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, 1997
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, 1997
COMMON SHARES, $1.00 PAR VALUE 3,475,050 (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, 1997 and December 31, 1996. . . . . . . . 3, 4
Consolidated Statements of Operations for
the Three Months Ended March 31, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 . . . . 6
Consolidated Statement of Shareholders' Equity
for the Three Months Ended March 31, 1997 . . . . . 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 2. Changes in Securities . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . 13
-3-
SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Assets
March 31, December 31,
1997 1996
(Unaudited) (Audited)
Current assets
Cash, including cash equivalents of
$10,111,000 in 1997 and
$7,532,000 in 1996 $10,668,521 $ 8,343,820
Accounts receivable (including unbilled
receivables of $4,281,000 in 1997 and
$7,783,000 in 1996 less allowance for
doubtful accounts of $725,000 in 1997
and $787,000 in 1996) 35,402,413 41,660,153
Inventories 9,176,014 8,433,522
Deferred income taxes 2,159,376 2,051,580
Other current assets 761,573 623,169
Total current assets 58,167,897 61,112,244
Investment in unconsolidated affiliate 530,575 538,278
Property, plant and equipment
Land 1,073,814 1,118,802
Buildings 11,072,097 11,499,609
Machinery and equipment 20,666,311 19,455,946
32,812,222 32,074,357
Less: Accumulated depreciation 15,661,828 15,362,577
Net property, plant and equipment 17,150,394 16,711,780
Deferred pension cost 211,281 225,060
Excess of cost over net assets of acquired
subsidiaries, less accumulated amortiza-
tion of $1,249,000 in 1997 and
$1,140,000 in 1996 15,746,525 12,126,709
Other assets including patents, less
amortization 656,684 448,201
$92,463,356 $91,162,272
=========== ===========
(See accompanying notes to the consolidated financial statements)
-4-
SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
March 31, December 31,
1997 1996
(Unaudited) (Audited)
Current liabilities
Notes payable $ 498,031 $ 583,767
Current maturities of long-term debt 2,946,258 2,271,830
Accounts payable 23,152,549 20,169,143
Federal, state and foreign income taxes 1,585,527 926,823
Customers' advance payments on contracts 1,948,754 4,854,880
Guarantee obligations and estimated future
costs of service 1,803,158 1,725,690
Other accrued liabilities 8,060,246 10,758,185
Total current liabilities 39,994,523 41,290,318
Long-term debt 8,953,115 6,836,593
Pension plan obligation 211,281 225,060
Other postretirement benefit obligations 4,072,036 4,084,768
Deferred income taxes 1,078,430 1,084,057
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 3,717,426 and 3,702,426
shares issued 3,717,426 3,702,426
Additional paid-in capital 13,594,100 13,512,005
Retained earnings 20,609,146 19,672,730
Foreign currency translation adjustment 615,236 1,136,252
Less: 242,376 common shares held in
treasury, at cost (381,937) (381,937)
Total shareholders' equity 38,153,971 37,641,476
$92,463,356 $91,162,272
=========== ===========
(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,
1997 1996
Sales, net $30,905,010 $18,570,543
Operating costs and expenses
Cost of sales 24,460,250 13,842,872
Selling, general and
administrative expenses 4,041,959 3,670,566
Operating income 2,402,801 1,057,105
Interest (expense) (231,122) (248,465)
Interest income 58,391 66,712
Other income (expense), net (349,977) 24,373
Income before income taxes 1,880,093 899,725
Income taxes 717,800 325,674
Net income $ 1,162,293 $ 574,051
=========== ===========<PAGE>
Earnings per common and common
equivalent share $.33 $.17
=========== ===========
Weighted average common and common
equivalent shares outstanding 3,474,000 3,460,000
(See accompanying notes to the consolidated financial statements)
-6-
SELAS CORPORATION OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, March 31,
1997 1996
Cash flows from operating activities:
Net income $ 1,162,293 $ 574,051
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 788,801 716,123
Equity in losses of
unconsolidated affiliate 2,675 22,933
Loss on sale of property and equipment 7,760 --
Deferred taxes (128,642) (95,126)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable 4,156,243 (3,608)
(Increase) in inventories (519,733) (951,440)
(Increase) decrease in other assets (459,140) 4,907
Increase in accounts payable 4,938,842 1,902,940
Increase (decrease) in accrued expenses (1,536,435) 212,422
(Decrease) in customer advances (2,519,249) (608,927)
Increase (decrease) in other liabilities 26,449 (80,190)
Net cash provided by operating
activities 5,919,864 1,694,085
Cash flows from investing activities:
Purchases of property, plant and equipment (989,053) (333,670)
Proceeds from sale of property, plant
and equipment 4,300 --
Purchase of long term investment --
(22,490)
Acquisition of subsidiary company, net of
cash acquired (4,959,003) --
Net cash (used) by investing
activities (5,943,756) (356,160)
Cash flows from financing activities:
Proceeds from short-term bank borrowings -- 311,875
Proceeds from borrowings to acquire
subsidiary company 3,500,000 --
Repayments of short-term bank borrowings (31,329) (478,651)
Repayments of long-term debt (526,680) (474,386)
Proceeds from exercise of stock options 84,843 --
Payment of dividends (225,877) (207,603)
Net cash provided (used) by
financing activities 2,800,957 (848,765)
Effect of exchange rate changes on cash (452,364) (66,896)
Net increase in cash and cash equivalents 2,324,701 422,264
Cash and cash equivalents, beginning of
period 8,343,820 3,912,364
Cash and cash equivalents, end of period $10,668,521 $4,334,628
=========== ============
(See accompanying notes to the consolidated financial statements)
-7-
SELAS CORPORATION OF AMERICA
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 1997
(Unaudited)
Common Stock
Additional
Number of Paid-In
Shares Amount Capital
Balance, January 1, 1997 3,702,426 $ 3,702,426 $13,512,005
Net income
Exercise of stock options 15,000 15,000 82,095
Cash dividends paid
($.065 per share)
Translation (loss)
Balance, March 31, 1997 3,717,426 $ 3,717,426 $13,594,100
============ =========== ===========
Foreign
Currency
Retained Translation
Earnings Adjustment
Balance, January 1, 1997 $19,672,730 $ 1,136,252
Net income 1,162,293
Exercise of stock options
Cash dividends paid
($.065 per share) (225,877)
Translation (loss) (521,016)
Balance, March 31, 1997 $20,609,146 $ 615,236
=========== ===========
Total
Treasury Shareholders'
Stock Equity
Balance, January 1, 1997 $ (381,937) $37,641,476
Net income 1,162,293
Exercise of stock options 97,095
Cash dividends paid
($.065 per share) (225,877)
Translation (loss) (521,016)
Balance, March 31, 1997 $ (381,937) $38,153,971
=========== ===========
(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, 1997 and
December 31, 1996, and the consolidated results of its operations for
the three months ended March 31, 1997 and 1996 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 1996 Selas Corporation
of America Annual Report.
3. Acquisition
In February, 1997, the Company, through a newly-formed subsidiary
known as RTI Electronics, Inc. ("RTIE"), acquired the assets and
certain liabilities of Rodan Division of Ketema, Inc. a manufacturer
of thermistors and thermistor assemblies used primarily as an
electric current limiting device to protect computer installations.
Ketema's Rodan Division had sales in the year ended February 28, 1996
of $6.4 million (unaudited). The purchase price was $4.75 million in
cash and, additionally, up to a maximum of almost 57,000 shares of
the Company's common stock tied to future earnings performance. This
acquisition was accounted for as a purchase and the excess of the
purchase price over the fair value of the assets (goodwill) will be
amortized on a straight line basis over 15 years. To finance this
acquisition, the Company has increased its bank borrowings by $3.5
million.
4. Inventories consist of the following:
March 31, December 31,
1997 1996
Raw material $2,751,621 $2,601,927
Work-in-process 2,296,668 1,749,371
Finished products and components 4,127,725 4,082,224
$9,176,014 $8,433,522
========== ==========
5. Income Taxes
Consolidated income taxes for the three month periods ending March
31, 1997 and 1996 are $718,000 and $326,000 which result in effective
tax rates of 38.2% and 36.2% respectively. The rate of tax in
relation to pre-tax income in 1996 is lower because certain foreign
net operating loss carryforward benefits have been utilized as of
March 31, 1996.
-9-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited) -
(Continued)
6. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 155 lawsuits as of December 31, 1996 (112 as of
December 31, 1995) 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 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 17 and 98 claims in 1996
and 1995, 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, liquidity,
or results of operations of the Company.
In 1995, a dispute which was submitted to arbitration, arose under a
contract between a customer and a subsidiary of the Company.
Substantial claims were asserted against the subsidiary Company under
the terms of the contract. The Company recorded revenue of
approximately $1,400,000 in 1994 and has a current billed receivable
of $140,000.
-10-
SELAS CORPORATION OF AMERICA
PART I - FINANCIAL INFORMATION
ITEM 1. Notes to Consolidated Financial Statements (Unaudited)-
(Continued)
6. Legal Proceedings - (Continued)
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, liquidity, or results of
operations.
7. Statements of Cash Flows
Supplemental disclosures of cash flow information:
Three Months Ended
March 31, March 31,
1997 1996
Interest received . . . . . . . $ 53,040 $ 54,260
Interest paid . . . . . . . . . $175,876 $215,178
Income taxes paid . . . . . . . $ 79,534 $ 87,496
8. Accounts Receivable
At March 31, 1997, the Company had $1,737,805 of trade accounts
receivable due from the major U.S. automotive manufacturers and
$3,314,790 of trade accounts receivable due from hearing aid
manufacturers. The Company also had $21,453,656 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 the exercise of outstanding stock options, where dilutive.<PAGE>
-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, 1997
increased to $30.9 million from $18.6 million for the same period in
1996. Net sales for the heat processing segment increased to $19.6
million for the three months ended March 31, 1997 compared to $8.4
million for the same period last year. The strong increase in sales is
due to the high level of backlog at the end of 1996. 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, 1997 for the heat processing
segment is $41.7 million compared to $62.6 million at March 31, 1996.
The Company's precision electromechanical and plastics components
business segment has sales of $7.5 million for the three months ended
March 31, 1997 compared to $6.7 million for the same period in 1996.
Included in this business segment are sales of $.7 million of RTI
Electronics (formerly Rodan division of Ketema) ("RTIE") which business
was acquired in February, 1997. Net sales of the tire holders, lifts and
related products segment for the three months ended March 31, 1997
increased to $3.8 million compared to $3.5 million for the same period in
1996. The increase in sales is due to higher tire lift unit sales sold
to the Company's automotive customers.
The Company's gross profit margin as a percentage-of-sales decreased to
21% for the first three months of 1997 compared to 25.6% for the same
period in 1996. The Company's heat processing segment's gross profit
margin for the three months ended March 31, 1997 decreased to 15.5% from
20.5% for the same period in 1996. Heat processing gross profit margins
vary markedly from contract to contract, depending on customer
specifications and other conditions related to the contract. The lower
gross profit margin in 1997 was unfavorably impacted by a product mix of
lower sales of proprietary component parts (which generally have higher
profit margins) in 1997 compared to 1996. Gross profit margins for the
precision electromechanical and plastic components segment decreased to
38% for the three months ended March 31, 1997 from 40.6% for the same
period in 1996. The lower gross profit margin percentage in 1997 was
caused by an unfavorable mix in products sold in 1997 compared to 1996
and gross profit margins of the recently acquired RTIE are lower than the
segment's historical gross profit margins. The Company's gross profit
margins for the tire holders, lifts and related products segment improved
to 15.4% for the first quarter of 1997 from 9.6% for the same period in
1996. The improvement in 1997 is attributed to higher unit sales,
improved productivity and a more favorable sales mix.
Selling, general and administrative expenses increased 10.1% to
$4,042,000 for the first quarter of 1997 compared to $3,671,000 for the
same period in 1996. As a percentage of sales, first quarter 1997
represents 13.1% compared to 19.8% for the same period in 1996. The
increase in 1997 is impacted by the acquisition of RTIE and the higher
level of sales in 1997.
-12-
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 $58,000 for the three months ended March 31,
1997 compared to $67,000 for the same period in 1996. Interest expense
decreased to $231,000 for the first quarter of 1997 from $248,000 for the
same period in 1996, due to average lower borrowings in the current
quarter.
Other income (expense) includes losses on foreign exchange of $173,000
for the first quarter of 1997 compared to a gain of $11,000 in 1996 for
the same period.
Consolidated income taxes for the three months ended March 31, 1997 and
1996 are $718,000 and $326,000, respectively, which result in an
effective tax rate of 38.2% and 36.2%, respectively. The rate of tax in
relation to pre-tax income in 1996 is lower because certain foreign net
operating loss carryforward benefits have been utilized as of March 31,
1996.
Consolidated net income for the first quarter of 1997 is $1,162,000
compared to $574,000 for the same period in 1996. The sharp increase in
earnings are attributable to the strong increase in sales for the current
quarter.
In February 1997, the Financial Accounting Standards Board issued
Statement 128, "Earnings Per Share", and Statement 129, "Disclosure of
Information about Capital Structure", whose provisions are effective for
the Company for fiscal years ending after December 15, 1997. Had the
Company determined earnings per share based on the provisions of
Statement 128 for the three months ended March 31, 1997, the results
would have been presented as indicated below:
Earnings per common share $.33
Earnings per common share -
assuming dilution $.33
Liquidity and Capital Resources
Consolidated net working capital decreased to $18.2 million at March 31,
1997 from $19.8 million at December 31, 1996. The decrease is due
primarily to the acquisition of RTIE and a smaller acquisition by
Resistance Technology, Inc. of the assets and business of a tooling
company made in the first quarter of 1997, partially offset by the net
earnings for the quarter. The major changes in the components are lower
accounts receivable of $6.2 million, lower current liabilities of $1.3
million, increased cash of $2.3 million and higher inventory of $.8
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 1997.
-13-
SELAS CORPORATION OF AMERICA
PART II - OTHER INFORMATION<PAGE>
ITEM 2. Changes in Securities
(a) Inapplicable
(b) Inapplicable
(c) On February 21, 1997, the Company, through a newly-formed subsidiary
known as RTI Electronics, Inc., acquired the assets and business,
subject to certain liabilities, of the the Rodan Division of Ketema,
Inc. The purchase price for this acquisition was $4.75 million in
cash plus the contingent right to receive up to a maximum of $1
million of the Company's Common Shares (valued at $17.64 per share)
based upon the financial performance of the acquired business for
the year ending on February 28, 1998.
Based upon representation and warranties of the seller of the
acquired business, the Company believes that the contingent sale of
up to 56,677 of its Common Shares described above is exempt from
registration under the Securities Act of 1993, as amended, pursuant
to Section 4(2) thereof and/or pursuant to Regulation D promulgated
thereunder.
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, 1997.
-14-
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 15, 1997
Robert W. Ross
Vice President and Chief
Financial Officer<PAGE>
<PAGE>
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,668,521
<SECURITIES> 0
<RECEIVABLES> 36,127,889
<ALLOWANCES> 725,476
<INVENTORY> 9,176,014
<CURRENT-ASSETS> 58,167,897
<PP&E> 32,812,222
<DEPRECIATION> 15,661,828
<TOTAL-ASSETS> 92,463,356
<CURRENT-LIABILITIES> 39,994,523
<BONDS> 8,953,115
0
0
<COMMON> 3,717,426
<OTHER-SE> 34,436,545
<TOTAL-LIABILITY-AND-EQUITY> 92,463,356
<SALES> 30,905,010
<TOTAL-REVENUES> 30,905,010
<CGS> 24,460,250
<TOTAL-COSTS> 24,460,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,208
<INTEREST-EXPENSE> 231,122
<INCOME-PRETAX> 1,880,093
<INCOME-TAX> 717,800
<INCOME-CONTINUING> 1,162,293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,162,293
<EPS-PRIMARY> .33
<EPS-DILUTED> .00
</TABLE>
