<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
- ---
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND 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 common stock, $1.00 par value,
outstanding on May 5, 1996.
<PAGE> 2
PART I. FINANCIAL INFORMATION
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
March 31, 1996 December 31, 1995
CURRENT ASSETS -------------- ------------------
Cash and cash equivalents $3,402,245 $1,459,370
Short-term investments 5,606,434 5,987,981
Accounts receivable-trade 23,054,087 21,744,900
Allowance for doubtful accounts (900,000) (900,000)
Inventories (Note 2) 25,145,904 20,274,571
Prepaid expenses 3,261,661 2,556,893
Deferred income taxes 961,031 958,888
---------- ----------
Total current assets 60,531,362 52,082,603
---------- ----------
PROPERTY
Property, plant & equipment 83,080,434 76,837,686
Less accumulated depreciation 35,852,266 34,896,199
----------- -----------
Property - net 47,228,168 41,941,487
----------- -----------
OTHER ASSETS 2,186,000 2,050,000
----------- -----------
TOTAL $109,945,530 $96,074,090
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $11,000,000 $1,500,000
Accounts payable-trade 5,537,673 4,302,773
Dividends payable 469,447
Accrued expenses:
Pension & profit sharing 1,586,554 3,983,621
Income taxes 1,772,866 468,268
Payroll & commissions 3,512,480 2,426,097
Other 700,474 521,559
---------- ----------
Total current liabilities 24,579,494 13,202,318
---------- ----------
ACCRUED PENSION COST 4,714,701 4,714,701
---------- ----------
DEFERRED INCOME TAXES 2,284,058 2,066,179
---------- ----------
STOCKHOLDERS' EQUITY (See Note 3)
Common stock 1,772,025 1,772,025
Additional paid-in capital 932,143 932,143
Retained earnings 77,304,324 74,904,584
Unrealized (loss) on
investments -net of tax (63,655) (60,303)
Cumulative foreign currency
translation adjustment (625,603) (505,600)
Treasury stock (951,957) (951,957)
---------- ----------
Total stockholders' equity 78,367,277 76,090,892
---------- ----------
TOTAL $109,945,530 $96,074,090
=========== ==========
See Notes to Condensed Consolidated Financial Statements
<PAGE> 3
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED
-------------------------------
(Unaudited)
March 31, 1996 March 31, 1995
-------------- --------------
REVENUES:
Net Sales $39,028,866 $35,298,559
Other income 135,712 348,727
----------- -----------
39,164,578 35,647,286
----------- -----------
COSTS AND EXPENSES
Cost of products sold 27,477,361 24,630,385
Selling, general & administrative 7,113,030 6,016,457
----------- -----------
34,590,391 30,646,842
----------- -----------
INOME BEFORE INCOME TAXES 4,574,187 5,000,444
PROVISION FOR INCOME TAXES 1,705,000 1,977,000
----------- -----------
NET INCOME 2,869,187 3,023,444
RETAINED EARNINGS - BEGINNING 74,904,584 64,520,460
CASH DIVIDEND (469,447) (469,447)
----------- -----------
RETAINED EARNINGS - ENDING $77,304,324 $67,074,457
=========== ===========
INCOME PER SHARE-Historical
Weighted average number of
shares of common stock outstanding 1,707,082 1,707,082
Net income $1.68 $1.77
========= =========
INCOME PER SHARE-As adjusted for stock dividend
Weighted average number of
shares of common stock outstanding 6,828,328 6,828,328
Net income $0.42 $0.44
========= =========
CASH DIVIDEND PER SHARE
Historical $0.275 $0.275
========= =========
As adjusted for stock dividend $0.069 $0.069
========= =========
See Notes to Condensed Consolidated Financial Statements
<PAGE> 4
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
THREE MONTHS ENDED
-----------------------------
(Unaudited)
March 31, 1996 March 31, 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,869,187 $3,023,444
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,181,301 1,030,029
Loss on disposal of property 27,296 2,206
Changes in assets and liabilities:
(Increase) in receivables (1,309,187) (400,853)
(Increase) in inventories (4,871,333) (672,821)
(Increase) in prepaid expenses, etc. (704,768) (78,072)
(Increase) in deferred income
taxes-current (2,143) (48,889)
(Increase) in other assets (136,000) (232,000)
Increase in accounts payable 1,234,900 1,187,843
Increase in accrued expenses 172,829 2,182,204
Increase in accrued pension cost 0 126,547
Increase(decrease) in deferred income
taxes - noncurrent 217,879 (53,866)
---------- ----------
Net cash provided (used) in
operating activities (1,320,039) 6,297,772
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (6,517,784) (2,932,551)
Additions to available-for-sale and
held-to-maturity investments (828,948) (7,353,526)
Proceeds from disposal of available-for-
sale and held-to-maturity investments 1,205,000 1,998,574
Proceeds from disposal of property 7,125 55
---------- ----------
Net cash used in investing activities (6,134,607) (8,287,448)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 17,000,000
Net short-term repayments (7,500,000)
----------
Net cash provided by financing activities 9,500,000
----------
Effect of exchange rate and investment
reserve changes on cash (102,479) 174,371
----------- ---------
Net increase (decrease) in cash and
cash equivalents 1,942,875 (1,815,305)
Cash and cash equivalents at
beginning of period 1,459,370 6,106,565
----------- ---------
Cash and cash equivalents at end of period $3,402,245 $4,291,260
=========== ==========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the quarter for:
Income taxes $180,850 $321,715
Interest 12,832 0
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 1996 and 1995 and the
consolidated statements of income and cash flow for the three-month periods
then ended. The results of operations for the three months ended March 31,
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)
March 31, 1996 December 31, 1995
-------------- -----------------
Raw material $4,806,178 $4,569,522
Tooling 3,850,530 3,610,307
Work-in-process 7,970,213 6,511,667
Finished goods 8,518,983 5,583,075
---------- ---------
TOTAL $25,145,904 $20,274,571
========== ==========
If the FIFO method of inventory valuation had been used for all inventories
by Registrant, inventories would have been $8,334,201 and $8,027,875 higher
than reported at March 31, 1996 and December 31, 1995, respectively, and net
income would have been $192,000 and $55,000 higher than reported for the
three months ended March 31, 1996 and 1995 respectively. Included in other
assets is long-term tooling inventory totaling $2,186,000 and $2,050,000 at
March 31, 1996 and December 31, 1995, respectively.
Note 3. Reclassification
- ------------------------
On April 17, 1996, the Board of Directors authorized a reclassification of
the Company's existing common stock whereby each share of existing $1.00 par
value voting common stock will be exchanged for one share of new $.01 par
value Class A voting common stock (the "Stock Reclassification"). Immediately
after the Stock Reclassification, the Board authorized a 4-for-1 stock split,
effected in the form of a stock dividend, payable in shares of $.01 par value
non-voting common stock to shareholders of record on May 3, 1996 (the "Stock
Dividend"). On the contemplated effective date of May 23, 1996, the change in
par value of the Class A common stock as a result of the Stock
Reclassification will result in the transfer of $1,754,305 from Class A
common stock to additional paid-in capital, and the Stock Dividend will
result in the issuance of 5,316,075 new common shares and in the transfer of
$53,161 from retained earnings to common stock. Accordingly, all references
in the quarterly financial statements to average numbers of shares outstanding
and per share amounts have been stated at their historical amounts as well as
adjusted to give effect to the Stock Reclassification and the Stock
Dividend.
<PAGE> 6
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
March 31, 1996
MANAGEMENT'S ANALYSIS OF THE
QUARTERLY INCOME STATEMENT
AND FINANCIAL CONDITION
Quarter Ended: March 31, 1996 vs. March 31, 1995
- ---------------------------------------------------
Consolidated net sales for the quarter ended March 31, 1996 were $39.0
million, versus $35.3 million for the quarter ended March 31, 1995, a 10.5%
increase. Sales to customers outside the United States for the quarter
ended March 31, 1996 were $9.8 million, versus $9.6 million for the quarter
ended March 31, 1995, a 2.1% increase.
Net sales for the fastener operation for the quarter ended March 31, 1996
were $31.5 million, versus $28.3 million for the quarter ended March 31,
1995, an 11.3% increase. The number of fastener units shipped within North
America (including Canada) increased approximately 19.6% from the first
quarter of 1995 to the first quarter of 1996, and represented approximately
70.9% of total fasteners shipped in the first quarter of 1996. The number of
fastener shipments to Europe increased approximately 22.3% from the first
quarter of 1995 to the first quarter of 1996, while the number of units
shipped to the Asia-Pacific region decreased 18.9% from the first quarter of
1995 to the first quarter of 1996. The continued strong demand for personal
computers as well as other electronic equipment, which accounted for
approximately 84% of fastener sales in the first quarters of 1995 and 1996,
were the main cause of the increased shipment volume in North America and
Europe. However, this was 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 at the end of 1995 caused a temporary slowdown in
fastener requirements in the first quarter of 1996. Average selling price
for fasteners shipped in the first quarter of 1996 decreased approximately
5.3% compared to the first quarter of 1995 because of a short-term change in
product mix towards lower margin fasteners.
Net sales of the motor operation for the first quarter of 1996 were $7.6
million, versus $7.0 million for the first quarter of 1995, an 8.0% increase.
The number of motors sold increased approximately 12.7% from the first
quarter of 1995 to the first quarter of 1996 while the average selling price
declined 3.6% as a result of a temporary change in product mix toward lower
margin motors.
Consolidated gross margin for the first quarter of 1996 was $11.6 million,
versus $10.7 million for the first quarter of 1995, an 8.3% increase.
Fastener gross margin increased 8.3 % from the first quarter of 1995 to the
first quarter of 1996 as a result of the increased number of units sold
without a proportionate increase in cost. As a percent of sales, however,
fastener gross margin decreased from 31.1% in the first quarter of 1995 to
30.3% in the first quarter 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. It is
anticipated a price increase, effective April 1, 1996, will partially offset
these cost increases for the remainder of 1996. Motor gross margin increased
approximately 8.0% from the first quarter of 1995 to the first quarter of
1996 and remained constant at 26.5% of sales in both quarters.
Selling, general, and administrative expenses ("SG&A") for the first
quarter of 1996 were $7.1 million, versus $6.0 million recorded for the first
quarter of 1995, an 18.2% increase. SG&A, as a percent of sales, increased
from 17.0% in the first quarter of 1995 to 18.2% in the first 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 first quarter of 1996 was $2.9 million,
versus $3.0 million for the first quarter of 1995. Other income decreased
61.1% as a result of decreased investment income. This decrease as well as
the increased cost of SG&A expenses were partially offset by a Pennsylvania
income tax rate reduction that lowered the effective tax rate from 39.5% in
1995 to 37.3% in 1996.
<PAGE> 7
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
March 31, 1996
MANAGEMENT'S ANALYSIS OF THE
QUARTERLY INCOME STATEMENT
AND FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Liquidity needs for the quarter ended March 31, 1996 were primarily for
the acquisition of approximately $3.0 million of finished goods inventory and
other assets purchased from the Company's distributor in Singapore and for
$6.5 million of capital expenditures including the construction of a 43,000
square foot addition to the Company's Danboro facility which is nearing
completion. Short-term borrowings increased $9.5 million to finance the above
expenditures. As a result of this, working capital decreased from $38.9
million at December 31, 1995 to $36.0 million at March 31, 1996. Cash and
short-term investments increased approximately 21.0% from $7.4 million at
December 31, 1995 to $9.0 million at March 31, 1996 as internally generated
funds continued to finance current working capital needs.
On a historical basis, stockholders' equity per share increased from
$44.58 at December 31, 1995 to $45.91 at March 31, 1996.
<PAGE> 8
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
- -----------------------------
Not Applicable
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
- -------------------------
On May 22, 1996, the Company intends to file an admendment to its Certificate
of Incorporation (the "Amendment") with the Delaware Secretary of State,
which will (i) increase 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) reclassify the Prior Common Stock as Class A Common Stock, (iii)
authorize a new class of non-voting capital stock designated as Common Stock,
and (iv) establish the rights, powers, and limitations of the Common Stock
and the Class A Common Stock. In addition, the Board of Directors declared a
dividend of three shares of the new non-voting Common Stock for each share of
the Company's issued Common Stock held of record on May 3, 1996. The Stock
Dividend will have the same effect on the total number of shares of Capital
Stock outstanding as a four-for-one stock split. Each of these actions is
subject to approval by stockholders at the Company's annual meeting of
stockholders on May 22, 1996. It is anticipated that the distribution of the
shares of the new non-voting Common Stock will be made on May 23, 1996.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 9
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: May 14, 1996 By: /s/ Kenneth A. Swanstrom
----------------------------
Kenneth A. Swanstrom
Chairman/ CEO/ President
Dated: May 14, 1996 By: /s/ Mark W. Simon
----------------------------
Mark W. Simon
Vice-President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,402,245
<SECURITIES> 5,606,434
<RECEIVABLES> 23,054,087
<ALLOWANCES> 900,000
<INVENTORY> 25,145,904
<CURRENT-ASSETS> 60,531,362
<PP&E> 83,080,434
<DEPRECIATION> 35,852,266
<TOTAL-ASSETS> 109,945,530
<CURRENT-LIABILITIES> 24,579,494
<BONDS> 0
<COMMON> 1,772,025
0
0
<OTHER-SE> 76,595,252
<TOTAL-LIABILITY-AND-EQUITY> 109,945,530
<SALES> 39,028,866
<TOTAL-REVENUES> 39,164,578
<CGS> 27,477,361
<TOTAL-COSTS> 34,577,559
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,832
<INCOME-PRETAX> 4,574,187
<INCOME-TAX> 1,705,000
<INCOME-CONTINUING> 2,869,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,869,187
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
</TABLE>
