10-Q 1 aa10q1q02.txt 10-Q FIRST QTR. 03/31/2002 21 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-5005 SELAS CORPORATION OF AMERICA (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) PENNSYLVANIA 23-1069060 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO) INCORPORATION OR ORGANIZATION) DRESHER, PENNSYLVANIA 19025 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (215) 646-6600 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. (X) YES ( ) NO INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. COMMON SHARES, $1.00 PAR VALUE 5,119,214 (exclusive of 515,754 CLASS treasury shares) OUTSTANDING AT MAY 13, 2002 SELAS CORPORATION OF AMERICA I N D E X Page Number PART I: FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2002 (Unaudited) and December 31, 2001 (Audited) 3, 4 Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2001 (Unaudited) 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 (Unaudited) 6 Consolidated Statement of Shareholders' Equity for the Three Months Ended March 31, 2002 (Unaudited) 7 Notes to Consolidated Financial Statements 8-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 PART II: OTHER INFORMATION Item 1. Legal Proceedings 20 Item 6. Exhibits and Reports on Form 8-K 20 SELAS CORPORATION OF AMERICA Consolidated Balance Sheets Assets March 31, December 31, 2002 2001 (Unaudited) (Audited) Current assets Cash, including cash equivalents of $203,000 in 2002 and $391,000 in 2001 $ 2,977,176 $ 3,636,673 Accounts receivable (including unbilled receivables of $3,370,000 in 2002 and $1,857,000 in 2001, less allowance for doubtful accounts of $486,000 in 2002 and $456,000 in 2001) 18,698,387 17,376,784 Inventories 13,166,159 13,810,209 Deferred income taxes 1,659,648 1,521,809 Other current assets 1,329,465 1,033,689 Assets of discontinued operations 16,581,118 Total current assets 54,411,953 37,379,164 Property, plant and equipment Land 554,943 554,943 Buildings 7,175,875 7,143,408 Machinery and equipment 33,028,969 32,502,680 40,759,787 40,201,031 Less: Accumulated depreciation 26,413,330 25,621,190 Net property, plant and equipment 14,346,457 14,579,841 Assets of discontinued operations 16,773,442 Excess of cost over net assets of acquired subsidiaries, less accumulated amortiza- tion of $4,480,000 in 2002 and $4,562,000 in 2001 15,556,549 15,631,502 Deferred income taxes 319,780 350,014 Other assets including patents, less amortization 1,579,753 1,523,320 $86,214,492 $86,237,283 (See accompanying notes to the consolidated financial statements) SELAS CORPORATION OF AMERICA Consolidated Balance Sheets Liabilities and Shareholders' Equity March 31, December 31, 2002 2001 Current liabilities (Unaudited) (Audited) Notes payable $ 9,994,500 $ 9,422,202 Current maturities of long-term debt 1,359,777 1,496,033 Accounts payable 10,588,607 10,232,880 Federal, state and foreign income taxes 590,491 461,393 Customers' advance payments on contracts 2,385,384 2,809,988 Guarantee obligations and estimated costs of service 968,149 878,952 Other accrued liabilities 5,389,636 5,100,021 Liabilities of discontinued operations 9,818,885 Total current liabilities 41,095,429 30,401,469 Long-term debt 2,852,090 3,214,934 Other postretirement benefit obligations 3,828,204 3,878,948 Liabilities of discontinued operations 10,137,315 Contingencies and commitments Shareholders' equity Common shares, $1 par; 10,000,000 shares authorized; 5,634,968 shares issued 5,634,968 5,634,968 Additional paid-in capital 12,012,541 12,012,541 Retained earnings 23,159,349 23,297,747 Accumulated other comprehensive (loss) (1,103,011) (1,075,561) Less: 515,754 common shares held in treasury, at cost (1,265,078) (1,265,078) Total shareholders' equity 38,438,769 38,604,617 $86,214,492 $86,237,283 (See accompanying notes to the consolidated financial statements) SELAS CORPORATION OF AMERICA Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, March 31, 2002 2001 Sales, net $20,729,959 $23,570,709 Operating costs and expenses Cost of sales 16,407,285 17,984,194 Selling, general and administrative expenses 4,000,287 4,493,518 Operating income 322,387 1,092,997 Interest (expense) (82,638) (154,387) Interest income 15,282 8,974 Other income (expense), net 94,310 133,175 Income from continuing operations before income taxes 349,341 1,080,759 Income taxes 71,573 451,216 Income from continuing operations 277,768 629,543 (Loss) from discontinued operations, net of income taxes (416,166) (331,071) Net income (loss) $ (138,398) $ 298,472 Earnings (loss) per share Basic and Diluted Continuing operations $ .05 $ .12 Discontinued operations (.08) (.06) $(.03) $ .06 Average shares outstanding Basic 5,119,000 5,119,000 Diluted 5,119,000 5,136,000 Comprehensive income (loss) $ (165,848) $ 213,068 (See accompanying notes to the consolidated financial statements) SELAS CORPORATION OF AMERICA Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, March 31, 2002 2001 Cash flows from operating activities: Net income (loss) $ (138,398) $ 298,472 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 799,651 1,028,061 Loss on sale of property and equipment 1,325 153 Deferred taxes (99,077) 42,843 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (1,089,373) 1,825,904 (Increase) decrease in inventories 581,324 (1,623,669) (Increase) in other assets (250,643) (218,097) Increase (decrease) in accounts payable (548,551) 351,282 Increase (decrease) in accrued expenses 816,983 (351,176) (Decrease) in customer advances (670,185) (279,882) Increase (decrease) in other liabilities (36,487) 374,754 Net cash provided (used) by continuing operating activities (633,431) 1,448,645 Net cash provided by discontinued operations 427,244 1,877,345 Net cash provided (used) by operations (206,187) 3,325,990 Cash flows from investing activities: Purchases of property, plant and equipment (529,687) (532,728) Acquisition of subsidiary companies, net of cash acquired (77,292) Net cash (used) by investing activities (529,687) (610,020) Cash flows from financing activities: Proceeds from short-term bank borrowings 932,327 1,113,811 Proceeds from long-term bank borrowings 2,543,184 Proceeds from borrowings to acquire subsidiary company 136,173 534,223 Repayments of short-term bank borrowings (494,722) (4,128,671) Repayments of long-term debt (457,986) (1,003,995) Payment of dividends (230,366) Net cash provided (used) by financing activities 115,792 (1,171,814) Effect of exchange rate changes on cash (39,415) (277,730) Net increase (decrease) in cash and cash equivalents (659,497) 1,266,426 Cash and cash equivalents, beginning of period 3,636,673 3,782,359 Cash and cash equivalents, end of period $ 2,977,176 $ 5,048,785 (See accompanying notes to the consolidated financial statements) SELAS CORPORATION OF AMERICA Consolidated Statement of Shareholders' Equity Three Months Ended March 31, 2002 (Unaudited) Common Stock Additional Number of Paid-in Shares Amount Capital Balance January 1, 2002 5,634,968 $5,634,968 $12,012,541 Net (loss) Foreign currency translation (loss) Derivative financial instrument fair value adjustment Comprehensive (loss) Balance March 31, 2002 5,634,968 $5,634,968 $12,012,541 Accumulated Other Comprehensive Retained Income Comprehensive Earnings (Loss) Income Balance January 1, 2002 $23,297,747 $ (1,075,561) Net (loss) (138,398) $(138,398) Foreign currency translation (loss) (56,412) (56,412) Derivative financial instrument fair value adjustment 28,962 28,962 Comprehensive (loss) $(165,848) Balance March 31, 2002 $23,159,349 $(1,103,011) Total Treasury Shareholders' Stock Equity Balance January 1, 2002 $(1,265,078) $38,604,617 Net (loss) (138,398) Foreign currency translation (loss) (56,412) Derivative financial instrument fair value adjustment 28,962 Comprehensive (loss) Balance March 31, 2002 $(1,265,078) $38,438,769 (See accompanying notes to the consolidated financial statements) SELAS CORPORATION OF AMERICA PART I - FINANCIAL INFORMATION ITEM 1. Notes to Consolidated Financial Statements (Unaudited) 1. In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly Selas Corporation of America's consolidated financial position as of March 31, 2002 and December 31, 2001, and the consolidated results of its operations and consolidated statements of shareholders' equity and cash flows for the three months ended March 31, 2002 and 2001. 2. The accounting policies followed by the Company are set forth in note 1 to the Company's financial statements in the 2001 Selas Corporation of America Annual Report. 3. Discontinued Operations In the fourth quarter of 2001, the Company initiated its plan to dispose of the Company's primary custom-engineered furnace business, Selas SAS (Paris), along with two other closely related subsidiaries, Selas Italiana, S.r.L. (Milan) and Selas U.K. (Derbyshire). These subsidiaries form the Company's large custom-engineered furnaces division used primarily in the steel and glass industries worldwide. The furnaces engineered by this division are custom-engineered to meet customer specific requirements. These subsidiaries generated approximately $3 million and $4.8 million of revenue and a loss from discontinued operations of $416,000 and $331,000 for the three months ended March 31, 2002 and 2001, respectively. The Company has accounted for the plan to dispose of the subsidiaries as a discontinued operation and accordingly, has reclassified the historical financial data of these subsidiaries. The Company anticipates paying the discontinued operations long-term debt of $2,006,088 and notes payable of $5,674,224 and therefore, has reclassified these amounts into continuing operations as of March 31, 2002. Certain notes to these consolidated financial statements have been restated to reflect the Company's presentation of discontinued operations. 4. Inventories consist of the following: March 31, December 31, 2002 2001 Raw material $ 3,880,836 $ 4,593,829 Work-in-process 4,560,119 4,855,037 Finished products and components 4,725,204 4,361,343 $13,166,159 $13,810,209 5. Income Taxes Consolidated income taxes for the three months ended March 31, 2002 and 2001 are $72,000 and $451,000 which result in effective tax rates of 20.5% and 41.8%, respectively. The rate of tax in relation to pre-tax income in 2002 is low because tax benefits from certain foreign net operating losses, that were previously fully reserved by a valuation allowance, were utilized for income tax purposes. 6. Legal Proceedings The Company is a defendant along with a number of other parties in approximately 250 lawsuits as of March 31, 2002 (approximately 253 as of December 31, 2001) alleging that plaintiffs have or may have contracted asbestos-related diseases as a result of exposure to asbestos products or equipment containing asbestos sold by one or more named defendants. Due to the noninformative nature of the complaints, the Company does not know whether any of the complaints state valid claims against the Company. The lead insurance carrier has informed the Company that the primary policy for the period July 1, 1972 July 1, 1975 has been exhausted and that the lead carrier will no longer provide a defense under that policy. The Company has requested that the lead carrier substantiate this situation. The Company has contacted representatives of the Company's excess insurance carrier for some or all of this period. The Company does not believe that the asserted exhaustion of the primary insurance coverage for this period will have a material adverse effect on the financial condition, liquidity, or results of operations of the Company. Management is of the opinion that the number of insurance carriers involved in the defense of the suits and the significant number of policy years and policy limits to which these insurance carriers are insuring the Company make the ultimate disposition of these lawsuits not material to the Company's consolidated financial position or results of operations. The Company is also involved in other lawsuits arising in the normal course of business. While it is not possible to predict with certainty the outcome of these matters, management is of the opinion that the disposition of these lawsuits and claims will not materially affect the Company's consolidated financial position, liquidity, or results of operations. 7. Statements of Cash Flows Three Months Ended Supplemental disclosures of March 31, March 31, cash flow information: 2002 2001 Interest received $ 3,198 $ 13,252 Interest paid $ 110,936 $ 168,212 Income taxes paid $ 24,203 $ 971,287 8. Accounts Receivable At March 31, 2002, the Company had $2,055,377 of trade accounts receivable due from the major U.S. automotive manufacturers and $4,184,992 of trade accounts receivable due from hearing health manufacturers. The Company also had $7,396,016 in receivables from long-term contracts for customers in the steel and aluminum industry in North America, Europe and Asia. 9. Earnings (Loss) Per Share The following table sets forth the computation of basic and diluted earnings (loss) per share: For the Three Months Ended March 31, 2002 Income Shares Per Share Numerator Denominator Amount Basic (Loss) Per Share (Loss) available to Common shareholders $(138,398) 5,119,214 $(.03) Effect of Dilutive Securities Stock options Diluted (Loss) Per Share $(138,398) 5,119,214 $(.03) For the Three Months Ended March 30, 2001 Income Shares Per Share Numerator Denominator Amount Basic Earnings Per Share Income available to common shareholders $ 298,472 5,119,214 $.06 Effect of Dilutive Securities Stock options 16,738 Diluted Earnings Per Share $ 298,472 5,135,952 $.06 10. Business Segment Information The Company has three operating segments. The Company is engaged in providing engineered heat technology equipment, replacement parts and services to industries throughout the world, the manufacture of precision miniature medical and electronic products and the manufacture of original equipment for light trucks and vans. The results of operations and assets of these segments are prepared on the same basis as the condensed consolidated financial statements for the three months ended March 31, 2002 and 2001 and the consolidated financial statements included in the 2001 Form 10-K. The Company's reportable segments reflect separately managed, strategic business units that provide different products and services, and for which financial information is separately prepared and monitored. Segments Tire Precision For the Holders, Miniature Three Months Lifts and Medical and General Ended Heat Related Electronic Corporate Discontinued March 31, 2002 Technology Products Products Expenses Operations Sales, net $ 7,870,661 $4,035,209 $ 8,824,089 Net income (loss) $ 111,786 $ 238,790 $ 165,796 $(238,604)$ (416,166) Depreciation and amoriza- tion $ 128,756 $ 43,410 $ 627,485 Property, plant and equipment additions $ 54,662 $ 37,450 $ 437,575 Total assets $22,175,025 $6,406,739 $41,051,610 $16,581,118 For the Three Months Ended March 31, 2002 Total Sales, net $20,729,959 Net income (loss) $ (138,398) Depreciation and amoriza- tion $ 799,651 Property, plant and equipment additions $ 529,687 Total assets $86,214,492 Segments Tire Precision For The Holders, Miniature Three Months Lifts and Medical and General Ended Heat Related Electronic Corporate Discontinued March 31, 2001 Technology Products Products Expenses Operations Sales, net $ 8,925,786 $ 3,346,342 $11,298,581 Net income (loss) $ 529,605 $ (68,574) $ 401,575 $(233,063)$ (331,071) Depreciation and amoriza- tion $ 149,076 $ 50,046 $ 828,939 Property, plant and equipment additions $ 59,020 $ 1,741 $ 471,967 Total assets $25,506,916 $ 6,276,395 $43,433,175 $19,382,054 For The Three Months Ended March 31, 2001 Total Sales, net $23,570,709 Net income (loss) $ 298,472 Depreciation and amoriza- tion $ 1,028,061 Property, plant and equipment additions $ 532,728 Total assets $94,598,540 11. Revenue Recognition The following analysis provides a detail of revenue recognition methodology by segment: Tire Precision Holders, Miniature Lifts and Medical and Heat Related Electronic Total Technology Products Products Upon Shipment $2,539,572 $ 4,035,209 $8,824,089 $15,398,870 Percentage of completion 5,331,089 5,331,089 License Fees Total Revenue $7,870,661 $ 4,035,209 $8,824,089 $20,729,959 12. Business Combinations and Goodwill and Other Intangible Assets As of January 1, 2002, the Company adopted SFAS No. 141,'Business Combinations,' and SFAS No. 142, 'Goodwill and Other Intangible Assets.' SFAS No. 141 requires all business combinations entered into after June 30, 2001 to be accounted for under the purchase method. SFAS No. 142 sets forth new financial accounting and reporting standards for the acquisition of intangible assets, other than those acquired in a business combination, and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial position, and no longer amortized but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption, with any impairments identified accounted for as a cumulative effect of a change in accounting principle. In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective January 1, 2002. The effect of adopting this new standard was to reduce amortization expense by approximately $195,000 and to increase net earnings by $167,000 (net of tax expense of $28,000) or $0.03 diluted earnings per share for the three months ended March 31, 2002. A reconciliation of previously reported net earnings (loss) and earnings (loss) per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows: Three Months Ended March 31, March 31, 2002 2001 Reported net earnings (loss) $ (138,000) $ 298,000 Add: goodwill amortization, net of tax 154,000 Adjusted net earnings (loss) $ (138,000) $ 452,000 Basic earnings per share Reported net earnings (loss) $(.03) $.06 Goodwill amortization, net of tax .03 Adjusted net earnings (loss) $(.03) $.09 Diluted earnings per share Reported net earnings (loss) $(.03) $.06 Goodwill amortization, net of tax .03 Adjusted net earnings (loss) $(.03) $.09 Changes in the carrying amount of goodwill for the three months ended March 31, 2002 by operating segment in accordance with SFAS No. 131, are as follows: Segments Tire Precision Holders, Miniature Lifts and Medical and Heat Related Electronic Technology Products Products Total Balance as of December 31, 2001 $ 1,004,740 $ $14,626,761 $15,631,50l Translation adjustment (29,945) (29,945) Reclassification to other intangible assets (45,007) (45,007) Balance as of March 31, 2002 $ 974,795 $ $14,581,754 $15,556,549 The Company will perform and report the results of its transitional impairment tests in the Company's June 30, 2002 financial statements. Patents and other intangible assets at March 31, 2002 and December 31, 2001, subject to amortization expense, are as follows: March 31, 2002 Carrying Accumulated Amount Amortization Net Patents $ 505,712 $ (505,365) $ 347 Other intangible assets 923,301 (569,157) 354,144 Total $1,429,013 $(1,074,522) $ 354,491 December 31, 2001 Carrying Accumulated Amount Amortization Net Patents $ 505,712 $ (505,018) $ 694 Other intangible assets 802,252 (442,395) 359,857 Total $1,307,964 $ (947,413) $ 360,551 Amortization expense for patents and other intangible assets subject to amortization was approximately $59,000 for the three months ended March 31, 2002. Estimated amortization expense for each of the five succeeding years is $159,000, $131,000, $39,000, $-0- and $-0- for years 2003 through 2007. PART I - FINANCIAL INFORMATION ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations In the fourth quarter of 2001, the Company initiated its plan to dispose of the Company's primary custom-engineered furnace business, Selas SAS (Paris), along with two other closely related subsidiaries Selas Italiana, S.r.L. (Milan) and Selas U.K. (Derbyshire). These subsidiaries form the Company's large custom-engineered furnaces division used primarily in the steel and glass industries worldwide. The furnaces engineered by this division are custom-engineered to meet customer specific requirements. These subsidiaries generated approximately $3 million and $4.8 million of revenue and a loss from operations of $416,000 and $331,000 for the three months ended March 31, 2002 and 2001, respectively. The Company has accounted for the plan to dispose of the subsidiaries as a discontinued operation and, accordingly, has reclassified the historical financial data of these subsidiaries. See further information in note 3 to the consolidated financial statements. Consolidated net sales for the three months ended March 31, 2002 decreased to $20.7 million from $23.6 million for the same period in 2001. Net sales for the heat technology segment decreased to $7.9 million for the three months ended March 31, 2002 compared to $8.9 million for the same period last year. The decrease in sales is due to lower revenue recognition on a contract which has been delayed by the customer partially offset by higher sales of replacement parts. Sales of smaller heat treating furnaces produced by the Company's CFR and Ermat subsidiaries remained essentially the same. CFR and Ermat manufacture small heat treating furnaces utilized in the glass and aluminum industries worldwide. Sales and earnings of heat treating contracts are recognized on the percentage-of-completion method and generally require more than twelve months to complete. Consolidated backlog for the heat technology segment decreased to $13.7 million at March 31, 2002 compared to $18.1 million at the same time last year. Sales of the Company's precision miniature medical and electronic products segment decreased to $8.8 million for the three months ended March 31, 2002 compared to $11.3 million for the comparable period in 2001. Revenue decreased in the current period compared to 2001 because of lower shipments of both component and system parts to the hearing health industry and lower sales of thermistors and capacitor parts to the electronics and telecommunications industries. The Company's sales in this segment are affected by the telecommunications industry which continues its ongoing slump and the hearing health markets which have been flat for the last several years. Net sales of the tire holders, lifts and related products segment for the three months ended March 31, 2002 increased to $4 million from $3.3 million for the same period in 2001. The increase in revenue is due to higher shipments of tire lifts to the Company's automotive customers reflecting, in part, the receipt of a new contract during the second half of 2001. The Company's gross profit margin as a percentage-of-sales decreased to 20.9% for the three month period ended March 31, 2002 compared to 23.7% for the same period last year. Gross profit margins for the heat technology segment decreased to 18.6% for the three months ended March 31, 2002 compared to 22.2% for the comparable period in 2001. Heat technology gross profit margins vary markedly from contract to contract, depending on customer specifications and other conditions related to the project. The gross profit margins for the first quarter of 2002 were impacted by higher than usual costs on several orders completed by some of the Company's subsidiaries which supply replacement parts. Gross profit margins for the precision miniature medical and electronics products segment decreased to 24.4% for the three months ended March 31, 2002 compared to 28.7% for the same period in 2001. The lower margins in the current quarter are attributable to the mix of product sales between the periods as hearing health component parts, whose revenues have been declining have higher profit margins compared to some of the segment's other products, particularly hearing health system parts, whose sales have also decreased in the current quarter. Gross profit margins for the tire holders, lifts and related products segment increased to 17.6% for the first quarter of 2002 compared to 10.8% for the comparable period in 2001. The increase in the current year results from an increase in efficiencies from higher production of tire lifts for the Company's automotive customers. Selling, general and administrative expenses (SG&A) decreased 11% to $4,000,000 for the first quarter 2002 compared to $4,494,000 for the same period in 2001. The lower SG&A expenses are due to cost saving measures implemented by the Company during the current economic slowdown, primarily salary reductions. Interest expense for the three months ended March 31, 2002 decreased to $83,000 compared to $154,000 for the same period in 2001. The decrease is due to lower interest rates during the current year on slightly higher average borrowings. Interest income for the first three months of 2002 increased to $15,000 from $9,000 for the first quarter of 2001 due mainly to interest imputed on a trade note receivable. Other income (expense) for the first quarter of 2002 includes gains from the sale of investments of $83,000 partially offset by losses on foreign exchange of $38,000 compared to gains on foreign exchange of $113,000 for the same period in 2001. Consolidated income taxes for the three month periods ended March 31, 2002 and 2001 are $72,000 and $451,000 which result in effective tax rates of 20.5% and 41.8%, respectively. The rate of tax in relation to pre-tax income in 2002 is low because tax benefits from certain foreign net operating losses, that were previously fully reserved by a valuation allowance, were utilized for income tax purposes. Consolidated net loss of $138,000 for the first quarter of 2002 decreased from income of $298,000 for the same period in 2001. The decline in profitability from income to a loss is due to lower sales and gross profit margins on some of the Company's products partially offset by decreased SG&A expenses resulting from cost cutting measures, lower interest expense and lower cost of sales due to the discontinuation of goodwill amortization. Discontinued operations generated a loss of $416,000 for the first quarter of 2002 compared to a loss of $331,000 for the same period in 2001. The increase in the loss is due to lower revenue generated from contracts in backlog at the beginning of 2002 compared to 2001 partially offset by improved gross profit margins on the current orders. Liquidity and Capital Resources Consolidated net working capital increased to $13.3 million at March 31, 2002 from $7 million at December 31, 2001. The main reason for this increase is the reclassification of assets and liabilities of discontinued operations as current based on the assumption of disposal within the next twelve months. Exclusive of this reclassification, consolidated net working capital decreased to $6.6 million at March 31, 2002. The decrease is due primarily to purchases of property and equipment and paydown of long-term debt offset by borrowings to fund acquisitions. The major changes in the components of working capital for the period were lower cash and cash equivalents of $.7 million, lower inventories of $.6 million, higher accounts receivable of $1.3 million, higher notes payable of $.6 million, higher accounts payable of $.4 million and lower customer advance payments of $.4 million. These changes relate mainly to the ongoing operations of the Company. As part of the ongoing operations of the Company, management periodically performs a strategic analysis of all assets of the Company to ensure that an appropriate rate of return is achieved from the invested capital. On April 15, 2002, the Company entered into a second waiver amendment agreement for its domestic and foreign revolving credit and term loan facilities and obtained a new domestic supplemental credit facility in the amount of $5,000,000 to be used for additional domestic borrowing and for the issuance of advance payment guarantees. We believe that the amended credit facility combined with funds expected to be generated from operations, the available borrowing capacity through its revolving credit loan facilities, the potential sale of the European subsidiaries, curtailment of the dividend payment and control of capital spending will be sufficient to meet its anticipated cash requirements for operating needs. During the first quarter of 1999, the Company implemented a program to repurchase up to 250,000 shares of its common stock, which at the time represented approximately 5% of its total shares outstanding. The shares have been purchased from time to time on the open market. As of March 31, 2002, the Company has repurchased a total of 152,190 shares of its common stock at a cost of $883,141. In July 2001, the FASB issued SFAS No. 143, 'Accounting for Asset Retirement Obligations,' which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. Adoption is required for fiscal years beginning after June 15, 2002, with earlier adoption encouraged. The Company is in the process of analyzing the implications of SFAS 143 and does not believe that the adoption of this statement will have a material impact on the net earnings of the Company. In October 2001, the FASB issued SFAS No. 144, 'Accounting for the Impairment or Disposal of Long-Lived Assets,' which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS Statement 144 supersedes FASB Statement No. 121, 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,' it retains many of the fundamental provisions of that Statement. SFAS Statement 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, 'Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,' for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. SFAS Statement 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted the statement as of January 1, 2002, which did not have a material impact on the net earnings of the Company. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk For information regarding the Company's exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Annual Report on Form 10-K for 2001. There have been no significant changes in the Company's portfolio of financial instruments or market risk exposures which have occurred since year-end. Forward-Looking and Cautionary Statements The Company may from time to time make written or oral forward-looking statements, including those contained in the foregoing Management's Discussion and Analysis. In order to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company has identified in its Annual Report on Form 10-K for the year ending December 31, 2001, certain important factors which could cause the Company's actual results, performance or achievement to differ materially from those that may be contained in or implied by any forward-looking statement made by or on behalf of the Company. All such forward-looking statements are qualified by reference to the cautionary statements herein and in such Report on Form 10-K. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings See note 6 to the Consolidated Financial Statements. ITEM 6. Exhibits and Reports on Form 8-K None SELAS CORPORATION OF AMERICA SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SELAS CORPORATION OF AMERICA (Registrant) Date: May 15, 2002 Francis A. Toczylowski, Vice President, Secretary and Treasurer