UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File Number 1-5005
SELAS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1069060
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(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
1260 Red Fox Road
Arden Hills, Minnesota 55112
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (651) 604-9770
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Shares, $1 par value per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 of the Act) Yes ___ No _X_
The aggregate market value of the voting common shares held by non-affiliates of
the registrant on June 28, 2002 was $11,518,232. Common shares held by each
officer and director and by each person who owns 5% or more of the outstanding
common shares have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of outstanding shares of the registrant's common shares on March 6,
2003 was 5,124,214.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 2002 annual report to shareholders are incorporated by
reference into Part II of this report. Portions of the Company's proxy statement
for the 2003 annual meeting of shareholders are incorporated by reference into
Part III of this report. Except for the parts of such documents that have been
specifically incorporated herein by reference, such documents shall not be
deemed "filed" for the purposes of this report.
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PART I
ITEM 1. Business
SELAS CORPORATION OF AMERICA(together with its subsidiaries referred herein as
the "Company")is a diversified firm with international operations and sales that
engages in the design, development, engineering and manufacturing of a range of
products. The Company, headquartered in St. Paul, Minnesota was organized as a
Pennsylvania corporation, and has additional locations in Pennsylvania, Ohio,
California, France, Germany, Japan, Portugal and Singapore. The Company operates
directly or through subsidiaries in two business segments.
The Company's Precision Miniature Medical and Electronic Products segment
designs and manufactures microminiaturized components, systems and molded
plastic parts primarily for the hearing instrument manufacturing industry and
also for the electronics, telecommunications, computer and medical equipment
industries. Under the Selas(TM) name, the Heat Technology segment designs and
manufactures specialized industrial heat processing systems for the aluminum and
glassware industries worldwide, and replacement parts for steel, aluminum, glass
and other manufacturers worldwide.
Financial data relating to industry segments, geographical summary of assets and
operations, export sales and major customers are set forth in note 5 to the
Company's consolidated financial statements included in the 2002 annual report
to shareholders.
In the fourth quarter of 2002, the Company initiated its plan to sell the
Company's Tire Holders, Lifts and Related Products segment. This segment
consists of one wholly-owned subsidiary operating on a stand alone basis that
sells tire lift products to automotive customers. The Company has accounted for
the plan to dispose of the subsidiary as a discontinued operation and has
reclassified the historical financial data. This subsidiary had sales of
approximately $16.8 million, $15.0 million and $17.8 million and net income of
approximately $1,173,000, $679,000 and $1,369,000 in 2002, 2001 and 2000,
respectively. See note 2 to the Company's consolidated financial statements
included in the 2002 annual report to shareholders.
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). The sale was completed in December 2002. Selas
Italiana, S.r.L, a four person sales office, was excluded from the sale. These
subsidiaries formed 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 $13.5 million, $15.6 million and
$27.3 million of revenue and a loss from discontinued operations of $8.0
million, $5.3 million and $69,000 in 2002, 2001 and 2000, respectively. The
Company accounted for the plan to dispose of the subsidiaries as a discontinued
operation and, accordingly, reclassified the historical financial data of these
subsidiaries. See note 2 to the Company's consolidated financial statements
included in the 2002 annual report to shareholders.
FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Annual Report
on Form 10-K or the Company's other public filings and releases, which are not
historical facts, are forward-looking statements (as such term is defined in the
Securities Exchange Act of 1934, and the regulations thereunder), which are
intended to be covered by the safe harbors created thereby. These statements may
include, but are not limited to:
o statements in Item 1. "Business";
o statements in Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations";
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o statements in Notes to the Company's Consolidated Financial Statements;
o statements in "Risk Factors"; and
o statements in the 2002 annual report to shareholders and letter to
shareholders.
Forward-looking statements include, without limitation, statements as to the
Company's expected future results of operations and growth, the Company's
business strategy, the expected benefits of reduction in employee headcount, the
expected sale of the Company's Tire Holders, Lifts and Related Products segment
and use of proceeds, the expected increases in operating efficiencies,
anticipated trends in the hearing health market related to the Company's
Precision Miniature Medical and Electronic Products segment, estimates of
goodwill impairments and amortization expense of other intangible assets, the
effects of changes in accounting pronouncements and statements as to trends or
the Company's or management's beliefs, expectations and opinions.
Forward-looking statements are subject to risks and uncertainties and may be
affected by various factors that may cause actual results to differ materially
from those in the forward-looking statements. In addition to the factors
discussed in this annual report to shareholders, certain risks, uncertainties
and other factors can cause actual results and developments to be materially
different from those expressed or implied by such forward-looking statements,
including, without limitation, the following:
o the ability to implement the Company's business strategy;
o the volume and timing of orders received by the Company;
o foreign currency movements in markets the Company services;
o changes in global economy and financial markets;
o changes in the mix of products sold;
o acceptance of the Company's products;
o competitive pricing pressures;
o availability of electronic components for the Company's products;
o ability to create and market products in a timely manner;
o ability to pay debt when it comes due;
o ability to sell businesses marked for sale; and
o the risks associated with terrorist attacks and threats of attacks.
The Company does not undertake to update any forward-looking statement that may
be made from time to time by or on behalf of the Company.
RISK FACTORS
You should carefully consider the risks described below. If any of the risks
actually occur, the Company's business, financial condition or results of future
operations could be materially adversely affected. This Annual Report on Form
10-K contains forward-looking statements that involve risk and uncertainties.
Our actual results could differ materially from those anticipated in the
forward-looking statements as a result of many factors, including the risks
faced by the Company described below and elsewhere in this Annual Report on Form
10-K.
THE COMPANY HAS EXPERIENCED AND EXPECTS TO CONTINUE TO EXPERIENCE FLUCTUATIONS
IN ITS RESULTS OF OPERATIONS, WHICH COULD ADVERSELY AFFECT THE PRICE OF THE
COMMON SHARES.
Factors that affect the Company's results of operations include, but are not
limited to, the volume and timing of orders received, changes in the global
economy and financial markets, changes in the mix of products sold, market
acceptance of the Company's and its customer's products, competitive pricing
pressures, global currency valuations, the availability of electronic components
that the Company purchases from suppliers, the Company's ability to meet
increasing demand, the Company's ability to introduce new products on
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a timely basis, the timing of new product announcements and introductions by the
Company or its competitors, changing customer requirements, delays in new
product qualifications, and the timing and extent of research and development
expenses. These factors have caused and may continue to cause the Company to
experience material fluctuations in operating results on a quarterly and/or
annual basis. These fluctuations could materially adversely affect the Company's
business, financial condition and results of operations, which in turn, could
keep the price of the Common Shares from increasing.
IF THE COMPANY'S PRECISION MINIATURE MEDICAL AND ELECTRONIC PRODUCTS BUSINESS IS
UNABLE TO CONTINUE TO DEVELOP NEW HEARING PRODUCTS THAT ARE INEXPENSIVE TO
MANUFACTURE, THE COMPANY'S RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
The Company may not be able to continue to achieve its historical profit margins
in its Precision Miniature Medical and Electronic Products business due to
advancements in technology. The ability to continue its profit margins is
dependent upon the Company's ability to stay competitive by developing hearing
instruments that are technologically advanced and inexpensive to manufacture. As
the business expands into other product lines, it may not be able to focus on
developing and marketing new hearing instruments.
The Precision Miniature Medical and Electronic Products business has also been
affected by unfavorable conditions in the hearing instrument market and the
impact of the Asian economic situation. The Company is unable to predict with
any certainty when and if these conditions will improve.
THE FINANCIAL RESULTS OF THE COMPANY'S HEAT TECHNOLOGY BUSINESS ARE DEPENDENT
UPON THE INVESTMENT IN NEW EQUIPMENT BY ITS CUSTOMERS, WHICH HAVE BEEN VOLATILE,
AND HAVE CAUSED AND MAY CONTINUE TO CAUSE THE FINANCIAL RESULTS OF THE COMPANY'S
HEAT TECHNOLOGY BUSINESS TO FLUCTUATE.
The Company's Heat Technology business, which has historically contributed
substantially to the Company's consolidated results, is affected by, among other
things, the capital expenditures of steel, aluminum and glass manufacturers and
processors, industries that are cyclical in nature. It is difficult to predict
demand for the Company's Heat Technology products, and the financial results of
the Company's Heat Technology business have fluctuated, and may continue to
fluctuate, materially from year to year. This instability may cause the price of
our Common Shares to decrease.
THE COMPANY OPERATES IN FRANCE, GERMANY, JAPAN, PORTUGAL AND SINGAPORE, AND
VARIOUS FACTORS RELATING TO ITS INTERNATIONAL OPERATIONS COULD AFFECT ITS
RESULTS OF OPERATIONS.
The Company operates in France, Germany, Japan, Portugal and Singapore.
Approximately 28% of the Company's revenues are derived from these countries.
Political or economic instability in these countries could have an adverse
impact on the Company's results of operations due to diminished revenues in
these countries. The Company's future revenues, costs of operations and profit
results could be affected by a number of factors related to the Company's
international operations, including changes in foreign currency exchange rates,
changes in economic conditions from country to country, changes in a country's
political condition, trade protection measures, licensing and other legal
requirements and local tax issues. Unanticipated currency fluctuations in the
Euro, Japanese Yen, and Singapore Dollar could lead to lower reported
consolidated revenues due to the translation of these currencies into U.S.
dollars when the Company consolidates its revenues.
THE BUSINESS SEGMENTS IN WHICH THE COMPANY OPERATES ARE HIGHLY COMPETITIVE AND
IF THE COMPANY IS UNABLE TO BE COMPETITIVE, ITS FINANCIAL CONDITION COULD BE
ADVERSELY AFFECTED.
Several of the Company's competitors have been able to offer more standardized
and less technologically advanced hearing instruments and heat
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technology systems and equipment at lower prices. Although the Company believes
that it has produced higher quality hearing instruments and heat technology
systems and equipment than these lower priced competitors, in certain instances
price competition has had an adverse effect on the Company's sales and margins.
There can be no assurance that the Company will be able to maintain or enhance
its technical capabilities or compete successfully with its existing and future
competitors.
IF THE COMPANY IS UNABLE TO SELL THE ASSETS IT HAS MARKED AS DISCONTINUED
OPERATIONS, ITS RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED.
The Company may not be successful in finding a buyer for its wholly owned
subsidiary, Deuer Manufacturing in 2003, which is shown as a discontinued
operation. There can be no assurance that Deuer Manufacturing will remain a
competitive supplier to the automobile and truck industry in view of, among
other things, the general trend in recent years in that industry toward a
reduction in the number of third-party suppliers and toward more integrated
component suppliers. If Deuer Manufacturing losses its competitiveness, it may
be difficult to sell at a price favorable to the Company or at all. Also, the
Company may be unable to sell its facilitates in Paris, France or Dresher,
Pennsylvania, on terms favorable to the Company. In connection with any sale, we
may be required to take additional charges to earnings which could adversely
affect the market price of our stock.
THE COMPANY MAY EXPERIENCE DIFFICULTY IN PAYING ITS DEBT WHEN IT COMES DUE,
WHICH COULD LIMIT ITS ABILITY TO OBTAIN FINANCING.
The Company's ability to pay the principal and interest on our indebtedness as
it comes due will depend upon its current and future performance. The Company's
performance is affected by general economic conditions and by financial,
competitive, political, business and other factors. Many of these factors are
beyond our control. The Company believes 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 certain assets, curtailment of the dividend payment and control of
capital spending will be sufficient to meet its anticipated cash requirements
for operating needs. If, however, the Company is unable to renew these lines in
the future, or do not generate sufficient cash or complete such financings on a
timely basis, it may be required to seek additional financing or sell equity on
terms which may not be as favorable as it could have otherwise obtained. No
assurance can be given that any refinancing, additional borrowing or sale of
equity will be possible when needed or that the Company will be able to
negotiate acceptable terms. In addition, the Company's access to capital is
affected by prevailing conditions in the financial and equity capital markets,
as well as its own financial condition.
THE COMPANY'S SUCCESS DEPENDS ON ITS SENIOR MANAGEMENT TEAM AND IF THE COMPANY
IS NOT ABLE TO RETAIN THEM, IT COULD HAVE A MATERIALLY ADVERSE EFFECT ON THE
COMPANY.
The Company is highly dependent upon the continued services and experience of
its senior management team, including Mark S. Gorder, the Company's President,
Chief Executive Officer and a director. Mr. Gorder is also the President of the
Company's Precision Miniature Medical and Electronics segment. The Company
depends on the services of Mr. Gorder and the other members of its senior
management team to, among other things, continue the development and
implementation of the Company's business strategies and maintain and develop its
client relationships.
THE COMPANY IS SUBJECT TO NUMEROUS ASBESTOS-RELATED LAWSUITS, WHICH COULD
ADVERSELY AFFECT THE COMPANY'S FINANCIAL POSITION, RESULTS OF OPERATIONS OR
LIQUIDITY.
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The Company is a defendant along with a number of other parties in approximately
108 lawsuits as of December 31, 2002 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.
In addition, the Company expects that claims could continue to be asserted
against it. 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. While the
Company has requested that the lead carrier substantiate this situation, there
can be no assurance that this primary policy and the Company's other insurance
policies will cover all costs and any awards associated with the
asbestos-related lawsuits. If the Company's insurance policies do not cover the
costs and any awards for the asbestos-related lawsuits, the Company will have to
use its cash or obtain additional financing to pay the asbestos-related
obligations and settlement costs. The ultimate outcome of any legal matter
cannot be predicted with certainty. In light of the significant uncertainty
associated with asbestos lawsuits, there is no guarantee that these lawsuits
will not materially adversely affect the Company's financial position, results
of operations or liquidity.
THE COMMON SHARE PRICE HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE, WHICH
MAY MAKE IT DIFFICULT FOR SHAREHOLDERS TO RESELL COMMON SHARES WHEN THEY WANT TO
AND AT PRICES THEY FIND ATTRACTIVE.
The trading price of the Company's Common Shares has been and is likely to be
highly volatile. The Common Share price could be subject to wide fluctuations in
response to a variety of factors, including the following:
o announcements of fluctuations in the Company's or its competitors'
operating results;
o the timing and announcement of sales or acquisitions of assets by the
Company or its competitors;
o changes in estimates or recommendations by securities analysts;
o adverse or unfavorable publicity about the Company's services or the
Company;
o the commencement of material litigation, or an unfavorable verdict,
against the Company;
o terrorist attacks, war and threats of attacks and war;
o additions or departures of key personnel; and
o sales of Common Shares.
In addition, the stock market in recent years has experienced significant price
and volume fluctuations and a significant cumulative decline in recent months.
Such volatility and decline have affected many companies irrespective of, or
disproportionately to, the operating performance of these companies. These broad
fluctuations may materially adversely affect the market price of the Common
Shares.
Most of the Company's outstanding shares are available for resale in the public
market without restriction. The sale of a large number of these shares could
adversely affect the share price and could impair the Company's ability to raise
capital through the sale of equity securities or make acquisitions for Common
Shares.
TERRORIST ATTACKS, WAR AND THREATS OF ATTACKS AND WAR MAY NEGATIVELY IMPACT OUR
RESULTS OF OPERATIONS, REVENUE AND STOCK PRICE.
Terrorist attacks, war and threats of attacks and war may negatively impact our
results of operations, revenue and share price. Recent terrorist attacks in the
United States, as well as future events occurring in response or in connection
to them, including, without limitation, future terrorist attacks against U.S.
targets and threats of war or actual conflicts involving the United States or
its allies, may impact the Company's operations, including
7
affecting its ability to operate its subsidiary's abroad. More generally, any of
these events could cause consumer confidence and spending to decrease or result
in increased volatility in the economy. They could also result in the deepening
of the economic recession in the United States. Any of these occurrences could
have a material adverse effect on our operating results, revenue, and may result
in the volatility of the market price for the Company's Common Share.
"ANTI-TAKEOVER" PROVISIONS MAY MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO
ACQUIRE CONTROL OF THE COMPANY, EVEN IF THE CHANGE IN CONTROL WOULD BE
BENEFICIAL TO SHAREHOLDERS.
The Company is a Pennsylvania corporation. Anti-takeover provisions in
Pennsylvania law and our charter and bylaws could make it more difficult for a
third party to acquire control of the Company. These provisions could adversely
affect the market price of the Common Shares and could reduce the amount that
shareholders might receive if the Company is sold. For example, the Company's
charter provides that our board of directors may issue preferred stock without
shareholder approval. In addition, the Company's bylaws provide for a classified
board, with each board member serving a staggered three-year term. Directors may
be removed only with the approval of the holders of at least two-thirds of all
of the shares outstanding and entitled to vote.
PRECISION MINIATURE MEDICAL AND ELECTRONIC PRODUCTS
Resistance Technology, Inc. ("RTI"), a wholly-owned subsidiary, manufactures
microminiature components, systems and molded plastic parts for hearing
instrument, medical equipment, electronics, telecommunications and computer
industry manufacturers. RTI Electronics, Inc. ("RTIE"), formed in 1997, has
expanded RTI's microminiature components business through the manufacture of
thermistors and film capacitors.
Products and Industries Serviced. RTI is a leading manufacturer and supplier of
microminiature electromechanical components to hearing instrument manufacturers.
These components consist of volume controls, microphones, trimmer potentiometers
and switches. RTI also manufactures hybrid amplifiers and integrated circuit
components ("hybrid amplifiers"), along with faceplates for in-the-ear and
in-the-canal hearing instruments. Components are offered in a variety of sizes,
colors and capacities in order to accommodate a hearing manufacturer's
individualized specifications. Sales to hearing instrument manufacturers
represented approximately 66% of 2002 annual net sales for the Company's
precision miniature medical and electronic products business.
Hearing instruments, which fit behind or in a person's ear to amplify and
process sound for a hearing impaired person, generally are composed of four
basic parts and several supplemental components for control or fitting purposes.
The four basic parts are microphones, amplifier circuits, miniature
receivers/speakers and batteries. RTI's hybrid amplifiers are a type of
amplifier circuit. Supplemental components include volume controls, trimmer
potentiometers, which shape sound frequencies to respond to the particular
nature of a person's hearing loss, and switches used to turn the instrument on
and off and to go from telephone to normal speech modes. Faceplates and an ear
shell molded to fit the user's ear often serve as a housing for hearing
instruments. RTI manufactures its components on a short lead-time basis in order
to supply "just-in-time" delivery to its customers and, consequently, order
backlog amounts are not meaningful.
The potential range of applications for RTI's medical components and systems is
broad. RTI has produced intravenous flow restrictors, bubble sensors, infusion
assemblies, and many other components for use in medical instruments. Sales by
RTI to industries other than the hearing instrument
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industry represented approximately 19% of 2002 annual net sales for the
Company's precision miniature medical and electronic products business.
RTIE manufactures and sells thermistors and thermistor assemblies, which are
solid state devices that produce precise changes in electrical resistance as a
function of any change in absolute body temperature. RTIE's Surge-Gard(TM)
product line, an inrush electric current limiting device used primarily in
computer power supplies, represents approximately a third of RTIE's sales. The
balance of sales represents various industrial, commercial and military sales
for thermistor and thermistor assemblies to domestic and international markets.
RTI's and RTIE's principal raw materials are plastics, polymers, metals, various
metal oxide powders and silver paste, for which there are multiple sources of
supply.
In order to enhance its product line offering, between 1998 and 2001, RTI made
several strategic acquisitions. These acquisitions bolstered RTI's and RTIE's
precision miniature mechanical and electronic products. In January, 2001, the
Company acquired the shares of Lectret, a Singapore manufacturer of microphone
capsules. The acquisitions expanded RTI's product capability in the hearing
health market by adding a microphone product line.
Certain information regarding the acquisition of RTI Technologies PTE LTD
business is set forth in note 3 to the Company's consolidated financial
statements included in the 2002 annual report to shareholders.
Marketing and Competition. RTI sells its hearing instrument components directly
to domestic hearing instrument manufacturers through an internal sales force.
Sales of microphone products and of molded plastic parts to industries other
than hearing instrument manufacturers are made mainly through an internal sales
force. In recent years, five companies have accounted for a substantial portion
of the U.S. hearing instrument sales. In 2002, five customers accounted for
approximately 37% of RTI's net sales.
Internationally, sales representatives employed by Resistance Technology, GmbH
("RT, GmbH"), a German company 90% of whose capital is owned by RTI, solicit
sales from European hearing instrument manufacturers.
RTI believes that it is the largest supplier worldwide of microminiature
electromechanical components to hearing instrument manufacturers and that its
full product line and automated manufacturing process allow it to compete
effectively with other manufacturers within this market.
In the market of hybrid amplifiers and molded plastic faceplates, RTI's primary
competition is from the hearing instrument manufacturers themselves. The hearing
instrument manufacturers produce a substantial portion of their internal needs
for these components.
RTI markets its high performance microphone products to the radio communication
and professional audio industries and has several larger competitors who have
greater financial resources. RTI holds a small market share in the global market
for microphone capsules and other related products.
RTIE sells its thermistors and film capacitors through a combination of
independent sales representatives and internal sales force.
RTIE has many competitors, both domestic and foreign, that sell various
thermistor and film capacitors and some of these competitors are larger and have
greater financial resources. In addition, RTIE holds a relatively small market
share in the world-market of thermistor and film capacitor products.
Operations. The Precision Miniature Medical and Electronic Products segment has
a total of 410 employees. RTI currently employs 239 people, of whom 17
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are executive and administrative personnel, 12 sales, and 210 engineering and
operations personnel at RTI's two facilities near Minneapolis, Minnesota. At RT,
Gmbh, the Company employs 3 sales personnel located in Munich, Germany. In
Singapore, RTI Tech employs 93 people, of whom 6 are administrative personnel, 3
sales, and 84 engineering and operations personnel. At its facilities in
Anaheim, California, RTIE employs 75 full-time employees, of which 4 are
administrative, 4 are sales, and 67 are engineering and operations personnel.
As a supplier of parts for consumer and medical products, RTI is subject to
claims for personal injuries allegedly caused by its products. The Company
maintains what it believes to be adequate insurance coverage.
Research and Development. RTI and RTIE conduct research and development
activities primarily to improve its existing products and technology. Their
research and development expenditures were $848,000, $1,237,000 and $899,000 in
2002, 2001 and 2000, respectively.
RTI owns a number of United States patents which cover a number of product
designs and processes. The Company believes that, although these patents
collectively add some value to the Company, no one patent or group of patents is
of material importance to its business as a whole.
HEAT TECHNOLOGY
The Company specializes in the controlled application of heat to achieve precise
process and temperature control. The Company's principal heat technology
equipment and systems are smaller standard-engineered systems, burners and
combustion control equipment, (continuing operations) and large
custom-engineered furnaces (discontinued operations).
CONTINUING OPERATIONS
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STANDARD-ENGINEERED SYSTEMS, BURNERS AND COMBUSTION CONTROL EQUIPMENT.
Standard Engineered Systems. The Company engineers and fabricates a variety of
small heat treating furnaces and heat processing equipment. This standard
equipment and small-furnace business is conducted principally by its
wholly-owned subsidiaries in Europe, CFR (Paris), Ermat S.A. (Lyon), Selas
Italiana, and CFR Portugal (Leiria). These companies typically engineer and
design atmosphere-controlled batch and continuous furnaces that are used for
heat treating non-ferrous metals and glassware. Its continuous heat treating
systems include not only the hardening and tempering furnaces central to the
systems, but also the ancillary loading, quenching and washing equipment.
The Company also manufactures non-atmosphere-controlled batch-type furnaces in a
variety of designs. These batch furnaces are supplied to customers with a need
for the precise, accurately controlled application of heat to their products.
The Company's standard systems include automatic brazing and soldering systems
used in the assembly of radiators, air conditioner coils and electrical
appliances. The precise application of heat in these systems improves a
customer's product quality and uniformity while reducing production costs. The
Company produces the fuel mixing and monitoring systems, burners and product
handling equipment necessary for these systems.
The Company produces custom designed barrel furnaces used primarily to heat
treat long metal parts, and also products specialized glass lehrs for heating
glass products. Other furnaces are designed to harden and etch glass and ceramic
tableware.
Burners and Combustion Control Equipment. At its Dresher, Pennsylvania facility
and through its subsidiaries in Europe, Selas Waermetechnik
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(Ratingen) and Japan, Nippon Selas (Tokyo), the Company designs, manufactures
and sells an array of original equipment and replacement gas-fired industrial
burners for many applications.
The Company is a producer of burners used in fluid processing furnaces serving
the petrochemical industry. One type of fluid processing burner is capable of
minimizing the emission of oxides of nitrogen as combustion products. As many
jurisdictions reduce the permissible level of emissions of these compounds, the
Company believes that the demand for "low Nox" burners will increase. The
Company also produces burners suitable for creating a high temperature furnace
environment desirable in steel and glass heat treating furnaces. The Company's
burners accommodate a wide variety of fuel types, environmental constraints and
customer production requirements.
The Company furnishes many industries with gas combustion control equipment sold
both as component parts and as systems that have been engineered to meet a
particular customer's needs. This equipment is provided with the Company's
original custom-engineered and standard heat treating equipment, as replacement
or additional components for existing furnaces being refurbished or upgraded,
and as original components for heat treating equipment manufactured by others.
The components of the combustion control systems include mixing valves capable
of mixing gas and air and controlling the air/gas ratio, pressure and total flow
of the mixed gases. The Company also produces its Qual-O-Rimeter(TM) automated
monitoring and control device used in conjunction with its mixing valves to
maintain precise, uniform heat release and flame shape, despite fluctuations in
fuel mix and quality, air temperature and humidity.
Additional combustion control products include Flo-Scope(TM) flow meters, which
measure the rate of flow of gases, and automatic fire checks and automatic
blowouts, which arrest flame and pressure resulting from backfire from the
burners into the pipe line.
Marketing and Competition. The Company markets its standard-engineered systems
products on a global basis through its sales and marketing personnel located in
Dresher, Pennsylvania, and also sells these products through licensees and
agents located in various parts of the world. Although the Company competes for
orders for such products with many other manufacturers, some of which are larger
and have greater financial resources, the Company believes that its reputation
and its high standard for quality allow it to compete effectively with other
manufacturers.
Operations. The Heat Technology Segment has a total of 162 employees. At its
remaining French operations, including Selas SAS, CFR, SEER, and Ermat
businesses in France, the Company employs approximately 83 people, of whom 13
are administrative personnel, 11 are fabrication and 59 are sales, engineering
and operations personnel. Its CFR Portugal subsidiary in Portugal employs 19
people, of whom 2 are administrative personnel, 12 are fabrication and 5 are
sales, engineering and operations personnel. Its Selas Italiana subsidiary in
Italy employs 4 people, of whom 2 are administrative personnel and 2 are sales,
engineering and operations personnel. Its Selas SAS subsidiary in France employs
8 people of whom 5 are administrative personnel and 3 are sales, engineering and
operations personnel. Its Selas Waermetechnik subsidiary in Germany employs 6
people, of whom 1 is administrative personnel, 2 are fabrication and 3 are
sales, engineering and operations personnel
At its Dresher facility, the Company has 39 employees; 5 are executive and
administrative personnel, 12 are sales and engineering personnel and 22 are
personnel engaged in manufacturing. The hourly personnel are represented by a
union, and the current union contract expires May, 2004. The Company considers
its relations with its employees to be satisfactory.
11
In April, 2001, the Company sold a minority interest of Nippon Selas to three
directors of Nippon Selas. Its Tokyo facility employs 11 people;
3 administrative and 8 sales and engineering.
The principal components used in the Company's heat processing equipment and
other products are steel, special castings (including high-alloy materials),
electrical and electronic controls and materials handling equipment. These items
are available from a wide range of independent suppliers.
Research and Development. The Company conducts research and development
activities at its Dresher facility to support its heat processing services and
products. The Company's research efforts are designed to develop new products
and technology as well as to improve existing products and technology. The
Company also conducts research on behalf of particular customers in connection
with customers' unusual process needs. Research and development expenditures for
heat processing aggregated $66,000, $33,000 and $31,000 in 2002, 2001 and 2000,
respectively.
It is the Company's policy to apply for domestic and foreign patents on those
inventions and improvements which it considers significant and which are likely
to be incorporated in its products. It owns a number of United States and
foreign patents. It is licensed under patents owned by others and has granted
licenses to others on a fee basis. The Company believes that, although these
patents collectively are valuable, no one patent or group of patents is of
material importance to its business as a whole.
DISCONTINUED OPERATIONS
- -----------------------
LARGE CUSTOM-ENGINEERED FURNACES
The Company designed specialized furnaces for use primarily in the steel
industries worldwide. The furnaces were engineered to subject a customer's
products to carefully controlled heating and cooling processes in order to
improve the physical characteristics of those products. Each furnace is
custom-engineered by the Company to meet customer's specific requirements. The
business was historically cyclical in nature. The Company completed the sale of
most of this business in December 2002. See note 2 to the Company's consolidated
financial statements included in the 2002 annual report to shareholders.
TIRE HOLDERS, LIFTS AND RELATED PRODUCTS
Deuer Manufacturing, Inc. ("Deuer"), a wholly-owned subsidiary, manufactures
tire holders, lifts, and other related products based principally on cable winch
designs. In December 2002, the Company initiated a plan to sell Deuer and it is
reflected as a discontinued operation in the financial statements. See footnote
2 of the Company's consolidated financial statements.
Products and Industries Served. Deuer is a leading supplier of spare tire
holders used on light trucks and mini-vans manufactured by the major domestic
automotive manufacturers. Deuer's spare tire holder holds the spare tire to the
underbody of the vehicle by means of a steel cable running to the underside of
the vehicle's frame. One end of the steel cable is attached to a hub placed
through the center of the spare tire's rim, and the other end is attached to a
hand-operated winch mounted at an accessible location on the vehicle. The spare
tire holding system permits the spare tire to be stored in a remote location and
to be easily removed without the need to crawl under the vehicle. During 2002,
sales of spare tire holders accounted for over 95% of Deuer's net sales. Deuer
manufactures products on a short lead time basis in order to furnish
"just-in-time" delivery to its automotive customers. Due to substantial
variances between manufacturers' estimated and actual requirements, the
Company's order backlog amounts are not considered meaningful.
12
Deuer also produces a variety of hand-operated hoist-pullers, using primarily a
cable winch design, sold under the Mini-Mule(TM) brand name. These products,
which retail from $30 to $60, are portable hand winches designed for a variety
of uses, such as pulling objects, rigging loads and installing fencing. Deuer
furnishes these hoist-pullers in a variety of sizes and capacities. It also
manufactures accessories for use with the products, including slings, clamps,
blocks and gantries.
Marketing and Competition. Deuer sells its spare tire holders directly to
domestic automotive manufacturers. Deuer's spare tire holders are sold to
DaimlerChrysler, General Motors, NUMMI, Toyota, Ssangyong Musso and Mobile Home
Manufactures. The design and quality of Deuer's spare tire holders have been
recognized by its major customers. The Company sells its hoist-pullers through a
network of distributors as well as directly to some large retail outlets.
Deuer is one of several suppliers of spare tire holders to domestic mini-van and
light truck manufacturers. Some of Deuer's competitors are larger and have
greater financial resources. The Company believes that price and Deuer's
reputation for quality and reliability of delivery are important factors in
competition for business from the domestic automotive manufacturers. A number of
other domestic and foreign manufacturers sell hoist-pullers to the retail
market, and Deuer's share of this market is relatively small.
Operations. At its Dayton facility, Deuer employs a total of 169 people;
31 executive and administrative personnel and approximately 138 manufacturing
employees. Some of the manufacturing employees are represented by a union, and
the current union contract expires in October, 2006. Deuer considers its
relations with its employees to be satisfactory.
Deuer's principal raw material is coil rolled steel and metal cable which is
widely available. Deuer also conducts research and development activities which
consist of the development of new products and technology and the modification
of existing products. Deuer's research and development expenditures aggregated
$260,000, $252,000 and $252,000 in 2002, 2001 and 2000, respectively.
As a consumer products manufacturer, Deuer is subject to claims for personal
injuries allegedly caused by its products. The Company maintains what it
believes to be adequate insurance coverage.
AVAILABLE INFORMATION
The Company files annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, proxy statements and other information with the
SEC. You may read and copy any reports, statements and other information that
the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C., 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
Company's filings are also available on the SEC's Internet site as part of the
EDGAR database (http://www.sec.gov).
ITEM 2. Properties
----------
CONTINUING OPERATIONS
- ---------------------
RTI leases its headquarters, a 47,000 sq. ft. manufacturing facility in Arden
Hills, Minnesota, from a partnership consisting of two former officers of RTI
and Mark S. Gorder who serves as an officer of the Company and RTI and on the
Company's Board of Directors. At this facility, RTI manufactures all of its
products other than plastic component parts. The lease expires in October, 2011.
13
The Company owns the manufacturing facility in Dresher, Pennsylvania in which
its standard-engineered systems, burners and combustion control equipment are
produced on a 17 acre site. The 136,000 square foot Dresher facility has more
space than is currently needed for the Company's operations and headquarters,
and the Company is seeking to sell the building and lease office and
manufacturing space in the surrounding area. This property is subject to a
mortgage from a third party lender. See note 9 to the Company's consolidated
financial statements included in the 2002 annual report to shareholders.
In addition, RTI owns, subject to a mortgage from a third party lender, a 34,000
sq. ft. building in Vadnais Heights, Minnesota at which RTI produces plastic
component parts. See notes 9, 17 and 18 to the Company's consolidated financial
statements included in the 2002 annual report to shareholders.
RTIE leases a building in Anaheim, California, which contains its manufacturing
facilities and offices and consists of a total of 50,000 square feet. The lease
expires September, 2008.
Selas Waermetechnik GmbH, the Company's German subsidiary, leases facilities in
Ratingen, Germany which are used for sales, administrative and engineering
activities and assembly of small furnaces and furnace components. The lease
expires October, 2008. Resistance Technology, GmbH, leases office space in
Munich, Germany for its sales personnel and the lease expires in July, 2007.
CFR leases facilities in Paris and Maisse, France. The facility in Paris house
engineering, sales and administrative operations and has 10,000 square feet. The
Maisse facility is 40,000 square feet and houses CFR's fabrication and assembly
operations. The Paris lease expires January, 2006 and the Maisse lease expires
March, 2004, each with three-year optional renewal terms. Ermat leases a
building in Lyon, France with sales and administrative facilities which expires
June, 2007. CFR Portugal leases a building in Leiria, Portugal which houses its
fabrication facilities and administrative offices. The lease expires in December
2006. Selas Italiana S.r.L., the Company's Italian subsidiary leases a facility
in Milan, Italy. The Milan facility is a sales office, whose lease expires in
February, 2007.
RTI Technologies PTE LTD leases a building in Singapore which houses its
production facilities and administrative offices. The building contains 6,000
square feet and its lease expires June, 2004, with a three-year renewal option.
Nippon Selas leases office space in Tokyo, Japan for its sales and
administrative facilities on a month-to-month lease.
DISCONTINUED OPERATIONS
- -----------------------
Selas (SAS) owns the land and building which houses its engineering, sales and
administrative operations in Gennevilliers, France (outside of Paris). The
building was not part of the sale of the custom-engineered large furnace
business and is currently listed for sale. The land under the building is owned
by Selas (SAS) and the property outside of the building is jointly owned by the
building owners in the office complex. The building has 22,000 square feet and
is subject to a mortgage. See note 9 to the Company's consolidated financial
statements included in the 2002 annual report to shareholders.
Deuer owns its 92,000 square foot manufacturing facility located on 6.5 acres in
Dayton, Ohio, where it produces its spare tire holders and hoist-pullers. This
facility is included in the assets being held for sale. The facility is
furnished with a variety of steel fabrication equipment, including punch
presses, drill presses, screw machines, grinders, borers, lathes and welders.
This property is subject to a mortgage. See note 2 to the Company's consolidated
financial statements included in the 2002 annual report to shareholders.
14
ITEM 3. Legal Proceedings
-----------------
The Company is a defendant along with a number of other parties in approximately
108 lawsuits as of December 31, 2002 (approximately 87 lawsuits 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 believes 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.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
15
ITEM 4A. Executive Officers of the Company
The names, ages and offices (as of March 6, 2003) of the Company's executive
officers were as follows:
Name Age Office
---- --- ------
Mark S. Gorder 56 President, Chief Executive Officer
and Director of the Company;
President of Resistance Technology, Inc.
Christian Bailliart 54 Vice President of the Company and
Chairman-Director Generale of Selas(SAS)
James C. Deuer 74 Vice President of the Company and President of
Deuer Manufacturing, Inc.
Robert F. Gallagher 47 Chief Financial Officer, Treasurer and
Secretary of the Company
Gerald H. Broecker 51 Vice President of Administration of the
Company
Mr. Gorder joined the Company in October 1993 when Resistance Technology, Inc.
("RTI") was acquired. Prior to the acquisition, Mr. Gorder was President and one
of the founders of RTI, which began operations in 1977. Mr. Gorder was promoted
to Vice President of the Company and elected to the Board of Directors in April
1996. In December 2000, he was elected President and Chief Operating Officer and
in April 2001, Mr. Gorder assumed the role of Chief Executive Officer.
Mr. Bailliart joined Selas (SAS) in 1974 and in 1989 he was promoted to
Chairman-Director Generale of Selas (SAS) from Vice President, Treasurer. On
January 1, 1993, he was elected Vice President of the Company.
Mr. Deuer joined the Company as President of Deuer Manufacturing when it was
acquired in May, 1986 and was promoted to Vice President of the Company and
President of Deuer Manufacturing in December 1990. From 1965 to 1986 he was
President of Deuer Manufacturing.
Mr. Gallagher joined the Company in August 2002. From October 2000 until June
2002, he was Chief Financial Officer for Visionics Corporation (which merged
with Identix Corporation in June 2002). From October 1989 until June 2000 he was
employed by TSI Incorporated (which was acquired and taken private in June
2000), most recently as Chief Financial Officer. Both Visionics Corporation and
TSI Incorporated were publicly-held.
Mr. Broecker joined RTI in 1982 and last held the position of Vice President of
Strategic Business Services for RTI prior to his promotion to Vice President of
the Company in December 2002.
16
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common shares are listed on the American Stock Exchange under the
ticker symbol "SLS". The high and low sale prices during each quarterly period
during the past two years were as follows:
MARKET AND DIVIDEND INFORMATION
2002 2001
-------------------------- ---------------------------
Market Market
Price Range Price Range
-------------------------- ---------------------------
Quarter High Low High Low
First . . . . $2.350 $1.650 $4.000 $3.100
Second . . . 2.880 2.150 4.750 3.300
Third. . . . 2.690 2.030 4.500 2.850
Fourth . . . . 2.350 1.500 3.600 2.000
At March 17, 2003 the Company had 402 shareholders of record of common shares.
The following table provides information regarding cash dividends declared by
the Company during each quarter for past two fiscal years:
2002 2001
---- ----
Dividends per share:
First Quarter . . . . . . . . . . $ -- $.045
Second Quarter . . . . . . . . . . -- .045
Third Quarter . . . . . . . . . . -- .045
Fourth Quarter.. . . . . . . . . -- --
The Company ceased paying quarterly dividends in the fourth quarter of 2001 and
has no intention of paying dividends in the foreseeable future. The payment of
any future dividends is subject to the discretion of the Board of Directors and
is dependent on a number of factors, including the Company's capital
requirements, financial condition, financial covenants and cash availability.
Terms of the Company's banking agreements prohibit the payment of dividends
without prior bank approval.
17
The following table details information regarding the Company's existing equity
compensation plans as of December 31, 2002:
(c)
Number of securities
remaining available for
(a) (b) future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
- ---------------------------------- ----------------------- -------------------- -----------------------
Equity compensation plans approved
by security holders................. 604,050 $5.90 1,295,950
Equity compensation plans not
approved by security holders (1).... 107,500 $3.13 142,500
------- -------
Total............................... 711,550 $5.48 1,438,450
(1) Represents shares issuable under the Non-Employee Directors Stock Option
Plan, pursuant to which directors who are not employees of the Corporation or
any of its subsidiaries receive an automatic one-time grant of an option to
acquire 5,000 shares of common stock upon their initial election or appointment
to the Board of Directors. The Plan also permits discretionary grants. The
exercise price of the option is the fair market value of the stock on the date
of grant. Options become exercisable in equal one-third annual installments
beginning one year from the date of grant, except that the vesting schedule for
discretionary grants is determined by the Compensation Committee.
ITEM 6. Selected Financial Data
-----------------------
Certain selected financial data is incorporated by reference to "Selas
Corporation of America Five-Year Summary of Operations", page 6, and "Other
Financial Highlights", page 7, of the Company's 2002 annual report to
shareholders.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Management's Discussion and analysis is incorporated by reference to page 8
through 21 of the Company's 2002 annual report to shareholders.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Qualitative and qualitative disclosure about market risk is incorporated by
reference to page 22 of the Company's 2002 annual report to shareholders.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
None
18
PART III
The information called for by Items 10, 11, 12 and 13 (except the information
concerning executive officers included in Item 4A) is incorporated by reference
to the Company's definitive proxy statement relating to its 2003 Annual Meeting
of shareholders, which the Company will file in March 2003. However, the
portions of such proxy statement constituting the reports of the Audit Committee
and Compensation Committees of the Board of Directors and the graph showing
performance of the Company's common shares and certain share indices shall not
be deemed to be incorporated herein or filed for purposes of the Securities
Exchange Act of 1934.
Item 14. Controls and Procedures
-----------------------
QUARTERLY EVALUATION OF THE COMPANY'S DISCLOSURE CONTROLS AND INTERNAL CONTROLS.
Within the 90 days prior to the date of this Annual Report on Form 10-K, the
Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls"). This evaluation
("Controls Evaluation") was done under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO").
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS.
The Company's management, including the CEO and CFO, does not expect that its
Disclosure Controls or its "internal controls and procedures for financial
reporting" ("Internal Controls" ) will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
CONCLUSIONS.
Based upon the Controls Evaluation, the CEO and CFO have concluded that,
subject to the limitations noted above, the Disclosure Controls are effective to
timely alert management to material information relating to the Company during
the period when its periodic reports are being prepared.
In accordance with SEC requirements, the CEO and CFO note that, since the date
of the Controls Evaluation to the date of this Annual Report, there have been no
significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
19
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The following documents are filed as a part of this report:
1. Financial Statements - The Company's consolidated financial statements, as
described below, are incorporated by reference to pages 23 through 59 of
the Company's 2002 annual report to shareholders.
Consolidated Balance Sheets at December 31, 2002 and 2001.
Consolidated Statements of Operations for the years ended December 31,
2002, 2001 and 2000.
Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001 and 2000.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2002, 2001 and 2000.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedules
Page
Schedule II - Valuation and Qualifying Accounts 25-26
All other schedules are omitted because they are not applicable, or because
the required information is included in the consolidated financial
statements or notes thereto.
3. Exhibits
2.1 Asset and Share Purchase Agreement dated as of October 11, 2002 among the
Company, Selas S.A.S, Andritz A.G. and Andritz Acquisition S.A.S. Schedules
and attachments are listed under section 1.2 of the agreement and will be
provided to the Commission upon request. Exhibit 2.1 to the Company's
Current Report on Form 8-K filed with the Commission on December 17, 2002
is incorporated herein by reference.
3A. The Company's Articles of Incorporation as amended May 18, 1984 and April
25, 1991. Exhibit 3A to the Company's report on Form 10-K for the year
ended December 31, 1984 and Exhibit 3A1 to the Company's report on Form
10-K for the year ended December 31, 1991 are incorporated by reference.
3B. The Company's By-Laws as amended. Exhibit 3B to the Company's report on
Form 10-K for the year ended December 31, 2000 is incorporated by
reference.
4A. Amended and Restated Credit Agreement dated July 31, 1998 among the
Company, Deuer Manufacturing, Inc., Resistance Technology, Inc., RTI
Export, Inc. and RTI Electronics, Inc. Exhibit 4A to the Company's report
on Form 10-Q for the nine months ended September 30, 1998 is incorporated
by reference.
4B. Amended and Restated Revolving Credit Note, dated July 31, 1998, of the
Company in favor of First Union National Bank. Exhibit 4B to the Company's
report on Form 10-Q for the nine months ended September 30, 1998 is
incorporated by reference.
20
4C. Amendment to Amended and Restated Credit Agreement dated June 30, 1999
among the Company, Deuer Manufacturing, Inc., Resistance Technology, Inc.,
RTI Export, Inc. and RTI Electronics, Inc. The Exhibit to the Company's
report on Form 10-Q for the six months ended June 30, 1999 is incorporated
by reference.
4D. Guaranty dated February, 1998 of the Company in favor of First Union/First
Fidelity, N.A. Pennsylvania. Exhibit 4H to the Company's report on Form
10-K for the year ended December 1997 is hereby incorporated by reference.
4E. Second Amendment to Amended and Restated Credit Agreement, dated as of July
7, 2000. Exhibit 4C to the Company's report on Form 10-Q for the period
ended September 30, 2000 is incorporated by reference.
4F. Third Amendment to Amended and Restated Credit Agreement, dated as of
January 19, 2001. Exhibit 4F to the Company's report on Form 10-K/A filed
October 29, 2001 for the year ended December 31, 2000 is incorporated by
reference.
4G. Waiver and Amendment Agreement dated November 20, 2001 among the Company,
certain of its subsidiaries, and First Union National Bank. Exhibit 4G to
the Company's report on Form 10-K for the year ended December 31, 2001 is
incorporated by reference.
4H. Second Waiver and Amendment Agreement dated April 15, 2002 among the
Company, certain of its subsidiaries, and First Union National Bank.
Document 1 to the Company's report on Form 8K/A filed April 19, 2002 is
incorporated by reference.
4I. First Amendment to Second Waiver and Amendment Agreement dated June 24,
2002 among the Company, certain of its subsidiaries, and Wachovia Bank,
formerly First Union National Bank.
4J. Second Amendment to Second Waiver and Amendment Agreement dated July 30,
2002 among the Company, certain of its subsidiaries, and Wachovia Bank.
4K. Third Amendment to Second Waiver and Amendment Agreement dated November 14,
2002 among the Company, certain of its subsidiaries, and Wachovia Bank.
4L. Third Waiver and Amendment Agreement dated March 14, 2003 among the
Company, certain of its subsidiaries, and Wachovia Bank.
10A. 1985 Stock Option Plan, as amended. Exhibit 10C to the Company's
Registration Statement on Form S-2 filed on June 15, 1990 (No. 33-35443) is
incorporated by reference.
10B. Form of Option Agreements granted under the 1985 Stock Option Plan. Exhibit
10D to the Company's Registration Statement on Form S-2 filed on June 15,
1990 (No. 33-35443) is incorporated by reference.
10C. Form of Amendments to Stock Option Agreements granted under the 1985 Stock
Option Plan. Exhibit 10D to the Company's Registration Statement on Form
S-2 filed on June 15, 1990 (No. 33-35443) is incorporated by reference.
21
10D. Amended and Restated 1994 Stock Option Plan. Exhibit 10E to the Company's
report on Form 10-K for the year ended December 31, 1997 is incorporated by
reference.
10E. Form of Stock Option Agreements granted under the Amended and Restated 1994
Stock Option Plan. Exhibit 10F to the Company's report on Form 10-K for the
year ended December 31, 1995 is incorporated by reference.
10F. 2001 Stock Option Plan. Exhibit 10G to the Company's report on Form 10-K
for the year ended December 31, 2001 is incorporated by reference.
10G. Supplemental Retirement Plan (amended and restated effective January 1,
1995). Exhibit 10H. to the Company's report on Form 10-K for the year ended
December 31, 1995 is incorporated by reference.
10H. Employment Agreement dated June 19, 2001 among the Company, Resistance
Technology, Inc. and Mark S. Gorder. Exhibit 102 to the Company's report on
Form 10-Q for the period ended June 30, 2001 is incorporated by reference.
10I. Amended and Restated Agreement on Termination Following Change of Control
or Asset Sale, dated June 19, 2001, between the Company and Mark S. Gorder.
Exhibit 10.1 to the Company's report on Form 10-Q for the period ended June
30, 2001 is incorporated by reference.
10J. Amended and Restated Office/Warehouse Lease, between Resistance Technology,
Inc. and Arden Partners I. L.L.P. (of which Mark S. Gorder is one of the
principal owners) dated November 1, 1996. Exhibit 10J to the Company's
report on Form 10-K for the year ended December 31, 1996 is incorporated by
reference.
10K. Amended and Restated Non-Employee Directors' Stock Option Plan. Exhibit 10L
to the Company's report on Form 10-K for the year ended December 31, 2001
is incorporated by reference.
10L. Retirement Agreement, Consulting Agreement and General Release, dated
August 30, 2000, between the Company and Stephen F. Ryan. Exhibit 10 to the
Company's report on Form 10-Q for the period ended September 30, 2000 is
incorporated by reference.
10M. Separation Agreement dated November 30, 2001 between the Company and Robert
W. Ross. Exhibit 10N to the Company's report on Form 10-K for the year
ended December 31, 2001 is incorporated by reference.
13. "Selas Corporation of America Five-Year Summary of Operations" contained on
Page 6 of the Company's 2002 annual report to shareholders; "Other
Financial Highlights" contained on page 7 of the Company's 2002 annual
report to shareholders; "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained on pages 8-22 of the
Company's 2002 annual report to shareholders; and the Company's
consolidated financial statements, including the "Notes to Consolidated
Financial Statements" and the "Report of Independent Auditors" contained on
pages 23-59 of the Company's 2002 annual report to shareholders.
22
21. List of significant subsidiaries of the Company.
23. Consent of Independent Auditors
99.1 Certification of the Company's Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002
99.2 Certification of the Company's Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002
(b) Reports on Form 8-K - Current Report on Form 8-K filed with the SEC on
December 17, 2002 to announce that the Company completed its agreement with
Andritz AG to sell certain of the operating assets and liabilities of its
large custom engineered furnace business (Item 2 and Item 7).
23
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Shareholders
Selas Corporation of America:
Under date of March 17, 2003, we reported on the consolidated balance sheets of
Selas Corporation of America and subsidiaries as of December 31, 2002 and 2001
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2002, as contained in the 2002 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 2002. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedule listed in the accompanying index (Item 15).
This financial schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when consider is relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth herein.
As discussed in note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" on January 1, 2002 and Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
on January 1, 2001.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 17, 2003
24
SCHEDULE II
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2002, 2001 AND 2000
Column A Column B Column C
-------- ---------- --------------------
Additions
--------------------
Balance at Charged to
Beginning Costs and
Classification Of Period Expenses Other
-------------- ----------- ------------ ------------
Year ended December 31, 2002:
Reserve deducted in the balance sheet
from the asset to which it applies:
Allowance for doubtful accounts $ 445,577 $ 522,652 $ 184,828 (a)
============== =========== ===========
Deferred tax asset valuation
Allowance $ 1,105,870 $ 2,252,142
=========== ===========
Reserve not shown elsewhere:
Reserve for estimated future costs
of service and guarantees $ 878,952 $ 765,858 $ 83,617 (a)
=========== =========== ===========
Year ended December 31, 2001:
Reserve deducted in the balance sheet
from the asset to which it applies:
Allowance for doubtful accounts $ 439,546 $ 254,252 $ (18,976) (a)
=========== =========== ===========
Deferred tax asset valuation
Allowance $ 1,085,716 $ 20,154
=========== ===========
Reserve not shown elsewhere:
Reserve for estimated future costs
of service and guarantees $ 506,102 $ 558,963 $ (16,207) (a)
=========== =========== ===========
Year ended December 31, 2000:
Reserve deducted in the balance sheet
from the asset to which it applies:
Allowance for doubtful accounts $ 412,375 $ 125,516 $ (20,144) (a)
=========== =========== ===========
Deferred tax asset valuation
Allowance $ 1,101,378 $ (15,662)
=========== ============
Reserve not shown elsewhere:
Reserve for estimated future costs
of service and guarantees $ 534,646 $ 109,977 $ (19,272) (a)
=========== =========== ===========
a) Represents difference between translation rates of foreign currency at
beginning and end of year and average rate during year.
25
SCHEDULE II
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2002, 2001 AND 2000
Column A Column D Column E
-------- ---------- ----------
Balance at
End of
Classification Deductions Period
-------------- ---------- -----------
Year ended December 31, 2002:
Reserve deducted in the balance sheet from
the asset to which it applies:
Allowance for doubtful accounts $ 43,827 (b) $ 1,109,230
=========== ===========
Deferred tax asset valuation allowance $ 3,358,012
===========
Reserve not shown elsewhere:
Reserve for estimated future costs of
service and guarantees $ 540,066 (c) $ 1,188,361
=========== ===========
Year ended December 31, 2001:
Reserve deducted in the balance sheet from
the asset to which it applies:
Allowance for doubtful accounts $ 229,245 (b) $ 445,577
=========== ===========
Deferred tax asset valuation allowance $ 1,105,870
===========
Reserve not shown elsewhere:
Reserve for estimated future costs of
service and guarantees $ 169,906 (c) $ 878,952
=========== ===========
Year ended December 31, 2000:
Reserve deducted in the balance sheet from
the asset to which it applies:
Allowance for doubtful accounts $ 78,201 (b) $ 439,546
=========== ===========
Deferred tax asset valuation allowance $ 1,085,716
===========
Reserve not shown elsewhere:
Reserve for estimated future costs of
service and guarantees $ 119,249 (c) $ 506,102
=========== ===========
(b) Uncollectible accounts charged off.
(c) "After job" costs charged to reserve.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Robert F. Gallagher
-----------------------
Robert F. Gallagher
Chief Financial Officer,
Treasurer and Secretary
Dated: March 20, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons (including a majority of members
of the Board of Directors) on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Mark S. Gorder
- ----------------------------
Mark S. Gorder
President and Chief Executive
Officer and Director (principal executive officer)
March 20, 2003
/s/ Robert F. Gallagher
- -----------------------------
Robert F. Gallagher
Chief Financial Officer
Treasurer and Secretary
(principal accounting and financial officer)
March 20, 2003
/s/Frederick L. Bissinger
- ----------------------------
Frederick L. Bissinger
Director
March 20, 2003
/s/Nicholas A. Giordano
- ----------------------------
Nicholas A. Giordano
Director
March 20, 2003
/s/Robert N. Masucci
- ----------------------------
Robert N. Masucci
Director
March 20, 2003
/s/ Michael J. McKenna
- ----------------------------
Michael J. McKenna
Director
March 20, 2003
27
CERTIFICATION
I, Mark S. Gorder, Chief Executive Officer of Selas Corporation of America,
certify that:
1.I have reviewed this annual report on Form 10-K of Selas Corporation of
America;
2.Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3.Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4.The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5.The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6.The registrant's other certifying officers and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 20, 2003 /s/ Mark S. Gorder
-------------- -------------------------------------
Chief Executive Officer
28
CERTIFICATION
I, Robert F. Gallagher, Chief Financial Officer of Selas Corporation of America,
certify that:
1.I have reviewed this annual report on Form 10-K of Selas Corporation of
America;
2.Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3.Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4.The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5.The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6.The registrant's other certifying officers and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 20, 2003 /s/Robert F. Gallagher
-------------- ----------------------------
Chief Financial Officer
29
EXHIBIT INDEX
EXHIBITS:
4I. First Amendment to Second Waiver and Amendment Agreement dated June 24,
2002 among the Company, certain of its subsidiaries, and Wachovia Bank,
formerly First Union National Bank.
4J. Second Amendment to Second Waiver and Amendment Agreement dated July
30, 2002 among the Company, certain of its subsidiaries, and Wachovia
Bank.
4K. Third Amendment to Second Waiver and Amendment Agreement dated November
14, 2002 among the Company, certain of its subsidiaries, and Wachovia
Bank.
4L. Third Waiver and Amendment Agreement dated March 14, 2003 among the
Company, certain of its subsidiaries, and Wachovia Bank.
13. "Selas Corporation of America Five-Year Summary of Operations"
contained on Page 6 of the Company's 2002 annual report to
shareholders; "Other Financial Highlights" contained on page 7 of the
Company's 2002 annual report to shareholders; "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
contained on pages 8-22 of the Company's 2002 annual report to
shareholders; and the Company's consolidated financial statements,
including the "Notes to Consolidated Financial Statements" and the
"Report of Independent Auditors" contained on pages 23-59 of the
Company's 2002 annual report to shareholders.
21. List of significant subsidiaries of the Company.
23. Consent of Independent Auditors.
99.1 Certification of the Company's Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002
99.2 Certification of the Company's Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes
Oxley Act of 2002
30