,323,932
Other current assets . . . . . . . . . 897,069 1,219,447
Total current assets . . . . . . . 45,493,480 34,475,200
Investment in unconsolidated affiliate . 597,203 673,954
Property, plant and equipment
Land . . . . . . . . . . . . . . . . 1,122,080 1,150,956
Buildings . . . . . . . . . . . . . . 11,514,048 11,790,131
Machinery and equipment . . . . . . . 18,432,832 16,954,756
31,068,960 29,895,843
Less: Accumulated depreciation . . . 14,883,804 13,231,646
Net property, plant and equipment . 16,185,156 16,664,197
Deferred pension cost. . . . . . . . . . 272,338 313,675
Notes receivable . . . . . . . . . . . 2,808,378 2,828,185
Excess of cost over net assets of acquired
subsidiary, less accumulated amortization
of $1,056,000 and $808,000 . . . . . . 12,209,623 12,458,364
Other assets including patents, less
amortization . . . . . . . . . . . . . 546,241 545,945
$78,112,419 $67,959,520
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
September 30, December 31,
1996 1995
(Unaudited) (Audited)
Current liabilities
Notes payable . . . . . . . . . . . . . . $ 1,262,278 $ 2,651,188
Current maturities of long-term debt . . 1,992,693 2,258,894
Accounts payable . . . . . . . . . . . . 16,699,684 5,490,967
Federal, state and foreign income taxes . 790,334 250,445
Customers' advance payments on contracts 966,154 2,338,231
Guarantee obligations and estimated
costs of service . . . . . . . . . . . 1,572,710 844,787
Other accrued liabilities . . . . . . . 5,402,386 4,889,993
Total current liabilities . . . . 28,686,239 18,724,505
Long-term debt . . . . . . . . . . . . 7,609,233 9,100,401
Pension plan obligation . . . . . . . . 278,847 320,184
Other postretirement benefit obligations 4,072,505 4,089,234
Deferred income taxes. . . . . . . . . . 989,170 1,069,022
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 3,702,426 shares issued . 3,702,426 3,702,426
Additional paid-in capital . . . . . . 13,512,005 13,512,005
Retained earnings . . . . . . . . . . . 18,488,413 16,390,247
Foreign currency translation adjustment 1,162,028 1,439,943
Minimum pension liability adjustment (6,510) (6,510)
Less: 242,376 common shares held in
treasury, at cost . . . . . . . (381,937) (381,937)
Total shareholders' equity . . . 36,476,425 34,656,174
$78,112,419 $67,959,520
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
September 30, September 30,
1996 1995
Sales, net $29,724,295 $15,713,794
Operating costs and expenses
Cost of sales 23,740,370 11,360,221
Selling, general and
administrative expenses 3,638,310 3,400,626
Operating income 2,345,615 952,947
Interest (expense) (304,634) (353,835)
Interest income 84,607 101,282
Other income (expense), net (101,680) 23,356
Income before income taxes 2,023,908 723,750
Income taxes 684,031 350,132
Net income $ 1,339,877 $ 373,618
=========== ===========
Earnings per common and
common equivalent share $.39 $.11
=========== ===========
Weighted average common and common
equivalent shares outstanding 3,460,000 3,460,000
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended
September 30, September 30,
1996 1995
Sales, net $73,755,093 $54,159,475
Operating costs and expenses
Cost of sales 57,751,598 39,673,818
Selling, general and
administrative expenses 11,065,522 10,996,288
Operating income 4,937,973 3,489,369
Interest (expense) (798,871) (975,208)
Interest income 221,248 254,450
Other (expense), net (71,518) (38,264)
Income before income taxes 4,288,832 2,730,347
Income taxes 1,567,858 1,256,649
Net income $ 2,720,974 $ 1,473,698
=========== ===========
Earnings per common and
common equivalent share $.79 $.43
=========== ===========
Weighted average common and common
equivalent shares outstanding 3,460,000 3,459,000
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30, September 30,
1996 1995
Cash flows from operating activities:
Net income . . . . . . . . . . . . . $ 2,720,974 $ 1,473,698
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization . . . 2,105,766 2,055,713
Equity in (income) loss of unconsoli-
dated affiliate . . . . . . . . . 60,010 (15,638)
(Gain) on sale of equity in unconsoli-
dated affiliate . . . . . . . . . -- (148,767)
(Gain) on sale of property and
equipment . . . . . . . . . . . (1,240) (7,789)
Deferred taxes . . . . . . . . . . (404,795) (205,405)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable. . . . . . . . . . . . (4,108,386) 3,292,491
(Increase) in inventories . . . . . (883,375) (1,100,264)
Decrease in other assets . . . . . 501,480 61,190
Increase (decrease) in accounts
payable . . . . . . . . . . . . . 11,441,656 (5,573,321)
Increase in accrued expenses . . . 1,880,571 243,171
(Decrease) in customer advances . . (1,391,912) (305,778)
Increase (decrease) in other
liabilities . . . . . . . . . . . (27,292) 34,347
Net cash provided (used) by
operating activities . . . . . 11,893,457 (196,352)
Cash flows from investing activities:
Purchases of property, plant and
equipment . . . . . . . . . . . . . (1,670,308) (1,597,046)
Proceeds from sale of property, plant
and equipment . . . . . . . . . . . 35,912 46,024
Proceeds from sale of equity in
unconsolidated affiliate . . . . . -- 270,666
Receipt of dividend from unconsolidated
affiliate 16,742 --
Net cash (used) by investing
activities . . . . . . . . . (1,617,654) (1,280,356)
Cash flows from financing activities:
Proceeds from short-term bank
borrowings -- 3,558,894
Repayments of short-term bank
borrowings . . . . . . . . . . . . . (1,329,248) --
Repayments of long-term debt . . . . (1,629,974) (1,922,618)
Proceeds from exercise of stock
options . . . . . . . . . . . . . . -- 28,281
Payment of dividends . . . . . . . . (622,808) (588,209)
Net cash provided (used) by
financing facilities . . . . . (3,582,030) 1,076,348
Effect of exchange rate changes on
cash . . . . . . . . . . . . . . . . (180,613) 138,069
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . 6,513,160 (262,291)
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . 3,912,364 5,812,508
Cash and cash equivalents, end of
period . . . . . . . . . . . . . . . $10,425,524 $ 5,550,217
=========== ===========
See accompanying notes to the consolidated financial statements.
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SELAS CORPORATION OF AMERICA
Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 1996
(Unaudited)
Common Stock Additional
Number of Paid-In
Shares Amount Capital
Balance, January 1, 1996 3,702,426 $3,702,426 $13,512,005
Net income
Cash dividends paid
($.18 per share)
Translation (loss)
Balance, September 30, 1996 3,702,426 $3,702,426 $13,512,005
========= ========== ===========
Foreign Minimum
Currency Pension
Retained Translation Liability
Earnings Adjustment Adjustment
Balance, January 1, 1996 $16,390,247 $1,439,943 $ (6,510)
Net income 2,720,974
Cash dividends paid
($.18 per share) (622,808)
Translation (loss) (277,915)
Balance, September 30, 1996 $18,488,413 $1,162,028 $ (6,510)
========== ========== =========
Total
Treasury Shareholders'
Stock Equity
Balance, January 1, 1996 $ (381,937) $34,656,174
Net income 2,720,974
Cash dividends paid
($.18 per share) (622,808)
Translation (loss) (277,915)
Balance, September 30, 1996 $ (381,937) $36,476,425
========== ==========
(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 September 30, 1996
and December 31, 1995, and the consolidated results of its operations
for the three and nine months ended September 30, 1996 and 1995 and
consolidated statements of shareholders' equity and cash flows for
the nine 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 1995 Selas Corporation
of America Annual Report.
3. Inventories consist of the following:
September 30, December 31,
1996 1995
Raw material $2,712,942 $2,403,147
Work-in-process 2,055,366 1,334,531
Finished products and
components 3,902,914 4,054,456
Total $8,671,222 $7,792,134
========== ==========
4. Income Taxes
Consolidated income taxes for the nine month periods ended September
30, 1996 and 1995 are $1,568,000 and $1,257,000 which result in
effective tax rates of 36.6% and 46.0%, respectively. The rate of
tax in relation to pre-tax income in 1995 has been impacted by the
settlement of a tax issue at one of the Company's European
subsidiaries in the amount of approximately $139,000.
5. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 112 lawsuits as of December 31, 1995 (210 as of December
31, 1994) 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 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
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited) -
(Continued)
5. Legal Proceedings (Continued)
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 98 and 450 claims in 1995 and 1994,
respectively with no request for the Company to participate in any
settlement. The lead carrier has informed the Company that the
primary policy for the period July 1, 1972 - July 1, 1975 has been
exhausted and that the lead carrier will no longer provide a defense
under that policy. The Company has requested that the lead carrier
substantiate this situation. The Company has contacted
representatives of the Company's excess insurance carrier for some or
all of this period. The Company does not believe that the asserted
exhaustion of the primary insurance coverage for this period will
have a material adverse effect on the financial condition or results
of operations of the Company.
In 1995, a dispute arose under a contract between a customer and a
subsidiary of the Company that was submitted to arbitration. The
customer alleged that the subsidiary had breached the contract and
that the customer was entitled to recision of the contract. The
Company recorded revenue of approximately $1,400,000 under the
contract in 1994 and had, as of December 1995 and September 30, 1996,
a current billed receivable of $140,000 for the balance of the
aggregate amount due under the contract. The subsidiary of the
Company has contested the customer's claims in the arbitration
proceeding.
6. Statements of Cash Flows
Supplemental disclosures of cash flow information.
Nine Months Ended
September 30, September 30,
1996 1995
Interest received . . . . . $ 222,723 $ 189,795
Interest paid . . . . . . . $ 724,113 $ 867,657
Income taxes paid . . . . . $1,368,463 $1,729,179
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Continued)
7. Accounts Receivable
At September 30, 1996, the Company had $1,530,463 of trade accounts
receivable due from the major U.S. automotive manufacturers and
$2,846,087 of trade accounts receivable due from hearing aid
manufacturers. The Company also had $14,198,097 in receivables from
long-term contracts for customers in the steel industry in North
America, Europe and Asia.
8. 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 the exercise of 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 and nine months ended September 30,
1996 were $29.7 million and $73.8 million, up from the same periods in 1995
which were $15.7 million and $54.2 million. Net sales for the Company's
heat processing segment increased to $19.7 million and $43.4 million for
the three months and nine months ended September 30, 1996 compared to $6.7
million and $24.9 million for the same periods in 1995. The sharp increase
in sales is due to receipt of large engineered contracts at the end of
1995, along with additional contracts received in 1996, primarily from the
Company's steel customers. 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 September 30, 1996 for the heat processing segment is $57.7
million compared to $30.8 million at September 30, 1995. Net sales for the
precision electromechanical and plastic components segment increased to
$6.8 million and $20.3 million for the three and nine month periods ended
September 30, 1996 compared to $6.3 million and $18.5 million for the same
periods in 1995. The increased sales for the three and nine months of 1996
for this business segment is due to higher unit sales to the hearing aid
industry. Net sales for the tire holders, lifts and related products
segment increased to $3.2 million for the three months ended September 30,
1996 from $2.7 million for the same period last year. Nine month sales for
this business segment decreased to $10 million from $10.7 million for the
same period in 1995. The increase in the current quarter's sales is due to
higher sales of tire lifts to the automotive industry and the lower year-
to-date sales are due to the loss of the Chrysler mini-van contract in the
first half of 1995.
The Company's consolidated gross profit margin as a percentage of sales for
the three and nine month periods ended September 30, 1996 decreased to
20.1% and 21.7% from 27.7% and 26.7% for the same periods in 1995. The
Company's heat processing segment's gross profit margin for the third
quarter and nine months ended September 30, 1996 decreased to 14.2% and
15.2% compared to 27.7% and 24.9% for the same periods in 1995. The lower
heat processing gross profit margins were negatively impacted by one
contract that is in a loss position and that this contract is near
completion. This business segment's gross profit margins vary markedly
from contract to contract. Gross profit margin for the Company's precision
electromechanical and plastic component's segment increased to 40.3% and
39.9% for the three and nine months ended September 30, 1996 compared to
37.1% and 36.0% for the same periods in 1995. The improvement for this
segment's gross profit margin is due to productivity improvements, increase
in the number of units produced and sold and a favorable mix of products
sold for the three and nine month periods of 1996. The gross profit margin
for the Company's
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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)
tire holders, lifts and related products increased to 13.8% for the three
months ended September 30, 1996 from 6.4% for the same period in 1995.
Gross profit margins for the segment's nine months ended September 30, 1996
decreased to 13.0% from 15.1% for the same period last year. The
improvement for the current quarter's gross profit margin is due in part to
higher units of production and sales, along with last year's low gross
profit margins for the quarter. The lower year-to-date gross profit margin
is due primarily to the loss of the Chrysler mini-van contract in the first
half of 1995.
Selling, general and administrative expenses increased to $3.6 million and
$11.1 million for the three month and nine month periods ended September
30, 1996 compared to $3.4 million and $11 million for the same periods in
1995. This increase represents a 6.9% and .6% increase over the same
periods over last year and are due to the higher sales activity and, among
other things, increased research spending which was up 25% for the quarter
and 17% for the nine months.
Interest income for the three and nine months ended September 30, 1996
decreased to $85,000 and $221,000 compared to $101,000 and $254,000 for the
same periods in 1995. The lower income in the current year is due to lower
interest rates paid on the funds invested. Interest expense decreased to
$305,000 and $799,000 for the three and nine month periods ended September
30, 1996 compared to $354,000 and $975,000 for the same periods last year
due to lower borrowings in the current year.
Other income (expense) includes foreign exchange losses of $46,000 and
$17,000 for the three and nine month periods ended September 30, 1996
compared to $10,000 gain for the three month period and a $129,000 loss for
the nine month period ended September 30, 1995.
Consolidated income taxes for the nine month periods ended September 30,
1996 and 1995 are $1,568,000 and $1,256,000 which result in effective tax
rates of 36.6% and 46.0%, respectively. The rate of tax in relation to
pre-tax income in 1995 has been impacted by the settlement of a tax issue
at one of the Company's European subsidiaries in the amount of
approximately $139,000.
Consolidated net income for the three and nine month periods ended
September 30, 1996 increased to $1,340,000 and $2,721,000 compared to
$374,000 and $1,474,000 for the same periods in 1996. The higher net
income is driven by the increase in sales for the three and nine month
periods ended September 30, 1996. In addition, the nine month period of
1995 was favorably impacted by a gain of $144,000 in the first quarter of
1995 and unfavorably impacted by charges for restructuring and foreign
taxes which amounted to $420,000 in the second quarter of 1995.
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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)
Liquidity and Capital Resources
Consolidated net working capital increased to $16.8 million for the nine
months ended September 30, 1996 from $15.8 million at December 31, 1995.
The $1 million increase is due primarily to the earnings for the nine
months, partially offset by repayments of long-term borrowings and dividend
payments. The largest changes in components of working capital compared to
December 31, 1995 were: Higher cash and cash equivalents of $6.5 million;
higher receivables of $3.7 million; increased inventories of $.9 million,
partially offset by higher current liabilities of $10 million.
The Company believes that its present working capital position, combined
with funds expected to be generated from operations and the available
borrowings capacity through its revolving credit loan facilities, will be
sufficient to meet its anticipated cash requirements for operating needs
and capital expenditures for 1996.
-15-
SELAS CORPORATION OF AMERICA
PART II - OTHER INFORMATION
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Although there has been no recent material change in the rights
of holders of the Company's Common Shares, the following description of the
Company's capital stock is included for informational purposes as an update
to the description of the Company's capital stock included in prior filings
of the Company under the Securities Exchange Act of 1934.
Description of Capital Stock
As of September 30, 1996, the Company's authorized capital stock
consists of 10,000,000 Common Shares, par value $1.00 per share, and
1,000,000 Preferred Shares, par value $1.00 per share. As of September 30,
1996, 3,460,050 Common Shares (exclusive of 242,376 shares held in
treasury) and no Preferred Shares were outstanding. The following is a
summary description of the material terms of the capital stock of the
Company and is qualified in its entirety by reference to the Company's
Articles of Incorporation and By-Laws, as amended, which are filed (or
incorporated by reference) as exhibits to the Company's Forms 10-K filed
with the Securities and Exchange Commission.
COMMON SHARES
Holders of Common Shares are entitled to one vote per share on
all matters upon which shareholders have the right to vote. Subject to the
rights of holders of Preferred Shares which may from time to time be
issued, holders of Common Shares are entitled to dividends when and as
declared by the Board of Directors in its discretion and are entitled to
share ratably in all assets available for distribution to common
shareholders upon the dissolution of the Company. The holders of Common
Shares are not entitled to cumulative voting in the election of directors
or to preemptive or other subscription rights. None of the currently
outstanding Common Shares are subject to future calls or assessments by the
Company. The rights, preferences and privileges of holders of Common
Shares will be subject to the rights of the holders of any Preferred Shares
that the Company may issue in the future.
PREFERRED SHARES
The Board of Directors of the Company has the authority to
divide the authorized Preferred Shares into, and to authorize the issuance
of, one or more series of Preferred Shares. With respect to each such
series, the Board of Directors has the authority to establish the dividend
rights, the voting rights, the conversion, redemption and liquidation
rights, the relative priorities of such series with respect to other series
or classes of shares, and any other preferences, qualifications,
limitations, restrictions and relative rights of such series.
-16-
SELAS CORPORATION OF AMERICA
PART II - OTHER INFORMATION
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters - (Continued)
The ability of the Company to issue Preferred Shares in the
future without further vote or action by the shareholders, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the voting power of holders of the
Company's Common Shares and could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party
from acquiring control of, the Company.
CLASSIFICATION OF BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes,
each of which is elected for a three year term, with one class being
elected each year. Directors may not be removed without cause and may be
removed for cause only upon the affirmative vote of two-thirds of all of
the Common Shares outstanding and entitled to vote.
PROVISIONS OF PENNSYLVANIA LAW
The Pennsylvania Business Corporation Law of 1988, as amended
(the "BCL"), includes certain provisions that may have an anti-takeover
effect. The following summary of the BCL provisions applicable to the
Company does not purport to be complete and is qualified in its entirety by
reference to the BCL.
(i) Business Combination Transactions. The BCL prohibits a
corporation from engaging in any merger or other business combination with
an "interested shareholder" or an affiliate thereof unless (A) the business
combination or the acquisition of shares in which a person becomes an
interested shareholder is approved by the Board of Directors before the
shareholder becomes an "interested shareholder", (B) the interested
shareholder owns 80% of the corporation's outstanding voting shares and the
business combination satisfies certain "fair price" criteria and is
approved by the holders of a majority of the remaining shares, or (C) the
holders of a majority of the voting shares (excluding those held by the
interested shareholder unless the fair price criteria are satisfied)
approve the business combination at a meeting held no earlier than five
years after the interested shareholder's acquisition date. An "interested
shareholder" is any beneficial owner of 20% or more of the voting shares of
a corporation or an affiliate of the corporation who was at any time within
the five year period prior to the date in question a beneficial owner of
20% or more of the voting shares of the corporation.
(ii) Directors' Standard of Care. The BCL expressly permits
directors of a corporation to consider the interests of constituencies
other than shareholders, such as employees, suppliers, customers and the
community, in discharging their duties. The BCL provides, among other
things, that directors need not, in their
-17-
SELAS CORPORATION OF AMERICA
PART II- OTHER INFORMATION
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters - (Continued)
consideration of the best interests of the corporation, consider any
particular constituency's interest, including the interests of
shareholders, as the dominant or controlling interest. Further, the BCL
expressly provides that directors do not violate their fiduciary duty
solely by relying on poison pills or anti-takeover provisions of the BCL.
The effect of the above-described provisions, as well as the
classification of the Company's Board of Directors, may be to deter hostile
takeovers at a price higher than the prevailing market price for the Common
Shares. In some circumstances, certain shareholders may consider these
anti-takeover provisions to have disadvantageous effects. Tender offers or
other non-open market acquisitions of stock are frequently made at prices
above the prevailing market price of a company's stock. In addition,
acquisitions of stock by persons attempting to acquire control through
market purchases may cause the market price of the stock to reach levels
that are higher than would otherwise be the case. These anti-takeover
provisions may discourage any or all of such acquisitions, particularly
those of less than all of the Common Shares, and may thereby prevent
certain holders of the Common Shares from having an opportunity to sell
their stock at a temporarily higher market price.
The Company has opted out of, and therefore is not subject to,
certain anti-takeover provisions of the BCL, including (i) the "control
transactions" provision, which provides for mandatory shareholder notice of
the acquisition of 20% of the voting power of a Pennsylvania corporation
and provides shareholders with the opportunity to demand "fair value" for
their shares upon acquisition of voting power, (ii) the "control share"
provision, which limits the voting power of shareholders owning 20% or more
of a corporation's voting stock, and (iii) the "disgorgement" provision,
which permits a corporation to recover profits resulting from the sale of
shares in certain situations, including those where an individual or group
attempts to acquire at least 20% of the corporation's voting shares.
-18-
SELAS CORPORATION OF AMERICA
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - The Company did not file any reports on
Form 8-K during the quarter for which this report is filed.
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: November 13, 1996
Robert W. Ross
Vice President and CFO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Selas Corporation of America for the nine months
ended September 30, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,425,524
<SECURITIES> 0
<RECEIVABLES> 24,614,288
<ALLOWANCES> 758,169
<INVENTORY> 8,671,222
<CURRENT-ASSETS> 45,493,480
<PP&E> 31,068,960
<DEPRECIATION> 14,883,804
<TOTAL-ASSETS> 78,112,419
<CURRENT-LIABILITIES> 28,686,239
<BONDS> 7,609,233
0
0
<COMMON> 3,702,426
<OTHER-SE> 32,773,999
<TOTAL-LIABILITY-AND-EQUITY> 78,112,419
<SALES> 73,755,093
<TOTAL-REVENUES> 73,755,093
<CGS> 57,751,598
<TOTAL-COSTS> 57,751,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,160)
<INTEREST-EXPENSE> 798,871
<INCOME-PRETAX> 4,288,832
<INCOME-TAX> 1,576,858
<INCOME-CONTINUING> 2,720,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,720,974
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.00
</TABLE>
