<PAGE>
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 September 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
November 1, 1996.
1
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PART I. FINANCIAL INFORMATION
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, 1996 December 31, 1995
CURRENT ASSETS ------------------ ------------------
Cash and cash equivalents $4,024,308 $1,459,370
Short-term investments 18,460,859 5,987,981
Accounts receivable-trade 25,756,368 21,744,900
Allowance for doubtful accounts (1,000,000) (900,000)
Inventories (Note 2) 27,929,129 20,274,571
Prepaid expenses 2,565,617 2,556,893
Deferred income taxes 1,000,421 958,888
---------- ----------
Total current assets 78,736,702 52,082,603
---------- ----------
PROPERTY
Property, plant & equipment 94,714,762 76,837,686
Less accumulated depreciation 38,035,518 34,896,199
---------- ----------
Property - net 56,679,244 41,941,487
---------- ----------
OTHER ASSETS 2,400,000 2,050,000
---------- ----------
TOTAL $137,815,946 $96,074,090
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $1,500,000
Accounts payable-trade $4,812,434 4,302,773
Dividends payable 867,832
Accrued expenses:
Pension & profit sharing 2,782,771 3,983,621
Income taxes 233,833 468,268
Payroll & commissions 4,720,197 2,426,097
Other 603,303 521,559
---------- ----------
Total current liabilities 14,020,370 13,202,318
---------- ----------
ACCRUED PENSION COST 4,216,009 4,714,701
---------- ----------
DEFERRED INCOME TAXES 2,589,201 2,066,179
---------- ----------
STOCKHOLDERS' EQUITY (See Note 3)
Class A common stock 17,720 17,720
Common stock 71,661 53,161
Additional paid-in capital 35,423,393 2,686,448
Retained earnings 82,836,370 74,851,423
Unrealized (loss) on
investments -net of tax (64,265) (60,303)
Cumulative foreign currency
translation adjustment (342,556) (505,600)
Treasury stock (951,957) (951,957)
---------- ----------
Total stockholders' equity 116,990,366 76,090,892
----------- ----------
TOTAL $137,815,946 $96,074,090
============ ===========
See Notes to Condensed Consolidated Financial Statements
2
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PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES:
Net Sales $38,713,584 $34,080,372 $119,224,887 $106,277,130
Other income 437,714 224,530 668,529 843,163
----------- ----------- ----------- -----------
39,151,298 34,304,902 119,893,416 107,120,293
----------- ----------- ----------- -----------
COST AND EXPENSES
Cost of products sold 26,609,149 23,677,065 82,801,504 73,452,576
Selling, general & administrative 6,823,851 5,442,893 21,101,852 17,792,485
----------- ----------- ----------- -----------
33,433,000 29,119,958 103,903,356 91,245,061
----------- ----------- ----------- -----------
INOME BEFORE INCOME TAXES 5,718,298 5,184,944 15,990,060 15,875,232
PROVISION FOR INCOME TAXES 2,147,000 1,801,000 5,985,000 6,011,000
----------- ----------- ----------- -----------
NET INCOME 3,571,298 3,383,944 10,005,060 9,864,232
RETAINED EARNINGS - BEGINNING 80,132,905 70,061,853 74,851,423 64,520,460
CASH DIVIDEND (867,833) (469,448) (2,020,113) (1,408,343)
----------- ----------- ----------- -----------
RETAINED EARNINGS - ENDING $82,836,370 $72,976,349 $82,836,370 $72,976,349
=========== =========== =========== ===========
NET INCOME PER SHARE (See Note 3) $0.41 $0.50 $1.35 $1.44
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING (See Note 3) 8,638,111 6,828,328 7,435,992 6,828,328
CASH DIVIDEND PER SHARE (see Note 3) $.10 $.069 $.269 $.207
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
NINE MONTHS ENDED
-----------------------------
(Unaudited) (Unaudited)
September 30, 1996 September 30, 1995
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,005,060 $9,864,232
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,825,472 2,986,400
Loss on disposal of property 47,339 17,799
Gain on disposal of investments 0 (18,332)
Changes in assets and liabilities:
(Increase) in receivables (3,911,468) (333,546)
(Increase) in inventories (7,654,558) (1,329,746)
(Increase) in prepaid expenses, etc. (8,724) (1,263,264)
(Increase)decrease in deferred
income taxes-current (41,533) 20,056
(Increase) in other assets (350,000) (360,000)
Increase in accounts payable 509,661 2,167,604
Increase in accrued expenses 940,559 707,530
Increase(decrease) in accrued
pension cost (498,692) 379,641
Increase in deferred income
taxes- noncurrent 523,022 111,810
---------- ----------
Net cash provided by
operating activities 3,386,138 12,950,184
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (18,646,182) (10,047,993)
Additions to available-for-sale
investments (4,367) 0
Additions to held-to-maturity
investments (412,182,675) (25,614,933)
Proceeds from disposal of
available-for-sale investments 193,636 778,402
Proceeds from disposal of
held-to-maturity investments 399,514,033 21,137,762
Proceeds from disposal of property 41,225 1,705
----------- ----------
Net cash used in investing activities(31,084,330) (13,745,057)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 41,750,000 0
Net short-term repayments (43,250,000) 0
Proceeds from issuance of common stock 32,755,445 0
Dividends paid (1,152,281) (938,897)
---------- ---------
Net cash provided (used) by
financing activities 30,103,164 (938,897)
---------- ---------
Effect of exchange rate and investment
reserve changes on cash 159,966 (166,104)
--------- ---------
Net increase (decrease) in cash and
cash equivalents 2,564,938 (1,899,874)
Cash and cash equivalents at
beginning of year 1,459,370 6,106,565
--------- ---------
Cash and cash equivalents at end of year$4,024,308 $4,206,691
========== ==========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year for:
Income taxes $5,521,600 $6,329,247
Interest 217,907 9,433
See Notes to Condensed Consolidated Financial Statements
4
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PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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
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 September 30, 1996 and 1995 and the
consolidated statements of income and cash flows for the three-month and
nine-month periods then ended. The results of operations for the nine months
ended September 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)
September 30, 1996 December 31, 1995
------------------ -----------------
Raw material $4,411,164 $4,569,522
Tooling 4,291,299 3,610,307
Work-in-process 8,177,215 6,511,667
Finished goods 11,049,451 5,583,075
---------- ----------
TOTAL $27,929,129 $20,274,571
========== ==========
If the FIFO method of inventory valuation had been used by Registrant for
all inventories, inventories would have been $9,130,354 and $8,027,875 higher
than reported at September 30, 1996 and December 31, 1995, respectively, and
net income would have been $690,000 and $556,000 higher than reported for the
nine months ended September 30, 1996 and 1995, respectively. Included in other
assets is long-term tooling inventory totaling $2,400,000 and $2,050,000 at
September 30, 1996 and December 31, 1995, respectively.
Note 3. Reclassification
- ------------------------
On May 22, 1996, 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, 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 nine month periods
ended September 30, 1995 have been restated to reflect the Stock
Reclassification and the Stock Dividend.
5
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PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Quarter Ended September 30, 1996 vs. Quarter Ended September 30, 1995
- ---------------------------------------------------------------------
Consolidated net sales for the quarter ended September 30, 1996 were $38.7
million, versus $34.1 million for the quarter ended September 30, 1995, a
13.5% increase. Sales to customers outside the United States for the quarter
ended September 30, 1996 were $10.1 million, versus $8.5 million for the
quarter ended September 30, 1995, an 18.8% increase.
Net sales for the fastener operation for the quarter ended September 30,
1996 were $31.7 million, versus $27.1 million for the quarter ended September
30, 1995, a 17.0% increase. The number of fastener units shipped within North
America (including Canada) increased approximately 7.0% from the third
quarter of 1995 to the third quarter of 1996, and represented approximately
69.3% of the total fasteners shipped in the third quarter of 1996. The number
of fastener unit shipments to Europe increased approximately 1.2% from the
third quarter of 1995 to the third quarter of 1996. The number of units
shipped to the Asia-Pacific region increased 33.1% in the third quarter
of 1996 from the third quarter of 1995 as a result of increased demand by
computer and electronic equipment manufacturers in the Asia-Pacific region.
The average selling prices for fasteners shipped in the third quarter of 1996
increased approximately 9.1% compared to the third 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 third quarter of 1996 were $7.1
million, versus $7.0 million for the third quarter of 1995, a 1.4% increase.
The number of motors sold decreased 4.5% from the third quarter of 1995 to
the third quarter of 1996 while the average selling price increased 5.1%.
Consolidated gross margin for the third quarter of 1996 was $12.1 million,
versus $10.4 million for the third quarter of 1995, a 16.3% increase.
Fastener gross margin for the third quarter of 1996 increased 21.2% from the
third quarter of 1995 as a result of the increased number of units sold, a
a change in product mix towards higher margin fasteners, production
efficiencies, and a decrease in employee benefit costs. As a percent of
sales, fastener gross margin increased from 31.5% in the third quarter of
1995 to 32.7% in the third quarter of 1996. Motor gross margin, as a percent
of sales, decreased from 26.7% in the third quarter of 1995 to 25.0% in the
third quarter of 1996.
Selling, general, and administrative expenses ("SG&A") for the third
quarter of 1996 were $6.8 million, versus $5.4 million for the
third quarter of 1995, a 25.4% increase. The establishment of a Singapore
distribution center in the first quarter of 1996 accounted for approximately
4.5% of this increase. The remainder of the increase was due to additional
SG&A staff to handle the increased volume, wage increases for current staff,
and increased legal and other professional fees that resulted from
Registrant's recent public offering but which were not directly related to
the offering.
Consolidated net income for the third quarter of 1996 was $3.6 million,
versus $3.4 million for the third quarter of 1995, a 5.5% increase.
Other income increased 94.9% due to income received from the temporary
investment of the public offering proceeds as well as favorable currency
exchange rates in the third quarter of 1996. The overall effective tax rate
increased from 34.7% in the third quarter of 1995 to 37.5% in the third
quarter of 1996 primarily due to a favorable retroactive adjustment made in
the third quarter of 1995 as a result of a reduction in the Pennsylvania
income tax rate and apportionment factor.
6
<PAGE>
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Nine Months Ended September 30, 1996 vs. Nine Months Ended September 30, 1995
- -----------------------------------------------------------------------------
Consolidated net sales for the nine months ended September 30, 1996 were
$119.2 million, versus $106.3 million for the nine months ended September 30,
1995, a 12.1% increase. Sales to customers outside the United States for the
nine months ended September 30, 1996 were $29.5 million, versus $27.4 million
the nine months ended September 30, 1995, a 7.7% increase.
Net sales for the fastener operation for the nine months ended September
30, 1996 were $96.8 million, versus $84.7 million for the nine months ended
September 30, 1995, a 14.3% increase. The number of fastener units shipped
within North America (including Canada) increased approximately 4.8% from the
first nine months of 1995 to the first nine months of 1996, and represented
approximately 68.7% of total fasteners shipped in the first nine months of
1996. The number of fastener shipments to Europe increased approximately 3.8%
in the first nine months of 1996 compared to the first nine months of 1995,
while the number of units shipped to the Asia-Pacific region increased 4.4%
from the first nine months of 1995 to the first nine 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 all three
regions. The average selling price of fasteners shipped in the first nine
months of 1996 increased approximately 4.6% compared to the first nine months
of 1995 mainly due to a 2.9% price increase effective April 1, 1996 and a
change in product mix.
Net sales of the motor operation for the first nine months of 1996 were
$22.4 million, versus $21.6 million for the first nine months of 1995, a 3.7%
increase. The number of motors sold increased approximately 5.1% in the
first nine months of 1996 compared to the first nine months of 1995 while the
average selling price declined 1.5% as a result of a temporary change in
product mix toward lower margin motors.
Consolidated gross margin for the first nine months of 1996 was $36.4
million, versus $32.8 million for the first nine months of 1995, an 11.0%
increase. Fastener gross margin increased 13.2% in the first nine months of
1996 compared to the first nine months of 1995 mainly as a result of the
increased number of units sold. As a percent of sales, however, fastener
gross margin decreased from 31.8% in the first nine months of 1995 to 31.5%
in the first nine 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 0.5% in the first nine months of 1996 compared to
the first nine months of 1995 due to a shift in product mix towards lower
margin motors.
Selling, general, and administrative expenses ("SG&A") for the first nine
months of 1996 were $21.1 million, versus $17.8 million for the first nine
months of 1995, an 18.5% increase. SG&A, as a percent of sales, increased
from 16.7% in the first nine months of 1995 to 17.7% in the first nine 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 nine months of 1996 was $10.0
million, versus $9.9 million for the first nine months of 1995, a 1.0%
increase. Other income decreased 20.7% as a result of decreased investment
income during the first nine months of 1996(primarily during the first
six months of 1996), and less favorable currency exchange rates in 1996
compared to 1995.
7
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PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
September 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Liquidity needs for the nine months ended September 30, 1996 consisted
primarily of $18.6 million of capital expenditures which included the
completion of a 43,000 square foot addition to the Registrant's Danboro
facility and for increased inventory availability in the European and
Asia-Pacific regions. The inventory increase included $3.0 million finished
goods inventory and other assets purchased from Registrant's new distributor
in Singapore. The Registrant's primary source of cash in the third quarter of
1996 came from the issuance of 1,850,000 shares of non-voting common stock.
Part of the offering proceed were used to repay all outstanding short-term
borrowings and the remainder will be used to finance additional capital
expenditures including approximately $8.5 million for the construction of a
new fastener manufacturing facility in Winston-Salem, N.C. and new equipment
for that facility. At September 30, 1996, Registrant also had approximately
$27.5 million available under its short-term lines of credit. Accordingly, the
Registrant anticipates that its existing capital resources and cash flow
generated from future operations will enable it to maintain its current level
of operations and its planned operations for the forseeable future.
Registrant, along with a large number of other entities, has been
designated a potentially responsible party (PRP) by the U.S. Environmental
Protection Agency under the Comprehensive Environmental Response,
Compensation and Liability Act, which potentially subjects PRP to joint and
several liability for the costs of such cleanup. Based on Registant's
assessment of the costs associated with its environmental responsibilites,
compliance with federal, state, and local laws regulating the discharge of
materials into the environment, or otherwise relating to the protection of
the environment, has not had and in the opinion of Registrant's management,
will not have a material effect on Registrant's financial position, net
income, capital expenditures or competitive position.
8
<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 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 $32,755,000 were used to repay
existing short-term indebtedness and the remainder will be used to finance
future capital expenditures.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not Applicable
Item 5. Other Information
- -------------------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
Exhibit No. Description
----------- -----------
10.2 Penn Engineering & Manufacturing Corp. 1996 Employee
Stock Purchase Plan
27 Financial Statement Data Schedule. (Filed herewith.)
(b) Reports on Form 8-K
None
9
<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: November 14, 1996 By: /s/ Kenneth A. Swanstrom
----------------------------
Kenneth A. Swanstrom
Chairman/ CEO/ President
Dated: November 14, 1996 By: /s/ Mark W. Simon
----------------------------
Mark W. Simon
Vice-President - Finance
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.2 Penn Engineering & Manufacturing Corp. 1996 Employee
Stock Purchase Plan
27 Financial Statement Data Schedule. (Filed herewith.)
PENN ENGINEERING & MANUFACTURING CORP.
1996 EMPLOYEE STOCK PURCHASE PLAN
As Adopted on May 22, 1996
Section 1. Purpose.
The Penn Engineering & Manufacturing Corp. 1996 Employee Stock Purchase
Plan (the "Plan") has been established by Penn Engineering & Manufacturing Corp.
(the "Company") for the benefit of the eligible employees of the Company and
participating subsidiaries of the Company. The purpose of this Plan is to
provide eligible employees with an opportunity to acquire or increase their
proprietary interests in the Company through the purchase of shares of the
Company's non-voting Common Stock, par value $.01 per share (the "Common
Stock"), at a discount from current market prices. This Plan is intended to meet
the requirements of Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
Section 2. Eligible Employees.
(a) Employees eligible to participate in this Plan ("Eligible
Employees") shall consist of all individuals: (i) who are employees of the
Company or any subsidiary of the Company (as defined in Section 425 of the Code)
that participates in the Plan (a "Participating Subsidiary"), regularly
scheduled to work for more than 20 hours per week and (ii) who have completed 60
days of employment on or prior to the date on which an Enrollment Period (as
hereinafter defined) begins.
(b) A person who is otherwise an Eligible Employee shall not be granted
any right to purchase shares of the Company's Common Stock under this Plan to
the extent that: (i) based on such person's ownership of the Company's Common
Stock at the time the right is granted, such right, if exercised, would cause
the person to own shares of the Company's Common Stock (including shares that
would be owned if all outstanding options to purchase Common Stock held by such
person were exercised) that possess 5% or more of the total combined voting
power or value of all classes of stock of the Company, or any subsidiary of the
Company, or (ii) such right would cause such person to have purchase rights
under this Plan and all other stock purchase plans of the Company or any
subsidiary of the Company that meet the requirements of Section 423 of the Code
that accrue at a rate that exceeds $25,000 of fair market value of the Common
Stock of the Company or any subsidiary of the Company (determined at the time
the right to purchase Common Stock under this Plan is granted) for each calendar
year in which such right is outstanding. For this purpose, a right to purchase
Common Stock accrues when such right first becomes exercisable during the
calendar year (but the rate of accrual for any calendar year may in no event
exceed $25,000 of the fair market value of the Common Stock subject to the
right), and the number of shares of Common Stock under one right may not be
carried over to any other right.
<PAGE>
Section 3. Duration of Plan and Subscription Periods.
This Plan shall be in effect from October 1, 1996 through and including
September 30, 2006. During the term of this Plan, there shall be 20 semi-annual
"Subscription Periods." Each Subscription Period shall extend from October 1
through March 31 or from April 1 through September 30, respectively, except for
the first Subscription Period which will begin on November 1, 1996 and end on
March 31, 1997. The last Subscription Period will end on September 30, 2006.
Section 4. Enrollment and Enrollment Period.
Enrollment for participation in this Plan shall take place during the
"Enrollment Period" preceding each Subscription Period, which shall be either
the period from the 1st through the 30th day of September or the period from the
1st through the 31st day of March of each Plan year, except that the first
Enrollment Period shall be from the 1st through the 31st day of October, 1996.
Any person who is an Eligible Employee and who desires to subscribe for the
purchase of Common Stock must file a subscription agreement during an Enrollment
Period, and such employee's participation in this Plan shall commence at the
outset of the next Subscription Period. Once enrolled, an Eligible Employee
shall continue to participate in this Plan for each succeeding Subscription
Period until such Eligible Employee terminates his or her participation or
ceases to be an Eligible Employee. An Eligible Employee who desires to change
his or her rate of contribution may do so during an Enrollment Period and such
change shall be effective as of the beginning of the next Subscription Period.
An Eligible Employee may also change his or her rate of contribution during a
Subscription Period only pursuant to Section 7(c) of this Plan. Participants
will be charged a fee of $2.50 per every Subscription Period during which they
participate in the Plan, which fee shall be used to offset the Plan's
administrative costs to the Company.
Section 5. Number of Shares To Be Offered.
The total number of shares to be made available under this Plan is
150,000 shares of the Company's Common Stock. Such Common Stock may be
authorized and unissued shares or shares issued and thereafter acquired by the
Company. In the event the total number of shares available for purchase under
this Plan are purchased prior to the expiration of this Plan, this Plan may be
terminated in accordance with Section 14 of this Plan.
-2-
<PAGE>
Section 6. Subscription Price.
The "Subscription Price" for each share of Common Stock subscribed for
under this Plan during each Subscription Period shall be the lesser of 90% of
the fair market value of such share on the last trading day before the first day
of the Enrollment Period with respect to such Subscription Period or 90% of the
fair market value of such share on the last trading day of such Subscription
Period. The fair market value of a share shall be the closing price reported by
the New York Stock Exchange on the applicable date; provided, however, that the
Subscription Price shall never be less than $.01 per share.
Section 7. Amount of Contribution and Method of Payment.
(a) The Subscription Price shall be payable by the Eligible Employee by
means of payroll deduction. The maximum payroll deduction shall be no more than
10% of an Eligible Employee's Base Pay (as hereinafter defined) and may not
exceed $25,000 per year. The minimum payroll deduction an Eligible Employee must
authorize is a payroll deduction, based on such employee's rate of Base Pay at
the time of such authorization, that will enable such employee to accumulate by
the end of the Subscription Period an amount sufficient to purchase at least ten
shares of Common Stock. An Eligible Employee may not make separate cash deposits
toward the payment of the Subscription Price.
(b) "Base Pay" for an Eligible Employee equals (i) for an hourly
employee, the number of straight-time hours regularly scheduled with a maximum
of 40 hours, multiplied by such employee's regular hourly rate in effect on the
first day of the applicable Subscription Period, excluding any shift
differential, and (ii) for salaried employees, their base salary in effect on
the first day of the applicable Subscription Period, and in each case shall not
include overtime, bonuses, gainsharing or other items that are not considered to
be regular compensation by the committee administering this Plan pursuant to
Section 15 of this Plan. Payroll deductions shall commence with the first pay-
check issued during the Subscription Period and shall continue with each
paycheck throughout the entire Subscription Period, except for pay periods for
which the Eligible Employee receives no compensation (i.e., uncompensated
personal leave, leave of absence, etc.).
(c) An Eligible Employee may at any time during a Subscription Period
reduce the amount previously authorized to be deducted from his or her Base Pay,
provided the reduction conforms with the minimum payroll deduction set forth in
Section 7(a) of this Plan, by forwarding to the Company a written notice setting
forth the reduction in his or her payroll deduction. The change shall become
effective on a prospective basis as soon as practicable after receipt by the
Company of the change notice. An Eligible Employee may reduce his or her payroll
deductions under this Section 7(c) of this Plan only once during any
Subscription Period and such change shall remain in effect for subsequent
Subscription Periods, subject to compliance with Section 7(a) of this Plan,
until such Eligible Employee terminates his or her participation, ceases to be
an Eligible Employee or changes again during a subsequent Enrollment Period or
Subscription Period the amount of his or her payroll deductions.
-3-
<PAGE>
Section 8. Purchase of Shares.
The Company shall maintain on its books a "Withholding Account" in the
name of each Eligible Employee who authorized a payroll deduction (a
"Participant"). At the close of each pay period, the amount deducted from the
Participant's Base Pay shall be credited to the Participant's Withholding
Account. No interest shall be paid by the Company on any Withholding Account
balance, but instead, the interest on the Withholding Account balances shall be
used to offset the costs of administering the Plan. As of the last business day
of each Subscription Period, the amount then in the Participant's Withholding
Account shall be divided by the Subscription Price for such Subscription Period
and the Participant's "Plan Account", which shall be administered by the "Plan
Administrative Agent", shall be credited with the number of whole and fractional
shares that result. Statements of shares held in each Participant's Plan Account
(the "Plan Account Statements") shall be delivered to each Participant within a
reasonable time thereafter. Shares will be held in a Participant's Plan Account
in uncertificated form. Participants may obtain stock certificates for a fee of
$15.00 by completing the form included on the back of the Plan Account
Statements or upon written request to the Company. The Company recommends that
Participants leave shares in their Plan Account to facilitate maintenance of tax
records, to provide safe keeping for their shares and to make it easier if a
Participant decides to sell his or her shares. Participants who do not
accumulate sufficient funds in their Withholding Accounts to purchase at least
ten shares of Common Stock during a Subscription Period shall be deemed to have
withdrawn from this Plan pursuant to Section 10 of this Plan.
If the number of shares subscribed for during any Subscription Period
exceeds the number of shares available for purchase under this Plan, the
remaining shares available for purchase shall be allocated among all
Participants in proportion to their Withholding Account balances. If the number
of shares that would be credited to any Participant's Plan Account in either or
both of the Subscription Periods occurring during any calendar year exceeds the
limit specified in Section 2(c) of this Plan, the Participant's Plan Account
shall be credited with the maximum number of whole and fractional shares
permissible, and the remaining amounts shall be refunded in cash without
interest thereon.
Section 9. Sale of Shares.
Participants may sell all or a portion of the shares held in their Plan
Accounts by completing the form included on the back of the Plan Account
Statements. Sales of shares shall be made once a month by the Plan
Administrative Agent on the last business day of the month. All sales made under
the Plan will be treated for tax purposes as if the shares sold were the
earliest shares purchased, i.e., first-in, first-out. The Company shall not be
responsible for delays in delivery of sales orders caused by mail carriers. Any
shares for which sales orders are received after the day of the month
immediately preceding the day upon which sales are made will be sold on the last
business day of the immediately following month. A Participant may not withdraw
his or her order to sell shares once such order is sent. Participants are
advised that market prices of the Common Stock may fluctuate between the time
the Participant orders a sale of his or her shares and the time such shares are
actually sold and that any gains or losses from sales of Common Stock made under
this Plan are at the Participant's own risk. There will be an administrative fee
of $15.00 plus 10(cent) per share for each sale by a Participant of shares from
his or her Plan Account.
-4-
<PAGE>
Section 10. Withdrawal from this Plan.
A Participant may withdraw from this Plan at any time by giving written
notice of withdrawal to the Company. As soon as practicable following receipt of
a notice of withdrawal, the amount credited to the Participant's Withholding
Account shall be refunded in cash without interest thereon. No further payroll
deductions shall be made with respect to such Participant except in accordance
with an authorization for a new payroll deduction filed during a subsequent
Enrollment Period in accordance with Section 4 of this Plan. A Participant's
withdrawal shall not affect such Participant's eligibility to participate during
any succeeding Subscription Period.
Section 11. Separation from Employment.
Separation from employment for any reason, including death, disability
or retirement (as hereinafter defined) shall be treated as an automatic
withdrawal pursuant to Section 10 of this Plan. However, if a Participant
retires or dies, the retired Participant or the deceased Participant's benefi-
ciary may choose to either receive the balance of such Participant's Withholding
Account in cash without interest thereon or to use such balance to purchase the
appropriate number of whole shares of Common Stock and receive the remainder in
cash without interest. The Subscription Price of such a purchase shall be
determined in accordance with Section 6 of this Plan using the date of such
Participant's retirement or death as though it was the last day of the
Subscription Period. A transfer of employment among the Company or any
Participating Subsidiary shall not be treated as a separation from employment.
As used in this Section 11, "retirement" means a termination of employment by
reason of a Participant's retirement at or after his or her earliest permissible
retirement date pursu ant to and in accordance with his employer's regular
retirement plan or practice.
Section 12. Assignment and Transfer Prohibited.
No Participant may assign, pledge, hypothecate or otherwise dispose of
such Participant's subscription or rights to subscribe under this Plan to any
other person, and any attempted assignment, pledge, hypothecation or disposition
shall be void. However, a Participant may acquire the shares of Common Stock
subscribed to under this Plan in the name of the Participant and another person
jointly with the right of survivorship upon appropriate written notice to the
Company. No subscription or right to subscribe granted to a Participant under
this Plan shall be transferable by such Participant otherwise than by will or by
the laws of descent and distribution, and such subscription rights shall be
exercisable, during the Participant's lifetime, only by the Participant.
Section 13. Adjustment of and Changes in the Common Stock.
In the event that the outstanding shares of Common Stock of the Company
are hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company, or of
another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend (either in
shares of the Company's Common Stock or of another class of the Company's
stock), spin-off or combination of shares, appropriate adjustments shall be made
by the committee appointed pursuant to Section 15 of this Plan in the aggregate
number and kind of shares that are reserved for sale under this Plan.
-5-
<PAGE>
Section 14. Amendment or Discontinuance of this Plan.
The Plan will remain in effect until September 30, 2006 or until all
shares available for purchase are purchased under the Plan. The Board of
Directors of the Company shall have the right to terminate this Plan at any time
without notice, provided that no Participant's existing rights are adversely
affected thereby. Without stockholder approval, no amendments may be made to
this Plan to (i) increase materially the benefits accruing to Participants under
this Plan, (ii) increase the total number of shares subject to this Plan, (iii)
change the formula by which the price at which the shares of Common Stock shall
be sold is determined, or (iv) change the class of employees eligible to
participate in this Plan.
Section 15. Administration.
This Plan shall be administered by a committee (the "Committee") of at
least three persons to be appointed by the Company's Board of Directors. The
Committee is authorized to adopt rules and regulations from time to time for
carrying out this Plan. Any interpretation or construction of any provision of
this Plan by the Committee shall be final and conclusive on all persons absent
contrary action by the Board of Directors. Any interpretation or construction of
any provision of this Plan by the Board of Directors is final and conclusive as
to all persons. The initial members of the Committee, all of whom are currently
directors of the Company, will be Lewis W. Hull, Willard S. Boothby, Jr. and
Maurice D. Oaks.
Section 16. Designation of Beneficiary.
A Participant may designate, in writing, a beneficiary who is to
receive any cash credited to the Participant's Withholding Account or shares
credited to the Participant's Plan Account in the event such Participant dies
prior to the delivery to the Participant of such cash or shares. Such
designation of a beneficiary may be changed by the Participant at any time upon
written notice. Upon the death of a Participant and upon receipt by the
Committee of proof of the Participant's death and of the identity and existence
of a beneficiary validly designated by the Participant under this Plan, the
Company shall deliver to the beneficiary (i) the cash in the Participant's
Withholding Account or at the election of the beneficiary the Company will use
any cash credited to the Participant's Withholding Account to purchase shares
of Common Stock and certificates representing such shares will be distributed to
the beneficiary and (ii) certificates representing the shares credited to the
Participant's Plan Account. If a Participant dies without a beneficiary validly
designated under this Plan who is living at the time of such Participant's
death, the Company shall deliver such cash and shares to the executor or
administrator of the estate of the Participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its sole discretion, may deliver such cash and shares to the spouse or to any
one or more dependents or relatives of the Participant, or if no spouse,
dependent, or relative is known to the Company, then to such other person as the
Company may designate. No designated beneficiary shall, prior to the death of
the Participant by whom he or she has been designated, acquire any interest in
the shares or cash credited to the Participant under this Plan.
-6-
<PAGE>
Section 17. Employees' Rights.
Nothing contained in this Plan shall prevent the Company or any
Participating Subsidiary from terminating any employee's employment. No employee
shall have any rights as a stockholder of the Company by reason of participation
in this Plan unless and until the shares purchased at the end of a Subscription
Period shall have been credited to such employee's Plan Account.
Section 18. Use of Funds.
All payroll deductions received or held by the Company under this Plan
will be deposited into a separate interest bearing account. The Company will use
the interest only on such account to offset a portion of the administrative
costs of this Plan.
Section 19. Government Regulations.
The Company's obligation to sell and deliver Common Stock under this
Plan is subject to any prior approval or compliance that may be required to be
obtained or made from or with any governmental or regulatory authority in
connection with the authorization, issuance or sale of such Common Stock.
Section 20. Federal Income Tax Consequences.
This Plan is intended to qualify under the provisions of Section 423 of
the Code. No income will be realized for federal income tax purposes by a
Participant upon the purchase of shares under this Plan. For Participants who do
not dispose of their shares within two years after the date on which the right
to purchase was granted nor within one year after their shares were purchased,
the gain on sale of the shares following the end of the required holding period
(or their increase in value in the event of death prior to sale) will, under the
present provisions of the Code, be taxed as ordinary income to the extent of the
lesser of (i) an amount equal to the difference between the fair market value of
the shares on the first day of the Subscription Period and 90% of such value on
such date or (ii) an amount equal to the difference between the fair market
value of the shares at the time of disposition and the amount paid for such
shares under this Plan. Any additional gain will be treated as long-term capital
gain assuming the shares are capital assets in a Participant's hands. If a
Participant is entitled to long-term capital gain treatment upon a sale of the
shares, the Company will not be entitled to any deduction for federal income tax
purposes with respect thereto. For Participants who dispose of their shares
within two years after the date of grant or within one year after their shares
were purchased, the gain on the sale of the shares will, under the present
provisions of the Code, be taxed as ordinary income to the extent of the
difference between the purchase price of the shares and the fair market value of
the shares on the purchase date and such difference will be deductible by the
Company for federal income tax purposes. Any additional gain will be treated as
long-term or short-term capital gain, depending on whether the shares have been
held for more or less than one year from the date they were purchased.
-7-
<PAGE>
Section 21. Titles.
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Plan.
Section 22. Applicable Law.
This Plan shall be construed, administered and governed in all respects
under the laws of the Commonwealth of Pennsylvania and the United States of
America.
Section 23. Approval of Stockholders.
This Plan was approved by the holders of the Company's Common Stock on
May 22, 1996.
-8-
<PAGE>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,024,308
<SECURITIES> 18,460,859
<RECEIVABLES> 25,756,368
<ALLOWANCES> 1,000,000
<INVENTORY> 27,929,129
<CURRENT-ASSETS> 78,736,702
<PP&E> 94,714,762
<DEPRECIATION> 38,035,518
<TOTAL-ASSETS> 137,815,946
<CURRENT-LIABILITIES> 14,020,370
<BONDS> 0
<COMMON> 89,381
0
0
<OTHER-SE> 116,900,985
<TOTAL-LIABILITY-AND-EQUITY> 137,815,946
<SALES> 119,224,887
<TOTAL-REVENUES> 119,893,416
<CGS> 82,801,504
<TOTAL-COSTS> 103,774,213
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,143
<INCOME-PRETAX> 15,990,060
<INCOME-TAX> 5,985,000
<INCOME-CONTINUING> 10,005,060
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<EXTRAORDINARY> 0
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<NET-INCOME> 10,005,060
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
</TABLE>
