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 June 30, 1996
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 1-5356
PENN ENGINEERING & MANUFACTURING CORP.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-0951065
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1000, Danboro, Pennsylvania 18916
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 766-8853
- ---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-------- -------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the last practicable
date: 1,707,082 shares of Class A common stock, $.01 par value, and
6,971,246 shares of common stock, $.01 par value, outstanding on
August 1, 1996.
2
<PAGE>
PART I. FINANCIAL INFORMATION
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, 1996 December 31, 1995
CURRENT ASSETS -------------- ------------------
Cash and cash equivalents $ 2,968,396 $ 1,459,370
Short-term investments 4,579,131 5,987,981
Accounts receivable-trade 25,209,635 21,744,900
Allowance for doubtful accounts (900,000) (900,000)
Inventories (Note 2) 26,728,926 20,274,571
Prepaid expenses 3,791,924 2,556,893
Deferred income taxes 968,051 958,888
------------- -------------
Total current assets 63,346,063 52,082,603
------------- -------------
PROPERTY
Property, plant & equipment 88,496,751 76,837,686
Less accumulated depreciation 37,102,779 34,896,199
------------- -------------
Property - net 51,393,972 41,941,487
------------- -------------
OTHER ASSETS 2,360,000 2,050,000
------------- -------------
TOTAL $ 117,100,035 $ 96,074,090
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 14,000,000 $ 1,500,000
Accounts payable-trade 6,344,049 4,302,773
Dividends payable 682,832
Accrued expenses:
Pension & profit sharing 2,504,328 3,983,621
Income taxes 118,540 468,268
Payroll & commissions 4,195,016 2,426,097
Other 552,301 521,559
------------- -------------
Total current liabilities 28,397,066 13,202,318
------------- -------------
ACCRUED PENSION COST 4,764,701 4,714,701
------------- -------------
DEFERRED INCOME TAXES 2,427,300 2,066,179
------------- -------------
STOCKHOLDERS' EQUITY (See Note 3)
Class A common stock 17,720 17,720
Common stock 53,161 53,161
Additional paid-in capital 2,686,448 2,686,448
Retained earnings 80,132,905 74,851,423
Unrealized (loss) on
investments - net of tax (74,635) (60,303)
Cumulative foreign currency
translation adjustment (352,674) (505,600)
Treasury stock (951,957) (951,957)
------------- -------------
Total stockholders' equity 81,510,968 76,090,892
------------- -------------
TOTAL $ 117,100,035 $ 96,074,090
============= =============
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ------------------------------
(Unaudited) (Unaudited)
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Net Sales $41,482,437 $36,898,199 $80,511,303 $72,196,758
Other income 95,103 269,906 230,815 618,633
----------- ----------- ----------- -----------
41,577,540 37,168,105 80,742,118 72,815,391
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of products sold 28,714,994 25,145,126 56,192,355 49,775,511
Selling, general & administrative 7,164,971 6,333,135 14,278,001 12,349,592
----------- ----------- ----------- -----------
35,879,965 31,478,261 70,470,356 62,125,103
----------- ----------- ----------- -----------
INOME BEFORE INCOME TAXES 5,697,575 5,689,844 10,271,762 10,690,288
PROVISION FOR INCOME TAXES 2,133,000 2,233,000 3,838,000 4,210,000
----------- ----------- ----------- -----------
NET INCOME 3,564,575 3,456,844 6,433,762 6,480,288
RETAINED EARNINGS - BEGINNING 77,251,163 67,074,457 74,851,423 64,520,460
CASH DIVIDEND (682,833) (469,448) (1,152,280) (938,895)
----------- ----------- ----------- -----------
RETAINED EARNINGS - ENDING $80,132,905 $70,061,853 $80,132,905 $70,061,853
=========== =========== =========== ===========
NET INCOME PER SHARE (See Note 3) $0.52 $0.51 $0.94 $0.95
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING (See Note 3) 6,828,328 6,828,328 6,828,328 6,828,328
CASH DIVIDEND PER SHARE (See Note 3) $.10 $.069 $.169 $.1375
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
SIX MONTHS ENDED
-----------------------------
(Unaudited)
June 30, 1996 June 30, 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,433,762 $6,480,288
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,466,085 1,935,459
Loss on disposal of property 38,779 5,949
Loss (gain) on disposal of investments (17,222)
Changes in assets and liabilities:
(Increase) in receivables (3,464,735) (1,240,646)
(Increase) in inventories (6,454,355) (974,323)
(Increase) in prepaid expenses, etc. (1,235,031) (237,712)
(Increase) in deferred
income taxes-current (9,163) (27,836)
(Increase) in other assets (310,000) (310,000)
Increase in accounts payable 2,041,276 1,998,189
Increase(decrease) in accrued expenses (29,360) 1,257,613
Increase in accrued pension cost 50,000 253,094
Increase(decrease) in deferred income
taxes- noncurrent 361,121 (47,481)
---------- ----------
Net cash provided (used) in
operating activities (111,621) 9,075,372
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (11,970,264) (6,777,245)
Additions to available-for-sale and
held-to-maturity investments (4,344,532) (19,943,189)
Proceeds from disposal of available-for-
sale and held-to-maturity investments 5,729,887 16,870,713
Proceeds from disposal of property 10,625 1,705
---------- ----------
Net cash used in investing activities (10,574,284) (9,848,016)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 38,750,000
Net short-term repayments (26,250,000)
Dividends paid (469,447) (469,447)
---------- ---------
Net cash provided (used) by
financing activities 12,030,553 (469,447)
---------- ---------
Effect of exchange rate and investment
reserve changes on cash 164,378 (65,356)
----------- ---------
Net increase (decrease) in cash and
cash equivalents 1,509,026 (1,307,447)
Cash and cash equivalents at
beginning of year 1,459,370 6,106,565
----------- ---------
Cash and cash equivalents at end of year $2,968,396 $4,799,118
=========== ==========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year for:
Income taxes $3,819,600 $4,096,470
Interest 199,150 6,623
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
Note 1. Condensed Consolidated Financial Statements (Unaudited)
- ---------------------------------------------------------------
The accompanying interim financial statements should be read in conjunction
with the annual financial statements and notes thereto included in the
Registrant's Annual Report. The information contained in this report is
unaudited and subject to year-end audit and adjustment. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
have been made which are necessary for a fair presentation of Registrant's
consolidated financial position at June 30, 1996 and 1995 and the consolidated
statements of income and cash flow for the six-month periods then ended. The
results of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results of operations to be expected for the year ending
December 31, 1996.
Note 2. Inventories
- -------------------
Substantially all of the Registrant's domestic fastener inventories are
priced on the lower of last-in, first-out (LIFO) cost or market method. The
remainder of the inventories are priced on the first-in, first-out (FIFO)
method, at the lower of cost or market.
Inventories are as follows:
(Unaudited)
June 30, 1996 December 31, 1995
-------------- -----------------
Raw material $4,807,942 $4,569,522
Tooling 4,162,699 3,610,307
Work-in-process 8,299,092 6,511,667
Finished goods 9,459,193 5,583,075
----------- -----------
TOTAL $26,728,926 $20,274,571
=========== ===========
If the FIFO method of inventory valuation had been used for all inventories
by Registrant, inventories would have been $9,045,617 and $8,027,875 higher
than reported at June 30, 1996 and December 31, 1995, respectively, and net
income would have been $637,000 and $210,000 higher than reported for the
six months ended June 30, 1996 and 1995, respectively. Included in other
assets is long-term tooling inventory totaling $2,360,000 and $2,050,000 at
June 30, 1996 and December 31, 1995, respectively.
Note 3. Reclassification
- ------------------------
On May 22, 1996, the Registrant effected a reclassification of its existing
common stock whereby each share of existing $1.00 par value common stock became
one share of new $.01 par value Class A voting common stock (the "Stock
Reclassification"). On May 23, 1996, the Registrant effected a 4-for-1 stock
split, in the form of a stock dividend, payable in shares of $.01 par value
non-voting common stock to stockholders of record on May 3, 1996 (the "Stock
Dividend"). The change in par value of the Class A Common stock as a result of
the Stock Reclassification resulted in the transfer of $1,754,305 from Class A
common stock to additional paid-in capital, and the Stock Dividend resulted in
the issuance of 5,316,075 new common shares and in the transfer of $53,161 from
retained earnings to common stock. Accordingly, the stockholders' equity section
of the Balance Sheet at December 31, 1995 and the references in the Statements
of Condensed Consolidated Income and Retained Earnings to average number of
shares outstanding and per share amounts for the three and six month periods
ended June 30, 1995 have been restated to reflect the Stock Reclassification and
Stock Dividend.
Note 4. Subsequent Event
- ------------------------
On July 3, 1996, a public offering of 1,850,000 shares of common stock was
consummated resulting in net proceeds to Registrant of approximately $33 million
(net of transaction expenses) which will be used to repay existing short-term
notes payable and finance future capital expenditures.
6
<PAGE>
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
June 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Quarter Ended June 30, 1996 vs. Quarter Ended June 30, 1995
- -----------------------------------------------------------
Consolidated net sales for the quarter ended June 30, 1996 were $41.5
million, versus $36.9 million for the quarter ended June 30, 1995, a 12.5%
increase. Sales to customers outside the United States for the quarter ended
June 30, 1996 were $9.7 million, versus $9.3 million for the quarter ended June
30, 1995, a 4.3% increase.
Net sales for the fastener operation for the quarter ended June 30, 1996
were $33.7 million, versus $29.3 million for the quarter ended June 30, 1995, a
15.0% increase. The number of fastener units shipped within North America
(including Canada) increased approximately 9.6% from the second quarter of 1995
to the second quarter of 1996, and represented approximately 74.9% of the total
fasteners shipped in the second quarter of 1996. The number of fastener unit
shipments to Europe decreased approximately 6.9% from the second quarter of 1995
compared to the second quarter of 1996, while the number of units shipped to the
Asia-Pacific region increased 12.2% in the second quarter of 1996 from the
second quarter of 1995. The European sales decrease was due in part to a planned
reduction in distributor inventory which had been temporarily increased in
anticipation of an expected sales surge from the release of "Windows 95". A
similiar decline had occured in the Asia-Pacific region during the first quarter
of 1996. The average selling prices for fasteners shipped in the second quarter
of 1996 increased approximately 10.4% compared to the second quarter of 1995 as
a result of a change in product mix toward higher priced fasteners and a 2.9%
price increase effective April 1, 1996.
Net sales for the motor operation for the second quarter of 1996 were $7.8
million, versus $7.6 million for the second quarter of 1995, a 2.6% increase.
The number of motors sold increased 7.6% from the second quarter of 1995 to the
second quarter of 1996 while the average selling price declined 4.5% as a result
of a temporary change in product mix toward lower margin motors.
Consolidated gross margin for the second quarter of 1996 was $12.8 million,
versus $11.8 million for the second quarter of 1995, an 8.5% increase. Fastener
gross margin for the second quarter of 1996 increased 10.7% from the second
quarter of 1995 as a result of the increased number of units sold. As a percent
of sales, however, fastener gross margin decreased from 32.8% in the second
quarter of 1995 to 31.6% in the second quarter of 1996 becuase cost increases
incurred for raw material, outside screw machine services, and tooling were not
fully offset by price increases, production efficiences, and cost containment.
Motor gross margin, as a percent of sales, decreased from 28.3% in the second
quarter of 1995 to 27.3% in the second quarter of 1996 due to the temporary
change in product mix toward lower margin motors.
Selling, general, and administrative expenses ("SG&A") for the second
quarter of 1996 were $7.2 million, versus $6.3 million for the second quarter of
1995, a 14.3% increase. As a percent of sales, however, SG&A only increased from
17.2% in the second quarter of 1995 to 17.3% in the second quarter of 1996.
Additional SG&A staff, wage increases for the current staff, and the
establishment of a Singapore distribution center all contributed to the
increased SG&A expense.
Consolidated net income for the second quarter of 1996 was $3.6 million,
versus $3.5 million for the second quarter of 1995, an increase of 2.9%. Other
income decreased 64.8% as a result of decreased investment income. This decrease
was offset by tax savings as a result of a Pennsylvania income tax rate
reduction and certain state tax planning strategies that lowered the overall
effective tax rate from 39.2% in 1995 to 37.4% in 1996.
7
<PAGE>
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
June 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Six Months Ended June 30, 1996 vs. Six Months Ended June 30, 1995
- -----------------------------------------------------------------
Consolidated net sales for the six months ended June 30, 1996 were $80.5
million, versus $72.2 million for the six months ended June 30, 1995, an 11.5%
increase. Sales to customers outside the United States for the six months ended
June 30, 1996 were $19.5 million, versus $18.9 million for the six months ended
June 30, 1995, a 3.2% increase.
Net sales for the fastener operation for the six months ended June 30,1996
were $65.2 million, versus $57.6 million for the six months ended June 30, 1995,
a 13.2% increase. The number of fastener units shipped within North America
(including Canada) increased approximately 14.7% from the first six months of
1995 to the first six months of 1996, and represented approximately 73.5% of
total fasteners shipped in the first six months of 1996. The number of fastener
shipments to Europe increased approximately 5.7% in the first six months of 1996
compared to the first six months of 1995, while the number of units shipped to
the Asia-Pacific region decreased 3.2% from the first six months of 1995 to the
first six months of 1996. The continued strong demand for personal computers as
well as other electronic equipment was the main cause of the increased shipment
volume in North America and Europe. However, this increase was partially offset
by the decline in the Asia-Pacific region, which was caused by high retail
personal computer inventory levels resulting from a 1995 sales surge after the
release of "Windows 95". Unsold computer and peripherals inventory of customers
at the end of 1995 caused a temporary slowdown in fastener requirements for the
first six months of 1996. The average selling price of fasteners shipped in the
first six months of 1996 increased approximately 2.7% compared to the first six
months of 1995 mainly due to a 2.9% price increase effective April 1, 1996.
Net sales of the motor operation for the first six months of 1996 were
$15.3 million, versus $14.6 million for the first six months of 1995, a 4.8%
increase. The number of motors sold increased approximately 10.1% in the first
six months of 1996 compared to the first six months of 1995 while the average
selling price declined 4.4% as a result of a temporary change in product mix
toward lower margin motors.
Consolidated gross margin for the first six months of 1996 was $24.3
million, versus $22.4 million for the first six months of 1995, an 8.5%
increase. Fastener gross margin increased 9.5% in the first six months of 1996
compared to the first six months of 1995 as a result of the increased number of
units sold. As a percent of sales, however, fastener gross margin decreased from
32.0% in the first six months of 1995 to 31.0% in the first six months of 1996
because cost increases incurred for raw material, outside screw machine
services, and tooling were not fully offset by price increases, production
efficiencies, and cost containment. Motor gross margin increased approximately
3.4% in the first six months of 1996 compared to the first six months of 1995,
however, as a percent of sales, decreased slightly from 27.4% in the first six
months of 1995 to 26.9% in the first six months of 1996.
Selling, general, and administrative expenses ("SG&A") for the first six
months of 1996 were $14.3 million, versus $12.3 million for the first six months
of 1995, a 16.3% increase. SG&A, as a percent of sales, increased from 17.1% in
the first six months of 1995 to 17.7% in the first six months of 1996.
Additional SG&A staff, wage increases for the current staff, and the
establishment of a Singapore distribution center all contributed to the
increased SG&A expense.
Consolidated net income for the first six months of 1996 was $6.4 million,
versus $6.5 million for the first six months of 1995. Other income decreased
62.7% as a result of decreased investment income. This was offset, however, by a
Pennsylvania income tax rate reduction and certain state tax planning strategies
that lowered the overall effective tax rate from 39.4% in 1995 to 37.4% in 1996.
8
<PAGE>
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
June 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Liquidity needs for the six months ended June 30, 1996 were primarily for
$12.0 million of capital expenditures including the completion of a 43,000
square foot addition to the Company's Danboro facility and for $3.0 million
purchases of finished goods inventory and other assets from Registrant's new
distributor in Singapore. Short-term borrowings increased $12.5 million to
finance these expenditures. As a result of these expenditures, working capital
decreased from $38.9 million at December 31, 1995 to $34.9 million at June 30,
1996. At June 30, 1996, the Registrant had approximately $13.5 million available
under its short-term lines of credit. During the second quarter of 1996,
Registrant's line of credit with one bank in the amount of $10.0 million expired
and was not renewed by the Registrant. Cash and short-term investments increased
slightly from $7.4 million at December 31, 1995 to $7.6 million at June 30,
1996. On July 3, 1996 Registrant received approximately $33.0 million (net of
transaction expenses) from the sale of 1,850,000 shares of non-voting common
stock. These proceeds will be used to repay all short-term borrowings and to
finance additional capital expenditures including the construction of a new
manufacturing facility in Winston-Salem, NC.
9
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Reference is made to Part 1, Item 3 of the Registrant's Form 10-K Annual
Report for the year ended December 31, 1995.
Item 2. Changes in Securities
- -----------------------------
On May 22, 1996, Registrant filed an amendment to its Certificate of
Incorporation which (i) increased the number of authorized shares of Capital
Stock of the Company from 3,000,000 shares to 23,000,000 shares, consisting
of 20,000,000 shares of Common Stock and 3,000,000 shares of Class A Common
Stock, (ii) reclassified the previously outstanding Common Stock as Class A
Common Stock, (iii) authorized a new class of non-voting capital stock
designated as Common Stock, and (iv) established the rights, powers, and
limitations of the Common Stock and the Class A Common Stock. On May 23,
1996, Registrant distributed a dividend of three shares of the new non-voting
Common Stock for each share of Registrant's issued Common Stock held of
record on May 3, 1996. The Stock Dividend had the same effect on the total
number of shares of Capital Stock outstanding as a four-for-one stock split.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Registrant held its 1996 Annual Meeting of Stockholders (the "Annual
Meeting") on May 22, 1996. The matters voted upon at the Annual Meeting and
the respective voting results were as follows:
1. The election of three Class B Directors of Registrant to hold office
until the Annual Meeting of Stockholders to be held in 1999 and until their
successors are duly elected.
Name of Nominee For Withheld
- --------------- --- --------
Kenneth A. Swanstrom 1,460,350 116,140
Lewis W. Hull 1,460,213 116,277
Mark W. Simon 1,460,258 116,232
2. The election of one Class A Director of Registrant to hold office until
the Annual Meeting of Stockholders to be held in 1998 and until his successor is
duly elected.
Name of Nominee For Withheld
- --------------- --- --------
Frank S. Hermance 1,456,748 119,742
3. The election of Deloitte & Touche LLP as auditors for Registrant for its
1996 fiscal year.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
1,512,839 62,473 1,138 40
10
<PAGE>
4. The approval of the proposal to amend and restate Article IV of
Registrant's Certificate of Incorporation to (i) reclassify Registrant's
existing Common Stock as Class A Common Stock, (ii) authorize a new class of
non-voting common stock designated as Common Stock, (iii) increase the number of
authorized shares of capital stock from 3,000,000 shares to 23,000,000 shares,
consisting of 20,000,000 shares of Common Stock and 3,000,000 shares of Class A
Common Stock, and (iv) establish the rights, powers, and limitations of the
Common Stock and the Class A Common Stock.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
1,093,924 413,406 5,136 64,024
5. The approval of Registrant's 1996 Equity Incentive Plan.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
1,041,075 312,851 158,540 64,024
6. The approval of Registrant's 1996 Employee Stock Purchase Plan.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
1,323,156 31,285 157,985 64,064
Item 5. Other Information
- -------------------------
On July 3, 1996, a public offering of 1,850,000 shares of Registrant's
non-voting Common Stock by Registrant and 1,000,000 shares of Registrant's
non-voting Common Stock by certain selling stockholders was consummated.
Net proceeds from shares sold by Registrant of approximately $33 million
will be used to repay existing short-term indebtedness and to finance future
capital expenditures.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation (filed herewith.)
3.2 Bylaws, as amended. (Incorporated by reference to
Registrant's Form 10-K Annual Report for the year
ended December 31, 1994.)
27 Financial Statement Data Schedule (filed herewith.)
(b) Reports on Form 8-K
None
11
<PAGE>
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.
PENN ENGINEERING & MANUFACTURING CORP.
Dated: August 12, 1996 By: /s/ Kenneth A. Swanstrom
----------------------------
Kenneth A. Swanstrom
Chairman/ CEO/ President
Dated: August 12, 1996 By: /s/ Mark W. Simon
----------------------------
Mark W. Simon
Vice-President - Finance
<PAGE>
EXHIBIT INDEX
(Puruant to Item 601 of Regulation S-K)
Exhibit No. Exhibit Description
----------- -------------------
3.1 Restated Certificate of Incorporation. (Filed
herewith.)
3.2 Bylaws, as amended. (Incorporated by
reference to Registrant's Form 10-K Annual
Report for the year ended December 31, 1994.)
27 Financial Data Schedule. (Filed herewith.)
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION OF
PENN ENGINEERING & MANUFACTURING CORP.
Penn Engineering & Manufacturing Corp., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. The present name of the Corporation is Penn Engineering & Manufacturing
Corp. The Corporation was originally incorporated under the name "Penn
Engineering and Manufacturing Corporation," and the date of filing of its
original Certificate of Incorporation with the Delaware Secretary of State was
December 24, 1942.
2. This Restated Certificate of Incorporation of the Corporation was duly
adopted by the Board of Directors of the Corporation in accordance with Section
245 of the Delaware General Corporation Law.
3. This Restated Certificate of Incorporation of the Corporation only
restates and integrates and does not further amend the provisions of the
Corporation's Certificate of Incorporation as heretofore amended or
supplemented, and there is no discrepancy between those provisions and the
provisions of this Restated Certificate of Incorporation. The Restated
Certificate of Incorporation of the Corporation is set forth as follows:
ARTICLE I
The name of the Corporation is Penn Engineering & Manufacturing Corp.
ARTICLE II
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name and address of the Corporation's registered agent is The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
<PAGE>
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity,
including manufacturing, for which corporations may be organized under the
General Corporation Law of Delaware.
ARTICLE IV
The total number of shares of stock which the Corporation shall have the
authority to issue is 23,000,000 shares consisting of (i) 20,000,000 shares of
Common Stock (the "Common Stock"), par value $.01 per share, and (ii) 3,000,000
shares of Class A Common Stock (the "Class A Common Stock"), par value $.01 per
share. Upon a Certificate of Amendment of Certificate of Incorporation becoming
effective (the "Effective Time") pursuant to the General Corporation Law of the
State of Delaware (the "DGCL"), and without any further action on part of the
Corporation or its stockholders, each share of the Corporation's Common Stock,
par value $1.00 per share (the "Prior Common Stock"), then issued, including
shares held in the treasury of the Corporation, shall be automatically
reclassified, changed and converted into one fully paid and non-assessable share
of Class A Common Stock, par value $.01 per share. Any stock certificate that,
immediately prior to the Effective Time, represents shares of the Prior Common
Stock will, from and after the Effective Time, automatically and without the
necessity of presenting the same for exchange, represent that number of shares
of Class A Common Stock equal to the number of shares of the Prior Common Stock
represented by such certificate prior to the Effective Time. For purposes of
Article IX of this Certificate of Incorporation, the term "Common Stock" as used
in Article IX shall be deemed to refer to the Class A Common Stock.
The Common Stock and Class A Common Stock are hereinafter collectively
referred to as the "Common Stocks." The designations and powers, preferences and
rights, and the qualifications, limitations on restrictions thereof, of the
above classes of stock shall be as follows:
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<PAGE>
(a) Rights. Except as otherwise required by law or as otherwise
provided in this Article IV, each share of Common Stock and each share of
Class A Common Stock shall have identical powers, preferences,
qualifications, limitations and other rights.
(b) Dividends. Subject to all of the rights of any class of stock
authorized after the effective date of this provision of Article IV ranking
senior to the Common Stocks as to dividends, dividends may be paid upon the
Common Stock and the Class A Common Stock as and when declared by the Board
of Directors out of funds and other assets legally available for the
payment of dividends. If and when dividends on the Common Stock and the
Class A Common Stock are declared and payable from time to time by the
Board of Directors whether payable in cash, in property or in shares of
stock of the Corporation, the holders of the Common Stock and the holders
of the Class A Common Stock shall be entitled to share equally, on a per
share basis, in such dividends, except that (1) a dividend or distribution
in cash or property on a share of Common Stock may be greater than any
dividend or distribution in cash or property on a share of Class A Common
Stock, and (2) dividends or other distributions payable on the Common
Stocks in shares of any authorized class or series of capital stock of the
Corporation may be made (i) in shares of Common Stock to the holders of
Common Stock and in shares of Class A Common Stock to the holders of Class
A Common Stock, (ii) in shares of Common Stock to the holders of Common
Stock and to the holders of Class A Common Stock, or (iii) in any other
authorized class or series of capital stock to the holders of both classes
of the Common Stocks.
(c) Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, and after
the holders of any class of stock authorized after the effective date of
this provision of Article IV ranking senior to the Common Stocks as to
rights upon liquidation shall have been paid in full the amount to which
such holders shall be entitled, or an
-3-
<PAGE>
amount sufficient to pay the aggregate amount to which such holders shall
be entitled shall have been set aside for the benefit of the holders of
such stock, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of both classes of the Common Stocks.
(d) Merger and Consolidation. In the event of a merger or
consolidation of the Corporation with or into another entity (whether or
not the Corporation is the surviving entity), the holders of Common Stock
and of Class A Common Stock shall be entitled to receive the same per share
consideration as the per share consideration in such merger or
consolidation.
(e) Voting.
(1) Except as otherwise expressly provided with respect to any other
class of stock and except as otherwise may be required by law or this
Article IV, the Class A Common Stock shall have the exclusive right to vote
for the election of directors and for all other purposes and each holder of
Class A Common Stock shall be entitled to one vote for each share of Class
A Common Stock held. Except as expressly provided in this Article IV and
except as otherwise required by law, the Common Stock shall have no voting
rights. There shall be no cumulative voting rights in the election of
directors.
(2) The Common Stock shall be entitled to vote separately as a class
only with respect to (i) proposals to change the par value of the Common
Stock, (ii) other amendments to this Article IV that alter or change the
powers, preferences or special rights of the Common Stock as to affect them
adversely, and (iii) such other matters as may require class voting under
the DGCL.
(3) The number of authorized shares of Common Stock and Class A Common
Stock may be increased or
-4-
<PAGE>
decreased, but not below the number of shares then outstanding, by the
affirmative vote of the holders of a majority of the Class A Common Stock.
(f) Stock Splits. The Corporation may not split, divide or combine the
shares of either class of the Common Stocks unless, at the same time, the
Corporation splits, divides or combines, as the case may be, the shares of
the other class of the Common Stocks in the same proportion and manner.
(g) No Pre-emptive Rights. No stockholder of this Corporation shall by
reason of his holding shares of any class have any pre-emptive or
preferential right to purchase or subscribe to any shares of any class of
this Corporation, now or hereafter to be authorized, or any notes,
debentures, bonds, or other securities convertible into or carrying options
or warrants to purchase shares of any class, now or hereafter to be
authorized, whether or not the issuance of any such shares, or such notes,
debentures, bonds, or other securities, would adversely affect the dividend
or voting rights of such stockholder, other than such rights, if any, as
the Board of Directors, in its discretion may fix; and the Board of
Directors may issue shares of any class of this Corporation, or any notes,
debentures, bonds, or other securities convertible into or carrying options
or warrants to purchase shares of any class, without offering any such
shares of any class, either in whole or in part, to the existing
stockholders of any class.
(h) Issuances and Repurchases of the Common Stocks.
(1) The Board of Directors shall have the power to issue and sell
all or any part of any class of stock herein or hereafter authorized
to such persons, firms, associations, or corporations, and for such
consideration as the Board of Directors shall from time to time, in
its discretion, determine, whether or not greater consideration could
be received upon the issue
-5-
<PAGE>
or sale of the same number of shares of another class, and as
otherwise permitted by law.
(2) The Board of Directors shall have the power to purchase any
class of stock herein or hereafter authorized from such persons,
firms, associations, or corporations, and for such consideration as
the Board of Directors shall from time to time, in its discretion,
determine, whether or not less consideration could be paid upon the
purchase of the same number of shares of another class, and as
otherwise permitted by law.
(i) Convertibility
(1) Neither the Common Stock nor the Class A Common Stock will be
convertible into another class of common stock or any other security
of the Corporation, except that in the event that a "Change of
Control" were to occur, (i) all the then issued shares of Common Stock
will automatically convert into an equal number of shares of Class A
Common Stock, and (ii) all rights, warrants, or options to purchase
shares of Common Stock, or other securities convertible into shares of
Common Stock, will be converted into similar rights, warrants or
options to purchase, or securities convertible into, an equal number
of shares of Class A Common Stock.
(2) A Change in Control shall occur if:
(a) Any "person" or "group of persons" as such terms are
used in Section 13(d) and 14(d) of the Exchange Act, other than
members of the Swanstrom Family (as defined below), directly or
indirectly purchases or otherwise becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of
1934), or has the right to acquire such beneficial ownership
(whether or not such right is exercisable
-6-
<PAGE>
immediately, with the passage of time, or subject to any
condition), of voting securities of the Corporation representing
more than 50% of the combined voting power of all outstanding
voting securities of the Corporation; or
(b) During any period of two consecutive years, the
individuals who at the beginning of such period constitute the
Board of Directors (together with any new director whose
election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least two thirds of
the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to
constitute at least a majority of the members of the Board of
Directors then in office;
(3) The "Swanstrom Family" shall include Kenneth A. Swanstrom,
Daryl L. Swanstrom, any spouse or child of either of them, their
respective descendants, heirs, estates, any trust or estate in which
any of the foregoing persons has a beneficial interest, and any
partnership, corporation or other entity in which any of the foregoing
persons has a controlling interest.
ARTICLE V
In furtherance and not in limitation of the power conferred upon the Board
of Directors by law, the Board of Directors shall have power to make, adopt,
alter, amend, and repeal from time to time By-Laws of the Corporation, subject
to the right of stockholders entitled to vote with respect thereto to alter and
repeal By-Laws made by the Board of Directors.
-7-
<PAGE>
ARTICLE VI
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE VII
The Corporation shall be deemed, for all purposes, to have reserved the
right to amend, alter, change, or repeal any provision contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by
statute and all rights hereunder conferred upon stockholders are granted subject
to such reservation.
-8-
<PAGE>
ARTICLE VIII
The Board of Directors may, if it deems advisable, oppose a tender or other
offer for the Company's securities, whether the offer is in cash or in the
securities of a corporation or otherwise. When considering whether to oppose an
offer, the Board of Directors may, but is not legally obligated to, consider any
pertinent issue; by way of illustration, but not of limitation, the Board of
Directors may, but shall not be legally obligated to, consider any or all of the
following:
(a) whether the offer price is acceptable based on the historical and
present operating results or financial condition of the Company;
(b) whether a more favorable price could be obtained for the Company's
securities in the future;
(c) the impact which an acquisition of the Company would have on the
employees and customers of the Company and the communities in which it
operates;
(d) the reputation and business practices of the offeror and its
management and affiliates as they would affect the employees and customers
of the Company and the future value of the Company's stock;
(e) the value of the securities, if any, which the offeror is offering
in exchange for the Company's securities, based on an analysis of the worth
of the Company, as compared to the corporation or other entity whose
securities are being offered; and
(f) any antitrust or other legal and regulatory issues that are raised
by the offer.
If the Board of Directors determines that an offer should be rejected, it
may take any lawful action to accomplish that purpose including, but not limited
to, any or all of the following: advising stockholders not to accept the offer;
-9-
<PAGE>
litigation against the offeror; filing complaints with governmental and
regulatory authorities; acquiring the Company's securities to the fullest extent
permitted by applicable law; selling or otherwise issuing authorized but
unissued securities or treasury stock or granting options with respect thereto;
acquiring a company to create an antitrust or other regulatory problem for the
offeror; and soliciting a more favorable offer from another individual or
entity.
ARTICLE IX
(a) Definitions.
For the purpose of this Article IX, the following definitions shall
apply:
(1) Business Combination. A "Business Combination" shall mean:
(A) The sale, exchange, lease, transfer or other disposition
to or with a Related Person or any affiliate of such Related
Person by the Company, in a single transaction or a series of
transactions, of all or substantially all of its assets or
businesses;
(B) The purchase, exchange, lease or other acquisition by
the Company, in a single transaction or a series of transactions,
of all or substantially all of the assets or business of a
Related Person or any affiliate of such Related Person;
(C) Any merger or consolidation of the Company into or with
a Related Person or any affiliate of such Related Person,
irrespective of which Person is the surviving entity in such
merger or consolidation;
-10-
<PAGE>
(D) Any reclassification of securities, recapitalization or
other transaction or series of transactions, other than a
redemption in accordance with the terms of the security redeemed,
which has the effect, directly or indirectly, of increasing the
proportionate amount of the issued and outstanding shares of
Common Stock of the Company which are beneficially owned by a
Related Person.
As used in this definition, a "series of transactions" shall be
deemed to include not only a series of related transactions with the
same Related Person but also a series of separate transactions with
the same Related Person or any affiliate of such Related Person.
(2) Continuing Director. A "Continuing Director" shall mean:
(A) An individual who was a member of the Board of Directors
of the Company first elected by the stockholders or by the Board
of Directors prior to the date on which this Article was adopted;
(B) An individual who was a member of the Board of Directors
of the Company first elected by the stockholders or by the Board
of Directors prior to the time that any Related Person (other
than any person who was already a Related Person at the time this
Article was adopted) became the beneficial owner of in excess of
10% of the Common Stock of the Company; or
(C) An individual designated, before such individual's
initial election as a director, as a Continuing Director by a
majority of the then Continuing Directors.
(3) Related Person. A "Related Person" shall mean:
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<PAGE>
(A) Any person or entity who or which is the beneficial
owner immediately prior to the consummation of a Business
Combination of 10% or more of the Common Stock of the Company; or
(B) Any person or entity who or which is an affiliate of the
Company and at any time within five years preceding the Business
Combination was the beneficial owner of 10% or more of the then
outstanding Common Stock of the Company.
(b) Approval of Certain Business Combinations.
Whether or not a vote of the stockholders is otherwise required
in connection with the transaction, the Company shall not become a
party to any Business Combination without prior compliance with the
provisions of one of subsections (1) or (2) or (3) hereinbelow.
(1) Prior Approval by the Board of Directors. Such Business
Combination shall have been approved by a majority vote of the
Board of Directors of the Company either (i) at a time prior to
the time the Related Person involved in the proposed Business
Combination became a Related Person, or (ii) after the time the
Related Person involved in the proposed Business Combination
became a Related Person, but only so long as such Related Person
sought and obtained the approval, by the affirmative vote of at
least 80% of the Board of Directors of the Company, of the
acquisition of the outstanding Common Stock of the Company which
caused it to become a Related Person prior to acquiring such
Common Stock.
(2) Approval by Continuing Directors and Additional
Requirements. Such Business Combination (i) shall have been
approved at a meeting of the Board of Directors by the
affirmative vote of 80% of the Continuing Directors, and (ii) all
of the conditions
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<PAGE>
hereinafter set forth in subsections (A) through (C) shall be
satisfied.
(A) The ratio of (i) the aggregate amount of the cash
and the fair market value of other consideration to be
received per share of Common Stock in such Business
Combination by holders of Common Stock other than the
Related Person involved in such Business Combination, to
(ii) the market price per share of the Common Stock
immediately prior to the announcement of the proposed
Business Combination is at least as great as the ratio of
(x) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers' fees)
which such Related Person has theretofore paid in acquiring
any Common Stock prior to such Business Combination to (y)
the market price per share of Common Stock immediately prior
to the initial acquisition by such Related Person of any
shares of Common Stock;
(B) The aggregate amount of the cash and the fair
market value of other consideration to be received per share
of Common Stock in such Business Combination by holders of
Common Stock other than the Related Person involved in such
Business Combination, (i) is not less than the highest per
share price paid by such Related Person in acquiring any of
its holdings of Common Stock, and (ii) is not less than the
book value of a share of the Common Stock, as reflected in
the balance sheet of the Company as of the last day of the
last fiscal quarter of the Company preceding the Business
Combination; and
(C) The consideration, if any, to be received in such
Business Combination by holders of Common Stock other than
the Related Person involved in such Business Combination
shall, except to the extent that a stockholder agrees
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<PAGE>
otherwise as to all or part of the shares which he or she
owns, be in the same form and of the same kind as the
consideration paid by the Related Person in acquiring Common
Stock already owned by it.
(3) Approval by Stockholders. If there is not full
compliance with the provisions of subsections (1) or (2) of
paragraph (b) of this Article, such Business Combination
shall be approved by the affirmative vote of the holders of
80% of the issued and outstanding Common Stock of the
Company.
(c) Amendments to this Article IX.
Notwithstanding any other provisions of the Certificate of
Incorporation or the By-laws of the Company, and notwithstanding
the fact that some lesser percentage may be specified by law, the
Certificate of Incorporation or the By-laws of the Company,
except as expressly provided in paragraph (d) below, this Article
IX shall not be amended, altered, changed or repealed without:
(1) The affirmative vote of a majority of the Board of
Directors and 80% of the Continuing Directors; and
(2) The affirmative vote of the holders of 80% of the
Common Stock of the Company.
(d) Amendments Recommended by Directors.
The provisions of paragraph (c) of this Article IX shall not
apply to, and the vote referred to therein shall not be required
for, any amendment, addition, alteration or repeal of any
provision of this Article IX that is recommended to the
stockholders by the favorable vote of (1) a majority of the Board
of Directors, and (2) not less than 80% of the Continuing
Directors, and any such amendment, addition, alteration or repeal
so recommended
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<PAGE>
shall require only the vote, if any, required under the
applicable provisions of the General Corporation Law of the State
of Delaware.
ARTICLE X
A director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for breach of his fiduciary
duty as a director; provided, however, this Article shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of a law;
(iii) for the unlawful payment of dividends or unlawful stock repurchases under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit.
This Article shall not eliminate or limit the liability of a director for any
act or omission occurring prior to the effective date of this Article.
IN WITNESS WHEREOF, Penn Engineering & Manufacturing Corp. has caused this
Restated Certificate of Incorporation to be signed and attested by its duly
authorized officers this 9th day of August, 1996.
PENN ENGINEERING &
MANUFACTURING CORP.
ATTEST:
/s/ MARK W. SIMON By: /s/ KENNETH A. SWANSTROM
- ------------------------------- ---------------------------------
Mark W. Simon, Secretary Kenneth A. Swanstrom,
Chairman of the Board,
President and Chief
Executive Officer
-15-
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