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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5005
SELAS CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1069060
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Dresher, Pennsylvania 19025
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (215) 646-6600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Shares, $1 par value American Stock Exchange
per share
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 periods
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. (X)
The aggregate market value, as of March 9, 1998,of the voting stock held
by non-affiliates of the registrant was approximately $47,743,166
(Aggregate market value is estimated solely for the purposes of this
report and shall not be construed as an admission for the purposes of
determining affiliate status.)
At March 9, 1998, there were 5,225,760 of the Company's common shares
outstanding (exclusive of 363,564 treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1997 annual report to shareholders are
incorporated by reference into Part II of this report. Portions of the
Company's proxy statement for the 1998 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, unless the
context otherwise requires, referred to herein as the "Company", was
incorporated in Pennsylvania in 1930. 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 Dresher, Pennsylvania with subsidiaries in
Minnesota, Ohio, California, England, France, Germany and Italy (and a
50% joint venture in Japan), operates directly or through subsidiaries
in three business segments.
Under the SelasTM name, the Company designs and manufactures specialized
industrial heat processing systems and equipment for steel, glass and
other manufacturers worldwide. The Company's subsidiary, Resistance
Technology, Inc., designs and manufactures microminiature components and
molded plastic parts primarily for the hearing instrument manufacturing
industry worldwide and also for the electronics, telecommunications and
medical equipment industries. The Company's subsidiary, RTI Electronics,
Inc., formed in 1997, has extended Resistance Technology, Inc.'s
microminiature components business through the manufacture of heat
sensitive resistors known as thermistors. The Company's subsidiary,
Deuer Manufacturing, Inc., manufactures spare tire holders and lifts and
related products, primarily based on cable winch designs, for use
principally as original equipment by the pick-up truck and minivan
segment of the automotive industry.
Financial data relating to industry segments, geographical summary of
assets and operations, export sales and major customers are set forth in
Note 4 of the Company's consolidated financial statements.
HEAT PROCESSING
The Company specializes in the controlled application of heat to achieve
precise process and temperature control. The Company's principal heat
processing equipment and systems are large custom-engineered furnaces and
smaller standard-engineered systems, burners and combustion control
equipment.
CUSTOM-ENGINEERED FURNACES
Products and Industries Served. The Company designs specialized furnaces
for use primarily in the steel and glass industries worldwide. The
furnaces are 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 the customer's specific requirements. The Company
believes that the SelasTM name, its reputation for quality and its
leadership in the design and engineering of direct gas-fired heat
processing furnaces are important factors in its business. The Company
also offers gas-fired radiant tube and electric heating technology for
heat processing furnaces.
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ITEM 1. Business - (Continued)
The Company's custom-engineered systems for the steel industry include
continuous annealing furnaces and continuous galvanizing furnaces.
Continuous annealing furnaces are used to heat-treat semi-finished steel
sheet and strip to soften it to improve the ductility of the steel,
thereby making it suitable for use in the manufacture of automobiles,
appliances and other items. Continuous galvanizing furnaces consist of
continuous annealing furnaces plus the components used to apply a zinc
coating to steel strip to improve its resistance to corrosion.
The Company's furnaces for the glass industry are used for the tempering
and bending of glass. The glass tempering process toughens glass plate
through a controlled process of heating and cooling. Glass manufacturers
use the Company's glass bending furnaces to heat and bend plate glass for
automotive and architectural uses.
From time to time, the Company also designs various other specialized
furnaces for use by manufacturers in a variety of industries to suit
particular process requirements. For example, over the years the Company
has engineered large barrel line furnaces used for the continuous heat
treatment of steel pipe, tube or bar.
Marketing and Competition. The Company markets its custom-engineered
furnaces on a global basis. Marketing personnel are located at the
Company's offices in Dresher, Paris, Ratingen, Derbyshire, Milan and at
the offices of its 50%-owned affiliate, Nippon Selas Co., Ltd., in Tokyo.
Over the years, the Company has installed custom-engineered systems
throughout the world, in Europe, North America, South America, Asia,
Australia and Africa. In a particular period, a single contract may
account for a large percentage of sales, but the Company is not dependent
on any custom-engineered systems customer on an ongoing basis.
Company engineering and marketing personnel maintain contact with
potential major steel and glass customers to determine their needs for
new furnaces, typically for expansion or new technology. The Company's
furnaces have long useful lives, and replacement business is not a major
factor in sales of custom-engineered systems. The Company has and
continues to perform modifications to older existing furnaces to improve
production quantities, along with quality of the end product.
The Company also markets its products and services through agents and
licensees located in various parts of the world. Typically, the
Company's license agreements provide that the licensee will act as the
Company's sales agent in a particular territory, is granted a license to
utilize the Company's heat processing technology in that territory, and
is granted the right to utilize technical services provided by the
Company. In exchange, the Company receives certain fees when the
licensee sells the Company's products or services in the territory.
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ITEM 1. Business - (Continued)
Over the years, Japanese steel producers have aligned themselves in semi-
exclusive relationships with furnace manufacturers. For a number of
years, the Company has licensed direct fired furnace technology to NKK
Corporation, the second largest steel producer in Japan.
Furnaces for continuous galvanizing and annealing lines generally utilize
either direct fired or radiant tube technology. The Company is the
market leader for furnaces based on direct fired technology, and also
sells furnaces of the radiant tube design utilized primarily by its
competitors. Some of the Company's competitors are larger and have
greater financial resources. In recent years, the Company has faced
increased competition from competitors supplying smaller, less
sophisticated steel lines. These competitors do not generally offer
custom engineering on a par with the Company, but have been willing to
offer a more standarized and less sophisticated furnace for a lower
price.
Operations. The Company's custom-engineered furnace business is
conducted principally by its wholly-owned subsidiaries, Selas S.A.
(Paris), CFR-CECF Forumi-Ripoche, S.A. (Paris), Selas Waermetechnik GmbH
(Ratingen), Selas Italiana, S.r.L. (Milan) and Selas U.K. (Derbyshire).
These subsidiaries currently employ approximately 149 persons, of whom 25
are administrative personnel and 124 are sales, engineering and
operations personnel. A small number of engineering and marketing
management personnel located at the Company's Dresher, Pennsylvania
headquarters facility are also involved from time to time in the custom-
engineered furnace business.
On large-scale projects, such as a continuous steel strip annealing or
galvanizing line, the customer frequently contracts for the entire line
on a turnkey basis with an engineering and construction firm specializing
in line terminal equipment, and the Company acts as a subcontractor for
the design, engineering, supply of material and installation of the
furnace portion of the line, or, alternatively, as a subcontractor only
for design and engineering. When the Company provides only design and
engineering services, the prime contractor handles the fabrication and
erection of the furnace. With the exception of certain proprietary
parts, the Company does not manufacture the components used in such
systems.
The Company's custom-engineered furnace business is historically cyclical
in nature.
On February 26, 1998, the company's wholly-owned subsidiary, Selas S.A.,
acquired the stock of CFR, a Paris, France firm engaged in the engineered
industrial furnace business. This acquisition was made to complement the
Company's existing heat processing operations in Europe, particularly the
Company's custom-engineered furnace business. CFR engineers and designs
batch and continuous furnaces that are used for heat treating both
ferrous and non-ferrous metals, and also furnaces
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ITEM 1. Business - (Continued)
used for the hardening and etching of glass and ceramic tableware.
Recently, CFR's principal products have been continuous custom-engineered
furnaces for aluminum strip, furnaces for hardening and etching glass and
ceramic tableware, along with Bell furnaces for heat treating ferrous
metals. CFR was formed by the merger of three French companies, CECF,
Fofumi and Ripoche, once the largest industrial furnace company in
France. The Company believes that CFR enjoys a good reputation in the
French market for engineered industrial furnaces. CFR's sales have
primarily been in France, although CFR has some sales in other European
countries. CFR's products are not in competition with the Company's
existing products in Europe. CFR does have several European competitors
for each product offered and some of its competitors are larger and have
greater financial resources.
At its facilities in Paris, France and Maisse, France, CFR employs
approximately 50 full-time employees of whom 8 are executive and
administrative personnel, 27 are sales and engineering personnel, and
15 are fabrication and assembly personnel.
Certain information regarding the acquisition of the CFR business is set
forth in note 19 to the Company's consolidated financial statements.
STANDARD-ENGINEERED SYSTEMS, BURNERS AND COMBUSTION CONTROL EQUIPMENT
Standard-Engineered Systems. At its Dresher, Pennsylvania facility, the
Company engineers and fabricates a variety of smaller furnaces and heat
processing equipment. Although these systems are based on standard
designs, the Company often adapts or re-engineers them to meet particular
customer needs. These smaller systems are
generally used by manufacturers in sophisticated applications for the
heat treatment of finished and semi-finished parts.
The Company's standard-engineered systems include atmosphere-
controlled furnaces for heat treating finished metal parts. Its
continuous heat treating systems include not only the hardening and
tempering furnaces central to the system, but also the ancillary loading,
quenching and washing equipment.
The Company also manufacturers large non-atmosphere-controlled batch-type
furnaces in a variety of designs. The Company's carbottom furnaces
enable its customers to remove the furnace hearth, running on tracks
similar to a railroad car, from the stationary furnace for loading and
unloading. With its hood furnaces, the furnace itself can be lifted from
the stationary hearth for loading and unloading. Carbottom and hood
furnaces are used to heat treat large, usually semi-finished, metal parts
of a variety of shapes and sizes. Clamshell furnaces designed by the
Company open and close around steel rolls to produce a gradation of metal
characteristics due to the differential heating of the steel roll. The
Company's standard batch furnaces are supplied to customers with a need
for the precise, accurately controlled application of heat to their
products.
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ITEM 1. Business - (Continued)
The Company's standard systems also 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 also produces the fuel mixing and
monitoring systems, burners and product handling equipment necessary for
these systems.
The Company also produces custom designed barrel furnaces used primarily
to heat treat long metal parts, and also produces specialized glass lehrs
for heating glass products.
Burners and Combustion Control Equipment. 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 permissable 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
custom-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-RimeterTM 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-ScopeTM 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.
-7-
ITEM 1. Business - (Continued)
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. At its Dresher facility, the Company employs approximately
77 persons, of whom 19 are executive and administrative personnel, 20 are
sales and engineering personnel and 38 are personnel engaged in
manufacturing. The hourly personnel are represented by a union, and the
current union contract expires May 1, 1998. The Company considers its
relations with its employees to be satisfactory.
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
$120,000, $56,000 and $188,000 in 1997, 1996 and 1995, 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.
-8-
ITEM 1. Business - (Continued)
MICROMINIATURE ELECTROMECHANICAL COMPONENTS,
THERMISTORS AND MOLDED PLASTICS
Resistance Technology, Inc. ("RTI"), a wholly-owned subsidiary whose
outstanding capital stock the Company acquired on October 20, 1993,
manufactures microminiature components and molded plastic parts primarily
for the hearing instrument manufacturing industry worldwide. RTI
Electronics, Inc. ("RTIE"), formed in 1997, has expanded RTI's
microminiature components business through the manufacture of heat
sensitive resistors known as thermistors.
Products and Industries Served. RTI is a leading manufacturer and
supplier of microminiature electromechanical components to hearing
instrument manufacturers. These components consist of volume controls,
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 72% of 1997 annual net sales for the Company's
microminiature and plastics 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.
The potential range of applications for RTI's molded plastic parts is
broad. RTI has produced intravenous flow restrictors for a medical
instruments manufacturer and cellular telephone battery sockets for a
telecommunications equipment manufacturer. Sales by RTI to industries
other than the hearing instrument industry represented approximately 11%
of 1997 annual net sales for the Company's microminiature and plastics
business.
RTI manufactures its components on a short lead-time basis in order to
supply "just-in-time" delivery to its customers. Due to the short lead-
time, the Company does not include orders from RTI's customers in its
published backlog figures.
RTIE is a wholly owned subsidiary of the Company that is under the
management direction of RTI. This subsidiary was established in
February, 1997, when the Company acquired the assets and certain
liabilities of the Rodan Division of Ketema, Inc. RTIE manufactures
-9
and sells thermistors and thermistor assemblies, which are solid state
devices that produce precise changes in electrical resistance as a TM
function of any change in absolute body temperature. RTIE's Surge-Gard
product line, an inrush current limiting device used primarily in
computer power supplies, represents approximately 50% of RTIE's sales.
The balance of sales represent various industrial, commercial and
military sales for thermistor and thermistor assemblies to domestic and
international markets. Sales for thermistor and thermistor related
assemblies represented approximately 17% of 1997 annual net sales for the
Company's microminiature and plastics business.
RTIE's principal raw materials are various metal oxide powders and silver
paste, for which there are multiple sources of supply.
Certain information regarding the acquisition of the RTIE business is set
forth in note 2 to the Company's Consolidated Financial Statements.
Marketing and Competition. RTI sells its hearing instrument components
directly to domestic hearing instrument manufacturers through an internal
sales force. Sales of molded plastic parts to industries other than
hearing instrument manufacturers are made through a combination of
independent sales representatives and internal sales force. In recent
years, three companies have accounted for a substantial portion of the
U.S. hearing instrument sales. In 1997, these three customers accounted
for approximately 25% of RTI's net sales.
Internationally, sales representatives employed by Resistance Technology,
GmbH ("RT, GmbH"), a German company 80% of whose capital stock is owned
by RTI, solicit sales from European hearing instrument manufacturers and
facilitate sales with Japanese and Australian hearing instrument markets.
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 with respect to these
products.
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.
RTIE sells its thermistors and thermistor assemplies through a
combination of independent sales representatives and internal sales
force.
RTIE has many competitors, both domestic and foreign, that sell various
thermistor and thermistor assemblies 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 products.
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ITEM 1. Business - (Continued)
Operations. RTI currently employs 267 people, of whom 28 are executive
and administrative personnel and 239 are sales, engineering and
operations personnel at RTI's two facilities near Minneapolis, Minnesota.
A small number of sales personnel employed by RT, GmbH are located in
Munich, Germany.
At its facilities in Anaheim, California, RTIE employs 72 full-time
employees, of which 21 are salaried and 51 hourly.
As a consumer products manufacturer, RTI is subject to claims for
personal injuries allegedly caused by its products. While the Company
maintains what it believes to be adequate insurance coverage, it retains
a self-insured deductible under its liability insurance policies.
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 $1,154,000, $1,083,000
and $1,106,000 in 1997, 1996 and 1995, 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.
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.
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 1997, sales
of spare tire holders accounted for approximately 87% of Deuer's net
sales.
Deuer also produces a variety of hand-operated hoist-pullers, using
primarily a cable winch design, sold under the Mini-MuleTM 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.
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ITEM 1. Business - (Continued)
Deuer manufactures products on a short lead time basis in order to
furnish "just-in-time" delivery to its automotive customers. Because of
the substantial variances between manufacturers' estimated and actual
requirements, the Company does not include blanket order commitments from
automotive manufacturers in its published backlog figures.
Marketing and Competition. Deuer sells its spare tire holders directly
to domestic automotive manufacturers. Deuer's spare tire holders are
sold to Chrysler Corporation, General Motors, Toyota, Ford Motor Company,
New United Motor Manufacturing, Inc. 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 18 executive and
administrative personnel and approximately 141 manufacturing employees.
Some of the manufacturing employees are represented by a union, and the
current union contract expires in October 1998. 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 $253,000, $265,000 and $171,000
in 1997, 1996 and 1995, respectively.
As a consumer products manufacturer, Deuer is subject to claims for
personal injuries allegedly caused by its products. While the Company
maintains what it believes to be adequate insurance coverage, it retains
a self-insured deductible under its liability insurance policies.
ITEM 2. Properties
The Company owns the manufacturing facility in Dresher, Pennsylvania in
which its standard-engineered systems, burners and combustion control
equipment are produced. The Company's headquarters are
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ITEM 2. Properties - (Continued)
located on the same 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 lease all or a
portion of the excess office and manufacturing space to a suitable
tenant. This property is subject to a mortgage. See note 8 of the
Company's consolidated financial statements.
RTI leases a 47,000 sq. ft. manufacturing facility in Arden Hills,
Minnesota from a partnership consisting of two officers of RTI, one of
whom, Mark S. Gorder, serves 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, 2003, with two successive
5-year renewal options. In addition, RTI owns, subject to a mortgage
from a third party lender, a 20,000 sq. ft. building in Vadnais Heights,
Minnesota at which RTI produces plastic component parts. (See notes 8,
17, and 18 of the Company's consolidated financial statements.)
RTIE leases three buildings in an industrial park in Anaheim, California.
These buildings constitute the manufacturing facilities and offices of
RTIE and consist of a total of 38,400 square feet. The lease on one
property, consisting of 12,000 square feet, is based on a month-to-month
lease. The other two leases expire April 30, 1999.
Deuer owns its 82,000 square foot manufacturing facility located on 6.5
acres in Dayton, Ohio, where it produces its spare tire holders and
hoist-pullers. The facility is furnished with a variety of steel
fabrication equipment, including punch presses, drill presses, screw
machines, grinders, borers, lathes and welders.
Deuer owns and leases an additional 11,000 square feet of excess space to
several tenants, principally for storage and office use. This and the
above designated Deuer property are subject to a mortgage. See note 8 of
the Company's consolidated financial statements.
Selas S.A. owns the land and building which houses its engineering, sales
and administrative operations in Gennevilliers, France (outside of
Paris). The land under the building is owned by Selas S.A. 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. This
property is subject to a mortgage. See note 8 of the Company's
consolidated financial statements.
Selas Italiana S.r.L., the Company's Italian subsidiary, Selas
Waermetechnik GmbH, the Company's German subsidiary and Selas UK, the
Company's United Kingdom subsidiary, lease facilities in Milan, Italy,
Ratingen, Germany, and Derbyshire, UK, respectively. The Milan and
Derbyshire facilities are comprised of engineering, sales and
administrative offices with the leases expiring in October 2001 and a
month to month basis, respectively. The Ratingen facilities are used for
sales, administrative and engineering activities and assembly of small
furnaces and furnace components, with the lease expiring
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ITEM 2. Properties - (Continued)
February, 2000. Resistance Technology, GmbH, leases office space in
Munich, Germany, on a year-to-year basis, for its sales personnel.
Management expects to be able to extend these leases.
The recently acquired CFR, leases facilities in Paris and Maisse, both in
France. The facilities 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, 2000 and the Maisse lease
expires February, 2001, each with two three-year optional renewal terms.
ITEM 3. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 215 lawsuits as of December 31, 1997 (155 as of December
31, 1996) alleging that plaintiffs have or may have contracted asbestos-
related diseases as a result of exposure to asbestos products or
equipment containing asbestos sold by one or more named defendants. Due
to the noninformative nature of the complaints, the Company does not know
whether any of the complaints state valid claims against the Company.
The Company is also one of approximately 500 defendants in a class action
on behalf of approximately 2,700 present or former employees of a Texas
steel mill alleging that products supplied by the defendants created a
poisonous atmosphere that caused unspecified physical harm. These cases
are being defended by one or more of the Company's insurance carriers
presently known to be "at risk." Through October 1993, the legal costs
of defense of the asbestos and steel mill cases were shared among the
insurance carriers (92%) and the Company (8%). The lead insurance
carrier settled a number of the cases in 1993 and requested that the
Company pay a portion of the settlement amount. The Company declined to
do so because no such payment is required by the express terms of the
policies. The lead carrier then purported in October 1993 to abrogate
the arrangement under which the defense costs had been shared, and the
Company responded by tendering all of the cases to the lead carrier and
demanding that the lead carrier honor its obligations under its policies
to pay 100% of the costs of defense and 100% of all settlements and
judgments up to the policy limits. The lead carrier has settled
approximately 11 and 17 claims in 1997 and 1996, respectively, with no
request for the Company to participate in any settlement. The lead
carrier has informed the Company that the primary policy for the period
July 1, 1972 - July 1, 1975 has been exhausted and that the lead carrier
will no longer provide a defense under that policy. The Company has
requested that the lead carrier substantiate this situation. The Company
has contacted representatives of the Company's excess insurance carrier
for some or all of this period. The Company does not believe that the
asserted exhaustion of the primary insurance coverage for this period
will have a material adverse effect on the financial condition,
liquidity, or results of operations of the Company. Management is of the
opinion that the number of insurance carriers involved in the defense of
the suits and the significant number of policy years and policy limits to
which these insurance carriers are insuring the Company make the ultimate
disposition of these lawsuits not material to the Company's consolidated
financial position or results of operations.
-14-
ITEM 3. Legal Proceedings - Continued
In 1995, a dispute which was submitted to arbitration, arose under a
contract between a customer and a subsidiary of the Company. Substantial
claims were asserted against the subsidiary Company under the terms of
the contract. The Company recorded revenue of approximately $1,400,000
in 1994 and has an uncollected receivable of $140,000. The Company
believes that the disposition of this claim will not materially affect
the Company's consolidated financial position or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 4A. Executive Officers of the Company
The names, ages and offices (as of February 27, 1998) of the Company's
officers were as follows:
Name Age Office
Stephen F. Ryan 62 President and Chief
Executive Officer
Christian Bailliart 49 Vice President and Chairman-
Director Generale of Selas S.A.
Frank J. Boyle 68 Vice President, Sales and
Engineering
James C. Deuer 69 Vice President and President
of Deuer Manufacturing, Inc.
Mark S. Gorder 51 Vice President and President of
Resistance Technology, Inc.
Robert W. Ross 49 Vice President, Chief Financial
Officer, Treasurer and Secretary
Mr. Ryan joined the Company in May 1988, as President and Chief Executive
Officer. Mr. Bailliart joined Selas S.A. in 1974 and in January 1, 1993
was promoted to Vice President of the Company and Chairman-Director
Generale of Selas S.A. In 1989 he was promoted to Chairman-Director
Generale of Selas S.A. from Vice President,
Treasurer. Mr. Boyle joined the Company in 1961 and has held various
management positions in research and development, applications
engineering and sales. He was appointed Vice President-Sales and
-15-
ITEM 4A. Executive Officers of the Company - (Continued)
Engineering in July 1988. 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. Gorder joined the Company October 20, 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 1996.
Mr. Ross joined the Company in October 1990 as Vice President -
Treasurer, was appointed Chief Financial Officer January 1, 1994 and
elected Secretary February 21, 1995. From 1981 to 1990 he was with ALPO
Pet Foods, a division of Grand Metropolitan PLC, as a Controller from
1981 and as Vice President, Controller from 1988.
-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.
The high and low sale prices during each quarterly period during the
past two years were as follows:
MARKET AND DIVIDEND INFORMATION
1997 1996
Market Market
Price Range Price Range
QUARTER HIGH LOW HIGH LOW
First . . . . . . . . . . . 13-1/16 10 7-13/16 5-7/8
Second . . . . . . . . . . . 12-5/8 9-13/16 7-11/16 6-15/16
Third . . . . . . . . . . . 13-1/2 11-1/4 9-9/16 6-11/16
Fourth . . . . . . . . . . . 13-3/16 8-15/16 11-1/2 9
At February 12, 1998, the Company had 499 shareholders of record.
1997 1996 1995
Dividends per share:
First Quarter $.043 $.04 $.037
Second Quarter .045 .04 .037
Third Quarter .045 .04 .04
Fourth Quarter .045 .043 .04
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.
Note: All information above has been adjusted to give retroactive
effect to a 3 for 2 stock split in June 1997. See note 14 to
the Consolidated Financial Statements.
-17-
ITEM 6. Selected Financial Data
Certain selected financial data is incorporated by reference to "Selas
Corporation of America Five-Year Summary of Operations", page 4, and
"Other Financial Highlights" (excluding graphs), page 5, of the Company's
1997 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
6 through 10 of the Company's 1997 annual report to shareholders.
Forward-Looking and Cautionary Statements. The Company and its
representatives may from time to time make written or oral forward-
looking statements, including those contained in the foregoing
Management's Discussion and Analysis. In order to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995, the Company is hereby identifying certain important factors
which could cause the Company's actual results, performance or
achievement to differ materially from those that may be contained in or
implied by any forward-looking statement made by or on behalf of the
Company. All such forward-looking statements are qualified by reference
to the following cautionary statements.
The Company's heat processing business, which has contributed
substantially to the Company's consolidated results, is affected by,
among other things, the capital expenditures of steel and glass
manufacturers and processors, industries that are highly cyclical in
nature. It is difficult to predict demand for the Company's heat
processing products, and the financial results of the Company's heat
processing business have fluctuated, and may continue to fluctuate,
materially from year to year.
Several of the Company's competitors have been able to offer more
standardized and less technologically advanced heat processing systems
and equipment at lower prices. Although the Company believes that it has
produced higher quality 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.
There can be no assurance that the Company 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.
The Company's microminiature electromechanical business has benefitted
from its ability to automate and keep costs and prices low. There can be
no assurance that the Company will be able to continue to achieve such
automation and its historical profit margins particularly as the
technology of hearing instruments changes and as the business expands
into other product lines.
-18-
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The Company has international operations, as a result, the Company's
performance may be materially affected by foreign economies and currency
movements.
The Company cautions that the foregoing list of important factors is not
intended to be, and is not, exhaustive. 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.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Non-applicable.
ITEM 8. Financial Statements and Supplementary Data
The Company's consolidated balance sheets as of December 31, 1997 and
1996, and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1997, and the report of independent auditors thereon and the
quarterly results of operations (unaudited) for the two year period ended
December 31, 1997 are incorporated by reference to pages 11 to 35 of the
Company's 1997 annual report to shareholders.
ITEM 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None
-19-
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 1998 Annual Meeting of Shareholders which the Company
filed on March 20, 1998. However, the portions of such proxy statement
constituting the report of the Compensation Committee 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.
-20-
PART IV
ITEM 14. 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 11 through 35 of the Company's 1997 annual report to
shareholders.
Consolidated Balance Sheets at December 31, 1997 and 1996.
Consolidated Statements of Operations for the years ended December
31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
Financial statements for 50% or less owned companies which are
accounted for by the equity method have been omitted because they do
not, considered individually or in the aggregate, constitute
significant subsidiaries.
2. Financial Statement Schedules
Page
Report of Independent Auditors on the
Consolidated Financial Statement Schedules 24
Schedule I - Condensed Financial Information
of Registrant (Parent only) 25,26,27,28
Schedule II - Valuation and Qualifying
Accounts 29, 30
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.
-21-
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - (Continued)
3. Exhibits
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 hereby incorporated herein 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, 1995 is hereby
incorporated by reference.
4A. Credit Agreement dated October 20, 1993 by and among First Fidelity
Bank, N.A., Pennsylvania, the Company, RTI and Deuer. Exhibit 4A to
the Company's report on Form 10-K for the year ended December 31,
1993 is hereby incorporated by reference.
4B. Term Note, dated October 20, 1993, of the Company in favor of First
Fidelity Bank, N.A., Pennsylvania. Exhibit 4B to the Company's
report on Form 8-K filed on November 3, 1993 is hereby incorporated
by reference.
4C. Amended Credit Agreement dated July 21, 1995 which amends the Credit
Agreement dated October 20, 1993 by and among First Fidelity Bank,
N.A., Pennsylvania, the Company, RTI and Deuer. Exhibit 4C to the
Company's report on Form 10-K for the year ended December 31, 1995
is hereby incorporated by reference.
4D. Amended and Restated Revolving Credit Note, dated July 21, 1995, of
the Company in favor of First Fidelity Bank, N.A. Pennsylvania.
Exhibit 4D to the Company's report on Form 10-K for the year ended
December 31, 1995 is hereby incorporated by reference.
4E. Amended and Restated Revolving Credit Note, dated July 21, 1995, of
RTI in favor of First Fidelity Bank, N.A., Pennsylvania. Exhibit 4E
to the Company's report on Form 10-K for the year ended December 31,
1995 is hereby incorporated by reference.
4F. Amended and Restated Revolving Credit Note, dated July 21, 1995, of
Deuer in favor of First Fidelity Bank, N.A., Pennsylvania. Exhibit
4F to the Company's report on Form 10-K for the year ended December
31, 1995 is hereby incorporated by reference.
4G. Amended Credit Agreement dated February 21, 1997 which amends the
Credit Agreement dated October 20, 1993 and the July 21, 1995
amendment with First Union/First Fidelity, N.A. Pennsylvania.
Exhibit 4G to the Company's report on Form 10-K for the year ended
December 31, 1996 is hereby incorporated by reference.
-22-
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - (Continued)
4H. Guaranty dated February, 1998 of the Company in favor of First
Union/First Fidelity, N.A. Pennsylvania.
10A. Form of termination agreement between the Company and Messrs. Ryan,
Boyle, Deuer, Gorder and Ross.
10B. 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 hereby incorporated herein by reference.
10C. Form of 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 hereby incorporated
herein by reference.
10D. 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
hereby incorporated herein by reference.
10E. Amended and Restated 1994 Stock Option Plan.
10F. 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 hereby
incorporated by reference.
10G. Agreement between Selas S.A., a wholly-owned subsidiary, and
Europarc Gennevilliers dated May 16, 1991 relating to the purchase
of land and building to house its operations in France, accompanied
by an English translation. Exhibit 10G to the Company's report on
Form 10-K for the year ended December 31, 1995 is hereby
incorporated by reference.
10H. Supplemental Retirement Plan (amended and restated effective January
1, 1995). Exhibit 10I to the Company's report on Form 10-K for the
year ended December 31, 1995 is hereby incorporated by reference.
10I. Management Employment Agreement dated October 20, 1993 between
Resistance Technology, Inc. and Mark S. Gorder. Exhibit 10J to the
Company's report on Form 10-K for the year ended December 31, 1995
is hereby 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 hereby incorporated by reference.
-23-
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K - (Continued)
13. "Selas Corporation of America Five-Year Summary of Operations"
contained on page 4 of the Company's 1997 annual report to
shareholders; "Other Financial Highlights" (excluding graphs)
contained on page 5 of the Company's 1997 annual report to
shareholders; "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained on pages 6-10 of the
Company's 1997 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 11-35 of the Company's 1997 annual
report to shareholders.
21. List of significant subsidiaries of the Company.
23. Consent of Independent Auditors.
24. Powers of Attorney.
99. Portions of the Company's definitive proxy statement for its 1998
Annual Meeting of Shareholders responsive to Items 10, 11, 12 and 13
in Part III hereof, which was filed on March 20, 1998, are hereby
incorporated herein by reference. However, the portions of such
proxy statement constituting the report of the Compensation
Committee 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.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
during the three months ended December 31, 1997.
-24-
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
Selas Corporation of America:
Under date of February 26, 1998, we reported on the consolidated balance
sheets of Selas Corporation of America and subsidiaries as of December
31, 1997 and 1996, 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, 1997, as contained in the 1997 annual
report to shareholders. These consolidated financial statements and our
reports thereon are incorporated by reference in the annual report on
Form 10-K for the year 1997. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the
related financial statement schedules as listed in the accompanying index
(Item 14). These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects, the information set forth
herein.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 26, 1998
-25-
SCHEDULE I
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
Condensed Financial Information of Registrant
Balance Sheets
December 31, 1997 and 1996
ASSETS 1997 1996
Current assets:
Cash and cash equivalents $ 478,119 $ 2,945,610
Accounts receivable (including
$5,266,063 and $6,059,682 due from
subsidiaries in 1997 and 1996,
respectively, eliminated in con-
solidation), less allowance for doubt-
ful accounts of $10,000 in both years 11,292,250 11,105,398
Inventories, at cost 3,775,592 3,426,726
Prepaid expenses and other current
assets 1,993,501 1,396,967
Total current assets 17,539,462 18,874,701
Investment in wholly-owned subsidiaries 50,887,202 42,734,949
Property and equipment, at cost 5,871,795 5,806,599
Less: accumulated depreciation (4,532,232) (4,485,172)
1,339,563 1,321,427
Other assets and investment in
unconsolidated affiliate 1,072,562 1,278,987
Total Assets $70,838,789 $64,210,064
=========== ===========
-26-
SCHEDULE I
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
Condensed Financial Information of Registrant
Balance Sheets
December 31, 1997 and 1996
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
Current liabilities:
Notes payable and current maturities
of long-term debt $ 2,350,000 $ 1,938,000
Accounts payable (including $13,237,300
and $12,251,876 due to subsidiaries
in 1997 and 1996, respectively,
eliminated in consolidation) 15,721,628 13,894,155
Accrued expenses 4,088,328 2,816,398
Total current liabilities 22,159,956 18,648,553
Long-term debt 4,520,024 3,953,669
Other postretirement benefit obligations 3,471,378 3,517,429
Deferred income taxes 230,945 223,877
Pension plan obligation 56,973 225,060
Contingencies and commitments
Shareholders' equity
Common stock 5,589,324 5,553,624
Retained earnings and other equity 35,192,126 32,469,789
Less: 363,564 common shares held in
treasury, at cost (381,937) (381,937)
Total shareholders' equity
40,399,513 37,641,476
Total Liabilities and
Shareholders' Equity $70,838,789 $64,210,064
=========== ===========
See accompanying notes to the consolidated financial statements.
-27-
SCHEDULE I
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
Sales, net $24,187,052 $20,792,859 $13,729,233
Add back: license fees and
corporate charges paid by
subsidiaries, eliminated in
consolidation 618,366 1,512,699 720,192
24,805,418 22,305,558 14,449,425
Costs and expenses:
Cost of goods sold 19,344,767 16,504,848 8,289,761
Selling, general and adminis-
trative expenses 4,458,784 3,894,184 3,467,857
Rent and depreciation 375,156 398,207 337,845
24,178,707 20,797,239 12,095,463
Income before income taxes and
equity in net income of
subsidiaries 626,711 1,508,319 2,353,962
Provision for income taxes 45,295 560,111 927,328
Income before equity in net
income of subsidiaries 581,416 948,208 1,426,634
Equity in net income of
subsidiaries 3,805,793 3,181,987 873,390
Net income $ 4,387,209 $ 4,130,195 $ 2,300,024
=========== =========== ===========
See accompanying notes to the consolidated financial statements.
-28-
SCHEDULE I
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
OPERATING ACTIVITIES
Net income $ 4,387,209 $ 4,130,195 $ 2,300,024
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 251,733 227,377 201,806
Other adjustments (4,405,561) (3,507,200) (814,239)
Net changes in operating
assets and liabilities 2,507,566 3,665,156 (1,495,030)
Net cash provided by operating
activities 2,740,947 4,515,528 192,561
INVESTING ACTIVITIES
Dividend from unconsolidated
affiliate -- 16,742 --
Acquisition of subsidiary
company (5,152,840) -- --
Purchase of property, plant and
equipment (259,787) (257,767) (217,158)
Proceeds of sale from property,
plant and equipment -- -- 325
Net cash (used) by investing
activities (5,412,627) (241,025) (216,833)
FINANCING ACTIVITIES
Proceeds from borrowings used
to acquire subsidiary 3,500,000 -- --
Proceeds from exercise of
stock options 155,518 -- 28,281
Payment of dividends (929,684) (847,712) (795,812)
Repayment of long term debt (2,521,645) (1,859,448) (2,148,883)
Net cash provided (used) by
financing activities 204,189 (2,707,160) (2,916,414)
Increase (decrease) in cash
and cash equivalents (2,467,491) 1,567,343 (2,940,686)
Cash and cash equivalents,
beginning of year 2,945,610 1,378,267 4,318,953
Cash and cash equivalents, end
of year $ 478,119 $ 2,945,610 $ 1,378,267
=========== =========== ===========
See accompanying notes to the consolidated financial statements.
-29-
SCHEDULE II
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
Column A Column B Column C
Additions
Balance at Charged to
Beginning Costs and
Classification of Period Expenses Other
Year ended December 31, 1997:
Reserve deducted in the balance
sheet from the asset to which
they apply:
Allowance for doubtful
accounts $ 787,121 $ 15,833 $ (93,153)(a)
========== ========== ==========
Deferred tax asset valuation
allowance $2,315,437 $ (618,613) $ --
========== ========== ==========
Reserve not shown elsewhere:
Reserve for estimated future
costs of service and
guarantees $1,725,690 $1,287,940 $ (118,806)(a)
========== ========== ==========
Year ended December 31, 1996:
Reserve deducted in the balance
sheet from the asset to which
it applies:
Allowance for doubtful
accounts $ 792,249 $ 196,952 $ (35,428)(a)
========== ========== ==========
Deferred tax asset valuation
allowance $2,685,305 $ (369,868) $ --
========== ========== ==========
Reserve not shown elsewhere:
Reserve for estimated future
costs of service and
guarantees $ 844,787 $1,000,677 $ (19,130)(a)
========== ========== ==========
Year ended December 31, 1995:
Reserves deducted in the balance
sheet from the asset to which
they apply:
Allowance for doubtful
accounts $ 513,045 $ 284,475 $ 36,136(a)
========== ========== ==========
Deferred tax asset valuation
allowance $2,203,780 $ 481,525 $ --
========== ========== ==========
Reserve not shown elsewhere:
Reserve for estimated future
costs of service and
guarantees $1,156,296 $ 119,903 $ 58,13 (a)
========== ========== ==========
(Continued)
-30-
SCHEDULE II
SELAS CORPORATION OF AMERICA AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
Column A Column D Column E
Balance at
End of
Classification Deductions Period
Year ended December 31, 1997:
Reserve deducted in the balance sheet
from the asset to which they apply:
Allowance for doubtful accounts $ 28,445 (b) $ 681,356
========== ==========
Deferred tax asset valuation allowance -- $1,696,824
========== ==========
Reserve not shown elsewhere:
Reserve for estimated future costs
of service and guarantees $ 189,531 (c) $2,705,293
========== ==========
Year ended December 31, 1996:
Reserve deducted in the balance sheet
from the asset to which it applies:
Allowance for doubtful accounts $ 166,652 (b) $ 787,121
========== ==========
Deferred tax asset valuation allowance $ -- $2,315,437
========== ==========
Reserve not shown elsewhere:
Reserve for estimated future costs
of service and guarantees $ 100,644 (c) $1,725,690
========== ==========
Year ended December 31, 1995:
Reserves deducted in the balance sheet
from the asset to which they apply:
Allowance for doubtful accounts $ 41,407 (b) $ 792,249
========== ==========
Deferred tax asset valuation allowance -- $2,685,305
========== ==========
Reserve not shown elsewhere:
Reserve for estimated future costs of
service and guarantees $ 489,546 (c) $ 844,787
========== ==========
(a) Represents difference between translation rates of foreign currency
at beginning and end of year and average rate during year.
(b) Uncollectible accounts charged off.
(c) "After job" costs charged to reserve.
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:
Robert W. Ross
Vice President and
Chief Financial Officer
Dated: March 23, 1998
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.
*By: /s/ Stephen F. Ryan
Stephen F. Ryan Stephen F. Ryan
Attorney-In-Fact President, Chief Executive
March 23, 1998 Officer and Director
March 23, 1998
*
John H. Austin, Jr. Robert W. Ross
Director Vice President, Principal
March 23, 1998 Financial and Accounting Officer
March 23, 1998
*
Frederick L. Bissinger
Director
March 23, 1998
*
Roy C. Carriker
Director
March 23, 1998
*
Francis J. Dunleavy
Director
March 23, 1998
*
Mark S. Gorder
Director
March 23, 1998
*
Ralph R. Whitney, Jr.
Director
March 23, 1998
EXHIBIT INDEX
EXHIBITS:
4H. Guaranty dated February, 1998 of the Company in favor of First
Union/First Fidelity, N.A. Pennsylvania.
10A. Form of termination agreement between the Company and Messrs. Ryan,
Boyle, Deuer, Gorder and Ross.
10E. Amended and Restated 1994 Stock Option Plan.
13. "Selas Corporation of America Five-Year Summary of Operations"
contained on page 4 of the Company's 1997 annual report to
shareholders; "Other Financial Highlights" (excluding graphs)
contained on page 5 of the company's 1997 annual report to
shareholders; "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained on pages 6-10 of the
Company's 1997 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 11-35 of the Company's 1997 annual
report to shareholders.
21. List of significant subsidiaries of the Company.
23. Consent of Independent Auditors.
24. Powers of Attorney.
March 23, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Reference: Selas Corporation of America;
Commission File #1-5005
Gentlemen:
The Company's 1997 Annual Report on Form 10-K has been filed
electronically, via Edgar.
The financial statements for the year ended December 31, 1997 do not
reflect any changes in accounting principles or practices, or the method
of applying any such principles or practices from the preceding year.
Very truly yours,
Robert W. Ross
Vice President and CFO
RWR:jc
Enclosures
cc: American Stock Exchange
Attention: Ms. Kathleen M. Bradford
86 Trinity Place
New York, NY 10006
(Three copies, one with Exhibits)
Via Certified Mail
GUARANTY
February __, 1998
First Union National Bank
123 South Broad Street
Philadelphia, Pennsylvania 19109
(Hereinafter referred to as "Bank")
To induce Bank to make, extend or renew loans, advances, credit, or
other financial accommodations to or for the benefit of Selas S.A.,
Parc des Barbanniers, 3-5 Place du Village, Gennevilliers 92632,
Paris, France ("Borrower"), and in consideration of loans, advances,
credit, or other financial accommodations made, extended or renewed to
or for the benefit of Borrower, Selas Corporation of America,
Dreshertown Road & Limekiln Pike, Dresher, Pennsylvania 19025, U.S.A.
("Guarantor") hereby absolutely, irrevocably and unconditionally
guarantees to Bank and its successors, assigns and affiliates the timely
payment and performance of all liabilities and obligations of Borrower
to Bank including, without limitation, those liabilities and obligations set
forth in that certain letter dated February __, 1998 by Bank to Borrower
pursuant to which Bank has made a loan facility available to Borrower
in the original principal amount of Frf. 15,000,000 and all extensions,
modifications and renewals thereof, including, without limitation all
principal,interest, charges, and costs and expenses incurred
thereunder (including attorneys' fees and other costs of collection
incurred, regardless of whether suit is commenced) (collectively, the
"Guaranteed Obligations").
The maximum liability of Guarantor with respect to the aggregate
principal amount of the Guaranteed Obligations shall not exceed Frf.
15,000,000, plus all interest, charges, and costs and expenses incurred by
Bank with respect to the Guaranteed Obligations. For the purpose of
determining the liability of Guarantor, the calculation of the aggregate
principal amount of the Guaranteed Obligations shall not be reduced by
any collateral held as security for the Guaranteed Obligations or by
payments received or to be received with respect to the Guaranteed
Obligations from persons or entities other than Borrower.
Guarantor further covenants and agrees:
GUARANTOR'S LIABILITY. This Guaranty is a continuing and unconditional
guaranty of payment and performance and not of collection. This Guaranty
does not impose any obligation on Bank to extend or continue to extend
credit or otherwise deal with Borrower at any subsequent time. This
Guaranty shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of the Guaranteed Obligations is rescind
ed, avoided or for any other reason must be returned by Bank, and the
returned payment shall remain payable as part of the Guaranteed
Obligations, all as though such payment had not been made except to
the extent the provisions of this Guaranty give the Bank additional rights,
this Guaranty shall not be deemed to supersede or replace any other
guarantees given to Bank by Guarantor; and the obligations guaranteed hereby
shall be in addition to any other obligations guaranteed by Guarantor
pursuant to any other agreement of guaranty given to Bank and other
guaranties of the Guaranteed Obligations.
TERMINATION OF GUARANTY. Guarantor may terminate this Guaranty by
written notice, delivered personally to or received by certified or
registered United States Mail by an authorized officer of the Bank at
the address for notices provided herein. Such termination shall be
effective with respect to Guaranteed Obligations arising more than 15
days after the date such written notice is received by said Bank
officer. Guarantor may not terminate this Guaranty as to Guaranteed
Obligations (including any subsequent extensions, modifications or
compromises of the Guaranteed Obligations) then existing, or to
Guaranteed Obligations arising subsequent to receipt by Bank of said
notice if such Guaranteed Obligations are a result of Bank's obligation to
make advances pursuant to a commitment entered into prior to expiration of
the 15-day notice period, or are a result of advances which are necessary
for Bank to protect its collateral or otherwise preserve its interests.
APPLICATION OF PAYMENTS, BANK LIEN AND SET-OFF. Monies received from any
source by Bank for application toward payment of the Guaranteed
Obligations may be applied to such Guaranteed Obligations in any manner or
order deemed appropriate by Bank. Except as prohibited by law, Guarantor
grants Bank a security interest in all of Guarantor's accounts maintained
with Bank and any of its affiliates (collectively, the "Accounts"). If a
Default (as defined herein) occurs, Bank is authorized to exercise its right
of set-off or to foreclose its lien against any obligation of Bank to
Guarantor including, without limitation, all Accounts or any other debt of
any maturity, without notice.
CONSENT TO MODIFICATIONS. Guarantor consents and agrees that Bank may from
time to time, in its sole discretion, without affecting, impairing,
lessening or releasing the obligations of Guarantor hereunder: (a) extend or
modify the time, manner, place or terms of payment or performance and/or
otherwise change or modify the credit terms of the Guaranteed Obligations;
(b) increase, renew, or enter into a novation of the Guaranteed Obligations,
(c) waive or consent to the departure from terms of the Guaranteed
Obligations; (d) permit any change in the business or other dealings and
relations of Borrower or any other guarantor with Bank; (e) proceed against,
exchange, release, realize upon, or otherwise deal with in any manner any
collateral that is or may be held by Bank in connection with the Guaranteed
Obligations or any liabilities or obligations of Guarantor, and (f) proceed
against, settle, release, or compromise with Borrower, any insurance
carrier, or any other person or entity liable as to any part of the
Guaranteed Obligations, and/or subordinate the payment of any part of
the Guaranteed Obligations to the payment of any other obligations, which may
at any time be due or owing to Bank; all in such manner and upon such terms
as Bank may deem appropriate, and without notice to or further consent
from Guarantor. No invalidity, irregularity, discharge or
unenforceability of, or action or omission by Bank relating to any
part of, the Guaranteed Obligations or any security therefor shall affect
or impair this Guaranty.
WAIVERS AND ACKNOWLEDGMENTS. Guarantor waives and releases the
following rights, demands, and defenses Guarantor may have with respect
to Bank and collection of the Guaranteed Obligations: (a) promptness
and diligence in collection of any of the Guaranteed Obligations from
Borrower or any other person liable thereon, and in foreclosure of any
security interest and sale any property serving as collateral for the
Guaranteed Obligations; (b) any law or statute that requires that Bank
make demand upon, assert claims against, or collect from Borrower or
other persons or entities, foreclose any security interest, sell
collateral, exhaust any remedies, or take any other action
against Borrower or other persons or entities prior to making
demand upon, collecting from or taking action against Guarantor with
respect to the Guaranteed Obligations, including any such rights Guarantor
might otherwise have had under Va. Code section 49-25 and 49-26,
et seq., N.C.G.S. sectionsection 26-7, et seq., Tenn. Code
Ann. 47-12-101, O.C.G.A. section 10-7-24 (and any successor statute)
and any other applicable law; (c) any law or statute that requires that
Borrower or any other person be joined in, notified of or made part of
any action against Guarantor, (d) that Bank preserve, insure or perfect
any security interest in collateral or sell or dispose of collateral in a
particular manner or at a particular time; (e) notice of extensions,
modifications, renewals, or novations of the Guaranteed
Obligations, of any new transactions or other relationships between
Bank,Borrower and/or any guarantor, and of changes in the financial
condition of, ownership of, or business structure of Borrower or any
other guarantor: (f) presentment, protest, notice of dishonor, notice of
default, demand for payment, notice of intention to accelerate maturity,
notice of acceleration of maturity, notice of sale, and all other notices
of any kind whatsoever: (g) the right to assert against Bank any defense
(legal or equitable), setoff, counterclaim, or claim that Guarantor may
have at any time against Borrower or any other party liable to Bank;
(h) all defenses relating to invalidity, insufficiency,
unenforceability, enforcement, release or impairment of Bank's lien on
any collateral, of the Loan Documents, or of any other guaranties held by
Bank; (i) any claim or defense that acceleration of maturity of the
Guaranteed Obligations is stayed against Guarantor because of the stay of
assertion or of acceleration of claims against any other person or
entity for any reason including the bankruptcy or insolvency of that
person or entity; and (j) the benefit of any exemption claimed by
Guarantor. Guarantor acknowledges and represents that it has relied upon
its own due diligence in making its own independent appraisal of Borrower,
Borrower's business affairs and financial condition, and any
collateral; Guarantor will continue to be responsible for making its
own independent appraisal of such matters; and Guarantor has not relied
upon and will not hereafter rely upon Bank for information regarding
Borrower or any collateral.
FINANCIAL CONDITION. Guarantor warrants, represents and covenants to Bank
that on and after the date hereof: (a) the fair saleable value of Guarantor's
assets exceeds its liabilities, Guarantor is meeting its current
liabilities as they mature, and Guarantor is and shall remain solvent;
(b) all financial statements of Guarantor furnished to Bank have been
prepared accordance with GAAP; and all such financial statements fairly
present the financial condition of the Guarantor as of the dates and
for the periods covered (subject in the case ointerim financial statements,
to normal recurring year-end adjustments in the absence of notes) and
discloses all liabilities, as of such dates, of Guarantor which are
required to be disclosed under GAAP; (c) since the date of such
financial statements, there has not occurred as of the date hereof a
material adverse change in the financial condition of Guarantor; (d) except
s disclosed in the Guarantor's financial statements there are not now
pending any material court or administrative proceedings or material
undischarged judgments against Guarantor, no material federal or state tax
liens have been filed or threatened against Guarantor, and Guarantor is not
currently in default or claimed default under any material agreement; and
(e) at such reasonable times as Bank requests, Guarantor will furnish Bank
with such other financial information as Bank may reasonably request.
INTEREST. Regardless of any other provision of this Guaranty or other
Loan Documents, if for any reason the effective interest on any of the
Guaranteed Obligations should exceed the maximum lawful interest, the
effective interest shall be deemed reduced to and shall be such maximum
lawful interest, and any sums of interest which have been collected in
excess of such maximum lawful interest shall be applied as a credit
against the unpaid principal balance of the Guaranteed Obligations. DEFAULT.
If any of the following events occur, a default ("Default") under this
Guaranty shall exist: (a) failure of timely payment or performance of
the Guaranteed Obligations or a default under any Loan Document; (b) a breach
of any agreement or representation contained or referred to in the Guaranty,
or any of the Loan Documents, or contained in any other contract or agreement
of Guarantor with Bank or its affiliates, whether now existing or hereafter
arising; (c) the dissolution of, termination of existence of, loss of good
standing status by, appointment of a receiver for, assignment for the
benefit of creditors of, or the commencement of any insolvency or
bankruptcy proceeding by or against, Guarantor or (d) the entry of any
material monetary judgment or the assessment against, the filing of any tax
lien against, or the issuance of any writ of garnishment or attachment
against any property of or debts due Guarantor.If a Default occurs, the
Guaranteed Obligations shall be due immediately and payable without
notice. Guarantor shall pay interest on the Guaranteed Obligations
from such Default at the highest rate of interest charged on any of
the Guaranteed Obligations.
ATTORNEYS FEES AND OTHER COSTS OF COLLECTION. Guarantor shall pay all of
Bank's reasonable expenses incurred to enforce or collect any of the
Guaranteed Obligations, including, without limitation, reasonable
arbitration, paralegals', attorneys' and experts' fees and expenses,
whether incurred without the commencement of a suit, in any suit,
arbitration, or administrative proceeding,or in any appellate or bankruptcy
proceeding.
MISCELLANEOUS. (a) ASSIGNMENT. This Guaranty and other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Bank's
interests in and rights under this Guaranty and other Loan Documents are
freely assignable, in whole or in part, by Bank. Any assignment shall not
release Guarantor from the Guaranteed Obligations. (b) APPLICABLE LAW;
CONFLICT BETWEEN DOCUMENTS. This Guaranty shall be governed by and
construed under the laws of the state in which office of Bank first shown
above is located without regard to that state's conflict of laws
principles. If the terms of this Guaranty should conflict with
the terms of any commitment letter that survives closing, the terms of
this Guaranty shall control. (c) JURISDICTION. Guarantor irrevocably
agrees to non-exclusive personal jurisdiction in the state in which the
office of Bank first shown above is located. (d) SEVERABILITY. If any
provision of this Guaranty or of the other Loan Documents shall be
prohibited or invalid under applicable law, such provision shall be
ineffective but only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Guaranty or other document. (e) NOTICES. Any notices
to Guarantor shall be sufficiently given, if in writing and mailed or
delivered to the Guarantor's address shown above or such other address as
provided hereunder, and to Bank, if in writing and mailed or
delivered to Bank's office address shown above or such other address as Bank
may specify in writing from time to time. In the event that Guarantor
changes Guarantor's address at any time prior to the date the Guaranteed
Obligations are paid in full, Guarantor agrees to promptly give written
notice of said change of address by registered or certified mail, return
receipt requested, all charges prepaid. (f) PLURAL; CAPTIONS. All
references in the Loan Documents to borrower, guarantor, person, document
or other nouns of reference mean both the singular and plural form, as the
case may be, and the term "person" shall mean any individual, person or
entity. The captions contained in the Loan Documents are inserted for
convenience only and shall not affect the meaning or interpretation
of the Loan Documents. (g) BINDING CONTRACT. Guarantor by execution of
and Bank by acceptance of this Guaranty agree that each party is bound to
all terms and provisions of this Guaranty. (h) AMENDMENTS, WAIVERS AND
REMEDIES. No waivers, amendments or modifications of this Guaranty and
other Loan Documents shall be valid unless in writing and signed by an
officer of Bank. No waiver by Bank of any Default shall operate as a
waiver of any other Default or the same Default on a future occasion.
Neither the failure nor any delay on the part of Bank in exercising any
right, power, or privilege granted pursuant to this Guaranty and other
Loan Documents shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise or the
exercise of any other right, power or privilege. All remedies available
to Bank with respect to this Guaranty and other Loan Documents and
remedies available at law or in equity shall be cumulative and may be pursued
concurrently or successively. (i) LOAN DOCUMENTS. The term "Loan
Documents" refers to all documents executed in connection with the
Guaranteed Obligations and may include, without limitation, commitment
letters that survive closing, loan agreements, other guaranty
agreements, security agreements, instruments, financing statements,
mortgages, deeds of trust, deeds to secure debt, letters of credit and
any amendments or supplements (excluding swap agreements as defined in
11 U.S. Code section 101).
ARBITRATION. Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to this Guaranty
and other Loan Documents ("Disputes") between or among parties to this
Guaranty shall be resolved by binding arbitration as provided herein.
Institution of a judicial proceeding by a party does not waive the
right of that party to demand arbitration hereunder. Disputes may
include, without limitation, tort claims, counterclaims, disputes as to
whether a matter is subject to arbitration, claims brought as class actions,
claims arising from Loan Documents executed in the future, or claims
arising out of or connected with the transaction reflected by this Guaranty.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S. Code.
All arbitration hearings shall be conducted in the city in which the office
of Bank first stated above is located. The expedited procedures set
forth in Rule 51 et seq. of the Arbitration Rules shall be applicable
to claims of less than $l,000,000.00. All applicable statutes of
limitation shall apply to any Dispute. A judgment upon the award may be
entered in any court having jurisdiction. The panel from which all
arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge
from the highest court of general jurisdiction, state or federal, of the
seat where the hearing will be conducted or if such person is not available
to serve, the single arbitrator may be a licensed attorney. Notwithstanding
the foregoing, this arbitration provision does not apply to disputes under
or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding
binding arbitration provisions, Bank and Guarantor agree to preserve,
without diminution, certain remedies that any party hereto may employ
or exercise freely, independently or in connection with an arbitration
proceeding or after an arbitration action is brought. Bank and Guarantor
shall have the right to proceed in any court of proper jurisdiction or
by self-help to exercise or prosecute the following remedies, as
applicable: (i) all rights to foreclose against any real or personal
property or other security by exercising a power of sale granted under Loan
Documents or under applicable law or by judicial foreclosure and sale,
including a proceeding to confirm the sale, (ii) all rights of
self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal
property; (iii) obtaining provisional or ancillary remedies including
injunctive relief, sequestration, garnishment, attachment, appointment of
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment. Preservation of these
remedies does not limit the power of an arbitrator to grant similar remedies
that may be requested by a party in a Dispute. Guarantor and Bank agree
that they shall not have a remedy of punitive or exemplary damages
against the other in any Dispute and hereby waive any right or claim to
punitive or exemplary damages they have now or which may arise in the future
in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, Guarantor, as of the day and year first written above,
has caused this Guaranty to be executed under seal.
Selas Corporation of America
Taxpayer Identification Number: 23-1069060
CORPORATE By:
SEAL
EXHIBIT 10A
1998 EXTENSION AGREEMENT
AGREEMENT dated as of January 1, 1998 between
____________________________ ("Executive") and Selas Corporation of
America ("Selas").
BACKGROUND
Executive and Selas are parties to an Agreement re:
Termination following Change of Control or Asset Sale, the term of
which, as previously extended, expires December 31, 1997 (as previously
amended, the "Agreement"), which, as an inducement to Executive to
continue his active participation in the business of Selas or an
affiliate of Selas, provides for certain payments to the Executive
under the circumstances and pursuant to the terms therein set forth.
Capitalized terms used herein have such meanings as are ascribed
thereto in the Agreement.
Executive and Selas desire to confirm in writing their
understanding that the term of the Agreement, insofar as the term
thereof is a function of the period during which a Change of Control or
Asset Sale may occur, is extended from December 31, 1997 until December
31, 1998.
NOW, THEREFORE, in consideration of the agreements herein
contained and contained in the Agreement, and intending to be legally
bound, the parties hereto agree as follows:
.0.0.1 Clause (i) in paragraph 5 of the Agreement is
hereby amended by changing the date "December 31, 1997" to
"December 31, 1998."
.0.0.2 The Agreement, as amended hereby, is hereby
ratified and confirmed in all respects.
IN WITNESS WHEREOF, Selas and Executive have executed this
Agreement as of the date first above written.
SELAS CORPORATION OF AMERICA
By:______________________________
_________________________________
EXHIBIT 10E
SELAS CORPORATION OF AMERICA
AMENDED AND RESTATED
1994 STOCK OPTION PLAN
.0.0.1 Purpose. This 1994 Stock Option Plan (the "Plan")
is intended to enable Selas Corporation of America ("Selas")
and any subsidiary corporation of Selas to attract and retain
capable officers and other key employees, and to provide them
with incentives to promote the best interests of Selas and
its subsidiaries through the grant of incentive stock options
and non-qualified stock options (collectively "Options") and
stock appreciation rights as defined in Section 5(k) hereof
("SARs").
As used in the Plan, the term "incentive stock options" means
Options which qualify as incentive stock options within the meaning of
section 422 of the Internal Revenue Code of 1986, as amended from time
to time (the "Code"), at the time they are granted and which are either
designated as incentive stock options in the Option Agreements (as
hereinafter defined) covering such Options or which are designated as
incentive stock options by the Committee (as defined in Section 2
hereof) at the time of grant. The term "non-qualified stock options"
means all other Options granted under the Plan. The term "subsidiary"
means any corporation (whether or not in existence at the time the Plan
is adopted) which, at the time an Option is granted, is a subsidiary of
Selas under the definition of "subsidiary corporation" contained in
section 424(f) of the Code or any similar provision hereafter enacted.
.0.0.2 Administration. The Plan shall be administered by
the Compensation Committee of the Selas Board of Directors
(the "Committee"), which shall consist of not less than two
directors of Selas. Committee members shall be appointed by,
and shall serve at the pleasure of, the Board of Directors of
Selas (the "Board"). Each member of the Committee, while
serving as such, shall be deemed to be acting in the member's
capacity as a director of Selas. Each member of the
Committee shall be a non-employee director within the meaning
of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934
(the "Exchange Act"), or any successor thereto, and shall
also be an "outside director" within the meaning of Treasury
Regulation section1.162-27(e)(3), or any successor thereto,
under the Code.
Subject to the terms of the Plan, the Committee shall have
full and final authority in its absolute discretion to select the
persons to whom Options and SARs shall be granted under the Plan, to
grant such Options and SARs and to set the date of grant and the other
terms of such Options and SARs. The Committee also shall have the
authority to establish and amend or rescind, from time to time, such
rules and regulations, not inconsistent with the provisions of the
Plan, for the proper administration of the Plan and Options and SARs
granted hereunder, and to make such determinations and interpretations
under or in connection with the Plan, as it deems necessary or
advisable. The Committee may correct any defect, supply any omission
and reconcile any inconsistency in the Plan or in any Option or SAR
granted hereunder in the manner and to the extent it shall deem
desirable. All such rules, regulations, determinations and
interpretations shall be binding and conclusive upon Selas, the
officers and employees (including former officers and employees) of
Selas and any subsidiary, including all Eligible Individuals (as
hereinafter defined), and upon their respective legal representatives,
beneficiaries, successors and assigns and upon all other persons
claiming under or through any of them. No member of the Board or of
the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option or SAR granted
hereunder.
.0.0.3 Eligibility. The persons eligible to receive
Options and SARs under the Plan shall be the officers and
other key employees of Selas and its subsidiaries who may be
designated by the Committee; provided, however, that members
of the Committee, by virtue of their status as members, shall
not be eligible to receive Options or SARs under the Plan. A
key employee is an employee who occupies a responsible
executive, professional or administrative position and who
the Committee believes has the capacity to contribute to the
success of the Company and its subsidiaries. The persons
eligible to receive Options under the Plan are hereinafter
referred to as "Eligible Individuals."
.0.0.4 Shares Subject to the Plan. Subject to adjustment
as provided in Section 7 hereof, 300,000 Common Shares of
Selas, par value $1.00 per share ("Shares"), shall be
available for the grant of Options under the Plan, which
Shares may be authorized but unissued Shares or reacquired
Shares, as Selas shall determine.
If any Option granted under the Plan expires or otherwise
terminates, in whole or in part, without having been exercised, the
Shares subject to the unexercised portion of such Option shall be
available for the granting of Options under the Plan as fully as if
such Shares had never been subject to an Option, provided, however,
that (a) if an Option is cancelled, the Shares covered by the cancelled
Option shall be counted against the maximum number of Shares specified
in the first paragraph of Section 5 for which Options may be granted to
a single Eligible Individual and (b) if the option exercise price is
reduced after the date of grant of the Option, the transaction shall be
treated as a cancellation of the original Option and the grant of a new
Option for purposes of determining such maximum number of shares for
which Options may be granted to an Eligible Individual. If an Option
granted in tandem with a SAR is exercised, in whole or in part, by the
exercise of the SAR, the Shares subject to the portion of the Option so
exercised, except to the extent transferred to the Optionee in payment
of the SAR, shall also be available for the granting of Options under
the Plan.
.0.0.5 Grants, Terms and Conditions of Options. From
time to time until the expiration or earlier termination of
the Plan, the Committee may grant to Eligible Individuals
(such grantees are hereinafter referred to as "Optionees")
under the Plan such Options as it determines are warranted;
provided, however, that no Eligible Individual may be granted
Options covering more than 200,000 Shares under the Plan and
further provided that grants of incentive and non-qualified
stock options shall be separate and not in tandem. Options
granted pursuant to the Plan shall be in such form as the
Committee shall from time to time approve, and shall be
subject to the following terms and conditions:
.0.0.5.0.0.1 Price. The option exercise price per Share under each
Option granted under the Plan shall be determined and fixed by the
Committee in its discretion but shall not be less than the fair market
value of the Shares on the date of grant of such Option. The fair
market value of a Share on any day shall mean (i) the mean between the
highest and lowest selling prices of a Share on the date of grant, as
quoted by the American Stock Exchange Composite Transactions Tape, or
if not available or if the primary market for the Shares shall not be
the American Stock Exchange (ii) fair market value determined by using
such other method as shall be permitted by the Code for the pricing of
incentive stock options, or the rules or regulations thereunder, and
adopted by the Committee from time to time.
.0.0.5.0.0.2 Term. Subject to subsection (j) below and
subject to earlier termination as provided in subsections (c)
through (f) below and in Section 7 hereof, the duration of
each Option shall not be more than 10 years from the date of
grant.
.0.0.5.0.0.3 Exercise and Payment. Options shall be
exercisable in such installments and on such dates,
commencing not less than one year from the date of grant, as
the Committee may specify, provided, that (i) the Committee
may determine that an Option will become immediately
exercisable in whole or in part in the event of death,
disability or retirement, (ii) in the case of a new Option
granted in replacement for options (whether granted under the
Plan or otherwise and whether covering Shares or other
securities issued by Selas or another entity) held by the
same person, the new Options may be made exercisable, if so
determined by the Committee in its discretion, at the
earliest date the replaced options were exercisable and (iii)
the Committee may otherwise accelerate the exercise date of
any outstanding Option in its discretion if it deems such
acceleration to be desirable. Any Shares the right to the
purchase of which has accrued under an Option may be
purchased at any time up to the expiration or termination of
the Option. Options may be exercised, in whole or in part,
from time to time, by giving written notice of exercise to
Selas at its principal office, specifying the number of
Shares to be purchased, accompanied by payment in full of the
aggregate purchase price for the Shares. Only full Shares
shall be delivered, and any fractional Share which might
otherwise be deliverable upon exercise of an Option granted
hereunder shall be forfeited.
The option exercise price shall be payable: (i) in cash
or its equivalent, or (ii) if the Committee, in its discretion, so
provides in the Option Agreement (as hereinafter defined) or, in
the case of Options that are not incentive stock options, if the
Committee, in its discretion, so determines at or prior to the
time of exercise, in whole or in part through the transfer of
Shares previously acquired by the Optionee, provided the Shares so
transferred have been held for the applicable holding period set
forth below:
(i) if such previously acquired Shares were
acquired through exercise of an incentive stock option and
are being tendered as payment of the option price under an
incentive stock option, such Shares have been held by the
Optionee for a period not less than the holding period
described in section 422(a)(1) of the Code;
(ii) if such previously acquired Shares were
acquired through exercise of an incentive stock option, a
non-qualified stock option or a SAR and are being tendered as
payment of the option price under a non-qualified stock
option, such Shares have been held by the Optionee for more
than one year; or
(iii) if such previously acquired Shares were
acquired through exercise of a non-qualified stock option or
a SAR and are being tendered as payment of the option price
under an incentive stock option, such Shares have been held
by the Optionee for more than one year.
In the event such purchase price is paid, in whole or in
part, with Shares, the portion of the purchase price so paid shall
be equal to the fair market value, on the date of exercise of the
Option, of the Shares so tendered in payment of such purchase
price, as determined by, or in the manner prescribed by, the
Committee in accordance with subsection 5(a).
.0.0.5.0.0.4 Termination of Optionee's Employment. If an
Optionee's employment with Selas and all subsidiaries is
terminated for any reason, with or without cause, other than
by reason of death or disability (as described in subsections
(e) and (f) below) prior to the expiration of the original
term of the Optionee's Option ("Expiration Date"), such
Option may be exercised, to the extent of the number of
shares with respect to which the Optionee could have
exercised it on the date of such termination, or to any
greater extent permitted by the Committee, by the Optionee at
any time prior to the earlier of (i) the Expiration Date
specified in such Option, or (ii) the date three months after
the date of termination of employment.
.0.0.5.0.0.5 Death of Optionee. If an Optionee's
employment is terminated by reason of the Optionee's death
prior to the Expiration Date of an Option held by the
Optionee, or if an Optionee whose employment is terminated
shall die following termination of employment but prior to
the Expiration Date of the Optionee's Option or expiration of
the period specified in subsection (d) above or determined
under subsection (f) below, if earlier, such Option may be
exercised by the Optionee's estate, personal representative
or beneficiary who acquired the right to exercise such Option
by bequest or inheritance or by reason of the death of the
Optionee, to the extent of the number of Shares with respect
to which the Optionee could have exercised it on the date of
the Optionee's death, or to any greater extent permitted by
the Committee, at any time prior to the earlier of (i) one
year following the date of the Optionee's death, or (ii) the
Expiration Date of such Option (which, in the case of death
following a termination of employment pursuant to subsection
(d) above or (f) below, shall be deemed to mean the
expiration of the exercise period specified therein or
determined thereunder).
.0.0.5.0.0.6 Disability of Optionee. If an
Optionee shall become disabled (within the meaning of
section 22(e)(3) of the Code) during the Optionee's
employment with Selas or any subsidiary, and the
Optionee's employment with Selas and all subsidiaries is
terminated as a consequence of such disability prior to
the Expiration Date of Optionee's Option, such Option
may be exercised by the Optionee, to the extent of the
number of Shares with respect to which the Optionee
could have exercised it on the date of such termination
of employment, or to any greater extent permitted by the
Committee, at any time prior to the earlier of (i) one
year following the date of the Optionee's termination of
employment, or (ii) the Expiration Date of such Option.
In the event of the Optionee's legal disability, such
Option may be so exercised by the Optionee's legal
representative.
.0.0.5.0.0.7 Transferability. Except as provided in the
following sentence, no Option shall be assignable or
transferable by an Optionee otherwise than by will or by the
laws of descent and distribution. The Committee may, in its
discretion, authorize all or a portion of a non-qualified
stock option to be on terms which permit transfer by the
Optionee to (i) the spouse, children or grandchildren of the
Optionee ("Immediate Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Immediate Family Members,
or (iii) a partnership in which such Immediate Family Members
are the only partners, provided that (x) there may be no
consideration for any such transfer, (y) the Option Agreement
pursuant to which such Option is granted must be approved by
the Committee and expressly provide for transferability in a
manner consistent with this Section, and (z) subsequent
transfers of the Option shall be prohibited other than by
will or the laws of descent and distribution.
A transferred Option shall continue to be subject to the
same terms and conditions as were applicable immediately prior to
transfer, and the Optionee shall remain subject to tax withholding
under Section 5(l). The events of termination of employment of
Section 5 shall also continue to be applied with respect to the
original Optionee, following which the Option shall be exercisable
by the transferee only to the extent, and for the periods
specified in, Sections 5(d), (e) and (f).
.0.0.5.0.0.8 Rights as a Stockholder. An Optionee shall have
no rights as a stockholder with respect to any Shares covered by
an Option until the issuance of a stock certificate representing
such Shares.
.0.0.5.0.0.9 Annual Limit on Incentive Stock
Options. The aggregate fair market value (determined in
accordance with the last sentence of Section 5(a) hereof
as of the date an incentive stock option is granted) of
the Shares with respect to which incentive stock options
become exercisable for the first time during any
calendar year by an Eligible Individual (under the Plan
and any other incentive stock option plan of Selas or
any parent corporation (within the meaning of Section
424(e) of the Code) ("parent") or subsidiary) shall not
exceed $100,000. If an Option intended as an incentive
stock option is granted to an Eligible Individual and
such option may not be treated in whole or in part as an
incentive stock option pursuant to the provisions of the
immediately preceding sentence, such Option shall be
treated as an incentive stock option to the extent it
may be so treated under such sentence and as a non-
qualified stock option as to the remainder. For
purposes of determining whether an incentive stock
option would cause the $100,000 limitation to be
exceeded, incentive stock options shall be taken into
account in the order granted.
.0.0.5.0.0.10 Ten Percent Shareholder. If an
Optionee owns more than 10% of the total combined voting
power of all shares of stock of Selas or of a subsidiary
or parent at the time an incentive stock option is
granted to the Optionee, the Option exercise price for
the incentive stock option shall be not less than 110%
of the fair market value of the optioned Shares on the
date the incentive stock option is granted, and such
incentive stock option by its terms shall not be
exercisable after the expiration of five years after the
date the incentive stock option is granted. The
conditions set forth in this subsection (j) shall not
apply to options that are not incentive stock options.
.0.0.5.0.0.11 Option Agreement and Further
Conditions.
As soon as practicable after the grant of an Option,
each Optionee shall enter into, and be bound by the
terms of, a stock option agreement (the "Option
Agreement") which shall state the number of Shares to
which the Option pertains and specify whether the Option
is intended to be an incentive stock option or a non-
qualified stock option. The Option Agreement shall set
forth such terms, conditions and restrictions regarding
the Option not inconsistent with the Plan (and, in the
case of incentive stock options, the provisions of
Section 422(b) of the Code) as the Committee shall
determine. Without limiting the generality of the
foregoing, the Committee, in its discretion, may impose
further conditions upon the exercisability of Options
and restrictions on transferability with respect to
Shares issued upon exercise of Options.
The Option Agreement may, in the discretion of the
Committee, include a provision under which the Optionee shall have
the right, in lieu of exercising all or a portion of the
Optionee's Option, to elect instead to receive an amount equal to
the difference between the fair market value of all, or a
specified number, of the Shares subject to such Option on the date
such right is exercised and the exercise price under such Option,
such amount to be paid in cash or in Shares (at their fair market
value on the date such right is exercised), or in a combination of
cash and Shares, as the Committee shall determine. Such right is
referred to in this Plan as a SAR. Any SAR shall be exercisable
only at a time when the Option to which it is related is
exercisable; provided, however, that if the Optionee is a director
or officer of Selas within the meaning of Section 16 of the
Exchange Act, cash may be paid to the Optionee upon the exercise
of a SAR only if the Optionee exercises the SAR (by giving the
notice described in Subsection (c) hereof) during the period
beginning on the third business day following the release for
publication of Selas's quarterly and annual summary statements of
sales and earnings, and ending on the twelfth business day
following such date. Any SAR shall be subject to the following
additional conditions:
(i) the SAR will expire no later than the
termination of the Option;
(ii) the SAR will be transferable only if and
when the underlying Option is transferable, and under the
same conditions; and
(iii) in the case of a SAR granted "in tandem"
with an incentive stock option, the SAR may be exercised only
when there is a positive spread, i.e., when the fair market
value of the stock subject to the incentive stock option
exceeds the exercise price of such option.
In any case where an Option is granted in tandem with a SAR, the
tandem Option-SAR shall be considered exercised when, and to the
extent that, either the underlying Option or the SAR is exercised.
.0.0.5.0.0.12 Withholding. The obligation of Selas
to deliver Shares upon the exercise of any Option or SAR
(or cash in lieu thereof) shall be subject to any
applicable federal, state and local tax withholding
requirements.
If the exercise of any Option is subject to the
withholding requirements of applicable federal, state or local tax
laws, the Committee, in its discretion (and subject to such
withholding rules ("Withholding Rules") as shall be adopted by the
Committee), may permit the minimum required federal, state and
local withholding tax obligation to be satisfied, in whole or in
part, by allowing the Optionee to elect to have Selas withhold
Shares (or by returning Shares to Selas), which Shares shall be
valued, for this purpose, at their fair market value on the date
of exercise of the Option (or, if later, the date on which the
Optionee recognizes ordinary income with respect to such exercise)
(the "Determination Date").
.0.0.6 Listing and Registration of Shares. Each Option
and each related SAR shall be subject to the requirement
that, if at any time Selas shall determine, in its
discretion, that the listing, registration or qualification
of the Option or SAR or Shares covered thereby upon any
securities exchange or under the laws of any jurisdiction, or
the consent or approval of any governmental or regulatory
body, is necessary or desirable as a condition of, or in
connection with, the granting of such Option or SAR or the
exercise thereof or that action by Selas or the Optionee
should be taken in order to obtain an exemption from any such
requirement, then no such Option or SAR may be exercised in
whole or in part unless and until such listing, registration,
qualification, consent, approval or action shall have been
effected or obtained, on conditions acceptable to Selas.
Without limiting the generality of the foregoing, each
Optionee, or the Optionee's legal representative or
beneficiaries, also may be required to give satisfactory
assurance that Shares acquired upon exercise of an Option or
SAR are being acquired for investment and not with a view to
distribution, and certificates representing such Shares may
be legended accordingly.
.0.0.7 Adjustments. The number of Shares which may be
issued under the Plan, as stated in Section 4 hereof, the
number of Shares specified in the limitation in the first
paragraph of Section 5 hereof and the number of Shares
issuable upon exercise of outstanding Options and SARs under
the Plan (as well as the exercise price per share under such
outstanding Options), shall be equitably adjusted by the
Committee to reflect any stock dividend, stock split, share
combination or similar change in the capitalization of Selas.
In the event of a proposed dissolution, liquidation or sale
of a substantial portion of the assets of Selas, or of a merger,
consolidation, share exchange, exchange of shares or other transaction
in which holders of Shares are to receive cash, securities or other
property, the Committee shall, in its unlimited discretion, have the
power prior to such event (a) to terminate all outstanding Options and
related SARs upon at least seven days' prior notice to each Optionee
and, if the Committee deems it appropriate, to cause the Company to pay
to each Optionee an amount in cash with respect to each Share to which
a terminated Option pertains equal to the difference between the Option
exercise price and the value, as determined by the Committee in its
sole discretion, of the consideration to be received by the holders of
Shares in connection with such transaction, or (b) to provide for the
exchange of Options outstanding under the Plan for options to acquire
securities or other property to be delivered in connection with the
transaction and in connection therewith to make an equitable
adjustment, as determined by the Committee in its sole discretion, in
the Option exercise price and number of Shares or amount of property
subject to the Option and, if deemed appropriate, provide for a cash
payment to Optionees in partial consideration for such exchange.
.0.0.8 Acquisitions. Notwithstanding any other provision
of the Plan, Options may be granted hereunder in substitution
for options held by officers and employees of other
corporations who have become officers or employees of Selas
or a subsidiary as a result of a merger, consolidation, share
exchange, acquisition of assets or similar transaction by
Selas or a subsidiary. The terms, including the option
price, of the substitute Options so granted may vary from the
terms set forth in this Plan to such extent as the Committee
may deem appropriate to conform, in whole or in part, to the
provisions of the options in substitution for which they are
granted.
.0.0.9 Amendment or Discontinuance of the Plan. At any
time and from time to time, the Board may suspend or
discontinue the Plan or amend it, and the Committee may amend
any outstanding Options and SARs, in any respect whatsoever,
provided, however, that without the approval by the
affirmative votes of the holders of at least a majority of
the Shares present, or represented, and entitled to vote at a
duly held meeting of the Shareholders of Selas: (a) the
class of individuals eligible to receive Options and SARs
shall not be materially modified, (b) the maximum number of
Shares with respect to which Options may be granted under the
Plan to any one Eligible Individual or to all Eligible
Individuals shall not be increased except as permitted under
Section 7 hereof, (c) the lowest price at which Options may
be granted shall not be reduced and the benefits, within the
meaning of Rule 16b-3 under the Exchange Act, accruing to
Eligible Individuals shall not otherwise be materially
increased, and (d) the duration of the Plan under Section 13
shall not be extended; provided further that any amendment
that would require shareholder approval pursuant to Treasury
Regulation section1.162-27(e)(4)(vi) or any successor thereto
shall not be made without the shareholder approval required
thereby; and provided further, that no such suspension,
discontinuance or amendment shall materially impair the
rights of any holder of an outstanding Option or SAR without
the consent of such holder.
.0.0.10 Absence of Rights. The recommendation or
selection of an Eligible Individual as a recipient of an
Option under the Plan shall not entitle such person to any
Option or SAR unless and until the grant actually has been
made by appropriate action of the Committee; and any such
grant is subject to the provisions of the Plan and the Option
Agreement relating to such Option or SAR. Further, the
granting of an Option or SAR to a person shall not entitle
that person to continued employment by Selas or a subsidiary
or affect the terms and conditions of such employment, and
Selas shall have the absolute right, in its discretion, to
retire such person in accordance with its retirement policies
or otherwise to terminate the employment of such person,
whether or not such termination may result in a partial or
total termination of an Option or SAR.
.0.0.11 Shareholder Approval. This Plan was adopted by
Selas on February 15, 1994 and was approved on April 19, 1994
by the affirmative votes of the holders of at least a
majority of the Shares present, or represented, and entitled
to vote at a duly held meeting of the Shareholders of Selas.
.0.0.12 No Obligation to Exercise Option. The granting of
an Option shall impose no obligation upon an Optionee to
exercise such Option.
.0.0.13 Termination of Plan. No Options or SARs may be
granted under the Plan after February 14, 2004, provided,
however, that the Plan and all outstanding Options and SARs
shall remain in effect until such Options and SARs have
expired or are terminated in accordance with the Plan.
.0.0.14 Governing Law. With respect to any incentive
stock options granted pursuant to the Plan and the Option
Agreements thereunder, the Plan, such Option Agreements and
any incentive stock options granted pursuant thereto shall be
governed by the applicable Code provisions to the maximum
extent possible. Otherwise, the laws of the Commonwealth of
Pennsylvania shall govern the operation of, and the rights of
all persons under, the Plan, the Option Agreements and the
Options and SARs.
Amended and Restated by the Board of Directors on November 19, 1996
EXHIBIT 13
SELAS CORPORATION OF AMERICA
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 Dresher, Pennsylvania
with subsidiaries in Minnesota, Ohio, California, England, France,
Germany and Italy (and a 50% joint venture in Japan), operates
directly or through subsidiaries in three business segments.
Under the SelasTM name, the Company designs and manufactures
specialized industrial heat processing systems and equipment for steel,
glass and other manufacturers worldwide. The Company's subsidiary,
Resistance Technology, Inc., designs and manufactures microminiature
components and molded plastic parts primarily for the hearing instrument
manufacturing industry and also for the electronics, telecommunications
and medical equipment industries. The Company's subsidiary, RTI
Electronics, Inc., formed in 1997, manufactures heat sensitive
resistors known as thermistors used as an electronic current limiting
device to protect computer installations. The Company's subsidiary,
Deuer Manufacturing, Inc., manufactures spare tire holders and lifts
and related products, primarily based on cable winch designs, for use
principally as original equipment by the pick-up truck and minivan
segment of the automotive industry.
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31 1997 1996
Net sales . . . . . . . . . . . . $111,165,000 $103,426,000
Operating income . . . . . . . . $ 7,171,000 $ 7,522,000
Net income . . . . . . . . . . . $ 4,387,000 $ 4,130,000
Earnings per share:
Basic . . . . . . . . . . . $.84 $.80
Diluted . . . . . . . . . . . $.82 $.78
Working capital . . . . . . . . . $ 18,642,000 $ 19,822,000
Total assets . . . . . . . . . . $ 81,795,000 $ 91,162,000
Total shareholders' equity . . . $ 40,399,000 $ 37,641,000
MARKET AND DIVIDEND INFORMATION
1997 1996
Market Market
Price Range Price Range
QUARTER HIGH LOW HIGH LOW
First . . . . . . . . . . . 13-1/16 10 7-13/16 5-7/8
Second . . . . . . . . . . . 12-5/8 9-13/16 7-11/16 6-15/16
Third . . . . . . . . . . . 13-1/2 11-1/4 9-9/16 6-11/16
Fourth . . . . . . . . . . . 13-3/16 8-15/16 11-1/2 9
At February 12, 1998, the Company had 499 shareholders of record.
1997 1996 1995
Dividends per share:
First Quarter $.043 $.04 $.037
Second Quarter .045 .04 .037
Third Quarter .045 .04 .04
Fourth Quarter .045 .043 .04
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.
Note: All information above has been adjusted to give retroactive
effect to a 3 for 2 stock split in June 1997. See note 14 to
the Consolidated Financial Statements.
Selas is an equal opportunity employer.
THE COMMON STOCK OF SELAS CORPORATION OF AMERICA IS LISTED ON THE
AMERICAN STOCK EXCHANGE UNDER THE SYMBOL SLS.
SELAS CORPORATION OF AMERICA
FIVE-YEAR SUMMARY OF OPERATIONS
(In thousands, except for share data)
Years Ended December 31 1997 (a) 1996 1995
Sales, net $ 111,165 $ 103,426 $ 71,215
Cost of sales 87,704 80,870 52,060
Selling, general and admin-
istrative expenses 16,289 15,034 14,397
Interest expense 1,040 1,212 1,336
Interest (income) (237) (298) (340)
Other (income) expense, net 8 83 36
Income before income taxes 6,361 6,525 3,726
Income taxes 1,974 2,395 1,426
Net income $ 4,387 $ 4,130 $ 2,300
========= ========= ==========
Earnings per share:
Basic $.84 $.80 $.44
========= ========= ==========
Diluted $.82 $.78 $.44
========= ========= ==========
Weighted average number of
common and common equivalent
shares outstanding during
year
Basic 5,213,124 5,190,075 5,189,048
========= ========= =========
Diluted 5,354,978 5,271,959 5,202,411
========= ========= =========
Years Ended December 31 1994 1993 (b)
Sales, net $ 73,663 $ 52,268
Cost of sales 52,813 39,962
Selling, general and admin-
istrative expenses 14,727 9,687
Interest expense 1,282 601
Interest (income) (303) (346)
Other (income) expense, net 165 (12)
Income before income taxes 4,979 2,376
Income taxes 1,875 1,029
Net income $ 3,104 $ 1,347
========== =========
Earnings per share:
Basic $.60 $.28
========== =========
Diluted $.60 $.28
========= =========
Weighted average number of
common and common equivalent
shares outstanding during
year
Basic 5,179,246 4,818,531
========= =========
Diluted 5,215,736 4,872,240
========= =========
(a) On February 21, 1997, the Company acquired the assets of RTI
Electronics, Inc.
(b) On October 20, 1993, the Company acquired all of the outstanding
common shares of Resistance Technology, Inc.
Note: All information above has been adjusted to give retroactive
effect
to a 3 for 2 stock split distributed in June, 1997. See
note 14 to the Consolidated Financial Statements.
OTHER FINANCIAL HIGHLIGHTS
Years Ended December 31 1997 (a) 1996 1995
(In thousands, except for share data)
Working capital $18,642 $19,822 $15,751
Total assets $81,795 $91,162 $67,960
Long-term debt $ 7,015 $ 6,837 $ 9,100
Long-term benefit
obligations $ 4,081 $ 4,310 $ 4,409
Shareholders' equity:
Capital stock and additional
paid-in capital $17,382 $17,214 $17,214
Retained earnings 23,130 19,673 16,390
Foreign currency translation
adjustment 269 1,136 1,440
Minimum pension liability
adjustment -- -- (6)
Treasury stock (382) (382) (382)
Total shareholders' equity $40,399 $37,641 $34,656
Depreciation and
amortization $ 3,469 $ 2,826 $ 2,771
Dividends per share $.178 $.163 $.154
Years Ended December 31 1994 1993 (b)
(In thousands, except for share data)
Working capital $17,935 $14,722
Total assets $70,120 $72,864
Long-term debt $11,136 $11,579
Long-term benefit
obligations $ 4,431 $ 4,553
Shareholders' equity:
Capital stock and additional
paid-in capital $17,182 $16,980
Retained earnings 14,886 12,490
Foreign currency translation
adjustment 1,524 587
Minimum pension liability
adjustment (112) (248)
Treasury stock (382) (382)
Total shareholders' equity $33,098 $29,427
Depreciation and
amortizationt $ 2,732 $ 1,326
Dividends per share $.137 $.133
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
Consolidated sales increased 7.5% to $111.2 million in 1997 from $103.4
million in 1996. Net sales from the heat processing segment were $63
million in 1997 compared to $62.8 million in 1996. The slight increase
in sales for 1997 is attributed to the high level of backlog at
December 31, 1996, coupled with additional bookings in 1997. The
recent turmoil in the Asian markets also had an impact on sales and
bookings in 1997 as several highly expected orders have been delayed
and put on hold by our customers. Approximately 10.6% of 1997 revenue
is related to contracts or sales to customers in Asia. Other than the
decline in sales and bookings, management does not believe that there
is any further exposure to the Company from the Asian market turmoil.
Consolidated backlog for the heat processing segment was down to $12.2
million at December 31, 1997 compared to $55.5 million at December 31,
1996. In February, 1998 this business segment received orders for
several projects in excess of $17 million.
The Company's precision electromechanical and plastics components
segment sales increased to $33.3 million in 1997 from $27.4 million in
1996. The majority of the increase in sales for 1997 is attributed to
the February, 1997 acquisition of RTI Electronics which had sales of
$5.7 million in 1997. There was also a mix in products sold to the
hearing aid industry as plastic component part sales were slightly
below the 1996 level and microminiature system sales were higher in
1997.
Net sales for the tire holders, lifts and related products segment
increased to $14.9 million in 1997 from $13.2 million in 1996. The
increase in sales is primarily due to higher tire lift sales to
domestic automotive manufacturers, and, to a lesser degree, to overseas
automotive manufacturers.
The Company's gross profit margin as a percentage-of-sales decreased to
21.1% in 1997 from 21.8% in 1996. Gross profit margins for the heat
processing segment decreased to 14.7% in 1997 from 16% in 1996. Heat
processing gross profit margins vary markedly from contract to
contract, depending on customer specifications and other conditions
related to the contract. The gross profit margins were impacted by two
contracts in 1997 and one contract in 1996 that had losses that
impacted the segment's overall gross profit margins. Heat processing
reserves for guarantee obligations and estimated future costs of
services increased to $2.7 million in 1997 from $1.7 million in 1996
due to several large custom-engineered contracts in process, recently
completed, or near completion in 1997 compared to 1996. Guarantee
obligations and estimated future service costs on these contracts
extend for up to one year from completion.
Consolidated net sales for the heat processing segment in 1997 and 1996
include approximately $40.7 million and $43.4 million, respectively,
from large custom-engineered contracts executed by the Company's
wholly-owned European subsidiaries. Consolidated
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
income before taxes in 1997 and 1996 included approximately $.8 million
in both years from the results of operations of the Company's wholly-
owned European subsidiaries in the heat processing segment. Due to the
nature of the Company's large custom-engineered contracts, one contract
may account for a large percentage of sales in a particular period;
however, the Company is not dependent on any one engineered systems
customer on an ongoing basis.
Gross profit for the precision electromechanical and plastics segment
decreased to 35.1% in 1997 from 39% in 1996. The lower gross profit
margins in 1997 are attributable to the acquisition of RTI Electronics
in February, 1997 as its products, while profitable, do not achieve the
historical gross profit margins of this business segment. Also
impacting the lower 1997 gross profit margins, but to a lesser degree,
is the mix of sales between 1997 and 1996 as microminiature systems and
plastic component parts have varying profit margins.
Gross profit margins for the tire holders, lifts and related product's
segment improved to 17% in 1997 from 13.6% in 1996. The improvement in
1997 is due to efficiencies from higher production through the
increased sales of tire lifts.
Selling, general and administrative (SG&A) expenses increased 8.3% to
$16.3 million in 1997, up from $15 million in 1996. Approximately $.4
million of the increase is due to costs related to the proposed
acquisition of MRL Industries, Inc., which acquisition has since been
terminated, and the SG&A costs of RTI Electronics which account for the
balance of the increase in 1997 or approximately $.9 million.
Research and development costs amounted to $1.5 million in 1997
compared to $1.4 million in 1996.
Interest expense decreased in 1997 to $1 million compared to $1.2
million in 1996, due to lower average borrowings in 1997. Interest
income decreased to $.2 million in 1997 compared to $.3 million in
1996, due to lower average funds available for investment in 1997.
Other (income) expense included a gain on foreign currency transactions
of $14,000 in 1997 compared to a loss of $8,000 in 1996.
The effective tax rate in 1997 and 1996 on income before income taxes
was 31% and 36.7%, respectively. The lower rate in 1997 is due to the
benefit of utilizing net foreign operating loss carryforwards, coupled
with lower effective state taxes in 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's net deferred tax assets include a substantial amount of
foreign net operating loss, postretirement benefit obligations and
employee pension plan liabilities. The Company continually reviews the
adequacy of the valuation allowance and recognizes benefits only as
reassessment indicates that it is more likely than not that the
benefits will be realized. Realization of future tax benefits related
to deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the foreign
subsidiary's net operating loss period and the timing of the turnaround
of the postretirement benefit and pension plan obligations in the
future. Management has considered these factors in reaching its
conclusion as to the adequacy of the valuation allowance for financial
reporting purposes.
Consolidated net income of $4.4 million in 1997 was up 6.2% from $4.1
million in 1996. The largest increase was in the Company's tire
holders, lifts and related product's segment which increased to $.5
million in 1997 compared to $.1 million in 1996. The precision
electromechanical and plastics components increased its net income in
1997 to $2.1 million from $2.0 million in 1996. The Company's heat
processing segment was impacted by additional costs of $.4 million
relating to the proposed acquisition of MRL Industries, Inc. which
resulted in lower earnings in 1997 of $1.8 million compared to $2
million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated net working capital decreased to $18.6 million at December
31, 1997 from $19.8 million at December 31, 1996. The lower working
capital was due in part to the February, 1997 acquisition of RTI
Electronics, repayment of long-term debt obligations, payment of
dividends and capital expenditures, partially offset by the earnings
for the year, along with depreciation and amortization expense. The
major changes in the components of working capital were lower current
liabilities of $12.2 million and lower receivables of $10.7 million
both due primarily to the level of activity in the heat processing
segment. Other changes are lower cash equivalents of $5.3 million and
higher inventories of $1.6 million in 1997 due to the acquisition of
RTI Electronics and the level of activity in the heat processing
segment. The current liabilities include value-added taxes which are
$3.4 million lower in 1997.
The Company's long-term debt at December 31, 1997 was $7
million. The increase in long-term debt is the result of the
acquisition of RTI Electronics on February 21, 1997. Under the terms
of Selas' credit facility, there are covenants that may restrict the
payment of future dividends. The credit facility required the Company
to maintain consolidated tangible capital funds of approximately $21.1
million through December 31, 1997 consisting of shareholders' equity,
plus subordinated debt, less intangible assets increased annually by
60% of net income and 60% of the aggregate amount of contributions to
capital. At December 31, 1997, the Company exceeded the amount
required to satisfy this covenant in the credit facility by $3.3
million.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's French subsidiary has an interest rate swap agreement for
the purpose of managing interest rate expense. The total notional
amount of $2.3 million at December 31, 1997 will decrease with the
terms of the long-term debt agreement. The swap agreement requires
fixed interest rate payments of 8.55% through May, 2006. Additional
interest incurred in 1997 in connection with the swap arrangement
amounted to $95,584 vs. $101,738 in 1996. See note 9 of the
Consolidated Financial Statements for discussion of this agreement.
The Company is a defendant along with a number of other parties in
approximately 215 lawsuits as of December 31, 1997 (155 as of December
31, 1996) alleging that plaintiffs have or may have contracted
asbestos-related diseases as a result of exposure to asbestos products
or equipment containing asbestos sold by one or more named defendants.
Due to the noninformative nature of the complaints, the Company does
not know whether any of the complaints state valid claims against the
Company. The Company is also one of approximately 500 defendants in a
class action on behalf of approximately 2,700 present or former
employees of a Texas steel mill alleging that products supplied by the
defendants created a poisonous atmosphere that caused unspecified
physical harm. These cases are being defended by one or more of the
Company's insurance carriers presently known to be "at risk". The lead
carrier has settled approximately 11 and 17 claims in 1997 and 1996,
respectively, with no request for the Company to participate in any
settlement. Management is of the opinion that the number of insurance
carriers involved in the defense of the suits and the significant
number of policy years and policy limits to which these insurance
carriers are insuring the Company make the ultimate disposition of
these lawsuits not material to the Company's consolidated financial
position or results of operations.
In February, 1998, the Company acquired the stock of CFR, a Paris,
France firm in the engineered industrial furnace business. The
principal market served by CFR is engineered batch and continuous
furnaces for heat treating both ferrous and non-ferrous metals, glass
and ceramic tableware. CFR had sales for the year ended December 31,
1997 of 107.5 million French francs (FF) or approximately $18.3
million. The purchase price was 15 million FF or approximately $2.5
million and the assumption of certain liabilities which was paid for by
additional bank borrowings of 15 million FF which will be paid off over
five years at a fixed annual interest rate of 5.65%.
In September, 1997, the Company entered into an agreement to acquire
MRL Industries, Inc., Sonora, CA, a manufacturer of furnaces and
furnace components used in the semiconductor manufacturing process, for
$16,750,000 of the Company's Common Shares in a merger to be accounted
for as a pooling of interests. The acquisition was subject to
customary conditions, including due diligence and shareholder approval
by both parties. On February 26, 1998 the parties announced they had
mutually agreed to terminate the acquisition agreement as a result of a
number of unresolved issues between the parties. The Company incurred
costs of approximately $0.4 million in 1997 in connection with this
proposed transaction.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company is in the process of conducting a comprehensive review of
its computer systems to identify the systems that could be affected by
the "Year 2000" issue and is developing an implementation plan to
resolve the issue. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-
sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure
or miscalculations. The Company presently believes that, with
modifications to existing software and converting to new software, the
Year 2000 problem will not pose significant operational problems for
the Company's computer systems as so modified and converted. However,
if such modifications and conversations are not completed timely, the
Year 2000 issue may have a material impact on the operations of the
Company. The costs of the modifications are not expected to have a
material effect on the results of operations of the Company.
A significant portion of the heat processing segment sales are
denominated in foreign currencies, primarily the French franc.
Generally, the income statement effect of changes in foreign currencies
is partially or wholly offset by the European subsidiaries' ability to
make corresponding price changes in the local currency. The impact of
fluctuations in foreign currencies did not have a material effect on
the financial results of the Company in 1997, 1996 or 1995.
In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement requires that all items that are
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements.
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement
establishes standards for reporting information about operating
segments in annual financial statements and requires selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers.
In February, 1998, the FASB issued SFAS No. 132 "Employers' Disclosure
about Pensions and Other Postretirement Benefits." This Statement
revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of
those plans.
The Company plans to adopt these accounting standards for periods
beginning with January 1, 1998, as required. The adoption of these
standards will not impact consolidated results, financial condition, or
long-term liquidity.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company believes that its present working capital position combined
with funds expected to be generated from operations and the available
borrowing capacity through its revolving credit loan facilities will be
sufficient to meet its anticipated cash requirements for operating
needs and capital expenditures.
1996 COMPARED WITH 1995
Consolidated sales increased 45.2% to $103.4 million in 1996 from $71.2
million in 1995. Net sales for the heat processing segment increased
to $62.8 million in 1996 from $32.6 million in 1995. The sharp
increase in sales was due to the record level of backlog at the end of
1995, along with additional bookings of several large engineering
contracts in 1996. Consolidated backlog for the heat processing
segment was $55.5 million at December 31, 1996 compared to $69.3
million at December 31, 1995.
The Company's precision electromechanical and plastics components
business segment had sales of $27.4 million in 1996 compared to sales
of $24.9 million in 1995. The sales increase in this segment is due to
higher unit sales to the hearing aid industry.
Net sales of the tire holders, lifts and related products segment
decreased to $13.2 million in 1996 from $13.8 million in 1995. The
decrease in sales for this segment is due to the previously disclosed
finalization of the Chrysler mini-van contract after the first quarter
of 1995.
The Company's gross profit margin as a percentage-of-sales decreased to
21.8% in 1996 from 26.9% in 1995. Gross profit margins for the heat
processing segment decreased to 16.0% in 1996 from 25.8% in 1995. Heat
processing gross profit margins vary markedly from contract to
contract, depending on customer specifications and other conditions
related to the contract. The lower gross profit margins for 1996 were
also impacted by a large engineered contract that resulted in a loss.
Heat processing reserves for guarantee obligations and estimated future
costs of services increased to $1.7 million in 1996 from $.8 million in
1995 due to several large custom-engineered contracts in process or
recently completed during 1996. Guarantee obligations and estimated
future service costs on these contracts extend for up to one year from
completion.
Consolidated net sales for the heat processing segment in 1996 and 1995
include approximately $43.4 million and $20.2 million, respectively,
from large custom-engineered contracts executed by the Company and its
wholly-owned European subsidiaries. Consolidated income (loss) before
taxes in 1996 and 1995 included approximately $.8 million and $(1.8)
million, respectively, from the results of operations of the Company's
wholly-owned European subsidiaries. Consolidated backlog for the heat
processing segment in 1996 and 1995 include $55.5 and $69.3,
respectively, for engineering contracts to be executed by the Company's
wholly-owned subsidiaries. Due to the nature of the Company's large
custom-engineered contracts, one contract may account for a
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
large percentage of sales in a particular period; however, the Company
is not dependent on any one engineered systems customer.
Gross profit margins for the precision electromechanical and plastics
segment increased to 39% for 1996 compared to 36% for 1995.
Productivity improvement in manufacturing, along with higher unit
sales, generated the higher gross profit margins for the segment in
1996.
Gross profit margins for the tire holders, lifts and related products
segment improved to 13.6% in 1996 compared to 12.9% in 1995. The
improvement for this segment in 1996 is due to productivity improvement
and a more favorable product mix.
Selling, general and administrative (SG&A) expenses increased 4.4% in
1996 to $15 million from $14.4 in 1995. SG&A expense, as a percentage-
of-sales, represented 14.5% in 1996, down from 20.2% in 1995 due to the
higher amount of sales in 1996, which is up 45.2%, compared to the 4.4%
increase in SG&A expense in 1996. The majority of the SG&A increase is
in the Company's precision electromechanical and plastics segment which
increased $.8 million in 1996.
Research and development costs amounted to $1.4 million in 1996
compared to $1.5 million in 1995.
Interest expense decreased to $1.2 million in 1996 from $1.3 million in
1995 due to lower borrowings in 1996. Interest income for 1996 and
1995 was $.3 million.
Other (income) expense includes losses on foreign currency transactions
of $8,000 in 1996 and $123,000 in 1995.
The effective tax rate in 1996 and 1995 on income before income taxes
was 36.7% and 38.3%, respectively. The higher rate in 1995 is due to
foreign operating losses not subject to tax benefits.
The Company's net deferred tax assets include a substantial amount of
foreign net operating loss, postretirement benefit obligations and
employee pension plan liabilities. The Company continually reviews the
adequacy of the valuation allowance and recognizes benefits only as
reassessment indicates that it is more likely than not that the
benefits will be realized. Realization of future tax benefits related
to deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the foreign
subsidiary's net operating loss period and the timing of the turnaround
of the postretirement benefit and pension plan obligations in the
future. Management has considered these factors in reaching its
conclusion as to the adequacy of the valuation allowance for financial
reporting purposes.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Consolidated net income of $4.1 million in 1996 is up 79.6% from $2.3
million in 1995. The Company's heat processing segment's net income
for 1996 increased to $2.0 million in 1996 from $.6 million in 1995 due
primarily to the strong increase in sales. The precision
electromechanical and plastic components segment net income increased
to $2 million in 1996 from $1.5 million in 1995 due to higher sales and
improved gross profit margins.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
Certain statements herein are, or could be deemed to be, "forward-
looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Reference is made to the Company's 1997 Annual
Report on Form 10-K regarding important factors that could cause the
actual results, performance or achievement of the Company to differ
materially from those contained in or implied by any forward-looking
statement made by or on behalf of the Company, including forward-
looking statements contained herein.
SELAS CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31 1997 1996 1995
Sales, net . . . . . . . . . $111,164,563 $103,426,075 $71,215,413
Operating costs and expenses
Cost of sales . . . . . 87,703,693 80,870,331 52,060,118
Selling, general and
administrative expenses 16,289,388 15,033,728 14,397,489
Operating income . . . . . . 7,171,482 7,522,016 4,757,806
Interest expense . . . . . 1,039,524 1,212,194 1,336,386
Interest (income). . . . . . (237,592) (297,806) (339,895)
Other expense, net . . . . . 8,385 82,475 35,732
Income before income taxes . 6,361,165 6,525,153 3,725,583
Income taxes . . . . . . . . 1,973,956 2,394,958 1,425,559
Net income . . . . . . . . . $ 4,387,209 $ 4,130,195 $2,300,024
============ ============ ===========
Earnings per share
Basic . . . . . . . . . $.84 $.80 $.44
============ ============ ===========
Diluted . . . . . . . . . $.82 $.78 $.44
============= ============ ===========
See accompanying notes to the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
ASSETS 1997 1996
Current assets
Cash, including cash equivalents
of $2,579,000 in 1997 and
$ 7,532,000 in 1996. . . . . . . . . . . $ 3,034,903 $ 8,343,820
Accounts and notes receivable, (including
unbilled receivables of $6,574,000 in
1997 and $7,783,000 in 1996) less
allowance for doubtful accounts of
$681,000 in 1997 and $787,000 in 1996 30,931,625 41,660,153
Inventories . . . . . . . . . . . . . . . 9,999,140 8,433,522
Deferred income taxes . . . . . . . . . . 2,840,423 2,051,580
Other current assets . . . . . . . . . . . 919,608 623,169
Total current assets . . . . . . . . . 47,725,699 61,112,244
Investment in unconsolidated affiliate . . . 472,689 538,278
Property, plant and equipment
Land . . . . . . . . . . . . . . . . . . 1,041,869 1,118,802
Buildings . . . . . . . . . . . . . . . . 10,839,950 11,499,609
Machinery and equipment . . . . . . . . . 22,720,633 19,455,946
34,602,452 32,074,357
Less: Accumulated depreciation . . . . . 17,284,665 15,362,577
Net property, plant and equipment. . . 17,317,787 16,711,780
Deferred pension cost . . . . . . . . . . . 56,973 225,060
Excess of cost over net assets of acquired
subsidiaries, less accumulated
amortization of $1,696,000 and $1,140,000 15,502,201 12,126,709
Other assets, less amortization . . . . . . 719,715 448,201
$81,795,064 $91,162,272
=========== ===========
See accompanying notes to the consolidated financial statements.
December 31, 1997 and 1996
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
Current liabilities
Notes payable . . . . . . . . . . . . . . .$ 975,804 $ 583,767
Current maturities of long-term debt . . . 2,618,463 2,271,830
Accounts payable . . . . . . . . . . . . . 14,336,607 20,169,143
Federal, state and foreign income taxes . . 693,240 926,823
Customers' advance payments on contracts . 902,592 4,854,880
Guarantee obligations and estimated future
costs of service . . . . . . . . . . . . 2,705,293 1,725,690
Other accrued liabilities . . . . . . . . . 6,851,846 10,758,185
Total current liabilities . . . . . . . 29,083,845 41,290,318
Long-term debt . . . . . . . . . . . . . . . 7,015,080 6,836,593
Pension plan obligation . . . . . . . . . . . 56,973 225,060
Other postretirement benefit obligations . . 4,024,217 4,084,768
Deferred income taxes . . . . . . . . . . . . 1,215,436 1,084,057
Contingencies and commitments
Shareholders' equity
Common shares, $1 par; 10,000,000 shares
authorized; 5,589,324 and 5,553,639
shares issued, respectively . . . . . . . 5,589,324 5,553,639
Additional paid-in capital . . . . . . . . 11,792,878 11,660,792
Retained earnings . . . . . . . . . . . . . 23,130,255 19,672,730
Foreign currency translation adjustment . . 268,993 1,136,252
40,781,450 38,023,413
Less: 363,564 common shares held in
treasury, at cost . . . . . . . . . . . 381,937 381,937
Total shareholders' equity . . . . . 40,399,513 37,641,476
$81,795,064 $91,162,272
=========== ===========
See accompanying notes to the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 1997
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . $ 4,387,209
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . 3,468,498
Equity in (income) losses of unconsolidated
. affiliates 4,715
(Gain) on sale of equity in affiliate . . .
--
(Gains) losses on sale of property and
equipment 3,965
Deferred taxes . . . . . . . . . . . . . . . (683,615)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 5,900,924
(Increase) decrease in inventories . . . . (1,296,090)
(Increase) decrease in other assets . . . (651,087)
Increase (decrease) in accounts payable . (2,788,173)
Increase (decrease) in accrued expenses . (1,334,874)
Increase (decrease) in customer advances (3,373,838)
Increase (decrease) in other liabilities (29,709)
Net cash provided by operating activities 3,607,925
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . (3,662,783)
Proceeds from sale of equity in affiliate . . . . . --
Proceeds from sales of property and equipment. . . 12,052
Dividend from unconsolidated affiliate . . . . . . --
Acquisition of subsidiary company, net of cash
acquired (5,151,620)
Net cash (used) by investing activities (8,802,351)
Cash flows from financing activities:
Proceeds from short-term borrowings . . . . . . . . . 1,000,725
Repayments of short-term borrowings . . . . . . . . . (513,448)
Proceeds from borrowings used to acquire subsidiary
company . . . . . . . . . . . . . . . . . . . . . . 3,500,000
Proceeds from long-term debt . . . . . . . . . . . . . 176,793
Repayments of long-term debt . . . . . . . . . . . . . (2,846,487)
Proceeds from exercise of stock options . . . . . . . 155,518
Payment of dividends . . . . . . . . . . . . . . . . (929,684)
Net cash provided (used) by financing activities . 543,417
Effect of exchange rate changes on cash . . . . . . . . (657,908)
Increase (decrease) in cash and cash equivalents . . . . (5,308,917)
Cash and cash equivalents beginning of year. . . . . . . 8,343,820
Cash and cash equivalents end of year. . . . . . . . . $ 3,034,903
============
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 1996
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 4,130,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . 2,826,038
Equity in (income) losses of unconsolidated
affiliates . . . . . . . . . . . . . . . . 115,880
(Gain) on sale of equity in affiliate . . .. --
(Gains) losses on sale of property and equipment (1,163)
Deferred taxes . . . . . . . . . . . . . . . . . (718,935)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . . (19,912,666)
(Increase) decrease in inventories . . . . . . . (677,400)
(Increase) decrease in other assets . . . . . 788,452
Increase (decrease) in accounts payable . . . 15,103,964
Increase (decrease) in accrued expenses . . . 7,635,111
Increase (decrease) in customer advances . . 2,553,785
Increase (decrease) in other liabilities . . (53,122)
Net cash provided by operating activities 11,790,139
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . (2,859,166)
Proceeds from sale of equity in affiliate . . . . . 575,826
Proceeds from sales of property and equipment. . . . 35,827
Dividend from unconsolidated affiliate . . . . . . . 16,742
Acquisition of subsidiary company, net of cash
acquired . . . . . . . . . . . . . . . . . . . . . --
Net cash (used) by investing activities . (2,230,771)
Cash flows from financing activities:
Proceeds from short-term borrowings . . . . . . . . --
Repayments of short-term borrowings . . . . . . . . (2,012,413)
Proceeds from borrowings used to acquire subsidiary
company . . . . . . . . . . . . . . . . . . . . . --
Proceeds from long-term debt . . . . . . . . . . . . --
Repayments of long-term debt . . . . . . . . . . . . (2,102,684)
Proceeds from exercise of stock options . . . . . . --
Payment of dividends . . . . . . . . . . . . . . . (847,712)
Net cash provided (used) by financing activities (4,962,809)
Effect of exchange rate changes on cash . . . . . . . (165,103)
Increase (decrease) in cash and cash equivalents . . . 4,431,456
Cash and cash equivalents beginning of year. . . . . . 3,912,364
Cash and cash equivalents end of year. . . . . . . . . $ 8,343,820
============
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 1995
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 2,300,024
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . 2,770,728
Equity in (income) losses of unconsolidated
affiliates . . . . . . . . . . . . . . . . (14,024)
(Gain) on sale of equity in affiliate . . . (171,983)
(Gains) losses on sale of property and equipment (4,199)
Deferred taxes . . . . . . . . . . . . . . . (108,437)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 1,383,444
(Increase) decrease in inventories . . . . 425,641
(Increase) decrease in other assets . . . (82,004)
Increase (decrease) in accounts payable . (6,977,690)
Increase (decrease) in accrued expenses . (610,643)
Increase (decrease) in customer advances 1,516,404
Increase (decrease) in other liabilities 63,638
Net cash provided by operating activities 490,899
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . (2,277,075)
Proceeds from sale of equity in affiliate . . . . 294,127
Proceeds from sales of property and equipment. . . 43,243
Dividend from unconsolidated affiliate . . . . . . --
Acquisition of subsidiary company, net of cash
acquired . . . . . . . . . . . . . . . . . . . . --
Net cash (used) by investing activities . . . . (1,939,705)
Cash flows from financing activities:
Proceeds from short-term borrowings . . . . . . . . 2,604,370
Repayments of short-term borrowings . . . . . . . . --
Proceeds from borrowings used to acquire subsidiary
company . . . . . . . . . . . . . . . . . . . . . --
Proceeds from long-term debt . . . . . . . . . . . . --
Repayments of long-term debt . . . . . . . . . . . . (2,397,789)
Proceeds from exercise of stock options . . . . . . 28,281
Payment of dividends . . . . . . . . . . . . . . . (795,812)
Net cash provided (used) by financing activities (560,950)
Effect of exchange rate changes on cash . . . . . . . 109,612
Increase (decrease) in cash and cash equivalents . . . (1,900,144)
Cash and cash equivalents beginning of year. . . . . . 5,812,508
Cash and cash equivalents end of year. . . . . . . . . $ 3,912,364
===========
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995
Common Stock Additional
Number of Paid-In
Shares Amount Capital
Balance, January 1, 1995 5,546,139 $5,546,139 $11,635,927
Net income
Translation (loss)
Exercise of 7,500 stock
options 7,500 7,500 24,865
Change in minimum
pension liability
Cash dividends paid
($.154 per share)
Balance, December 31, 1995 5,553,639 5,553,639 11,660,792
Net income
Translation (loss)
Change in minimum
pension liability
Cash dividends paid
($.163 per share)
Balance, December 31, 1996 5,553,639 5,553,639 11,660,792
Net income
Translation (loss)
Exercise of 35,685 stock
options 35,685 35,685 132,086
Cash dividends paid
($.178 per share)
Balance, December 31, 1997 5,589,324 $5,589,324 $11,792,878
========== ========== ===========
Foreign Minimum
Currency Pension
Retained Translation Liability
Earnings Adjustment Adjustment
Balance, January 1, 1995 $14,886,035 $ 1,524,372 $(112,623)
Net income 2,300,024
Translation (loss) (84,429)
Exercise of 7,500 stock
options
Change in minimum
pension liability 106,113
Cash dividends paid
($.154 per share) (795,812)
Balance, December 31, 1995 16,390,247 1,439,943 (6,510)
Net income 4,130,195
Translation (loss) (303,691)
Change in minimum
pension liability 6,510
Cash dividends paid
($.163 per share) (847,712)
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995 - (Continued)
Foreign Minimum
Currency Pension
Retained Translation Liability
Earnings Adjustment Adjustment
Balance, December 31, 1996 19,672,730 1,136,252 --
Net income 4,387,209
Translation (loss) (867,259)
Exercise of 35,685 stock
options
Cash dividends paid
($.178 per share) (929,684)
Balance, December 31, 1997 $23,130,255 $ 268,993 $ --
=========== ========== =========
Total
Treasury Shareholders'
Stock Equity
Balance, January 1, 1995 $(381,937) $33,097,913
Net income 2,300,024
Translation (loss) (84,429)
Exercise of 7,500 stock
options 32,365
Change in minimum
pension liability 106,113
Cash dividends paid
($.154 per share) (795,812)
Balance, December 31, 1995 (381,937) 34,656,174
Net income 4,130,195
Translation (loss) (303,691)
Change in minimum
pension liability 6,510
Cash dividends paid
($.163 per share) (847,712)
Balance, December 31, 1996 (381,937) 37,641,476
Net income 4,387,209
Translation (loss) (867,259)
Exercise of 35,685 stock
options 167,771
Cash dividends paid
($.178 per share) (929,684)
Balance, December 31, 1997 $(381,937) $40,399,513
========= ===========
See accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Selas Corporation of America 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 Dresher, Pennsylvania with subsidiaries in Minnesota,
Ohio, California, England, France, Germany and Italy (and a 50% joint
venture in Japan), operates directly or through subsidiaries in three
business segments. Under the Selastm name, the Company designs and
manufactures specialized industrial heat processing systems and
equipment for steel,glass and other manufacturers worldwide. The
Company's subsidiary, Resistance Technology, Inc. (RTI), designs and
manufactures microminiature components and molded plastic parts
primarily for the hearing instrument manufacturing industry worldwide
and also for the electronics, telecommunications, and medical equipment
industries. The Company's subsidiary, RTI Electronics, Inc., formed
in 1997,
manufactures heat sensitive resistors known as thermistors, used as an
electronic current limiting device to protect computer installations.
The Company's subsidiary, Deuer Manufacturing, Inc., manufactures spare
tire holders and lifts and related products, primarily based on cable
winch designs, for use principally as original equipment by the pick-up
truck and minivan segment of the automotive industry.
CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
material intercompany transactions have been eliminated in
consolidation.
AFFILIATED COMPANIES - The Company accounts for its investment in 50%
or less owned affiliates on the equity method. At December 31, 1997
and 1996 the Company owned a 50% interest in Nippon Selas Co. Ltd.,
Tokyo, Japan.
CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less
to be cash equivalents.
INVENTORIES - Inventories, other than inventoried costs relating to
long-term contracts, are stated at the lower of cost or market. The
cost of the inventories was determined by the average cost and first
in, first out method. Inventoried costs relating to long-term contracts
are stated at the production and engineering cost, including overhead
as well as actual costs incurred from sub-contractors, which are not in
excess of estimated realizable value.
REVENUE RECOGNITION - As long-term contracts progress, the Company
records sales and cost of sales based on the percentage-of-completion
method, whereby the sales value is determined by multiplying the total
contract amount by the percent of costs incurred to estimated total
costs. Such contract costs and expenses incurred on a progress basis
at the time the sales value is recorded are charged to cost of sales.
General and administrative costs are expensed as incurred. The Company
provides currently for anticipated and known contract losses.
Guarantee obligations and estimated future contract costs of services
on large custom-engineered contracts are based on past experience of
similar projects. Due to the nature of large custom-engineered
contracts, the guarantee obligations and estimated future costs will
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
vary significantly from contract to contract. Revisions in cost
estimates during the progress of the work under the contracts have the
effect of including in the current accounting period adjustments
necessary to reflect the results indicated by the revised estimates of
final cost. Sales of manufactured products not sold under long-term
contracts are recorded upon shipment to the customer.
License fees under agreements not requiring substantial services are
recognized at time of effectiveness of the license agreement.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
carried at cost. Depreciation is computed by straight line and
accelerated methods using estimated useful lives of 5 to 50 years for
buildings and improvements, and 3 to 12 years for machinery and
equipment. Improvements are capitalized and expenditures for
maintenance, repairs and minor renewals are charged to expense when
incurred. At the time assets are retired or sold, the costs and
accumulated depreciation are eliminated and the resulting gain or loss,
if any, is reflected in the consolidated statement of operations.
EXCESS OF COST OVER NET ASSETS OF ACQUIRED SUBSIDIARIES - Goodwill
represents the excess of purchase price over fair value of net assets
acquired and is amortized on a straight-line basis over the expected
periods to be benefited, which currently is between fifteen and forty
years.
Patents and other intangible assets are valued at the lower of
amortized cost or fair market value and are amortized on a straight-
line basis over the expected periods to be benefited, which currently
is 5 to 20 years.
The Company assesses the recoverability of intangible assets by
determining whether the amortization of the balance over its remaining
life can be recovered through projected undiscounted future cash flows
of the business for which the intangible assets arose. The amount of
the impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Company's average cost of funds or fair value of the asset, where
appropriate. The assessment of the recoverability of intangible assets
will be impacted if estimated future operating cash flows are not
achieved.
INCOME TAXES - Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company has only limited
involvement with derivative financial instruments and does not use them
for trading purposes. They are used to manage well-defined interest
rate and foreign currency risks. The differential to be paid or
received on interest rate swap agreements is accrued as interest rates
change and recognized as an adjustment to interest
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
DERIVATIVE FINANCIAL INSTRUMENTS - (Continued)
expense. The gains and losses on foreign currency exchange contracts
are deferred and recognized when the offsetting gains and losses are
recognized on the related hedged items.
EMPLOYEE BENEFIT OBLIGATIONS - The Company provides health care
insurance for certain domestic retirees and employees. The Company
also provides retirement related benefits for certain foreign
employees. The Company measures the costs of its obligation based on
its best estimate. The net periodic costs are recognized as employees
render the services necessary to earn the postretirement benefit.
Deferred pension costs are actuarially determined and are amortized on
a straight-line basis over the expected periods to be benefited, which
currently is 15 years.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs,
including supporting services, amounted to $1,527,000 in 1997,
$1,404,000 in 1996 and $1,466,000 in 1995. Such costs are charged to
expense when incurred.
EARNINGS PER SHARE - In 1997, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share".
The adoption of SFAS 128 requires the Company to replace primary and
fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share are computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per common share reflects the
potential dilution of securities that could share in the earnings.
Prior year earnings per share have been restated.
USE OF ESTIMATES - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities, the recording of reported amounts of revenues and expenses
and the disclosure of contingent assets and liabilities to prepare
these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
2. ACQUISITION
On February 21, 1997, the Company acquired the assets and assumed
certain liabilities of Rodan Division of Ketema, Inc., a manufacturer
of thermistors and thermistor assemblies used primarily as an electric
current limiting device to protect computer installations. The
purchase price was $4.75 million in cash and, additionally, up to a
maximum of 85,000 shares of the Company's common stock tied to the
operation's earnings for the twelve months ended February 28, 1998. It
is currently estimated that additional shares will be issued, but less
than the maximum shares allowed under the purchase agreement. This
acquisition was accounted for as a purchase and the excess of the fair
value of the assets (goodwill) is being amortized on a straight line
basis over 15 years. In financing the acquisition, the Company
increased its bank borrowings by $3.5 million. The proforma effect on
operations in 1997 and 1996, assuming the acquisition was effective
January 1, 1996, would not be material. See note 8 regarding
borrowings.
3. STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
Years Ended December 31
1997 1996 1995
Interest received $ 218,061 $ 283,353 $ 277,888
Interest paid $ 913,312 $1,010,092 $1,306,636
Income taxes paid $2,311,305 $2,179,053 $2,410,060
During 1995, in connection with the sale of the investment in Isiglass
SPA, which resulted in a gain of $172,000, the Company received notes
receivable amounting to $943,000 of which $315,000 was repaid during
1995 and the remainder in 1996.
4. BUSINESS SEGMENT INFORMATION
The Company is engaged in providing engineered heat processing
equipment and services to industries throughout the world, the
manufacture of precision electromechanical and plastic component parts
predominantly for the hearing instrument industry and the manufacture
of spare tire holders and lifts for U.S. manufacturers of original
equipment for light trucks and vans. The results of operations and
assets of these segments for the years ended December 31, 1997, 1996
and 1995 included in the consolidated financial statements are as
follows:
For the year ended
December 31, 1997 Segments
Tire Holders, Lifts
Heat and Related
Processing Products
Operations
Sales, net $62,971,797 $14,938,301
Operating costs and expenses 59,311,804 14,114,362
General corporate expenses, net -- --
Operating income $ 3,659,993 $ 823,939
=========== ===========
Interest expense
Interest (income)
Other (income) expense, net
Income before income taxes
Depreciation and amortization $ 511,014 $ 241,708
=========== ===========
Property, plant and equipment
additions $ 370,235 $ 342,649
=========== ===========
Total assets $42,487,156 $ 5,922,281
=========== ===========
For the year ended
December 31, 1997 Segments
Precision
lectromechanical
& Plastic Component
Parts Total
Operations
Sales, net $33,254,465 $111,164,563
Operating costs and expenses 29,407,506 102,833,672
General corporate expenses, net -- 1,159,409
Operating income $ 3,846,959 7,171,482
=========== ===========
Interest expense 1,039,524
Interest (income) (237,592)
Other (income) expense, net 8,385
Income before income taxes $ 6,361,165
============
Depreciation and amortization $ 2,715,776 $ 3,468,498
=========== ============
Property, plant and equipment
additions $ 2,949,899 $ 3,662,783
=========== ============
Total assets $33,385,627 $ 81,795,064
=========== ============
4. BUSINESS SEGMENT INFORMATION (Continued)
For the year ended
December 31, 1996 Segments
Tire Holders, Lifts
Heat and Related
Processing Products
Operations
Sales, net $ 62,801,105 $ 13,208,814
Operating costs and expenses 58,696,391 13,104,340
General corporate expenses, net -- --
Operating income $ 4,104,714 $ 104,474
============ ============
Interest expense
Interest (income)
Other (income) expense, net
Income before income taxes
Depreciation and amortization $ 487,422 $ 318,039
============ ============
Property, plant and equipment
additions $ 504,384 $ 109,940
============ ============
Total assets $ 59,138,027 $ 5,212,886
============ ============
For the year ended
December 31, 1996 Segments
Precision
Electromechanical
& Plastic Component
Parts Total
Operations
Sales, net $ 27,416,156 $103,426,075
Operating costs and expenses 23,563,515 95,364,246
General corporate expenses, net -- 539,813
Operating income $ 3,852,641 7,522,016
============ ============
Interest expense 1,212,194
Interest (income) (297,806)
Other (income) expense, net 82,475
Income before income taxes $ 6,525,153
============
Depreciation and amortization $ 2,020,577 $ 2,826,038
============ ============
Property, plant and equipment
additions $ 2,244,842 $ 2,859,166
============ ============
Total assets $ 26,811,359 $ 91,162,272
============ ============
4. BUSINESS SEGMENT INFORMATION (Continued)
For the year ended
December 31, 1995 Segments
Tire Holders, Lifts
Heat and Related
Processing Products
Operations
Sales, net $32,551,967 $13,789,543
Operating costs and expenses 30,115,903 13,618,682
General corporate expenses, net
Operating income $ 2,436,064 $ 170,861
=========== ===========
Interest expense
Interest (income)
Other (income) expense, net
Income before income taxes
Depreciation and amortization $ 480,362 $ 417,706
=========== ===========
Property, plant and equipment
additions $ 249,215 $ 171,975
=========== ===========
Total assets $36,148,264 $ 5,476,449
=========== ===========
For the year ended
December 31, 1995 Segments
Precision
Electromechanical
& Plastic Component
Parts Total
Operations
Sales, net $24,873,903 $71,215,413
Operating costs and expenses 22,057,423 65,792,008
General corporate expenses, net 665,599
Operating income $ 2,816,480 4,757,806
=========== ===========
Interest expense 1,336,386
Interest (income) (339,895)
Other (income) expense, net 35,732
Income before income taxes $ 3,725,583
===========
Depreciation and amortization $ 1,872,660 $ 2,770,728
=========== ===========
Property, plant and equipment
additions $ 1,855,885 $ 2,277,075
=========== ===========
Total assets $26,334,807 $67,959,520
=========== ===========
4. BUSINESS SEGMENT INFORMATION - (Continued)
The geographical distribution of identifiable assets and net assets at
December 31, 1997, 1996 and 1995, and income (loss) before income taxes
(benefits) for the years then ended is set forth below:
Income (loss)
Identifiable Net before taxes
assets assets (benefits)
1997
United States . . $58,660,565 $36,634,141 $ 5,422,777
Europe . . 28,744,894 3,765,372 938,388
Eliminations . . (5,610,395) -- --
Consolidated . . $81,795,064 $40,399,513 $ 6,361,165
=========== =========== ===========
1996
United States . . $ 53,007,230 $ 33,751,368 $ 5,509,966
Europe . . 44,315,117 3,890,108 1,015,187
Eliminations . . (6,160,075) -- --
Consolidated . . $ 91,162,272 $ 37,641,476 $ 6,525,153
============ ============ ===========
1995
United States . . $49,813,578 $30,974,151 $ 5,454,734
Europe . . 24,759,046 3,682,023 (1,729,151)
Eliminations . . (6,613,104) -- --
Consolidated . . $67,959,520 $34,656,174 $ 3,725,583
=========== =========== ===========
4. BUSINESS SEGMENT INFORMATION - (Continued)
Net sales by geographic area for the years ended December 31, 1997,
1996 and 1995 are as follows:
Transfers
Sales to between
unaffiliated geographic
customers areas
1997
United States . . . $ 70,564,577 (a) $ 1,815,241
Europe . . . 40,599,986 (b) 4,465,277
Eliminations . . . -- (6,280,518)
Consolidated . . . $111,164,563 $ --
============ ===========
1996
United States . . . $ 59,922,640 (a) $ 1,420,690
Europe . . . 43,503,435 (b) 314,027
Eliminations . . . -- (1,734,717)
Consolidated . . . $103,426,075 $ --
============ ===========
1995
United States . . . $ 50,387,079 (a) $ 1,767,546
Europe . . . 20,828,334 (b) 1,054,656
Eliminations . . . -- (2,822,202)
Consolidated . . . $ 71,215,413 $ --
============ ===========
(a) Includes export sales of approximately $15,511,000 in
1997, $15,026,000 in 1996 and $16,480,000 in 1995,
principally to Europe, Asia, Canada and South America.
(b) Includes export sales of approximately $38,798,000 in 1997,
$40,549,000 in 1996 and $9,034,000 in 1995, principally to Austria,
the United States, Asia and Turkey.
Transfers between geographic areas are recorded at amounts which
approximate prevailing selling prices.
Consolidated net sales in 1997 include approximately $34,719,000 or 31%
from contracts with two customers executed by the Company's heat
processing group. Due to the nature of the Company's engineered
systems products, one contract may account for a large percentage of
sales in a particular period; however, the Company is not dependent on
any one engineered systems customer on an ongoing basis.
Approximately $51,780,000 of consolidated net sales were attributable
to customers in the steel industry.
4. BUSINESS SEGMENT INFORMATION - (Continued)
Consolidated net sales in 1996 include approximately $22,132,000 or 21%
from contracts with one customer executed by the Company's wholly-owned
European subsidiary, Selas S.A. Approximately $45,258,000 of
consolidated net sales were attributable to customers in the steel
industry.
Consolidated net sales in 1995 do not result from sales to any one
individual customer in excess of 10% of total sales. Consolidated net
sales in 1995 include approximately $13,321,000 attributable to the
steel industry.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1997 and
1996. FASB Statement No. 107, "Disclosures about Fair Value of
Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties.
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets
Cash, including cash
equivalents . . . .$ 3,034,903 $ 3,034,903 $ 8,343,820 $ 8,343,820
Accounts and notes
receivables . . . . 30,931,625 30,931,625 41,660,153 41,609,153
Financial liabilities
Notes payable . . . . 975,804 975,804 583,767 583,767
Trade accounts
payables. . . . . . 14,336,607 14,336,607 20,169,143 20,169,143
Customer advance
payments on
contracts . . . . . 902,592 902,592 4,854,880 4,854,880
Other accrued
liabilities . . . . 6,851,846 6,851,846 10,758,185 10,758,185
Long-term debt. . . . 9,633,543 9,419,381 9,108,423 8,923,577
The carrying amounts shown in the table are included in the statement
of financial position under the indicated captions.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash, including cash equivalents, short-term accounts and notes
receivables, other current assets, notes payable to banks, trade
accounts payables, and other accrued expenses: The carrying amounts
approximate fair value because of the short maturity of those
instruments.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
Accounts and notes receivable long-term in 1996: The fair value of the
receivables is determined as the present value of expected future cash
flows discounted at a rate of 6%.
Long-term debt: The fair value of the Company's long-term debt is
estimated by discounting the future cash flows of each instrument at
rates currently offered to the Company for similar debt instruments of
comparable maturities by the Company's bankers.
See note 9 regarding the fair value of derivative financial
instruments.
The estimated fair value of financial instruments has been determined
based on available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required
in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company might realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated
fair value.
6. INVENTORIES
Inventories consist of the following:
Finished
Raw Work-in- products and
December 31 materials process components Total
1997
Domestic . . . . . $2,936,574 $2,036,831 $3,971,429 $8,944,834
Foreign . . . . . 117,970 685,133 251,203 1,054,306
Total . . . . . $3,054,544 $2,721,964 $4,222,632 $9,999,140
========== ========== ========== ==========
1996
Domestic . . . . . $2,431,182 $1,731,479 $3,849,215 $8,011,876
Foreign . . . . . 170,745 17,892 233,009 421,646
Total . . . . . $2,601,927 $1,749,371 $4,082,224 $8,433,522
========== ========== ========== ==========
7. LONG-TERM CONTRACTS AND RECEIVABLES
Accounts and notes receivable at December 31, 1997 and 1996 include the
following elements from long-term contracts:
1997 1996
Amounts billed . . . . . . . . . $14,236,348 $21,721,085
Retainage, due upon completion . 715,924 2,179,825
Unbilled receivables . . . . . . 6,574,392 7,782,606
Total . . . . . . . . . . . . $21,526,664 $31,683,516
=========== ===========
The balances billed but not paid by customers, pursuant to retainage
provisions included in long-term contracts, will be due upon completion
of the contracts and acceptance by the customer. The retainage
balances at December 31, 1997 are anticipated to be collected in 1998.
The unbilled receivables are comprised principally of amounts of
revenue recognized on contracts (on the percentage-of-completion
method) for which billings had not been presented to the customers
because the amounts were not billable under the contract terms at the
balance sheet date. In accordance with the contract terms the unbilled
receivables at December 31, 1997 will be billed in 1998.
Inventories include costs relating to long-term sales contracts of
$187,666 and $140,611 at December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, the Company had $1,799,128 and
$1,283,201, respectively, of trade accounts receivable due from major
U.S. automotive manufacturers. At December 31, 1997 and 1996, the
Company had $2,685,219 and $2,722,501, respectively, of trade accounts
receivable due from hearing aid manufacturers. The Company also had
$19,803,826 and $28,512,481 at December 31, 1997 and 1996,
respectively, in currently billed and unbilled receivables from long-
term contracts for customers in the steel industry in North America and
Europe.
8. NOTES PAYABLE AND LONG-TERM DEBT
NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 are summarized below:
1997 1996
Notes payable:
Short term borrowings,
European banks $ 975,804 $ 583,767
========== ===========
Consolidated European subsidiaries have working capital credit
arrangements with European banks aggregating $8,762,000. Of this
amount, $1,883,000 may be used to borrow funds for working capital or
guarantee customer advance payments on contracts. The remaining
$6,879,000 may be used only for guaranteeing customer advance payments,
of which $2,058,000 was utilized at December 31, 1997 at interest rates
ranging from .65% to .75%. At December 31, 1997 the Company's European
subsidiaries had borrowings of $975,804, which bear interest at annual
rates ranging from 5% to 13%. These credit arrangements have no
expiration dates and are guaranteed by the Company.
The maximum amounts of short-term borrowings and bank guarantees at any
month end were $15,002,000 in 1997, $21,954,000 in 1996 and $6,030,000
in 1995. The average short-term borrowings and bank guarantees
outstanding during 1997, 1996 and 1995 amounted to $8,498,000,
$10,636,000 and $4,389,000, respectively. The average short-term
interest rates in 1997, 1996 and 1995 for outstanding borrowings were
9%, 11% and 9%, respectively.
LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 is summarized below:
1997 1996
Long-term debt:
Term loans, Domestic banks $ 6,870,024 $ 5,891,669
Term loans, European banks and
government agency 1,697,171 2,289,262
Mortgage notes 917,606 927,492
Other borrowings 148,742 --
9,633,543 9,108,423
Less: current maturities 2,618,463 2,271,830
$ 7,015,080 $ 6,836,593
=========== ===========
On February 20, 1997, the Company amended its existing domestic term
loan agreement with a commercial bank to increase its borrowings by
$3.5 million to purchase the assets of the Rodan Division of Ketema
through its wholly-owned subsidiary, RTI Electronics. See note 2
regarding the acquisition. Under the terms of the amended agreement,
principal amounts are repayable over the next five years on a monthly
basis with aggregate principal payments of $700,000 per year.
Borrowings under this amended agreement bear interest at a rate of 1.5%
above the London Inter-Bank Offered Rate (LIBOR) (7.46% at December 31,
1997) payable monthly. The previous borrowings under the amended
agreement were unchanged as principal amounts are repayable over the
next three years on a monthly basis with aggregate principal payments
of $1,650,000 per
8. NOTES PAYABLE AND LONG-TERM DEBT - (Continued)
year. Additional payments of principal are required depending upon the
annual earnings of the Company's domestic operations and as a result of
this requirement, the Company made an additional principal payment of
$288,312 in 1997 based upon the Company's 1996 domestic earnings. No
payment is required in 1998. At December 31, 1997, these borrowings
under the credit agreement bore interest, payable monthly, at a fixed
interest rate of 6-3/4%. The credit agreement is subject to a
prepayment penalty of 3%, to the extent the loan is paid off with
additional borrowings.
The Company and its domestic subsidiaries entered into revolving credit
loan facilities under which borrowings or letters of credit
aggregating $3,500,000 could be outstanding at any one time. At
December 31, 1997, there were no borrowings under the revolving credit
loan facility. Borrowings under the facility bear interest at a rate
of 1.5% above the London Inter-Bank Offered Rate (LIBOR) and a
commitment fee of 1/4% per annum is payable on the unborrowed portion
of the line. The credit facility expires on June 1, 1998.
The credit agreement and revolving credit loan facilities are secured
by the Company's domestic assets, except RTI's land and building which
is pledged under a separate agreement, and the Company's domestic
subsidiaries' stock. The agreements contain restrictive covenants
regarding the payment of cash dividends, maintenance of working
capital, net worth, and shareholders' equity, along with the
maintenance of certain financial ratios. The Company and its domestic
subsidiaries are required to maintain consolidated tangible capital
funds of approximately $21.1 million through December 31, 1997
consisting of shareholders' equity, plus subordinated debt, less
intangible assets, increased annually after December 31, 1997 by 60% of
net income and contributions to capital. At December 31, 1997, the
Company exceeded the amount required to satisfy this covenant in the
loan agreement by $3.3 million.
The Company's French subsidiary, Selas S.A., financed its premises
outside of Paris with bank borrowings maturing August 31, 2006 with
required quarterly installments of principal of $49,917 (FF 300,000).
The loan carries interest payable quarterly at the Paris Interbank
Offered Rate (PIBOR) plus .7% (4.4% at December 31, 1997). The loan
balances as of December 31, 1997 and 1996 were $1,697,171 (FF
10,200,000) and $2,196,532 (FF 11,400,000), respectively. This loan
can be prepaid, subject to a premium of 3% of the amount prepaid. The
debt is secured by the land and building of Selas S.A. The subsidiary
also had a term loan with a French government agency which was non-
interest bearing and paid in 1997. The loan balance as of December 31,
1996 was $92,730 (FF 481,268).
The Company assumed a mortgage at the date of acquisition of RTI which
is payable in monthly installments of $9,285, including interest,
through July 1, 2019. The mortgage has an interest rate of 11% and is
secured by the land and building of RTI. Prepayment of the mortgage is
permitted; however, it is subject to a penalty which is tied to the
current interest rates and the length of the loan. The lender has the
right to call the loan at any time after July 1, 1999 on ninety days
written notice to the Company.
8. NOTES PAYABLE AND LONG-TERM DEBT - (Continued)
The aggregate maturities of long-term debt for the five years ending
December 31, 2002 and thereafter are as follows:
Years ending December 31, Aggregate Maturity
1998 . . . . . . . . . . . . . . $ 2,618,463
1999 . . . . . . . . . . . . . . 3,516,302
2000 . . . . . . . . . . . . . . 1,583,941
2001 . . . . . . . . . . . . . . 899,667
2002 . . . . . . . . . . . . . . 316,334
2003 and thereafter . . . . . . 698,836
$ 9,633,543
==============
9. DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements are used to reduce the potential impact
of increases in interest rates on floating-rate long-term debt. At
December 31, 1997, the Company's French subsidiary was a party to one
interest rate swap agreement. The interest rate swap agreement is with
major European financial institutions having a total notional amount of
$2.3 million at December 31, 1997. The notional amount will decrease
consistent with the terms of the related long-term debt agreement. The
swap agreement requires fixed interest payments based on an effective
rate of 8.55% for the remaining term through May, 2006. The subsidiary
continually monitors its position and the credit ratings of its
counterparties and does not anticipate nonperformance by the
counterparties. Additional interest incurred during 1997, 1996 and
1995 in connection with the swap agreement amounted to $95,584,
$101,738 and $65,175, respectively.
The fair value of the interest rate swap agreement was $2.2 million at
December 31, 1997. The fair value of this financial instrument (used
for hedging purposes) represents the aggregate replacement cost based
on financial institution quotes. The Company is exposed to market
risks from changes in interest rates and fluctuations in foreign
exchange rates.
10. OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31, 1997 and 1996 are as follows:
1997 1996
Salaries, wages and commissions . $ 2,825,558 $ 3,591,356
Taxes, including payroll
withholdings and VAT,
excluding income taxes 2,217,951 5,594,441
Accrued pension costs 662,433 532,582
Accrued professional fees 541,967 432,207
Accrued insurance 218,392 377,478
Other 385,545 230,121
$ 6,851,846 $10,758,185
=========== ===========
11. DOMESTIC AND FOREIGN INCOME TAXES
Domestic and foreign income taxes (benefits) are comprised as follows:
Years Ended December 31
1997 1996 1995
Current
Federal . . $ 2,222,160 $ 2,168,819 $ 1,901,334
State . . 197,799 454,367 255,666
Foreign . . 237,612 490,707 (623,004)
2,657,571 3,113,893 1,533,996
Deferred
Federal . . (543,436) (552,526) (251,078)
State . . (130,176) (61,116) 36,400
Foreign . . (10,003) (105,293) 106,241
(683,615) (718,935) (108,437)
Income taxes . . $ 1,973,956 $ 2,394,958 $ 1,425,559
============ =========== ===========
Income (loss) before income taxes is as follows:
Foreign . . $ 938,388 $ 1,015,187 $(1,729,151)
Domestic . . 5,422,777 5,509,966 5,454,734
$ 6,361,165 $ 6,525,153 $ 3,725,583
============ =========== ===========
11. DOMESTIC AND FOREIGN INCOME TAXES - (Continued)
The following is a reconciliation of the statutory federal income tax
rate to the effective tax rate based on income (loss):
Years Ended December 31
1997 1996 1995
Tax provision at statutory
rate . . . . . . . 34.0% 34.0% 34.0%
Net foreign operating loss
carryforwards . . . (1.5) 0.3 4.9
Effect of foreign tax
rates . . . . . . . -- 1.8 (5.2)
State taxes net of
federal benefit . . 0.7 4.0 5.5
Tax benefits related to
export sales . . (3.2) (2.7) (3.4)
Other . . . . . . . . 1.0 (0.7) 2.5
Domestic and foreign
income tax rate . . 31.0% 36.7% 38.3%
===== ===== =====
The significant components of deferred income taxes (benefits) for the
years ended December 31, 1997, 1996 and 1995 are as follows:
Years Ended December 31
1997 1996 1995
Deferred income tax (benefit) $ (38,853) $(342,743) $(604,443)
Increase (decrease) in beginning
-of-the-year balance of the
valuation allowance for
deferred tax assets (618,613) (369,868) 481,525
Other (26,149) (6,324) 14,481
$(683,615) $(718,935) $(108,437)
========= ========= =========
11. DOMESTIC AND FOREIGN INCOME TAXES - (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December
31, 1997 and 1996 are presented below:
DEFERRED TAX ASSETS: 1997 1996
Postretirement benefit obligations $1,274,049 $1,284,333
Net operating loss carryforwards 849,669 1,372,575
State income taxes 463,220 374,689
Guarantee obligations and estimated future
costs of service accruals 895,034 528,586
Employee pension plan obligations 208,155 181,078
Compensated absences, principally due to
accrual for financial reporting purposes 290,209 273,910
Other 836,411 624,765
Total gross deferred tax assets 4,816,747 4,639,936
Less: valuation allowance 1,696,824 2,315,437
Net deferred tax assets 3,119,923 2,324,499
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation and
capitalized interest 1,219,890 1,152,692
Other 275,046 204,284
Total gross deferred tax liabilities 1,494,936 1,356,976
Net deferred tax assets $1,624,987 $ 967,523
========== ==========
Domestic and foreign deferred taxes are comprised as follows:
December 31, 1997 Federal State Foreign Total
Current deferred
asset $1,847,390 $ 400,228 $ 592,805 $2,840,423
Non-current deferred
(liability) (729,294) (67,029) (419,113)
(1,215,436)
Net deferred tax
asset $1,118,096 $ 333,199 $ 173,692 $1,624,987
========== ========== ========= ==========
December 31, 1996 Federal State Foreign Total
Current deferred
asset $1,260,593 $ 311,697 $ 479,290 $2,051,580
Non-current deferred
(liability) (734,607) (60,001) (289,449) (1,084,057)
Net deferred tax
asset $ 525,986 $ 251,696 $ 189,841 $ 967,523
========== ========= ========= ==========
11. DOMESTIC AND FOREIGN INCOME TAXES - (Continued)
At December 31, 1997, the Company had $286,021 of income tax receivable
included in accounts and notes receivable.
The valuation allowance for deferred tax assets as of January 1, 1997
was $2,315,437. The net change in the total valuation allowance for
the year ended December 31, 1997 was a decrease of $618,613.
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets will be reported in the consolidated
statement of operations.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities and projected future taxable
income in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowances, at December 31, 1997.
At December 31, 1997 the Company has net operating loss carryforwards
for foreign income tax purposes of $2,614,435 of which $479,212 expire
in 1998 and $2,135,223 have no expiration date and are available to
offset future foreign taxable income.
No provision has been made for United States income tax which may be
payable on undistributed income of the Company's foreign subsidiaries
since it is the Company's intention to reinvest the unremitted
earnings. Furthermore, based on current federal income tax laws, the
federal income tax on future dividends will be offset by foreign tax
credits in certain instances. At December 31, 1997, the Company has
not recognized a deferred tax liability of approximately $1,906,000 on
undistributed retained earnings of such subsidiaries of $5,606,000.
12. EMPLOYEE BENEFIT PLANS
The parent Company has two defined benefit pension plans. One covers
salaried employees and is a career average compensation plan. The
other plan covers hourly employees and is based on a fixed benefit and
years of credited service. Pension costs are determined by independent
actuaries and include current service costs and the amortization of
past service costs. The Company makes annual contributions to the
plans in conformity with ERISA funding requirements.
The following table sets forth the plans' funded status and amounts
recognized in the Company's statements of financial position at
December 31,
1997 and 1996:
December 31, 1997
Union Salaried
Plan Plan
Actuarial present value of benefit
obligations:
Vested benefit obligation $(2,501,638) $(2,062,156)
=========== ===========
Accumulated benefit obligation $(2,536,246) $(2,086,259)
=========== ===========
Projected benefit obligation for
service rendered to date $(2,536,246) $(2,318,561)
Plan assets at contract or fair value,
including insurance contracts
and various common trust fund
investments 1,900,305 2,225,258
Projected benefit obligation (in ex-
cess of) plan assets (635,941) (93,303)
Unrecognized prior service costs 20,629 6,154
Unrecognized net (gain) or loss (129,022) 53,897
Unrecognized net obligation at
January 1, 1986 being recognized
over 15 years 165,366 --
Accrued pension cost liability included
in current liabilities before
adjustment of additional minimum
liability (578,968) (33,252)
Adjustment required to recognize
additional minimum liability (56,973) --
Accrued pension cost after adjust-
ment of additional minimum liability
at December 31, 1997 and 1996 $ (635,941) $ (33,252)
=========== ===========
As of December 31, 1997, the Company has recognized the additional
minimum liability of $56,973 and an intangible asset of $56,973.
December 31, 1996
Union Salaried
Plan Plan
Actuarial present value of benefit
obligations:
Vested benefit obligation $(2,498,941) $(1,754,530)
=========== ===========
Accumulated benefit obligation $(2,528,777) $(1,797,321)
=========== ===========
Projected benefit obligation for
service rendered to date $(2,528,777) $(2,019,916)
Plan assets at contract or fair value,
including insurance contracts
and various common trust fund
investments 1,714,493 1,932,219
Projected benefit obligation (in ex-
cess of) plan assets (814,284) (87,697)
Unrecognized prior service costs 29,348 7,862
Unrecognized net (gain) or loss (24,775) 136,477
Unrecognized net obligation at
January 1, 1986 being recognized
over 15 years 220,487 --
Accrued pension cost liability included
in current liabilities before
adjustment of additional minimum
liability (589,224) 56,642
Adjustment required to recognize
additional minimum liability (225,060) --
Accrued pension cost after adjust-
ment of additional minimum liability
at December 31, 1997 and 1996 $ (814,284) $ 56,642
=========== ===========
As of December 31, 1997, the Company has recognized the additional
minimum liability of $56,973 and an intangible asset of $56,973.
12. EMPLOYEE BENEFIT PLANS- (Continued)
Net periodic pension cost for these plans for the years 1997, 1996 and
1995 included the following components:
Years Ended December 31
1997 1996 1995
Service cost - benefits
earned during the period $ 182,973 $ 187,955 $ 160,038
Interest cost on projected
benefit obligation 319,109 306,788 304,065
Actual return on assets (640,938) (419,872) (638,756)
Net amortization and deferral 420,506 228,214 497,947
Net periodic pension cost $ 281,650 $ 303,085 $ 323,294
========= ========= =========
The discount rate used to determine the projected benefit obligation
for both the salaried and union plans was 7% for 1997 and 7.25% for
1996 and 1995.
The projected benefit obligation was determined by using an assumed
rate of increase in compensation levels of 5% for 1997, 1996 and 1995
for the salaried plan. The expected long-term rate of return on assets
for both plans was 8%.
The Company's French subsidiary is obligated to contribute to an
employee profit sharing plan under which annual contributions are
determined on the basis of a prescribed formula using capitalization,
salaries and certain revenues. Amounts are paid into a bank trust fund
the year following the contribution calculation. Profit sharing
expense for 1997, 1996 and 1995 was $0, $96,970, and $0, respectively.
The Company has defined contribution plans for most of its domestic
employees not covered by collective bargaining agreements. Under these
plans, eligible employees may contribute amounts through payroll
deductions supplemented by employer contributions for investment in
various investments specified in the plans. The Company contribution
to these plans for 1997, 1996 and 1995 was $362,292, $288,556 and
$273,675, respectively.
12. EMPLOYEE BENEFIT PLANS- (Continued)
The Company provides postretirement medical benefits to certain
domestic full-time employees who meet minimum age and service
requirements. The Company's policy is to pay the cost of these
postretirement benefits when required on a cash basis. The Company
also has provided certain foreign employees with retirement related
benefits.
The following table presents the amounts recognized in the Company's
consolidated balance sheet at December 31, 1997 and 1996 for
postretirement medical benefits:
Accrued postretirement medical benefits:
December 31
Accumulated postretirement medical
benefit obligation 1997 1996
Retirees $1,827,874 $ 1,922,719
Fully eligible active plan
participants 562,603 515,701
Other active plan participants 410,574 345,098
2,801,051 2,783,518
Unrecognized net gain 489,686 533,423
Accrued postretirement medical
benefit cost $3,290,737 $ 3,316,941
=========== ===========
Accrued postretirement medical benefit costs are classified as other
postretirement benefit obligations as of December 31, 1997 and 1996.
Net periodic postretirement medical benefit costs for 1997, 1996 and
1995 include the following components:
Years Ended December 31
1997 1996 1995
Service cost $ 27,707 $ 25,834 $ 20,210
Interest cost 192,610 194,081 206,227
Net gain (18,702) (18,171) (33,660)
Net periodic postretirement
medical benefit cost $201,615 $201,744 $192,777
======== ======== ========
12. EMPLOYEE BENEFIT PLANS - (Continued)
For measurement purposes, a 11% annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was
assumed for 1997; the rate was assumed to decrease gradually to 6% by
the year 2006 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the
accumulated postretirement medical benefit obligation as of December
31, 1997 by $244,000 and the aggregate of the service and interest cost
components of net periodic postretirement medical benefit cost for the
year ended December 31, 1997 by $17,500.
The weighted-average discount rate used in determining the accumulated
postretirement medical benefit obligation at December 31, 1997 and 1996
was 7.25%.
The Company provides retirement related benefits to a former employee,
and to certain foreign subsidiary employees in accordance with
industry-wide collective labor agreements. The liabilities established
for these benefits at December 31, 1997 and 1996 were $733,480 and
$742,831, respectively, and are classified as other postretirement
benefit obligations as of December 31, 1997 and 1996.
13. CURRENCY TRANSLATION ADJUSTMENTS
All assets and liabilities of foreign operations are translated into
U.S. dollars at prevailing rates of exchange in effect at the balance
sheet date. Revenues and expenses are translated using average rates
of exchange for the year. The functional currency of the Company's
foreign operations is the currency of the country in which the entity
resides; such currencies are the French franc, German mark, Italian
lira and Japanese yen. Adjustments resulting from the process of
translating the financial statements of foreign subsidiaries into U.S.
dollars are reported as a separate component of shareholders' equity,
net of tax where appropriate. Gains and losses arising from foreign
currency transactions are reflected in the consolidated statements of
operations as incurred. Foreign currency transaction gains (losses)
included in the statement of operations for 1997, 1996 and 1995 were
$13,819, $(8,200) and $(123,419), respectively.
14. COMMON STOCK AND STOCK OPTIONS
On April 22, 1997, the Board of Directors declared a three-for-two
split of the Company's stock, pursuant to which 1,737,510 shares were
issued. Shareholders of record on June 10, 1997 received one
additional share for each two common shares held. The effect of this
transaction was to reduce additional paid-in capital by $1,737,510 with
a corresponding increase in common stock which has been retroactively
recorded. All common share data in these financial statements and
notes have been adjusted to reflect this transaction.
Under the Company's 1985 and 1994 Stock Option Plans, options to an
aggregate of 900,000 shares of common stock may be granted to certain
officers and key employees at no less than 100% of the fair market
value at the date of grant. All options are exercisable until the
earlier of termination pursuant to the plans or ten years from date of
grant.
14. COMMON STOCK AND STOCK OPTIONS (Continued)
At December 31, 1997, there were 312,000 additional shares available
for grant under the 1994 plan. The per share weighted-average fair
value of stock options granted during 1995 was $3.23 on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1995 - expected dividend yield 2.1%;
risk free interest rate of 5.58%; expected life of 6 years and expected
volatility of the stock over the life of the options which is based on
the past 6 years of the stock's activity.
The Company applies APB Opinion No. 25 in accounting for its Plans,
and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date of its
stock options under SFAS No. 123, the Company's net income would have
been reduced to the proforma amount indicated below:
1997 1996 1995
Net income as reported $4,387,209 $4,130,195 $2,300,024
Net income proforma $4,346,245 $4,092,615 $2,263,394
Basic earnings per share as
reported $.84 $.80 $.44
Basic earnings per share
proforma $.83 $.79 $.44
No options were granted in 1997 and 1996. Proforma net income reflects
options granted in 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected
in the proforma net income amounts presented above because compensation
cost is reflected over the options vesting period of 5 years and
compensation cost for options granted prior to January 1, 1995 is not
considered.
Stock option activity during the periods indicated is as follows:
Number of Weighted-average
Shares Exercise Price
Outstanding at January 1, 1995 310,988 $ 7.81
Options exercised (7,500) 3.77
Options granted 138,000 5.35
Outstanding at December 31, 1995 441,488 $ 7.11
Options forfeited (22,500) 9.33
Outstanding at December 31, 1996 418,988 $ 6.99
Options exercised (35,700) 4.35
Outstanding at December 31, 1997 383,288 $ 7.24
=======
At December 31, 1997, the range of exercise prices were $3.77-$11.42
and weighted-average remaining contractual life of outstanding options
was 5.4 years.
At December 31, 1997 and 1996, the number of options exercisable was
279,158 and 269,588, respectively and the weighted average price of
these options were $ 7.73 and $ 7.71, respectively.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of unaudited quarterly results of
operations.
1997 First Second
Quarter Quarter
Net sales . . . . . .$30,905,000 $27,101,000
=========== ===========
Gross profit . . . .$ 6,445,000 $ 6,483,000
=========== ===========
Net income . . . .$ 1,162,000 $ 1,379,000
=========== ===========
Earnings
per common and common
equivalent share
Basic $.22 $.26
=========== ===========
Diluted $.22 $.26
=========== ===========
1997 Third Fourth
Quarter Quarter
Net sales . . . . . .$28,328,000 $24,830,000
=========== ===========
Gross profit . . . .$ 5,475,000 $ 5,058,000
=========== ===========
Net income . . . .$ 1,139,000 $ 707,000
=========== ===========
Earnings
per common and common
equivalent share
Basic $.22 $.14
=========== ===========
Diluted $.21 $.13
=========== ===========
1996 First Second
Quarter Quarter
Net sales . . . . . .$18,571,000 $25,460,000
=========== ===========
Gross profit . . . .$ 4,728,000 $ 5,292,000
=========== ===========
Net income . . . . .$ 574,000 $ 807,000
=========== ===========
Earnings
per common and
common equivalent
share
Basic $ .11 $ .16
=========== ===========
Diluted $ .11 $ .15
=========== ===========
1996 Third Fourth
Quarter Quarter
Net sales . . . . . .$29,724,000 $29,671,000
=========== ===========
Gross profit . . . .$ 5,984,000 $ 6,552,000
=========== ===========
Net income . . . . .$ 1,340,000 $ 1,409,000
=========== ===========
Earnings
per common and
common equivalent
share
Basic $ .26 $ .27
=========== ===========
Diluted $ .25 $ .26
=========== ===========
16. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
1997
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $4,387,209 5,213,124 $0.84
=====
Effect of Dilutive Securities
Stock options 141,063
Earnings contingency 791
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $4,387,209 5,354,978 $0.82
================================
1996
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders 4,130,195 5,190,075 $0.80
====
Effect of Dilutive Securities
Stock options 81,884
Earnings contingency --
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $4,130,195 5,271,959 $0.78
================================
1995
Income Shares Per Share
Numerator Denominator Amount
Basic Earnings Per Share
Income available to
common shareholders $2,300,024 5,189,048 $0.44
=====
Effect of Dilutive Securities
Stock options 13,363
Earnings contingency --
Diluted Earnings Per Share
Income available to common
shareholders plus assumed
conversions $2,300,024 5,202,411 $0.44
================================
For additional disclosures regarding the earnings contingency and stock
options, see notes 2 and 14, respectively.
17. CONTINGENCIES AND COMMITMENTS
The Company is a defendant along with a number of other parties in
approximately 215 lawsuits as of December 31, 1997 (155 as of December
31, 1996) alleging that plaintiffs have or may have contracted
asbestos-related diseases as a result of exposure to asbestos products
or equipment containing asbestos sold by one or more named defendants.
Due to the noninformative nature of the complaints, the Company does
not know whether any of the complaints state valid claims against the
Company. The Company is also one of approximately 500 defendants in a
class action on behalf of approximately 2,700 present or former
employees of a Texas steel mill alleging that products supplied by the
defendants created a poisonous atmosphere that caused unspecified
physical harm. These cases are being defended by one or more of the
Company's insurance carriers presently known to be "at risk." Through
October 1993, the legal costs of defense of the asbestos and steel mill
cases were shared among the insurance carriers (92%) and the Company
(8%). The lead insurance carrier settled a number of the cases in 1993
and requested that the Company pay a portion of the settlement amount.
The Company declined to do so because no such payment is required by
the express terms of the policies. The lead carrier then purported in
October 1993 to abrogate the arrangement under which the defense costs
had been shared, and the Company responded by tendering all of the
cases to the lead carrier and demanding that the lead carrier honor its
obligations under its policies to pay 100% of the costs of defense and
100% of all settlements and judgments up to the policy limits. The
lead carrier has settled approximately 11 and 17 claims in 1997 and
1996, respectively, with no request for the Company to participate in
any settlement. The lead carrier has informed the Company that the
primary policy for the period July 1, 1972 - July 1, 1975 has been
exhausted and that the lead carrier will no longer provide a defense
under that policy. The Company has requested that the lead carrier
substantiate this situation. The Company has contacted representatives
of the Company's excess insurance carrier for some or all of this
period. The Company does not believe that the asserted exhaustion of
the primary insurance coverage for this period will have a material
adverse effect on the financial condition, liquidity, or results of
operations of the Company. Management is of the opinion that the
number of insurance carriers involved in the defense of the suits and
the significant number of policy years and policy limits to which these
insurance carriers are insuring the Company make the ultimate
disposition of these lawsuits not material to the Company's
consolidated financial position or results of operations.
In 1995, a dispute which was submitted to arbitration, arose under a
contract between a customer and a subsidiary of the Company.
Substantial claims were asserted against the subsidiary Company under
the terms of the contract. The Company recorded revenue of
approximately $1,400,000 in 1994 and has an uncollected receivable of
$140,000. The Company believes that the disposition of this claim will
not materially affect 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
17. CONTINGENCIES AND COMMITMENTS (Continued
materially affect the Company's consolidated financial position,
liquidity, or results of operations.
Total rent expense for 1997, 1996 and 1995 under leases pertaining
primarily to engineering, manufacturing, sales and administrative
facilities, with an initial term of one year or more, aggregated
$873,000, $904,000 and $846,000, respectively. Remaining rentals
payable under such leases are as follows: 1998 - $746,000; 1999 -
$715,000; 2000 - $656,000; 2001 - $536,000; 2002 - $453,000.
18. RELATED-PARTY TRANSACTIONS
One of the Company's subsidiaries leases office and factory space from
a partnership consisting of three present or former officers of the
subsidiary. The subsidiary is required to pay all real estate taxes
and operating expenses. In the opinion of management, the terms of the
lease agreement are comparable to those which could be obtained from
unaffiliated third parties. The total rent expense incurred under the
lease was approximately $330,000 for 1997, $373,000 for 1996 and
$485,000 for 1995. Annual lease commitments approximate $330,000
through December, 1998.
19. SUBSEQUENT EVENTS
In February, 1998, the Company acquired the stock of CFR, a Paris,
France, firm in the engineered industrial furnace business. The
principal market served by CFR is engineered batch and continuous
furnaces for heat treating both ferrous and non-ferrous metals, along
with supplying furnaces for the hardening and etching of glass and
ceramic tableware. CFR had sales for the year ended December 31, 1997
of 107.5 million French francs (FF) or approximately $18.3 million
(unaudited). The purchase price was 15 million FF or approximately
$2.5 million which was paid for by additional bank borrowings of 15
million FF at a fixed rate of 5.65% for 5 years.
In September, 1997, the Company entered into an agreement to acquire
MRL Industries, Inc., Sonora, CA, a manufacturer of furnaces and
furnace components used in the semiconductor manufacturing process, for
$16,750,000 of the Company's Common Shares in a merger to be accounted
for as a pooling of interests. The acquisition was subject to
customary conditions, including due diligence and shareholder approval
by both parties. On February 26, 1998 the parties announced they had
mutually agreed to terminate the acquisition agreement as a result of a
number of unresolved issues between the parties. The Company incurred
costs of approximately $0.4 million in 1997 in connection with this
proposed transaction.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Selas Corporation of America:
We have audited the accompanying consolidated balance sheets of Selas
Corporation of America and subsidiaries as of December 31, 1997 and
1996, 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, 1997. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Selas Corporation of America and subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
February 26, 1998
EXHIBIT 21
Significant Subsidiaries of
Selas Corporation of America
SUBSIDIARY PLACE OF INCORPORATION
Deuer Manufacturing, Inc. Ohio
Resistance Technology GmbH Germany
Vertrieb von Elecktronikteilen
Resistance Technology, Inc. Minnesota
RTI Electronics, Inc. Delaware
Selas S.A. France
Selas Italiana, S.A. Italy
Selas Engineering UK Ltd. England
Selas Waermetechnik, GmbH Germany
EXHIBIT 23
SELAS CORPORATION OF AMERICA
Exhibit 23
Consent of Independent Auditors
The Board of Directors
Selas Corporation of America:
We consent to the incorporation by reference in the Registration
Statements No. 33-33712 on Form S-3, No. 33-35802 on Form S-8, and No.
333-16377 on Form S-8, of Selas Corporation of America and subsidiaries
of our reports dated February 26, 1998 relating to the consolidated
balance sheets of Selas Corporation of America and subsidiaries as of
December 31, 1997 and 1996 and the related consolidated statements of
operations, shareholders' equity, and cash flows and related financial
statement schedules for each of the years in the three-year period
ended December 31, 1997, which reports are included in or incorporated
by reference in the December 31, 1997 annual report on Form 10-K of
Selas Corporation of America.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 20, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does
hereby consent and appoint Stephen F. Ryan and Robert W. Ross, or
either of them, his attorney to do any and all acts, including the
execution of documents, which said attorneys, or either of them, may
deem necessary or advisable to enable Selas Corporation of America (the
"Company") to comply with the Securities Exchange Act of 1934, as
amended, and the rules, regulations and requirements of the Securities
and Exchange Commission, in connection with the filing under said Act
of an annual report of the Company on Form 10-K for the year ended
December 31, 1997, including the power and authority to sign in the
name and on behalf of the undersigned, in any and all capacities in
which the signature of the undersigned would be appropriate, such
annual report and any and all amendments thereto and generally to do
and perform all things necessary to be done in the premises as fully
and effectually in all respects as the undersigned could do if
personally present.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
and seal this 23 day of March, 1998.
/s/ John H. Austin Jr.
John H. Austin, Jr.
/s/ Frederick L. Bissinger
Frederick L. Bissinger
/s/ Roy C. Carriker
Roy C. Carriker
/s/ Francis J. Dunleavy
Francis J. Dunleavy
/s/ Mark S. Gorder
Mark S. Gorder
/s/ Ralph R. Whitney, Jr.
Ralph R. Whitney, Jr.