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, 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 MAY 6, 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
March 31, 1996 and December 31, 1995. . . . . . . 3, 4
Consolidated Statements of Operations for
the Three Months Ended March 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1996 and 1995 . . . . . . . . . . . . . . . . . . 6
Consolidated Statement of Shareholders' Equity
for the Three Months Ended March 31, 1996 . . . . 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 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . 13
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,
1996 1995
(Unaudited) (Audited)
Current assets
Cash, including cash equivalents of
$2,460,000 in 1996 and
$1,865,000 in 1995 . . . . . . . . . . $ 4,334,628 $ 3,912,364
Accounts receivable (including unbilled
receivables of $3,082,000 in 1996 and
$980,000 in 1995 less allowance for
doubtful accounts of $767,000 in 1996
and $792,000 in 1995) . . . . . . . . . 19,758,707 20,227,323
Inventories . . . . . . . . . . . . . . . 8,751,816 7,792,134
Deferred income taxes . . . . . . . . . . 1,374,436 1,323,932
Other current assets . . . . . . . . . . . 1,130,514 1,219,447
Total current assets . . . . . . . . . 35,350,101 34,475,200
Investment in unconsolidated affiliate . . . 651,021 673,954
Property, plant and equipment
Land . . . . . . . . . . . . . . . . . . . 1,131,012 1,150,956
Buildings . . . . . . . . . . . . . . . . 11,599,593 11,790,131
Machinery and equipment . . . . . . . . . 17,240,664 16,954,756
29,971,269 29,895,843
Less: Accumulated depreciation . . . . . 13,798,057 13,231,646
Net property, plant and equipment . . 16,173,212 16,664,197
Deferred pension cost. . . . . . . . . . . . 299,896 313,675
Accounts and notes receivable. . . . . . . . 2,927,948 2,828,185
Excess of cost over net assets of acquired
subsidiaries, less accumulated amortiza-
tion of $891,000 and $808,000 . . . . . . 12,375,451 12,458,364
Other assets including patents, less
amortization . . . . . . . . . . . . . . . 529,295 545,945
$68,306,924 $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
March 31, December 31,
1996 1995
(Unaudited) (Audited)
Current liabilities
Notes payable . . . . . . . . . . . . . $ 2,425,054 $ 2,651,188
Current maturities of long-term debt . . . 2,207,426 2,258,894
Accounts payable . . . . . . . . . . . . . 7,082,796 5,490,967
Federal, state and foreign income taxes . . 670,227 250,445
Customers' advance payments on contracts . 1,737,884 2,338,231
Guarantee obligations and estimated future
costs of service . . . . . . . . . . . . 971,705 844,787
Other accrued liabilities . . . . . . . . . 4,364,278 4,889,993
Total current liabilities . . . . . . . 19,459,370 18,724,505
Long-term debt . . . . . . . . . . . . . . . 8,588,777 9,100,401
Pension plan obligation . . . . . . . . . . . 306,405 320,184
Other postretirement benefit obligations. . . 4,119,166 4,089,234
Deferred income taxes . . . . . . . . . . . . 1,027,363 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 . . . . . . . . . . . . . 16,756,696 16,390,247
Foreign currency translation adjustment . . 1,223,163 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 . . . . . . 34,805,843 34,656,174
$68,306,924 $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
March 31, March 31,
1996 1995
Sales, net . . . . . . . . . . . . . . $18,570,543 $21,471,505
Operating costs and expenses
Cost of sales . . . . . . . . . . . . 13,842,872 15,942,679
Selling, general and
administrative expenses . . . . . 3,670,566 3,727,919
Operating income . . . . . . . . . . . 1,057,105 1,800,907
Interest (expense) . . . . . . . . . (248,465) (281,320)
Interest income . . . . . . . . . . . 66,712 75,884
Other income (expense), net . . . . . 24,373 139,460
Income before income taxes . . . . . . 899,725 1,734,931
Income taxes . . . . . . . . . . . . . 325,674 571,308
Net income . . . . . . . . . . . . . . $ 574,051 $ 1,163,623
=========== ===========
Earnings per common and common
equivalent share . . . . . . . . . . $.17 $.34
=========== ===========
Weighted average common and common
equivalent shares outstanding . . . . 3,460,000 3,457,000
(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,
1996 1995
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . $ 574,051 $ 1,163,623
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization. . . . . . . 716,123 679,441
Equity in losses of unconsolidated
affiliates . . . . . . . . . . . . . . 22,933 14,683
(Gain) on sale of property and equipment . -- (9,017)
Deferred taxes . . . . . . . . . . . . . . (95,126) (78,258)
Changes in operating assets and liabilities:
(Increase) in accounts receivable. . . . . (3,608) (4,211,089)
(Increase) in inventories . . . . . . . . (951,440) (148,138)
(Increase) decrease in other assets. . . . 4,907 (361,215)
Increase in accounts payable . . . . . . 1,902,940 913,113
Increase (decrease) in accrued expenses. . 212,422 (42,460)
Increase (decrease) in customer advances . (608,927) 369,057
Increase (decrease) in other liabilities . (80,190) 11,449
Net cash provided (used) by
operating activities . . . . . . . . 1,694,085 (1,698,811)
Cash flows from investing activities:
Purchases of property, plant and equipment . . (333,670) (567,877)
Proceeds from sale of property, plant
and equipment. . . . . . . . . . . . . . . . -- 15,191
Purchase of long term investment . . . . . . . (22,490) --
Net cash (used) by investing
activities . . . . . . . . . . . . . (356,160) (552,686)
Cash flows from financing activities:
Proceeds from short-term bank borrowings . . . 311,875 2,482,835
Repayments of short-term bank borrowings . . . (478,651) --
Repayments of long-term debt . . . . . . . . . (474,386) (472,885)
Proceeds from exercise of stock options . . . -- 28,281
Payment of dividends . . . . . . . . . . . . . (207,603) (190,303)
Net cash provided (used) by financing
activities . . . . . . . . . . . . (848,765) 1,847,928
Effect of exchange rate changes on cash . . . . (66,896) 231,364
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . 422,264 (172,205)
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . . . 3,912,364 5,812,508
Cash and cash equivalents, end of period. . . . $4,334,628 $ 5,640,303
========== ===========
(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, 1996
(Unaudited)
Common Stock
Additional
Number of Paid-In
Shares Amount Capital
Balance, January 1, 1996 3,702,426 $3,702,426 $13,512,005
Net income
Cash dividends paid
($.06 per share)
Translation (loss)
Balance, March 31, 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 574,051
Cash dividends paid
($.06 per share) (207,602) -- --
Translation (loss) (216,780)
Balance, March 31, 1996 $16,756,696 $1,223,163 $ (6,510)
=========== ========== =========
Total
Treasury Shareholders'
Stock Equity
Balance, January 1, 1996 $ (381,937) $34,656,174
Net income 574,051
Cash dividends paid
($.06 per share) (207,602)
Translation (loss) (216,780)
Balance, March 31, 1996 $ (381,937) $34,805,843
=========== ===========
(See accompanying notes to the consolidated financial statements)
-8-
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 31,1996
and December 31, 1995, and the consolidated results of its operations
for the three months ended March 31,1996 and 1995 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 1995 Selas Corporation
of America Annual Report.
3. Inventories consist of the following:
March 31, December 31,
1996 1995
Raw material $2,649,377 $2,403,147
Work-in-process 1,883,524 1,334,531
Finished products and components 4,218,915 4,054,456
Total $8,751,816 $7,792,134
========== ==========
4. Income Taxes
Consolidated income taxes for the three months ended March 31, 1996
and 1995 are $326,000 and $571,000 which result in effective tax
rates of 36.2% and 32.9% 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
as of December 31, 1995.
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
poisonous 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
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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)
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.
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 31, 1995 and March
31, 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.
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SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)-
(Continued)
6. Statements of Cash Flows
Supplemental disclosures of cash flow information:
Three Months Ended
March 31, March 31,
1996 1995
Interest received . . . . . . . $ 54,260 $ 71,341
Interest paid . . . . . . . . . $ 215,178 $ 247,404
Income taxes paid . . . . . . . $ 87,496 $ 237,308
7. Accounts Receivable<PAGE>
At March 31, 1996, the Company had
$1,459,973 of trade accounts receivable due from the major U.S.
automotive manufacturers and $3,074,173 of trade accounts receivable
due from hearing aid manufacturers. The Company also had $8,258,976
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 outstanding stock options, where dilutive.
-11-
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, 1996 were
$18.6 million compared to $21.5 million for the same period in 1995. Net
sales for the Company's heat processing segment for the first quarter of
1996 were $8.4 million, down from $11 million for the same period in
1995. The lower heat processing segment sales of $2.6 million in the
current period are due primarily to the timing of the recognition
of sales arising from large engineering contracts. 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, 1996 for the heat processing
segment is $62.6 million compared to $12.4 million at March 31, 1995.
Net sales for the precision electromechanical and plastic components
segment increased to $6.7 million for the first quarter of 1996 compared
to $5.9 million for the same period in 1995. The $.8 million improvement
in sales is due to increased electromechanical component and system
sales to the hearing aid industry. Net sales for the tire holders, lifts
and related products segment decreased to $3.5 million for the three
months ended March 31, 1996 compared to $4.5 million for the same
period in 1995. The decrease in sales is due primarily to the previously
disclosed loss of the Chrysler mini-van contract.
The Company's consolidated gross profit margin as a percentage-of-sales
for the first quarter of 1996 was 25.6% compared to 25.7% for the same
period in 1995. The Company's heat processing segment's gross profit
margin for the first quarter of 1996 was 20.5% compared to 23.5% for the
same period in 1995. Heat processing gross profit margins vary marketedly
from contract to contract. Gross profit margin for the precision
electromechanical and plastic components segment increased to 40.6% for
the first quarter of 1996 compared to 33.4% for the same period 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. The gross profit margin
for the Company's tire holders, lifts and related products segment dropped
to 9.6% for the first quarter of 1996 compared to 20.9% for the same
period last year. The lower gross profit margin is due to the loss
of the Chrysler mini-van contract, along with labor, direct
material and overhead increases which were not passed along as selling
price increases to the segment's automotive customers.
Selling, general and administrative expenses decreased 1.6% to
$3,671,000 in the first three months of 1996 compared to $3,728,000 for
the same period in 1995. The lower costs for 1996 were favorably
impacted by the restructuring charge for the Company's European
operation taken in the second quarter of<PAGE>
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)
Interest income decreased to $67,000 for the first quarter of 1996 compared
to $76,000 for the same period last year, due primarily to a lower
amount of average funds available for investment in the current
quarter. Interest expense decreased to $248,000 for the first quarter
of 1996 from $281,000 for the same period last year, due to lower
borrowings in the current quarter.
Other income (expense) includes gains on foreign exchange of $11,000 for
the first quarter of 1996 and $15,000 for the same period in 1995. Also
included in other income for the first quarter of 1995 was 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, 1996 and
1995 are $326,000 and $571,000, respectively, which result in effective
tax rates of 36.2% and 32.9%, 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 as of
December 31, 1995.
Consolidated net income for the first quarter of 1996 is $574,000 compared
to $1,164,000 for the same period in 1995. The decline in earnings
is due primarily to lower sales in the current quarter, along with
1995 being favorably impacted by a gain of $144,000 on the sale of an
investment in a joint venture.
Liquidity and Capital Resources
Consolidated net working capital increased to $15.9 million for the
first quarter of 1996 from $15.8 million at December 31, 1995. The
$.1 million improvement is due primarily to the earnings for the
quarter, higher depreciation and amortization expense than capital
expenditures, partially offset by repayments of long term debt and
dividend payments. The largest changes in the components of working
capital were: Higher inventories, $1 million; increased cash, $.4
million; higher current liabilities, $.7 million; and lower receivables,
$.5 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 1996.
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SELAS CORPORATION OF AMERICA
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
None
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, 1996.
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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 10, 1996
Robert W. Ross
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SELAS CORPORATION OF AMERICA FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,334,628
<SECURITIES> 0
<RECEIVABLES> 20,525,635
<ALLOWANCES> 766,928
<INVENTORY> 8,751,816
<CURRENT-ASSETS> 35,350,101
<PP&E> 29,971,269
<DEPRECIATION> 13,798,057
<TOTAL-ASSETS> 68,306,924
<CURRENT-LIABILITIES> 19,459,370
<BONDS> 8,588,777
0
0
<COMMON> 3,702,426
<OTHER-SE> 31,103,417
<TOTAL-LIABILITY-AND-EQUITY> 68,306,924
<SALES> 18,570,543
<TOTAL-REVENUES> 18,570,543
<CGS> 13,842,872
<TOTAL-COSTS> 13,842,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,628
<INTEREST-EXPENSE> 248,465
<INCOME-PRETAX> 899,725
<INCOME-TAX> 325,674
<INCOME-CONTINUING> 574,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574,051
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.00
</TABLE>
