21
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 QUARTERLY PERIOD ENDED MARCH 31, 2002
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.
COMMON SHARES, $1.00 PAR VALUE 5,119,214 (exclusive of 515,754
CLASS treasury shares)
OUTSTANDING AT MAY 13, 2002
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, 2002 (Unaudited) and
December 31, 2001 (Audited) 3, 4
Consolidated Statements of Operations for
the Three Months Ended March 31, 2002 and
2001 (Unaudited) 5
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2002 and
2001 (Unaudited) 6
Consolidated Statement of Shareholders' Equity
for the Three Months Ended March 31, 2002
(Unaudited) 7
Notes to Consolidated Financial Statements 8-15
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 16-18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Assets
March 31, December 31,
2002 2001
(Unaudited) (Audited)
Current assets
Cash, including cash equivalents of
$203,000 in 2002 and $391,000 in 2001 $ 2,977,176 $ 3,636,673
Accounts receivable (including unbilled
receivables of $3,370,000 in 2002
and $1,857,000 in 2001, less allowance
for doubtful accounts of $486,000 in
2002 and $456,000 in 2001) 18,698,387 17,376,784
Inventories 13,166,159 13,810,209
Deferred income taxes 1,659,648 1,521,809
Other current assets 1,329,465 1,033,689
Assets of discontinued operations 16,581,118
Total current assets 54,411,953 37,379,164
Property, plant and equipment
Land 554,943 554,943
Buildings 7,175,875 7,143,408
Machinery and equipment 33,028,969 32,502,680
40,759,787 40,201,031
Less: Accumulated depreciation 26,413,330 25,621,190
Net property, plant and equipment 14,346,457 14,579,841
Assets of discontinued operations 16,773,442
Excess of cost over net assets of acquired
subsidiaries, less accumulated amortiza-
tion of $4,480,000 in 2002 and
$4,562,000 in 2001 15,556,549 15,631,502
Deferred income taxes 319,780 350,014
Other assets including patents, less
amortization 1,579,753 1,523,320
$86,214,492 $86,237,283
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
March 31, December 31,
2002 2001
Current liabilities (Unaudited) (Audited)
Notes payable $ 9,994,500 $ 9,422,202
Current maturities of long-term debt 1,359,777 1,496,033
Accounts payable 10,588,607 10,232,880
Federal, state and foreign income taxes 590,491 461,393
Customers' advance payments on contracts 2,385,384 2,809,988
Guarantee obligations and estimated costs
of service 968,149 878,952
Other accrued liabilities 5,389,636 5,100,021
Liabilities of discontinued operations 9,818,885
Total current liabilities 41,095,429 30,401,469
Long-term debt 2,852,090 3,214,934
Other postretirement benefit obligations 3,828,204 3,878,948
Liabilities of discontinued operations 10,137,315
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 5,634,968 shares issued 5,634,968 5,634,968
Additional paid-in capital 12,012,541 12,012,541
Retained earnings 23,159,349 23,297,747
Accumulated other comprehensive (loss) (1,103,011) (1,075,561)
Less: 515,754 common shares held
in treasury, at cost (1,265,078) (1,265,078)
Total shareholders' equity 38,438,769 38,604,617
$86,214,492 $86,237,283
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31, March 31,
2002 2001
Sales, net $20,729,959 $23,570,709
Operating costs and expenses
Cost of sales 16,407,285 17,984,194
Selling, general and administrative
expenses 4,000,287 4,493,518
Operating income 322,387 1,092,997
Interest (expense) (82,638) (154,387)
Interest income 15,282 8,974
Other income (expense), net 94,310 133,175
Income from continuing operations before
income taxes 349,341 1,080,759
Income taxes 71,573 451,216
Income from continuing operations 277,768 629,543
(Loss) from discontinued operations, net
of income taxes (416,166) (331,071)
Net income (loss) $ (138,398) $ 298,472
Earnings (loss) per share
Basic and Diluted
Continuing operations $ .05 $ .12
Discontinued operations (.08) (.06)
$(.03) $ .06
Average shares outstanding
Basic 5,119,000 5,119,000
Diluted 5,119,000 5,136,000
Comprehensive income (loss) $ (165,848) $ 213,068
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31, March 31,
2002 2001
Cash flows from operating activities:
Net income (loss) $ (138,398) $ 298,472
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization 799,651 1,028,061
Loss on sale of property and equipment 1,325 153
Deferred taxes (99,077) 42,843
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (1,089,373) 1,825,904
(Increase) decrease in inventories 581,324 (1,623,669)
(Increase) in other assets (250,643) (218,097)
Increase (decrease) in accounts
payable (548,551) 351,282
Increase (decrease) in accrued expenses 816,983 (351,176)
(Decrease) in customer advances (670,185) (279,882)
Increase (decrease) in other
liabilities (36,487) 374,754
Net cash provided (used) by
continuing operating activities (633,431) 1,448,645
Net cash provided by discontinued
operations 427,244 1,877,345
Net cash provided (used) by
operations (206,187) 3,325,990
Cash flows from investing activities:
Purchases of property, plant and equipment (529,687) (532,728)
Acquisition of subsidiary companies, net of
cash acquired (77,292)
Net cash (used) by investing
activities (529,687) (610,020)
Cash flows from financing activities:
Proceeds from short-term bank borrowings 932,327 1,113,811
Proceeds from long-term bank borrowings 2,543,184
Proceeds from borrowings to acquire
subsidiary company 136,173 534,223
Repayments of short-term bank borrowings (494,722) (4,128,671)
Repayments of long-term debt (457,986) (1,003,995)
Payment of dividends (230,366)
Net cash provided (used) by
financing activities 115,792 (1,171,814)
Effect of exchange rate changes on cash (39,415) (277,730)
Net increase (decrease) in cash and cash
equivalents (659,497) 1,266,426
Cash and cash equivalents, beginning of
period 3,636,673 3,782,359
Cash and cash equivalents, end of period $ 2,977,176 $ 5,048,785
(See accompanying notes to the consolidated financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 2002
(Unaudited)
Common Stock
Additional
Number of Paid-in
Shares Amount Capital
Balance January 1,
2002 5,634,968 $5,634,968 $12,012,541
Net (loss)
Foreign currency
translation (loss)
Derivative financial
instrument fair
value adjustment
Comprehensive (loss)
Balance March 31,
2002 5,634,968 $5,634,968 $12,012,541
Accumulated
Other
Comprehensive
Retained Income Comprehensive
Earnings (Loss) Income
Balance January 1,
2002 $23,297,747 $ (1,075,561)
Net (loss) (138,398) $(138,398)
Foreign currency
translation (loss) (56,412) (56,412)
Derivative financial
instrument fair
value adjustment 28,962 28,962
Comprehensive (loss) $(165,848)
Balance March 31,
2002 $23,159,349 $(1,103,011)
Total
Treasury Shareholders'
Stock Equity
Balance January 1,
2002 $(1,265,078) $38,604,617
Net (loss) (138,398)
Foreign currency
translation (loss) (56,412)
Derivative financial
instrument fair value
adjustment 28,962
Comprehensive (loss)
Balance March 31,
2002 $(1,265,078) $38,438,769
(See accompanying notes to the consolidated financial statements)
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, 2002 and
December 31, 2001, and the consolidated results of its operations and
consolidated statements of shareholders' equity and cash flows for the
three months ended March 31, 2002 and 2001.
2. The accounting policies followed by the Company are set forth in note 1
to the Company's financial statements in the 2001 Selas Corporation of
America Annual Report.
3. Discontinued Operations
In the fourth quarter of 2001, the Company initiated its plan to dispose
of the Company's primary custom-engineered furnace business, Selas SAS
(Paris), along with two other closely related subsidiaries, Selas
Italiana, S.r.L. (Milan) and Selas U.K. (Derbyshire). These
subsidiaries form the Company's large custom-engineered furnaces
division used primarily in the steel and glass industries worldwide.
The furnaces engineered by this division are custom-engineered to meet
customer specific requirements. These subsidiaries generated
approximately $3 million and $4.8 million of revenue and a loss from
discontinued operations of $416,000 and $331,000 for the three months
ended March 31, 2002 and 2001, respectively. The Company has accounted
for the plan to dispose of the subsidiaries as a discontinued operation
and accordingly, has reclassified the historical financial data of these
subsidiaries.
The Company anticipates paying the discontinued operations long-term
debt of $2,006,088 and notes payable of $5,674,224 and therefore, has
reclassified these amounts into continuing operations as of March 31,
2002.
Certain notes to these consolidated financial statements have been
restated to reflect the Company's presentation of discontinued
operations.
4. Inventories consist of the following:
March 31, December 31,
2002 2001
Raw material $ 3,880,836 $ 4,593,829
Work-in-process 4,560,119 4,855,037
Finished products and components 4,725,204 4,361,343
$13,166,159 $13,810,209
5. Income Taxes
Consolidated income taxes for the three months ended March 31, 2002 and
2001 are $72,000 and $451,000 which result in effective tax rates of
20.5% and 41.8%, respectively. The rate of tax in relation to pre-tax
income in 2002 is low because tax benefits from certain foreign net
operating losses, that were previously fully reserved by a valuation
allowance, were utilized for income tax purposes.
6. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 250 lawsuits as of March 31, 2002 (approximately 253 as of
December 31, 2001) 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 lead insurance 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. Management is of the opinion that the number of insurance
carriers involved in the defense of the suits and the significant number
of policy years and policy limits to which these insurance carriers are
insuring the Company make the ultimate disposition of these lawsuits not
material to the Company's consolidated financial position or results of
operations.
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 and claims will not materially affect the
Company's consolidated financial position, liquidity, or results of
operations.
7. Statements of Cash Flows
Three Months Ended
Supplemental disclosures of March 31, March 31,
cash flow information: 2002 2001
Interest received $ 3,198 $ 13,252
Interest paid $ 110,936 $ 168,212
Income taxes paid $ 24,203 $ 971,287
8. Accounts Receivable
At March 31, 2002, the Company had $2,055,377 of trade accounts
receivable due from the major U.S. automotive manufacturers and
$4,184,992 of trade accounts receivable due from hearing health
manufacturers. The Company also had $7,396,016 in receivables from
long-term contracts for customers in the steel and aluminum industry in
North America, Europe and Asia.
9. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
For the Three Months
Ended March 31, 2002
Income Shares Per Share
Numerator Denominator Amount
Basic (Loss) Per Share
(Loss) available to
Common shareholders $(138,398) 5,119,214 $(.03)
Effect of Dilutive
Securities
Stock options
Diluted (Loss) Per Share $(138,398) 5,119,214 $(.03)
For the Three Months
Ended March 30, 2001
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $ 298,472 5,119,214 $.06
Effect of Dilutive
Securities
Stock options 16,738
Diluted Earnings Per Share $ 298,472 5,135,952 $.06
10. Business Segment Information
The Company has three operating segments. The Company is engaged in
providing engineered heat technology equipment, replacement parts and
services to industries throughout the world, the manufacture of precision
miniature medical and electronic products and the manufacture of original
equipment for light trucks and vans. The results of operations and
assets of these segments are prepared on the same basis as the condensed
consolidated financial statements for the three months ended March 31,
2002 and 2001 and the consolidated financial statements included in the
2001 Form 10-K.
The Company's reportable segments reflect separately managed, strategic
business units that provide different products and services, and for
which financial information is separately prepared and monitored.
Segments
Tire Precision
For the Holders, Miniature
Three Months Lifts and Medical and General
Ended Heat Related Electronic Corporate Discontinued
March 31, 2002 Technology Products Products Expenses Operations
Sales, net $ 7,870,661 $4,035,209 $ 8,824,089
Net income
(loss) $ 111,786 $ 238,790 $ 165,796 $(238,604)$ (416,166)
Depreciation
and amoriza-
tion $ 128,756 $ 43,410 $ 627,485
Property, plant
and equipment
additions $ 54,662 $ 37,450 $ 437,575
Total assets $22,175,025 $6,406,739 $41,051,610 $16,581,118
For the
Three Months
Ended
March 31, 2002 Total
Sales, net $20,729,959
Net income
(loss) $ (138,398)
Depreciation
and amoriza-
tion $ 799,651
Property, plant
and equipment
additions $ 529,687
Total assets $86,214,492
Segments
Tire Precision
For The Holders, Miniature
Three Months Lifts and Medical and General
Ended Heat Related Electronic Corporate Discontinued
March 31, 2001 Technology Products Products Expenses Operations
Sales, net $ 8,925,786 $ 3,346,342 $11,298,581
Net income
(loss) $ 529,605 $ (68,574) $ 401,575 $(233,063)$ (331,071)
Depreciation
and amoriza-
tion $ 149,076 $ 50,046 $ 828,939
Property, plant
and equipment
additions $ 59,020 $ 1,741 $ 471,967
Total assets $25,506,916 $ 6,276,395 $43,433,175 $19,382,054
For The
Three Months
Ended
March 31, 2001 Total
Sales, net $23,570,709
Net income
(loss) $ 298,472
Depreciation
and amoriza-
tion $ 1,028,061
Property, plant
and equipment
additions $ 532,728
Total assets $94,598,540
11. Revenue Recognition
The following analysis provides a detail of revenue recognition
methodology by segment:
Tire Precision
Holders, Miniature
Lifts and Medical and
Heat Related Electronic Total
Technology Products Products
Upon Shipment $2,539,572 $ 4,035,209 $8,824,089 $15,398,870
Percentage of
completion 5,331,089 5,331,089
License Fees
Total Revenue $7,870,661 $ 4,035,209 $8,824,089 $20,729,959
12. Business Combinations and Goodwill and Other Intangible Assets
As of January 1, 2002, the Company adopted SFAS No. 141,'Business
Combinations,' and SFAS No. 142, 'Goodwill and Other Intangible Assets.'
SFAS No. 141 requires all business combinations entered into after June
30, 2001 to be accounted for under the purchase method. SFAS No. 142
sets forth new financial accounting and reporting standards for the
acquisition of intangible assets, other than those acquired in a business
combination, and for goodwill and other intangible assets subsequent to
their acquisition. This accounting standard requires that goodwill be
separately disclosed from other intangible assets in the statement of
financial position, and no longer amortized but tested for impairment on
a periodic basis. The provisions of this accounting standard also
require the completion of a transitional impairment test within six
months of adoption, with any impairments identified accounted for as a
cumulative effect of a change in accounting principle.
In accordance with SFAS No. 142, the Company discontinued the
amortization of goodwill effective January 1, 2002. The effect of
adopting this new standard was to reduce amortization expense by
approximately $195,000 and to increase net earnings by $167,000 (net of
tax expense of $28,000) or $0.03 diluted earnings per share for the three
months ended March 31, 2002. A reconciliation of previously reported net
earnings (loss) and earnings (loss) per share to the amounts adjusted for
the exclusion of goodwill amortization net of the related income tax
effect follows:
Three Months Ended
March 31, March 31,
2002 2001
Reported net earnings (loss) $ (138,000) $ 298,000
Add: goodwill amortization,
net of tax 154,000
Adjusted net earnings (loss) $ (138,000) $ 452,000
Basic earnings per share
Reported net earnings (loss) $(.03) $.06
Goodwill amortization, net of tax .03
Adjusted net earnings (loss) $(.03) $.09
Diluted earnings per share
Reported net earnings (loss) $(.03) $.06
Goodwill amortization, net of tax .03
Adjusted net earnings (loss) $(.03) $.09
Changes in the carrying amount of goodwill for the three months ended
March 31, 2002 by operating segment in accordance with SFAS No. 131, are
as follows:
Segments
Tire Precision
Holders, Miniature
Lifts and Medical and
Heat Related Electronic
Technology Products Products Total
Balance as of
December 31, 2001 $ 1,004,740 $ $14,626,761 $15,631,50l
Translation
adjustment (29,945) (29,945)
Reclassification to
other intangible
assets (45,007) (45,007)
Balance as of
March 31, 2002 $ 974,795 $ $14,581,754 $15,556,549
The Company will perform and report the results of its transitional
impairment tests in the Company's June 30, 2002 financial statements.
Patents and other intangible assets at March 31, 2002 and December 31, 2001,
subject to amortization expense, are as follows:
March 31, 2002
Carrying Accumulated
Amount Amortization Net
Patents $ 505,712 $ (505,365) $ 347
Other intangible
assets 923,301 (569,157) 354,144
Total $1,429,013 $(1,074,522) $ 354,491
December 31, 2001
Carrying Accumulated
Amount Amortization Net
Patents $ 505,712 $ (505,018) $ 694
Other intangible
assets 802,252 (442,395) 359,857
Total $1,307,964 $ (947,413) $ 360,551
Amortization expense for patents and other intangible assets subject to
amortization was approximately $59,000 for the three months ended March 31,
2002. Estimated amortization expense for each of the five succeeding years
is $159,000, $131,000, $39,000, $-0- and $-0- for years 2003 through 2007.
PART I - FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In the fourth quarter of 2001, the Company initiated its plan to dispose of
the Company's primary custom-engineered furnace business, Selas SAS (Paris),
along with two other closely related subsidiaries Selas Italiana, S.r.L.
(Milan) and Selas U.K. (Derbyshire). These subsidiaries form the Company's
large custom-engineered furnaces division used primarily in the steel and
glass industries worldwide. The furnaces engineered by this division are
custom-engineered to meet customer specific requirements. These subsidiaries
generated approximately $3 million and $4.8 million of revenue and a loss
from operations of $416,000 and $331,000 for the three months ended March 31,
2002 and 2001, respectively. The Company has accounted for the plan to
dispose of the subsidiaries as a discontinued operation and, accordingly, has
reclassified the historical financial data of these subsidiaries. See
further information in note 3 to the consolidated financial statements.
Consolidated net sales for the three months ended March 31, 2002 decreased to
$20.7 million from $23.6 million for the same period in 2001. Net sales for
the heat technology segment decreased to $7.9 million for the three months
ended March 31, 2002 compared to $8.9 million for the same period last year.
The decrease in sales is due to lower revenue recognition on a contract which
has been delayed by the customer partially offset by higher sales of
replacement parts. Sales of smaller heat treating furnaces produced by the
Company's CFR and Ermat subsidiaries remained essentially the same. CFR and
Ermat manufacture small heat treating furnaces utilized in the glass and
aluminum industries worldwide. Sales and earnings of heat treating contracts
are recognized on the percentage-of-completion method and generally require
more than twelve months to complete. Consolidated backlog for the heat
technology segment decreased to $13.7 million at March 31, 2002 compared to
$18.1 million at the same time last year. Sales of the Company's precision
miniature medical and electronic products segment decreased to $8.8 million
for the three months ended March 31, 2002 compared to $11.3 million for the
comparable period in 2001. Revenue decreased in the current period compared
to 2001 because of lower shipments of both component and system parts to the
hearing health industry and lower sales of thermistors and capacitor parts to
the electronics and telecommunications industries. The Company's sales in
this segment are affected by the telecommunications industry which continues
its ongoing slump and the hearing health markets which have been flat for the
last several years. Net sales of the tire holders, lifts and related
products segment for the three months ended March 31, 2002 increased to $4
million from $3.3 million for the same period in 2001. The increase in
revenue is due to higher shipments of tire lifts to the Company's automotive
customers reflecting, in part, the receipt of a new contract during the
second half of 2001.
The Company's gross profit margin as a percentage-of-sales decreased to 20.9%
for the three month period ended March 31, 2002 compared to 23.7% for the
same period last year. Gross profit margins for the heat technology segment
decreased to 18.6% for the three months ended March 31, 2002 compared to
22.2% for the comparable period in 2001. Heat technology gross profit
margins vary markedly from contract to contract, depending on customer
specifications and other conditions related to the project. The gross profit
margins for the first quarter of 2002 were impacted by higher than usual
costs on several orders completed by some of the Company's subsidiaries which
supply replacement parts. Gross profit margins for the precision miniature
medical and electronics products segment decreased to 24.4% for the three
months ended March 31, 2002 compared to 28.7% for the same period in 2001.
The lower margins in the current quarter are attributable to the mix of
product sales between the periods as hearing health component parts, whose
revenues have been declining have higher profit margins compared to some of
the segment's other products, particularly hearing health system parts, whose
sales have also decreased in the current quarter. Gross profit margins for
the tire holders, lifts and related products segment increased to 17.6% for
the first quarter of 2002 compared to 10.8% for the comparable period in
2001. The increase in the current year results from an increase in
efficiencies from higher production of tire lifts for the Company's
automotive customers.
Selling, general and administrative expenses (SG&A) decreased 11% to
$4,000,000 for the first quarter 2002 compared to $4,494,000 for the same
period in 2001. The lower SG&A expenses are due to cost saving measures
implemented by the Company during the current economic slowdown, primarily
salary reductions.
Interest expense for the three months ended March 31, 2002 decreased to
$83,000 compared to $154,000 for the same period in 2001. The decrease is
due to lower interest rates during the current year on slightly higher
average borrowings. Interest income for the first three months of 2002
increased to $15,000 from $9,000 for the first quarter of 2001 due mainly to
interest imputed on a trade note receivable.
Other income (expense) for the first quarter of 2002 includes gains from the
sale of investments of $83,000 partially offset by losses on foreign exchange
of $38,000 compared to gains on foreign exchange of $113,000 for the same
period in 2001.
Consolidated income taxes for the three month periods ended March 31, 2002
and 2001 are $72,000 and $451,000 which result in effective tax rates of
20.5% and 41.8%, respectively. The rate of tax in relation to pre-tax income
in 2002 is low because tax benefits from certain foreign net operating
losses, that were previously fully reserved by a valuation allowance, were
utilized for income tax purposes.
Consolidated net loss of $138,000 for the first quarter of 2002 decreased
from income of $298,000 for the same period in 2001. The decline in
profitability from income to a loss is due to lower sales and gross profit
margins on some of the Company's products partially offset by decreased SG&A
expenses resulting from cost cutting measures, lower interest expense and
lower cost of sales due to the discontinuation of goodwill amortization.
Discontinued operations generated a loss of $416,000 for the first quarter of
2002 compared to a loss of $331,000 for the same period in 2001. The
increase in the loss is due to lower revenue generated from contracts in
backlog at the beginning of 2002 compared to 2001 partially offset by
improved gross profit margins on the current orders.
Liquidity and Capital Resources
Consolidated net working capital increased to $13.3 million at March 31, 2002
from $7 million at December 31, 2001. The main reason for this increase is
the reclassification of assets and liabilities of discontinued operations as
current based on the assumption of disposal within the next twelve months.
Exclusive of this reclassification, consolidated net working capital
decreased to $6.6 million at March 31, 2002. The decrease is due primarily
to purchases of property and equipment and paydown of long-term debt offset
by borrowings to fund acquisitions. The major changes in the components of
working capital for the period were lower cash and cash equivalents of $.7
million, lower inventories of $.6 million, higher accounts receivable of $1.3
million, higher notes payable of $.6 million, higher accounts payable of $.4
million and lower customer advance payments of $.4 million. These changes
relate mainly to the ongoing operations of the Company. As part of the
ongoing operations of the Company, management periodically performs a
strategic analysis of all assets of the Company to ensure that an appropriate
rate of return is achieved from the invested capital.
On April 15, 2002, the Company entered into a second waiver amendment
agreement for its domestic and foreign revolving credit and term loan
facilities and obtained a new domestic supplemental credit facility in the
amount of $5,000,000 to be used for additional domestic borrowing and for the
issuance of advance payment guarantees.
We believe that the amended credit facility combined with funds expected to
be generated from operations, the available borrowing capacity through its
revolving credit loan facilities, the potential sale of the European
subsidiaries, curtailment of the dividend payment and control of capital
spending will be sufficient to meet its anticipated cash requirements for
operating needs.
During the first quarter of 1999, the Company implemented a program to
repurchase up to 250,000 shares of its common stock, which at the time
represented approximately 5% of its total shares outstanding. The shares
have been purchased from time to time on the open market. As of March 31,
2002, the Company has repurchased a total of 152,190 shares of its common
stock at a cost of $883,141.
In July 2001, the FASB issued SFAS No. 143, 'Accounting for Asset Retirement
Obligations,' which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The standard applies to legal
obligations with the retirement of long-lived assets that result from the
acquisition, construction, development and (or) normal use of the asset.
Adoption is required for fiscal years beginning after June 15, 2002, with
earlier adoption encouraged. The Company is in the process of analyzing the
implications of SFAS 143 and does not believe that the adoption of this
statement will have a material impact on the net earnings of the Company.
In October 2001, the FASB issued SFAS No. 144, 'Accounting for the Impairment
or Disposal of Long-Lived Assets,' which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS
Statement 144 supersedes FASB Statement No. 121, 'Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,'
it retains many of the fundamental provisions of that Statement. SFAS
Statement 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, 'Reporting the Results of Operations Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions,' for the disposal of a
segment of a business. However, it retains the requirement in Opinion No. 30
to report separately discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to owners) or is classified as held for
sale. SFAS Statement 144 is effective for fiscal years beginning after
December 15, 2001. The Company adopted the statement as of January 1, 2002,
which did not have a material impact on the net earnings of the Company.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding the Company's exposure to certain market risks, see
Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the
Annual Report on Form 10-K for 2001. There have been no significant changes
in the Company's portfolio of financial instruments or market risk exposures
which have occurred since year-end.
Forward-Looking and Cautionary Statements
The Company may from time to time make written or oral forward-looking
statements, including those contained in the foregoing Management's
Discussion and Analysis. In order to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the
Company has identified in its Annual Report on Form 10-K for the year ending
December 31, 2001, certain important factors which could cause the Company's
actual results, performance or achievement to differ materially from those
that may be contained in or implied by any forward-looking statement made by
or on behalf of the Company. All such forward-looking statements are
qualified by reference to the cautionary statements herein and in such Report
on Form 10-K.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
See note 6 to the Consolidated Financial Statements.
ITEM 6. Exhibits and Reports on Form 8-K
None
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, 2002
Francis A. Toczylowski,
Vice President, Secretary and
Treasurer