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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
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)
1260 RED FOX ROAD, ARDEN HILLS, MINNESOTA 55112
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(651) 636-9770
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
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 BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED BY RULE 12B-2 OF THE EXCHANGE ACT)
( ) YES (X ) 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 5,124,214 (exclusive of 515,754
CLASS treasury shares)
OUTSTANDING AT NOVEMBER 3, 2003
SELAS CORPORATION OF AMERICA
I N D E X
Page
Number
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed (Unaudited) Balance Sheets
as of September 30, 2003 and December 31, 2002 3, 4
Consolidated Condensed (Unaudited) Statements
of Operations for the Three Months Ended
September 30, 2003 and 2002 5
Consolidated Condensed (Unaudited) Statements
of Operations for the Nine Months Ended
September 30, 2003 and 2002 6
Consolidated Condensed (Unaudited) Statements
of Cash Flows for the Nine Months Ended
September 30, 2003 and 2002 7
Notes to Consolidated Financial Statements 8-18
Item 2. Management's Discussion and Analysis 19-24
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures 24
About Market Risk
Item 4. Controls and Procedures 24-25
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a vote of 25
security holders
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25-26
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
SELAS CORPORATION OF AMERICA
Consolidated Condensed Balance Sheets
Assets
(Unaudited)
September 30, December 31,
2003 2002
Current assets
Cash, including cash equivalents of
$423,000 in 2003 and $418,000 in 2002 (all $ 438,910 $ 1,319,207
cash equivalents are restricted)
Accounts receivable (less allowance for
doubtful accounts of $592,000 in 2003 and
$434,000 in 2002) 7,589,646 6,996,896
Inventories 9,130,356 8,783,153
Refundable income tax 669,275 344,633
Deferred income taxes 854,964 1,591,160
Asset held for sale 540,175 540,175
Other current assets 711,311 726,729
Assets of discontinued operations -- 25,140,325
Total current assets 19,934,637 45,442,278
Property, plant and equipment
Land 170,500 170,500
Buildings 1,614,518 1,614,518
Machinery and equipment 28,277,037 27,726,773
30,062,055 29,511,791
Less: Accumulated depreciation 20,158,800 18,684,119
Net property, plant and equipment 9,903,255 10,827,672
Goodwill 5,376,317 5,376,317
Deferred income taxes -- 466,164
Other assets, less amortization 1,820,563 1,568,291
$37,034,772 $63,680,722
(See accompanying notes to the consolidated condensed financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Condensed Balance Sheets
Liabilities and Shareholders' Equity
(Unaudited)
September 30, December 31,
2003 2002
Notes payable $4,935,048 $ 10,920,984
Current maturities of long-term debt 2,150,049 1,573,716
Accounts payable 3,577,727 4,094,908
Customers' advance payments on contracts 863,680 907,811
Guarantee obligations and estimated costs
of service 498,300 544,735
Accrued salaries, wages, and commissions 1,924,762 1,289,120
Other accrued liabilities 3,848,022 2,668,869
Liabilities of discontinued operations -- 18,757,587
Total current liabilities 17,797,588 40,757,730
Long-term debt -- 2,736,236
Other postretirement benefit obligations 3,603,870 3,571,017
Deferred income taxes 127,746 --
Contingencies and commitments(Notes 13 and 14)
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 5,639,968 and 5,634,968 5,634,968 5,634,968
shares issued, respectively
Additional paid-in capital 12,012,541 12,012,541
(Accumulated deficit)retained earnings (634,133) 1,743,256
Accumulated other comprehensive loss (242,730) (1,509,948)
Less: 515,754 common shares held
in treasury, at cost (1,265,078) (1,265,078)
Total shareholders' equity 15,505,568 16,615,739
$37,034,772 $63,680,722
(See accompanying notes to the consolidated condensed financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Condensed Statements of Operations
(Unaudited)
Three Months Ended
September 30, September 30,
2003 2002
Sales, net $11,754,452 $10,356,927
Cost of sales 8,723,953 8,055,843
Gross margin 3,030,499 2,301,084
Selling, general and administrative 3,355,020 2,999,530
expenses
Operating loss (324,521) (698,446)
Interest expense (128,370) (185,940)
Interest income 4,801 8,868
Other income (expense), net (46,647) 9,804
Loss from continuing operations
before income taxes (494,737) (865,714)
Income tax expense (benefit) 1,221,978 (297,336)
Loss from continuing operations (1,716,715) (568,378)
Income (loss) from discontinued operations,
net of income tax expense (benefit)(note 3) 906,767 (5,935,268)
Net loss $ (809,948) $ (6,503,646)
Income (loss) per share
Basic
Continuing operations $ (.34) $ ( .11)
Discontinued operations .18 (1.16)
$ (.16) $(1.27)
Diluted
Continuing operations $ (.34) $ ( .11)
Discontinued operations .18 (1.16)
$ (.16) $(1.27)
Average shares outstanding
Basic 5,124,214 5,119,214
Diluted 5,124,214 5,119,214
(See accompanying notes to the consolidated condensed financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Condensed Statements of Operations
(Unaudited)
Nine Months Ended
September 30, September 30,
2003 2002
Sales, net $34,576,834 $33,544,367
Cost of sales 25,247,839 25,397,410
Gross margin 9,328,995 8,146,957
Selling, general and administrative 9,881,783 9,134,277
expenses
Operating loss (552,788) (987,320)
Interest expense (444,927) (525,629)
Interest income 12,778 29,329
Other income, net 115,034 72,869
Loss from continuing operations
before income taxes (869,903) (1,410,751)
Income tax expense (benefit) 1,131,004 (488,674)
Loss from continuing operations (2,000,907) (922,077)
Loss from discontinued operations, net of
income tax benefit (note 3) (376,482) (5,488,752)
Net loss before change in
accounting principle (2,377,389) (6,410,829)
Cumulative effect of change in
accounting principle -- (10,551,926)
Net loss $(2,377,389) $(16,962,755)
Loss per share
Basic
Continuing operations $ (.39) $( .18)
Discontinued operations (.07) (1.07)
Accounting principle change -- (2.06)
$ (.46) $ ( 3.31)
Diluted
Continuing operations $ (.39) $( .18)
Discontinued operations (.07) (1.07)
Accounting principle change -- (2.06)
$ (.46) $ ( 3.31)
Average shares outstanding
Basic 5,124,214 5,119,214
Diluted 5,124,214 5,119,214
(See accompanying notes to the consolidated condensed financial statements)
SELAS CORPORATION OF AMERICA
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30, September 30,
2003 2002
Cash flows from operating activities:
Net loss $ (2,377,389) $ (16,962,755)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Loss from discontinued operations 376,482 5,488,752
Cumulative effect of accounting principle change -- 10,551,926
Depreciation and amortization 2,036,099 2,040,962
Loss on sale of property and equipment 3,276 3,121
Provision for deferred taxes 1,118,315 3,468
Changes in operating assets and liabilities:
Accounts receivable (677,249) (437,130)
Inventories (314,976) 218,225
Other assets (884,654) 627,037
Accounts payable (272,701) 1,757,817
Accrued expenses 2,255,050 347,836
Customer advances (43,571) (957,108)
Other liabilities 29,522 (137,186)
Net cash provided by continuing operations 1,248,204 2,544,965
Net cash provided (used) by discontinued 277,701 (884,018)
operations
Net cash provided by operating activities 1,525,905 1,660,947
Cash flows from investing activities:
Purchases of property, plant and equipment (1,048,473) (1,495,740)
Proceeds from sale of subsidiary -- 9,256
Net cash used by investing activities (1,048,473) (1,486,784)
Net cash provided (used) by
discontinued 6,605,000 (855,980)
operations
Net cash provided (used) by investing activities 5,556,527 (2,342,764)
Cash flows from financing activities:
Proceeds from short-term bank borrowings -- 1,514,624
Proceeds from borrowings to acquire
subsidiary company -- 955,378
Repayments of short-term bank borrowings (7,010,691) (1,644,242)
Repayments of long-term debt (1,007,377) (999,487)
Net cash used by financing activities (8,018,068) (173,727)
Effect of exchange rate changes on cash 55,339 (3,183)
Net decrease in cash and cash equivalents (880,297) (858,727)
Cash and cash equivalents, beginning of period 1,319,207 1,902,569
Cash and cash equivalents, end of period $ 438,910 $ 1,043,842
(See accompanying notes to the consolidated condensed financial statements)
SELAS CORPORATION OF AMERICA
Notes to Consolidated Condensed Financial Statements (Unaudited)
1. In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly Selas Corporation of
America's consolidated financial position as of September 30, 2003 and
December 31, 2002, and the consolidated results of its operations for the
three and nine months ended September 30, 2003 and 2002. Certain
reclassifications have been made to the December 31, 2002 balance sheet
related to discontinued operations at September 30, 2003. These
reclassifications had no impact on net income.
2. New Accounting Standards
The Company adopted the following new Financial Accounting Standards Board
(FASB) issued Statements of Financial Accounting Standards (SFAS)
accounting pronouncements:
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the Company to record the fair value
of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction,
development, and/or normal use of the assets. The Company also records a
corresponding asset that is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation,
the obligation will be adjusted at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying
the obligation. The Company was required to adopt SFAS No. 143 on
January 1, 2003. The adoption of SFAS No. 143 did not have a material
effect on the Company's financial statements.
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses the accounting
for costs associated with disposal activities covered by SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," and with
exit (restructuring) activities previously covered by Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." This Statement
nullifies EITF Issue No. 94-3 in its entirety and requires that a liability
for all costs be recognized when the liability is incurred. Generally, the
ability to accrue for the cost of a workforce reduction plan at the
communication date will be limited. The cost of the plan will be
recognized over the future service period of the employees. This Statement
will be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a
material effect on the Company's financial statements
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborates on the disclosures to be made by a guarantor in
its annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of
the obligation undertaken. The initial recognition and measurement
provisions of the Interpretation are applicable to guarantees issued or
modified after December 31,2002. The disclosure requirements are effective
for financial statements of interim and annual periods ending after
December 15, 2002, and did not have a material effect on the Company's
financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable interests
in variable interest entities obtained after January 31, 2003. The
application of this Interpretation will not have an effect on the Company's
financial statements. The Interpretation requires certain disclosures in
financial statements issued after January 31, 2003 if it is reasonably
possible that the Company will consolidate or disclose information about
variable interest entities when the Interpretation becomes effective.
EITF 00-21, "Revenue Arrangements with Multiple Deliverable" provides
revenue recognition guidance for arrangements with multiple deliverables,
and the criteria to determine if items in a multiple deliverable agreement
should be accounted for separately. In some arrangements, the different
revenue-generating activities are sufficiently separable and there exists
sufficient evidence of their fair values to separately account for some or
all of the activities. In other arrangements, some or all of the
deliverables are not independently functional, or there is not sufficient
evidence of their fair values to account for them separately. This issue
addresses when and, if so, how an arrangement involving multiple
deliverables should be divided into separate units of accounting. This
issue does not change otherwise applicable revenue recognition criteria.
The guidance in this issue is effective for revenue arrangements entered
into in fiscal periods beginning after June 15,2003. The Company does not
expect the adoption of EITF 00-21 to have a material effect on its
financial statements, as it does not lead to a change in the allocation of
revenue between the different elements of a sale, when applied to the
Company.
3. Discontinued Operations
On July 21, 2003, the Company sold 100 percent of the shares of its Tire
Holders, Lifts and Related Products segment. This segment consisted of one
wholly-owned subsidiary, Deuer Manufacturing, Inc. (Deuer), operating on a
stand alone basis that sold tire holders, lifts and related products to
automotive customers. The Company accounted for the plan to dispose of this
subsidiary as a discontinued operation in December 2002 and reclassified
the historical financial data. The subsidiary generated sales of $8.5
million, and $12.8 million and net income of $297,000, and $874,000 for the
nine months ended September 30, 2003 and 2002, respectively. The net
purchase price of approximately $6.6 million was determined by negotiations
between the parties. Proceeds were used primarily to reduce the Company's
outstanding bank debt. The company recognized a gain of approximately
$1.2 million, net of tax, on the transaction.
The Company's French subsidiary, Selas SAS, consisted of two components, a
primary custom-engineered furnace business and a small furnace business:
Primary Custom-Engineered Furnace Business
In the fourth quarter of 2002, the Company disposed of the majority of the
Company's primary custom-engineered furnace business, Selas SAS (Paris),
along with a closely related subsidiary, Selas U.K. (Derbyshire). 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. The purchase price was approximately $600,000 above the net
asset value at the time of sale. In addition, the purchaser assumed
$1,356,000 of a receivable on a completed construction contract which the
Company guaranteed. See Note 15.
Small Furnace Business
In July, 2003, the remaining portion of Selas SAS, which made up the small
furnace business, filed insolvency in France and is under the control of a
French insolvency court administrator. As Selas SAS and its subsidiaries
are no longer under the control of the Company, their results of operations
are excluded from the continuing operations and the historical financial
information has been restated to reflect these subsidiaries as discontinued
operations. Additionally, the Company took a third quarter pre-tax charge
totaling $2.2 million associated with the abandonment of this operation
including the remaining translation adjustment and recording of corporate
guarantees and joint liabilities. See Note 14 for further explanation.
The consolidated condensed financial statements reflect the Company's
presentation of discontinued operations. A recap of discontinued operations
at September 30 is as follows:
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2003 2002 2003 2002
Income (loss) from operations
Deuer $ $284,336 $297,087 $874,092
Europe (6,219,604)(1,580,336)(6,362,844)
Gain on sale of Deuer 1,246,794 -- 1,246,794 --
Loss recorded on abandonment (2,176,929) -- (2,176,929) --
Tax benefit of European loss ** 1,836,902 -- 1,836,902 --
$ 906,767(5,935,268) (376,482)(5,488,752)
** See Note 10
4. Statements of Cash Flows
Supplemental disclosures of cash flow information:
Nine Months Ended
-------------------------------
Sept 30, Sept 30,
2003 2002
Interest received $ 5,046 $ 3,294
Interest paid $ 394,217 $ 431,979
Income taxes paid $ 3,907 $ 11,426
5. Business Segment Information
The Company has two operating segments. The Company is engaged in the
manufacture of precision miniature medical and electronic products, and
providing engineered heat technology equipment and services to industries
throughout the world. The results of operations and assets of these segments
are prepared on the same basis as the consolidated condensed financial
statements for the three and nine months ended September 30, 2003 and 2002
and the consolidated condensed financial statements included in the
Company's 2002 Annual Report on 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.
Precision
For The Miniature
Nine Months Medical General
Ended and Heat Corporate Discontinued
September30,2003 Electronic Technology Expenses Operations Total
Products
Sales, net $ 27,899,945 $ 6,676 889 $ -- $ -- $34,576,834
Net income
(loss) 594,112 (1,313,314) (1,281,705) (376,482) (2,377,389)
Depreciation
and amortiza-
tion 1,966,757 69,342 -- -- 2,036,099
Property, plant
and equipment
additions 726,586 21,454 -- -- 748,040
Total assets $ 30,313,712 $ 6,721,060 $ -- $ -- $37,034,772
Precision
For The Miniature
Nine Months Medical General
Ended and Heat Corporate Discontinued
September30,2002 Electronic Technology Expenses Operations Total
Products
Sales, net $26,106,611 $ 7,437,756 $ -- $ -- $33,544,367
Net income(loss)
before change in
accounting
principle 461,464 (273,115) (1,110,426) (5,488,752) (6,410,829)
Cumulative effect
of change in
accounting
principle (9,428,354) (1,123,572) -- -- (10,551,926)
Net income(loss) (8,966,890) (1,396,687) (1,110,426) (5,488,752)(16,962,755)
Depreciation
and amortiza-
tion 1,910,294 130,668 -- -- 2,040,962
Property, plant
and equipment
additions 1,434,026 61,714 -- -- 1,495,740
Total assets $40,614,708 $ 7,569,076 $ -- $29,494,677 $77,678,461
Precision
For The Miniature
Three Months Medical General
Ended and Heat Corporate Discontinued
September 30,2003 Electronic Technology Expenses Operations Total
Products
Sales, net $ 9,232,049 $ 2,522,403 $ -- $ -- $11,754,452
Net income
(loss) (31,537) (1,231,704) (453,474) 906,767 (809,948)
Depreciation
and amortiza-
tion 707,988 23,196 -- 731,184
Property, plant
and equipment
additions 80,708 6,017 -- -- 68,727
Precision
For The Miniature
Three Months Medical General
Ended and Heat Corporate Discontinued
September 30, 2002 Electronic Technology Expenses Operations Total
Products
Sales, net $ 8,560,785 $ 1,796,142 $ -- $ -- $10,356,927
Net income (loss) 29,457 (216,472) (381,363) (5,935,268) (6,503,646)
Depreciation
and amortiza-
tion 655,092 1,052 -- -- 656,144
Property, plant
and equipment
additions 449,253 16,404 -- -- 465,657
The Company has made a strategic decision to focus its future on the Precision
Miniature Medical and Electronics business. As a result of this decision, the
Company plans to sell its land and building in Pennsylvania, with a carrying
value of $540,175. In addition, the Company will sell the remaining operations
of its Heat Technology segment. However, as the Company is uncertain whether
the segment operations sale will be completed within twelve months as required
for discontinued operations accounting treatment, this segment has been
included as part of continuing operations in the financial statements, except
for the building which has been classified as held for sale. The Company
expects to include this segment in discontinued operations in the fourth
quarter of 2003.
The following table provides a proforma statement of operations presentation as
if the Heat Technology segment had been included in discontinued operations for
the three and nine-months ended September 30, 2003.
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2003 2002 2003 2002
Sales, net $9,232,049 $8,560,785 $27,899,945 $26,106,611
Cost of Sales 6,897,910 6,654,804 20,317,220 19,749,679
Selling, general & administrative 2,844,595 2,298,640 8,075,687 6,913,599
expense
Operating loss (510,456) (392,659) (492,962) (556,667)
Other income (expense) (154,796) (180,925) (420,438) (437,251)
Loss from contining operations
before income taxes (665,252) (573,584) (913,400) (993,918)
Income tax benefit (180,241) (221,678) (225,807) (344,956)
Loss from continuing operations (485,011) (351,906) (687,593) (648,962)
Loss from discontinued operations, (324,937)(6,151,740) (1,689,796) (6,885,439)
net
Net loss before cumulative effect
in accounting change (809,948)(6,503,646) (2,377,389) (7,534,401)
Cumulative effect of change in
accounting principle -- -- -- (9,428,354)
Net loss ($809,948)(6,503,646 (2,377,389)(16,962,755)
6. Accounts Receivable
At September 30, 2003, the Company had $3,216,000 of trade accounts
receivable due from hearing health manufacturers and $2,603,000 in trade
accounts receivables from Heat Technology customers in the aluminum and
glassware industry.
The following analysis provides the detail of revenue recognition
methodology by segment for the nine months ended September 30, 2003:
Precision
Miniature
Medical and
Electronic Heat
Products Technology Total
Upon shipment $ 27,899,945 $ 5,126,951 $33,026,896
Percentage of
completion -- 1,549,938 1,549,938
Sales, net $ 27,899,945 $ 6,676,889 $34,576,834
7. 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 September
2001 to be accounted for under the purchase method. SFAS No. 142 sets forth
new financial 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 no longer be amortized but tested for
impairment on a periodic basis. The Company discontinued the amortization of
goodwill effective January 1, 2002. The provisions of SFAS No. 142 also
required the completion of a transitional impairment test (with any
impairment identified) accounted for as a cumulative effect of a change in
accounting principle. As of the date of adoption, the Company had
unamortized goodwill in the amount of $15,632,000. The Company determined
the goodwill associated with the following operations had been impaired and
wrote off: $1,528,000 remaining goodwill pertaining to its European Heat
Technology operations; $404,000 of negative goodwill pertaining to its Asian
Heat Technology operations, and the Company also recognized an impairment of,
and wrote off $9,428,000 of goodwill associated with its Precision Miniature
Medical and Electronics Products business. The net charge totaling
$10,552,000 was recognized as a cumulative change in accounting principle in
the 2002 consolidated statement of operations. The corresponding deferred
tax asset of $743,000 was offset by a valuation allowance. Changes in the
estimated future cash flows from these businesses could have a significant
impact on the amount of any future impairment, if any. In accordance with
SFAS No. 142, the Company's remaining unamortized goodwill will be tested for
impairment on an annual basis in the fourth quarter.
8. Inventories consist of the following at:
September 30, December 31,
2003 2002
Raw material $ 2,839,260 $ 1,812,364
Work-in-process 3,362,739 2,575,084
Finished products and components 2,928,357 4,395,705
$ 9,130,356 $ 8,783,153
9. Notes Payable and Long Term Debt
Notes payable at September 30, 2003 and December 31, 2002 are summarized
below:
September 30, December 31,
2003 2002
Notes payable:
Short term borrowings, Europe $ 1,567,079 $ 6,427,529
Short term borrowings, domestic 3,157,253 3,982,137
Short term borrowings, Asia 210,716 511,318
Total notes payable $ 4,935,048 $10,920,984
During the quarter ended September 30, 2003, the Company used a large
portion of the proceeds from the sale of Deuer to pay down its European
borrowings as required by the Company's bank agreement.This was a permanent
reduction in these facilities. The European short term borrowings were
liabilities of the Company's wholly owned subsidiary, Selas SAS, that filed
insolvency in July 2003 (See Notes 3 and 14).This debt has now been recorded
directly on the Company's US Parent's books, as a result of
the bank calling upon the Company's corporate guarantee.
At September 30, 2003 the Company was not in compliance with certain
financial covenants contained in its credit facility. These covenants
pertained to the Company's consolidated tangible capital funds, and its
fixed coverage ratio. The Company has obtained waivers of these covenants
from the bank.
The Company and its domestic subsidiaries have a revolving credit loan
facility and a supplemental facility. In March 2003, the Company amended
these facilities to extend their maturities and allow the Company to have
borrowings of $5,900,000 outstanding at any one time. The revolving credit
loan facility, which had a maximum limit of $4,500,000, had borrowings of
$1,797,253 as of September 30, 2003 bearing an interest rate of 3.62%
(LIBOR plus 2.5%) and expires April 1, 2004. As of September 30, 2003 the
supplemental facility, which had a maximum limit of $1,400,000, had
borrowings of $1,360,000 bearing interest at a rate of 4.87% (LIBOR plus
3.75%).These facilities carry commitment fees of .25% per annum, payable
on the unborrowed portion of the line.The domestic supplemental loan credit
facility has been extended to the earlier of January 1, 2004 or the sale of
land and building in Dresher, Pennsylvania (See Note 5).
Long-term debt at September 30, 2003 and December 31, 2002 is summarized
below:
Sept 30, Dec 31,
2003 2002
Long Term Debt:
Term loans, Europe $ -- $ 1,581,889
Term loans, domestic 2,147,076 2,722,247
Other borrowings 2,973 5,816
2,150,049 4,309,952
Less: current maturities 2,150,049 1,573,716
$ -- $ 2,736,236
The terms of the domestic loan agreements require monthly principal payments
of approximately $64,000 through April 2004, with a balloon payment due at
the end of the loans. At September 30, 2003, the borrowings under the credit
agreement bore interest, payable monthly, at an interest rate of 3.62%
(LIBOR plus 2.50%). The credit agreement is subject to a prepayment penalty
of 3%.
Our ability to pay the principal and interest on our indebtedness as it comes
due will depend upon our current and future performance. Our performance is
affected by general economic conditions and by financial, competitive,
political, business and other factors. Many of these factors are beyond our
control.
We believe that funds expected to be generated from operations, the available
borrowing capacity through our revolving credit loan facilities, the
potential sale of certain assets, and the control of capital spending will
be sufficient to meet our anticipated cash requirements for operating needs
through March 31, 2004. If, however, we do not generate sufficient cash from
operations, or complete the sale of certain assets on a timely basis, or if
we incur additional liabilities as a result of the Selas SAS insolvency, we
may be required to seek additional financing or sell equity on terms which
may not be as favorable as we 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 we will be able to negotiate acceptable
terms. In addition, our access to capital is affected by prevailing
conditions in the financial and equity capital markets, as well as our own
financial condition. While management believes that the Company will meet its
liquidity needs through March 31,2004, no assurance can be given that the
Company will be able to do so.
10. Income Taxes
Income taxes reflected an expense for the nine months ended September 30,
2003 of $1,131,000 compared with a benefit of $489,000 for the nine months
ended September 30, 2002. The effective rate in 2003 was the result of
establishing approximately a $1.2 million net valuation reserve against
prior deferred tax assets. This was due to the large tax net operating loss
carry forward resulting from the write-off of the Company's investment in
its European small furnace operations that filed insolvency in the quarter
ended September 30, 2003. The rate of tax benefit in relation to pre-tax
loss in 2002 at 34% is consistent with the expected statutory corporate
rates.
During the quarter ended September 30, 2003, the Company recognized a tax
benefit of approximately $1.8 million related to tax deductions attributable
to its discontinued operations and cash refunds received.
11. Accounting for Stock Options
The Company applies APB Opinion No. 25 "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plans. Therefore, no compensation expense has been recognized for the stock
option plans. SFAS No. 123 "Accounting for Stock-Based Compensation",
amended by SFAS No. 148 "Accounting for Stock-Based Compensation-Transition
and Disclosure", requires the Company to disclose pro forma net loss and pro
forma loss per share amounts as if compensation expense was recognized for
all options granted. The pro forma amounts are as follows:
Three Months Ended
September 30,
2003 2002
Net loss as reported $(809,948) $(6,503,646)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects (21,711) (44,963)
Pro forma net loss $(831,659) $(6,548,609)
Loss per share:
Basic and diluted - as reported $(.16) $(1.27)
Basic and diluted - pro forma $(.16) $(1.28)
Nine Months Ended
September 30,
2003 2002
Net loss as reported $(2,377,389) $(16,962,755)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects (65,133) (134,889)
Pro forma net loss $(2,442,522) $(17,097,644)
Loss per share:
Basic and diluted - as reported $(.46) $(3.31)
Basic and diluted - pro forma $(.48) $(3.34)
12. Loss Per Share
Excluded from the computation of diluted earnings per share at September 30,
2003 were options to purchase approximately 429,000 common shares because
the effect would have been anti-dilutive.
13. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 143 lawsuits as of September 30, 2003(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.-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 its
position.- 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.
As more fully described in Note 14, the Company' wholly owned subsidiary,
Selas SAS filed insolvency in France and is being managed by a court
appointed judiciary administrator. The Company may be subject to additional
litigation or liabilities as a result of the French insolvency.
The Company is also involved in other lawsuits arising in the ordinary
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.
14. Subsidiary Insolvency
On August 4, 2003 the Company's wholly owned subsidiary, Selas SAS, filed
insolvency in the Commercial Court of Nanterre, France and is being managed
through a court appointed judiciary administrator. At June 30, 2003, Selas
SAS had total assets of $18.5 million and $29.0 million of liabilities. A
portion of the liabilities, including approximately $7.5 million in bank
debt and approximately $3.0 million of other liabilities, are either
guaranteed by the Company or are a joint liability with the Company. The
company took a charge of approximately $2.2 million in the third quarter as
a result of the insolvency due primarily to the effect of corporate
guarantees and the remaining translation adjustment. Historical financial
information has been restated to include this European operation in
discontinued operations. In addition, the Company may be subject to
additional litigation or liabilities as a result of the French insolvency.
The insolvency filing by Selas SAS was a default under the Company's
banking agreement. The company obtained a waiver from the bank of this
default.
15. Settlement Agreement with Andritz
In September 2003, the Company entered into a settlement agreement with
Andritz AG and Andritz Selas, SAS with respect to certain claims against the
Company arising out of the sale of the large furnace operation of its wholly
owned subsidiary, Selas SAS, in December 2002. Under the settlement
agreement, the Company agreed to pay a maximum of E2,180,000 ($2,540,000),
subject to certain possible credits, estimated at approximately E870,000
($1,014,000). The Company paid E400,000 ($440,000) at the time
of settlement, E100,000($116,000) on September 30, and will pay monthly
installments of E100,000($116,000) beginning November 1,2003, and ending
with a final payment of E80,000 ($93,000) plus accrued and unpaid interest,
on March 1,2005, subject to receipt of the aforementioned credits, if any.
Outstanding amounts bear interest at the rate of three-month E LIBOR.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking and Cautionary Statements
Certain statements included in this Quarterly Report on Form 10-Q or documents
the Company files with the Securities and Exchange Commission, 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 statements in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
the Notes to the Consolidated Condensed Financial Statements contained in
Item 1, Part I hereof.
Forward-looking statements include, without limitation, statements as to the
Company's expected future results of operations and growth, the Company's
working capital requirements, the Company's business strategy, the expected
benefits of reduction in employee headcount, the planned sale of the land and
building in Dresher, Pennsylvania and the Company's remaining Heat Technology
operations, and use of proceeds therefrom, 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, the effects of litigation and
the amount of insurance coverage, 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 Report
on Form 10-Q, 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 risks arising in connection with the insolvency of Selas SAS and potential
liabilities and actions arising in connection therewith;
o the ability of the Company to fund, or obtain financing for, its working
capital requirements;
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 pending and potential future litigation;
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, war and threats of attacks
and wars.
For a description of other risks see "Risk Factors" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002 or in other filings the
Company makes from time to time with the Securities and Exchange Commission. 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.
2003 compared with 2002
The Company has embarked on a strategy to focus on its Precision Miniature
Medical and Electronics Products markets for future growth. As part of this
strategy, in July 2003, the Company completed its planned sale of its Tire
Holders, Lifts and Related Products segment.This segment consisted of one
wholly-owned subsidiary, Deuer Manufacturing, Inc. (Deuer),that operated on a
stand alone basis. Deuer generated approximately $8.5 million and $12.8
million of revenue and $297,000 and $874,000 of net income for the nine months
ended September 30, 2003 and 2002, respectively. The net purchase price of $6.6
million was determined by negotiations between the parties. The Company
recognized a gain of approximately $1.2 million, net of tax, on the transaction.
The Company accounted for the plan to sell the subsidiary as a discontinued
operation beginning December 2002. In July, 2003, Selas SAS, the Company's
French subsidiary, filed insolvency in France and is under the control of a
French insolvency court administrator. As Selas SAS and its subsidiariesare no
longer under the control of the Company, their results of operations are
excluded from the continuing operations and the historical financial information
has been restated to reflect these subsidiaries as discontinued operations. See
Notes 3 and 14 to the Consolidated Condensed Financial Statements included
herein. Consolidated net sales for the three months ended September 30, were as
follows (in thousands):
2003 2002 Change
Precision Miniature Medical and
Electronic Products $9,232 $8,561 $ 671
Heat Technology 2,522 1,796 726
Total $11,754 $10,357 $ 1,397
Consolidated net sales for the nine months ended September 30, were as follows
(in thousands):
2003 2002 Change
Precision Miniature Medical and
Electronic Products $27,900 $26,107 $ 1,793
Heat Technology 6,677 7,438 (761)
Total $34,577 $33,545 $ 1,032
Precision Miniature Medical and Electronic Products segment sales for both the
three and nine months ended September 30, 2003 were up over the same year-ago
period, primarily due to stronger sales in its electronics and medical markets,
partially offset by lower sales in the hearing health market. Heat Technology
segment sales for the three months ended September 30, 2003, were favorably
impacted by a large order in Japan. For the nine months ended September 30, 2003
Heat Technology sales continue to be adversely impacted by the poor worldwide
economy for capital goods.
Gross margin for the three months ended September 30 was as follows
(in thousands):
2003 2002 Change
Precision Miniature Medical and
Electronic Products $2,334 $1,906 $ 428
Heat Technology 696 395 301
Total $3,030 $2,301 $ 729
Gross margin for the nine months ended September 30 was as follows
(in thousands):
2003 2002 Change
Precision Miniature Medical and
Electronic Products $7,583 $6,357 $1,226
Heat Technology 1,746 1,790 (44)
Total $9,329 $8,147 $1,182
Gross margin, as a percent of segment sales for the three and nine months ended
September 30, was as follows:
2003 2002 Change
Quarter YTD Quarter YTD Quarter YTD
Precision Miniature
Medical 25.3 27.2 22.3 24.3 3.0 2.9
and Electronic Products
Heat Technology 27.6 26.2 22.0 24.1 5.6 2.1
Total 25.8 27.0 22.2 24.3 3.6 2.7
During the three and nine month period ended September 30, 2003, the Precision
Miniature Medical and Electronic Products segment's gross profit margins
benefited from stronger sales in its electronics and medical markets, which are
typically a higher margin business than the hearing health market.
The Heat Technology segment gross profit margins vary markedly from contract to
contract, depending on customer specifications and other conditions related to
the project. The gross profit margin for the three months ended September 30,
2003 was higher due to the increase in sales as a result of a large order in
Japan. Gross profit margins for the nine months ended September 30,2003 are
slightly lower than the nine months ended September 30,2002 due to the lower
sales volume for the period.
Selling, general and administrative expenses (SG&A) were as follows:
2003 2002 Change
Quarter YTD Quarter YTD Quarter YTD
Dollars (thousands) $ 3,355 $9,882 $ 3,000 $ 9,134 $355 $748
Percent of Sales 28.5% 28.6% 28.9% 27.2% (.4%) 1.4%
The higher SG&A expenses in both the three and nine months ended September 30,
2003, compared to the same year-ago period were due to higher research and
development costs in the Precision Miniature Medical and Electronic Products
business as the Company strives to introduce more products into the hearing
health market. Additionally, one of the Company's hearing health customers in
France filed for insolvency during the quarter. The customer had an outstanding
receivable balance of $338,000, of which $168,000 had previously been reserved.
The Company recorded an additional bad debt reserve of $170,000 for the quarter.
Interest expense for the three and nine months ended September 30, 2003 was
$128,000 and $445,000 compared to $186,000 and $526,000 for the same periods
in 2002. The decrease over last year's expense was due to the lower
outstanding debt balance.
Other income (expense) included realized and unrealized gains (loss) on foreign
exchange. The three months ended September 30, 2003 included a loss of $20,000
compared to a gain of $19,000 for the three months ended September 30, 2002 due
to unfavorable foreign currency fluctuations. The nine months ended
September 30, 2003 included a gain of $58,000 compared to a gain of $4,000 for
the nine months ended September 30, 2002 due to favorable foreign currency
fluctuations.
Income taxes reflected an expense for the nine months ended September 30, 2003
of $1,131,000 compared with a benefit $489,000 for the nine months ended
September 30, 2002, which results in effective tax rates of (130)% and 35%,
respectively. The effective rate in 2003 was the result of establishing
approximately a $1.2 million net valuation reserve against prior deferred tax
assets. This was due to the large tax net operating loss carry forward resulting
from the write-off of the Company's investment in its European heat technology
operations, which filed insolvency in the quarter ended September 30, 2003. The
rate of tax benefit at 34%, in relation to pre-tax loss in 2002, was consistent
with the expected statutory corporate rates.
For the three and six months ended September 30, 2003, the net loss from
continuing operations was $1,717,000 and $2,000,907 compared with losses of
$568,000 and $922,000 for the same periods last year. A large portion of the
loss in the quarter ended September 30, 2003 was due to an increase in income
taxes as a result of establishing a $1.2 million dollar valuation reserve;
other factors included increased SG&A expenses, due to higher research and
development costs, along with an increase in the bad debt reserve.
Discontinued operations generated net income for the three months ended
September 30, 2003 of $907,000 and a net loss for the nine months ended
September 30, 2003 of $376,000, compared to a net loss of $5,935,000 and
$5,489,000 for the same three and nine-month periods last year, respectively.
The income in the current quarter is a result of a $1.2 million gain on the sale
of the Company's wholly owned subsidiary, Deuer Manufacturing, Inc., partially
offset by accruals related to the insolvency of the Company's European Heat
Technology operations, net of taxes. See Notes 3 and 14 of the Consolidated
Condensed Financial Statements for further explanation.
Liquidity and Capital Resources
Consolidated net working capital decreased to $2.1 million at September 30,2003
from $4.7 million at December 31, 2002. The decrease was primarily from the
reclassification of long term debt that is due April 1, 2004.
The Company's cash flows from operating, investing and financing activities, as
reflected in the statement of cash flows, are summarized as follows
(in thousands):
Nine Months Nine Months
Ended Ended
Sept 30, Sept 30,
2003 2002
Cash provided (used) by:
Continuing operations $ 1,248 $ 2,545
Discontinued operations 6,883 (1,740)
Investing activities (1,048) (1,487)
Financing activities (8,018) (174)
Effect of exchange rate
changes on cash 55 (3)
Decrease in cash $ (880) $ (859)
The Company had the following bank arrangements (in thousands):
Sept 30, December 31,
2003 2002
Total availability under
existing facilities $10,610 $20,369
Borrowings and commitments:
Notes payable 4,935 10,921
Long-term debt 2,150 4,310
Total borrowings 7,085 15,231
Advance payment guarantees
(off-balance sheet) (a) 141 2,160
Total outstanding borrowings and commitments 7,226 17,391
Remaining availability under
existing facilities $3,384 $2,978
(a)Advance Payment Guarantees (APG's) are required by some customers in the Heat
Technology segment. The APG's provide a performance guarantee to the customer
in the event of a default in delivery or a failure of the furnace being
supplied. Although the guarantee period can vary widely, an APG is typically
in force from six months to one year.
Borrowings under the majority of the Company's credit facilities bear
interest at LIBOR plus 2.5% to 3.75%. See Note 9 of the consolidated
condensed Financial Statements for further explanation.
The Company and its domestic subsidiaries entered into a revolving credit loan
facility and a supplemental facility for which borrowings of $5,900,000 could
be outstanding at any one time. The revolving credit loan facility, which had
a maximum limit of $4,500,000, had borrowings of $1,797,253 as of September 30,
2003 bearing an interest rate of 3.62% (LIBOR plus 2.5%). The loan carries a
commitment fee of .25% per annum, payable on the unborrowed portion of the line.
The domestic revolving credit loan and supplemental facilities have been
extended to April 1, 2004. The supplemental facility, which had a maximum limit
of $1,400,000, had borrowings of $1,360,000 as of September 30, 2003 bearing
interest at a rate of 4.87% (LIBOR plus 3.75%). The loan carries a commitment
fee of .25% per annum, payable on the unborrowed portion of the line. The
domestic supplemental loan credit facility has been extended to the earlier of
January 1, 2004 or the sale of the land and building held for sale in Dresher,
Pennsylvania.
Our ability to pay the principal and interest on our indebtedness as it comes
due will depend upon our current and future performance. Our performance is
affected by general economic conditions and by financial, competitive,
political, business and other factors. Many of these factors are beyond our
control.
We believe that funds expected to be generated from operations, the available
borrowing capacity through our revolving credit loan facilities, the potential
sale of certain assets, and the control of capital spending will be sufficient
to meet our anticipated cash requirements for operating needs through March 31,
2004. If, however, we do not generate sufficient cash or complete such
potential asset sales on a timely basis, obtain extensions of the maturities of
our current loan facilities, or if we incur additional liabilities as
a result of the Selas SAS insolvency, we may be required to seek additional
financing or sell equity on terms which may not be as favorable as we 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 we
will be able to negotiate acceptable terms. In addition, our access to capital
is affected by prevailing conditions in the financial and equity capital
markets, as well as our own financial condition. While management believes that
the Company will meet its liquidity needs through March 31, 2004, no assurance
can be given that the Company will be able to do so.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.
Certain accounting estimates and assumptions are particularly sensitive because
their significance to the consolidated condensed financial statements and the
possibility that future events affecting them may differ markedly. The
accounting policies of the Company with significant estimates and assumption
include the Company's revenue recognition, discontinued operations, and deferred
taxes policies. These and other significant accounting policies are described
in and incorporated by reference from "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
Note 1 to the financial statements contained in or incorporated by referenc
in the Company's Annual Report on Form 10-K for the year ended December 31,2002.
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
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
There have been no material changes in the Company's portfolio of financial
instruments or market risk exposures which have occurred since December 31,
2002.
ITEM 4. Controls and Procedures
Quarterly evaluation of the Company's Disclosure Controls and Internal Controls.
The Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls") as of the end of
the period covered by this Form 10-Q and any change in material controls over
financial reporting that occurred during the period covered by this Form 10-Q.
This evaluation ("Controls Evaluation") was done under the supervision and with
the participation of management, including the Chief Executive Officer
(principal executive officer) ("CEO") and Chief Financial Officer (principal
financial officer) ("CFO").
Limitations on the Effectiveness of Controls.
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. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected. The
Company conducts periodic evaluations of its internal controls to enhance where
necessary its procedures and controls.
Conclusions.
Based upon the Controls Evaluation, the CEO and CFO have concluded that, the
Disclosure Controls are effective in reaching a reasonable level of assurance
that management is timely alerted 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 conducted an evaluation of
internal controls over financial reporting ("Internal Controls") to determine
whether there have been changes in Internal Controls that have occurred during
the period that have material affected or which are reasonably likely to
material affect Internal Controls. Based on this evaluation, there has been no
such change during the period covered by this report.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The information contained in Notes 13 and 14 to the Consolidated Condensed
Financial Statements in part 1 of this quarterly report is incorporated by
reference herein.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Settlement agreement between Andritz AG, Andritz SAS and Selas
Corporation of America.
31.1 Certification of principal executive officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of principal financial officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 Certification of principal executive officer pursuant to U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of principal financial officer pursuant to U.S.C. Section
1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K
Form 8-K filed on July 23, 2003 to report sale of its subsidiary Deuer
Manufacturing Inc.
Form 8-K filed on August 5, 2003 to report its French Subsidiary's
insolvency filing.
Form 8-K filed on November 11, 2003 to report announcement of results of
operations for the three and nine months ended September 30, 2003
and discuss recent developments.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELAS CORPORATION OF AMERICA
(Registrant)
Date: November 12, 2003 By: /s/ Mark S. Gorder
Mark S. Gorder
President and Chief Executive
Officer (principal executive
officer)
Date: November 12, 2003 By: /s/ Robert F. Gallagher
Robert F. Gallagher
Chief Financial Officer and Treasure
(principal financial officer)
EXHIBIT INDEX
10.1 Settlement agreement between Andritz AG, Andritz SAS and Selas
Corporation of America
31.1 Certification of principal executive officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of principal financial officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of principal executive officer pursuant to U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of principal financial officer pursuant to U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
I, Mark S. Gorder, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Selas Corporation of
America;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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-15(e) and 15d-15(e) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being
prepared; (b)[Intentionally Omitted]; and (c)Evaluated the effectiveness
of the registrant's disclosure controls and procedures and presented in this
quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this
quarterly report based on such evaluation; and (d) Disclosed in this
quarterly report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: November 12, 2003
__/s/ Mark S. Gorder__________
Mark S. Gorder
Chief Executive Officer
(principal executive officer)
EXHIBIT 31.2
CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
I, Robert F. Gallagher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Selas Corporation of
America;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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-15(e) and 15d-15(e) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
(b)[Intentionally Omitted]; and (c)Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in this
quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this
quarterly report based on such evaluation; and (d) Disclosed in this
quarterly report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and (b) Any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
Date: November 12, 2003
__/s/ Robert F. Gallagher_____
Robert F. Gallagher
Chief Financial Officer and
Treasurer (principal financial
officer)
EXHIBIT 32.1 CERTIFICATIONS
CERTIFICATION PURSUANT TO
18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark S. Gorder, Chief Executive Officer (principal executive officer) of
Selas Corporation of America (the "Company"), certify, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) the quarterly report on Form 10-Q of the Company for the nine months ended
September 30, 2003 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: November 12, 2003
____/s/ Mark S. Gorder_________
Mark S. Gorder
President and Chief Executive
Officer (principal executive
officer)
The foregoing certification is being furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of
the United States Code and is not being filed as part of the Report or as a
separate disclosure document.
EXHIBIT 32.2 CERTIFICATIONS
CERTIFICATION PURSUANT TO
18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert F. Gallagher, Chief Financial Officer (principal financial officer)of
Selas Corporation of America (the "Compan"), certify, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) the quarterly report on Form 10-Q of the Company for the nine months
ended September 30, 2003 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act
1934; and
2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: November 12, 2003
_/s/ Robert F. Gallagher_____
Robert F. Gallagher
Chief Financial Officer and
Treasurer (principal financial
officer)
The foregoing certification is being furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the
United States Code and is not being filed as part of the Report or as a
separate disclosure document.