<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, 1997
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
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(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
May 5, 1997.
<PAGE> 2
PART I. FINANCIAL INFORMATION
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS (Unaudited)
March 31, 1997 December 31, 1996
CURRENT ASSETS -------------- ------------------
Cash and cash equivalents $4,520,802 $4,208,339
Short-term investments (Note 2) 12,599,660 10,857,728
Accounts receivable-trade 27,869,960 29,579,972
Allowance for doubtful accounts (900,000) (1,000,000)
Refundable income taxes 245,682
Inventories (Note 2) 28,539,401 27,533,220
Prepaid expenses 2,308,275 2,124,335
Deferred income taxes 278,296 391,244
---------- ----------
Total current assets 75,216,395 73,940,520
---------- ----------
PROPERTY
Property, plant & equipment 105,916,324 101,260,757
Less accumulated depreciation 40,884,291 39,428,723
----------- -----------
Property - net 65,032,033 61,832,034
----------- -----------
OTHER ASSETS 2,825,000 2,765,000
----------- -----------
TOTAL $143,073,427 $138,537,554
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $4,657,532 $3,740,603
Dividends payable 867,832
Accrued expenses:
Pension & profit sharing 1,671,523 2,139,844
Income taxes 893,093
Payroll & commissions 3,241,063 2,809,711
Other 1,103,081 1,017,518
---------- ----------
Total current liabilities 12,434,124 9,707,676
---------- ----------
ACCRUED PENSION COST 4,792,857 4,792,857
---------- ----------
DEFERRED INCOME TAXES 3,094,850 2,899,870
---------- ----------
STOCKHOLDERS' EQUITY
Class A common stock 17,720 17,720
Common stock 71,661 71,661
Additional paid-in capital 35,420,903 35,420,903
Retained earnings 87,928,782 85,822,011
Unrealized (loss) on
investments -net of tax (64,869) (61,671)
Cumulative foreign currency
translation adjustment 329,840 818,484
Treasury stock (952,441) (951,957)
----------- -----------
Total stockholders' equity 122,751,596 121,137,151
----------- -----------
TOTAL $143,073,427 $138,537,554
=========== ===========
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, 1997 March 31, 1996
-------------- --------------
REVENUES:
Net Sales $39,015,773 $39,028,866
Other income 173,056 135,712
----------- -----------
39,188,829 39,164,578
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COSTS AND EXPENSES
Cost of products sold 27,236,591 27,412,627
Selling, general & administrative 7,301,635 7,113,030
----------- -----------
34,538,226 34,525,657
----------- -----------
INOME BEFORE INCOME TAXES 4,650,603 4,638,921
PROVISION FOR INCOME TAXES 1,676,000 1,731,000
----------- -----------
NET INCOME 2,974,603 2,907,921
RETAINED EARNINGS - BEGINNING 85,822,011 74,904,584
CASH DIVIDEND (867,832) (469,447)
----------- -----------
RETAINED EARNINGS - ENDING $87,928,782 $77,343,058
=========== ===========
NET INCOME PER SHARE (See Note 3) $0.34 $0.42
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING (See Note 3) 8,678,326 6,828,328
CASH DIVIDEND PER SHARE (See Note 3) $.10 $.07
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, 1997 March 31, 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,974,603 $2,907,921
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,492,883 1,181,301
Loss on disposal of property 17,373 27,296
Gain on disposal of investments (625)
Changes in assets and liabilities:
(Increase) decrease in receivables 1,610,012 (1,309,187)
Decrease in refundable income taxes 245,682
(Increase) in inventories (1,006,181) (4,936,067)
(Increase) in prepaid expenses, etc. (183,940) (704,768)
(Increase) decrease in deferred
income taxes-current 112,948 (2,143)
(Increase) in other assets ( 60,000) (136,000)
Increase in accounts payable 916,929 1,234,900
Increase in accrued expenses 941,686 198,829
Increase in deferred income taxes
- noncurrent 194,980 217,879
---------- ----------
Net cash provided (used) in
operating activities 7,256,350 (1,320,039)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (4,736,177) (6,517,784)
Additions to held-to-maturity investments (9,666,912) ( 828,948)
Proceeds from disposal of
held-to-maturity investments 7,920,362 1,205,000
Proceeds from disposal of property 32 7,125
---------- ----------
Net cash used in investing activities (6,482,695) (6,134,607)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 17,000,000
Net short-term repayments (7,500,000)
Acquisition of treasury stock ( 484)
----------- ---------
Net cash provided by (used in)
financing activities (484) 9,500,000
----------- ---------
Effect of exchange rate and investment
reserve changes on cash (460,708) (102,479)
----------- ---------
Net increase in cash and cash
equivalents 312,463 1,942,875
Cash and cash equivalents at
beginning of year 4,208,339 1,459,370
----------- ---------
Cash and cash equivalents at end of year $4,520,802 $3,402,245
=========== ==========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year for:
Income taxes $105,600 $180,850
Interest 1,380 12,832
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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, 1997 and 1996 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,
1997 are not necessarily indicative of the results of operations to be
expected for the year ending December 31, 1997.
Note 2. Inventories
- -------------------
Substantially all of 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, 1997 December 31, 1996
-------------- -----------------
Raw material $4,355,537 $4,469,666
Tooling 4,172,991 3,882,298
Work-in-process 8,117,389 7,648,141
Finished goods 11,893,484 11,533,115
---------- ---------
TOTAL $28,539,401 $27,533,220
========== ==========
If the FIFO method of inventory valuation had been used by Registrant for
all inventories, inventories would have been $8,140,112 and $8,117,442 higher
than reported at March 31, 1997 and December 31, 1996, respectively, and net
income would have been $15,000 and $151,000 higher than reported for the
three months ended March 31, 1997 and 1996 respectively. Included in other
assets is long-term tooling inventory totaling $2,825,000 and $2,765,000 at
March 31, 1997 and December 31, 1996, respectively.
In the fourth quarter of 1996, the Company changed its method of
calculating the index on its domestic fastener LIFO inventory from the unit
cost method to the components of cost method. Management believes that this
change in its LIFO method of application better reflects the effects of
inflation and results in a more representative LIFO cost index for product
mix changes. Accordingly, the statement of Condensed Consolidated Income and
Retained Earnings for the three months ended March 31, 1996 has been restated
to reflect the results of this change.
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 voting 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. In the foregoing
consolidated financial statements, all per share amounts and number of shares
have been restated to reflect the Stock Reclassification and the Stock
Dividend.
<PAGE> 6
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
March 31, 1997
MANAGEMENT'S DISCUSSION & ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Quarter Ended: March 31, 1997 vs. March 31, 1996
- ------------------------------------------------
Consolidated net sales for the quarter ended March 31, 1997 were $39.0
million. This represented no change from the same amount recorded for the
quarter ended March 31, 1996. Sales to customers outside the United States
for the quarter ended March 31, 1997 were $10.7 million, versus $9.8 million
for the quarter ended March 31, 1996, a 9.1% increase. Net sales for the
fastener operation for the quarter ended March 31, 1997 were $32.0 million,
versus $31.5 million for the quarter ended March 31, 1996, a 1.6% increase.
Motor sales decreased 7.9% from $7.6 million recorded for the quarter ended
March 31, 1996 to $7.0 million recorded for the quarter ended March 31, 1997.
The number of fastener units sold to independent customers decreased
approximately 11.2% from the first quarter of 1996 to the first quarter of
1997. The number of fastener units sold within North America decreased
approximately 13.6% from the first quarter of 1996 to the first quarter of
1997, and represented approximately 70.0% of total fasteners sold in the
first quarter of 1997. The number of fasteners sold into Europe also decreased
approximately 13.1% from the first quarter of 1996 to the first quarter of
1997 and represented approximately 23.9% of total fasteners sold in the first
quarter of 1997. The decrease in North America shipments is mainly due to
adjustments in distributor inventory levels, which were unusually high during
the third and fourth quarters of 1996. Distributor shipments to end customers
continu to be strong, especially in the personal computer and automotive
markets. The decrease in the European market is mainly due to the
strengthening of the British pound against other major European currencies
which has placed the Company at a competitive disadvantage with local
European manufacturers. The number of fastener units sold into the Asia-
Pacific region increased approximately 47.1% from the first quarter of 1996 to
the first quarter of 1997 mainly as a result of the establishment of a master
wharehouse in Singapore in March of 1996. This has allowed the Company to
better service the major multi-national personal computer companies operating
in this area. The number of motors sold decreased 12.9% from the first quarter
of 1996 to the first quarter of 1997.
The average selling price for fasteners shipped in the first quarter of
1997 increased approximately 15.1% from $56.81 per thousand fasteners sold in
the first quarter of 1996 to $65.41 per thousand fasteners sold in the first
quarter of 1997. This increase is mainly due to a change in product mix
toward higher priced fasteners and a 2.8% price increase effective in the
second quarter of 1996. The average selling price of Pittman motors increased
from $40.13 per motor in the first quarter of 1996 to $42.52 per motor in the
first quarter of 1997.
Consolidated gross profit for the first quarter of 1997 was $11.8 million,
versus $11.6 million for the first quarter of 1996, a 1.7% increase. Fastener
gross profit margins increased 5.3% from the first quarter of 1996 to the
first quarter of 1997 due to a decrease in outside supplemental screw machine
support, a decrease in overtime expenses, and a shift in sales toward higher
margin products. Motor gross profit decreased 14.1% from the first quarter of
1996 to the first quarter of 1997 due to increased fixed expenses and lower
than expected sales volume.
Consolidated selling, general, and administrative expenses ("SG&A") for
the first quarter of 1997 were $7.3 million, versus $7.1 million for the
first quarter of 1996, a 2.8% increase. SG&A, as a percent of sales, increased
from 18.2% in the first quarter of 1996 to 18.7% in the first quarter of 1997.
Contributing to this increase were increased commission expense due to
continued strong end customer demand and increased legal, investor relations,
and other professional fees related to the Company's 1996 public offering.
<PAGE> 7
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
March 31, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Consolidated net income for the first quarter of 1997 was $3.0 million,
versus $2.9 million for the first quarter of 1996. Other income increased
27.5% due to higher investment income. The overall effective tax rate
decreased from 37.3% in the first quarter of 1996 to 36.0% in the first
quarter of 1997 due to tax planning strategies implemented in the second half
of 1996.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations totalled $7.3 million for the quarter
ended March 31, 1997 and represented an $8.6 million increase over the same
period in 1996. Liquidity needs for the quarter ended March 31, 1997 were
primarily for $4.7 million of capital expenditures including the construction
of a 120,000 square foot manufacturing facility in Winston-Salem, North
Carolina. Short-term investments increased 15.6% from $10.9 million at
December 31, 1996 to $12.6 million at March 31, 1997. Also, the Company had
approximately $27.5 million available at March 31, 1997 under its short-term
lines of credit. Accordingly, the Company 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 growth for the
forseeable future.
<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, 1996.
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
- -------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
Exhibit No. Description
----------- -----------
27 Financial Statement Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 8
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 13, 1997 By: /s/ Kenneth A. Swanstrom
----------------------------
Kenneth A. Swanstrom
Chairman/ CEO/ President
Dated: May 13, 1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,520,802
<SECURITIES> 12,599,660
<RECEIVABLES> 27,869,960
<ALLOWANCES> 900,000
<INVENTORY> 28,539,401
<CURRENT-ASSETS> 75,216,395
<PP&E> 105,916,324
<DEPRECIATION> 40,884,291
<TOTAL-ASSETS> 143,073,427
<CURRENT-LIABILITIES> 12,434,124
<BONDS> 0
<COMMON> 89,381
0
0
<OTHER-SE> 122,662,215
<TOTAL-LIABILITY-AND-EQUITY> 143,073,427
<SALES> 39,015,773
<TOTAL-REVENUES> 39,188,829
<CGS> 27,236,591
<TOTAL-COSTS> 34,536,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,380
<INCOME-PRETAX> 4,650,603
<INCOME-TAX> 1,676,000
<INCOME-CONTINUING> 2,974,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,974,603
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
