<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, 1998
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
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(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
6,935,559 shares of common stock, $.01 par value, outstanding on
May 13, 1998.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS (Unaudited)
March 31, 1998 December 31, 1997
CURRENT ASSETS -------------- ------------------
Cash and cash equivalents $10,521,653 $6,826,152
Short-term investments 12,512,356 10,844,382
Accounts receivable-trade 30,109,952 27,994,379
Allowance for doubtful accounts (550,000) (550,000)
Inventories (Note 2) 27,856,433 26,678,203
Prepaid expenses 1,795,429 2,130,357
---------- ----------
Total current assets 82,245,823 73,923,473
---------- ----------
PROPERTY
Property, plant & equipment 120,848,894 119,289,752
Less accumulated depreciation 47,298,407 45,392,774
----------- -----------
Property - net 73,550,487 73,896,978
----------- -----------
OTHER ASSETS 3,291,000 3,172,000
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TOTAL $159,087,310 $150,992,451
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable-trade $6,452,356 $5,825,920
Dividends payable 949,730 0
Accrued expenses:
Pension & profit sharing 1,643,037 2,522,230
Income taxes 2,565,860 806,392
Payroll & commissions 4,033,003 2,961,321
Other 1,532,798 1,396,289
---------- ----------
Total current liabilities 17,176,784 13,512,152
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ACCRUED PENSION COST 4,330,429 4,330,429
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DEFERRED INCOME TAXES 4,551,525 4,231,374
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STOCKHOLDERS' EQUITY (See Note 3)
Class A common stock 17,720 17,720
Common stock 71,870 71,870
Additional paid-in capital 35,877,797 35,877,797
Retained earnings 100,003,704 96,687,693
Accumulated other comprehensive
income (624,364) (1,418,429)
Treasury stock (2,318,155) (2,318,155)
----------- -----------
Total stockholders' equity 133,028,572 128,918,496
----------- -----------
TOTAL $159,087,310 $150,992,451
=========== ===========
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, 1998 March 31, 1997
-------------- --------------
NET SALES $46,724,908 $39,015,773
COST OF PRODUCTS SOLD 32,131,336 27,236,591
----------- -----------
GROSS PROFIT 14,593,572 11,779,182
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OTHER EXPENSES:
Selling expenses 4,803,605 4,206,198
General & administrative expenses 3,388,939 3,095,437
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8,192,544 7,301,635
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OPERATING PROFIT 6,401,028 4,477,547
OTHER INCOME - NET 279,713 173,056
----------- -----------
INCOME BEFORE INCOME TAXES 6,680,741 4,650,603
PROVISION FOR INCOME TAXES 2,415,000 1,676,000
----------- -----------
NET INCOME 4,265,741 2,974,603
RETAINED EARNINGS - BEGINNING 96,687,693 85,822,011
CASH DIVIDEND (949,730) (867,832)
----------- -----------
RETAINED EARNINGS - ENDING $100,003,704 $87,928,782
=========== ===========
NET INCOME PER SHARE-BASIC AND DILUTED $0.49 $0.34
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,633,999 8,678,326
CASH DIVIDEND PER SHARE $.11 $.10
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, 1998 March 31, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,265,741 $2,974,603
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,924,077 1,492,144
Loss on disposal of property 6,226 14,399
Gain on disposal of investments 0 (625)
Changes in assets and liabilities:
(Increase) decrease in receivables (1,897,670) 1,404,103
Decrease in refundable income taxes 0 806,342
(Increase) in inventories (907,401) (1,322,389)
(Increase)decrease in prepaid expenses,etc. 341,933 (186,285)
(Increase) decrease in deferred
income taxes-current 0 112,948
(Increase) in other assets (119,000) (60,000)
Increase in accounts payable 610,722 906,880
Increase in accrued expenses 2,083,831 397,040
Increase in deferred income taxes
- noncurrent 320,151 194,980
---------- ----------
Net cash provided by operating activities 6,628,610 6,734,140
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (1,599,746) (4,743,064)
Additions to held-to-maturity investments (5,988,066) (9,666,912)
Proceeds from disposal of
held-to-maturity investments 4,357,821 7,920,362
Proceeds from disposal of property 46,072 32
---------- ----------
Net cash used in investing activities (3,183,919) (6,489,582)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock 0 ( 484)
----------- ---------
Net cash used in financing activities 0 (484)
----------- ---------
Effect of exchange rate changes on cash 250,810 68,389
----------- ---------
Net increase in cash and cash equivalents 3,695,501 312,463
Cash and cash equivalents at
beginning of year 6,826,152 4,208,339
----------- ---------
Cash and cash equivalents at end of period $10,521,653 $4,520,802
=========== ==========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the year for:
Income taxes $ 27,613 $105,600
Interest 0 1,380
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
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 for the year ended December 31, 1997. 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, 1998 and 1997 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, 1998 are not necessarily indicative of the
results of operations to be expected for the year ending December 31, 1998.
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, 1998 December 31, 1997
-------------- -----------------
Raw material $4,781,939 $4,347,554
Tooling 3,519,567 3,391,208
Work-in-process 9,285,890 8,073,292
Finished goods 10,269,037 10,866,149
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TOTAL $27,856,433 $26,678,203
========== ==========
If the FIFO method of inventory valuation had been used by Registrant for
all inventories, inventories would have been $8,804,119 and $8,704,119 higher
than reported at March 31, 1998 and December 31, 1997, respectively, and net
income would have been $64,000 and $15,000 higher than reported for the
three months ended March 31, 1998 and 1997 respectively. Included in other
assets is long-term tooling inventory totaling $3,291,000 and $3,172,000 at
March 31, 1998 and December 31, 1997, respectively.
Note 3. Comprehensive Income
- ----------------------------
As of January 1, 1998 the Registrant adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". Statement
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no
impact on the Registrant's net income or stockholders' equity. Statement
No. 130 requires unrealized gains or losses on the Registrant's available-
for-sale securities and foreign currency translation adjustments, which prior
to adoption were reported separately in stockholders' equity, to be included
in other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement No. 130.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to $5,059,806 and $2,482,761, respectively.
Note 4. Reclassifications
- -------------------------
Certain reclassifications have been made to prior year amounts and balances
to conform with the 1998 presentation.
<PAGE> 6
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
Note 5. Use of Estimates
- ------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
period. Actual results could differ from those estimates.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Quarter Ended: March 31, 1998 vs. March 31, 1997
- ------------------------------------------------
Consolidated net sales for the quarter ended March 31, 1998 were $46.7
million, versus $39.0 million for the quarter ended March 31, 1997, a 19.7%
increase. Sales to customers outside the United States for the quarter ended
March 31, 1998 were $13.1 million, versus $10.7 million for the quarter ended
March 31, 1997, a 22.4% increase. Net sales for the fastener operation for
the quarter ended March 31, 1998 were $37.8 million, versus $32.0 million for
the quarter ended March 31, 1997, an 18.1% increase. Motor sales were $8.9
million for the quarter ended March 31, 1998, versus $7.0 million recorded
for the quarter ended March 31, 1997, a 27.1% increase.
The number of fastener units sold to independent customers increased
approximately 27.4% in the first quarter of 1998 compared to the first quarter
of 1997. The number of fastener units sold within North America increased
approximately 28.4% in the first quarter of 1998 compared to the first quarter
of 1997 and represented approximately 70.5% of total fasteners sold in the
first quarter of 1998. Distributor shipments to end customers continue to be
strong, especially in the personal computer market. Shipments in the first
quarter of 1997 were still affected by unusually high distributor inventory
levels that have since stabilized. The number of fastener units sold into
Europe also increased approximately 34.9% in the first quarter of 1998
compared to the first quarter of 1997 and represented approximately 25.3% of
total fasteners sold in the first quarter of 1998. The increase in the
European market is mainly due to a surge in the automotive market as well as
an overall strong European economy. The number of fastener units sold into the
Asia-Pacific region decreased approximately 13.9% from the first quarter of
1997 to the first quarter of 1998 mainly as a result of the continued economic
uncertainty in the region. The number of motors sold increased 26.6% in the
first quarter of 1998 compared to the first quarter of 1997. Continued strong
demand from the semiconductor equipment manufacturing market, the data storage
and retrieval market, and the graphic imaging market all contributed to the
motor sales increase.
The average selling price for fasteners shipped in the first quarter of
1998 decreased approximately 4.0% from $65.30 per thousand fasteners sold in
the first quarter of 1997 to $62.66 per thousand fasteners sold in the first
quarter of 1998. This decrease is mainly due to a change in product mix
due to a return to more normal distributor ordering patterns. In the quarter
ended March 31, 1997, distributors were over-inventoried in the lower priced
stock items and therefore items shipped were higher specialty items. The
average selling price of Pittman motors increased from $42.52 per motor in
the first quarter of 1997 to $42.85 per motor in the first quarter of 1998.
Consolidated gross profit for the first quarter of 1998 was $14.6 million,
versus $11.8 million for the first quarter of 1997, a 23.7% increase. Fastener
gross profit margins increased 22.9% from the first quarter of 1997 to the
first quarter of 1998 due to a decrease in outside supplemental screw machine
support, a decrease in tooling expenditures, and higher volume which offset
increases in fixed costs. Motor gross profit increased 29.7% from the first
quarter of 1997 to the first quarter of 1998 due to increased sales volume.
Consolidated selling, general, and administrative expenses ("SG&A") for
the first quarter of 1998 were $8.2 million, versus $7.3 million for the
first quarter of 1997, a 12.3% increase. SG&A, as a percent of sales,
decreased however from 18.7% in the first quarter of 1997 to 17.5% in the
first quarter of 1998.
<PAGE> 8
PENN ENGINEERING & MANUFACTURING CORP. & SUBSIDIARIES
March 31, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Consolidated net income for the first quarter of 1998 was $4.3 million,
versus $3.0 million for the first quarter of 1997. Other income increased
61.6% due to higher investment income and realized currency gains in the
United Kingdom.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations totaled $6.6 million for the quarter
ended March 31, 1998. These funds are being temporarily invested in
anticipation of increased capital spending during the remaining three quarters
of 1998. Short-term investments increased 15.4% from $10.8 million at
December 31, 1997 to $12.5 million at March 31, 1998. Also, the Company had
approximately $27.5 million available at March 31, 1998 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
- ------------------------------------------------------------------
Not Applicable.
<PAGE> 9
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, 1997.
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
----------- -----------
3.1 Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 of the Registrant's Form 10-Q
Quarterly Report for the period ended June 30, 1996.)
3.2 By-laws, as amended (Incorporated by reference to
Exhibit 3(ii) of the Registrant's Form 10-K Annual
Report for the year ended December 31, 1994.)
27 Financial Statement Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 10
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, 1998 By: /s/ Kenneth A. Swanstrom
----------------------------
Kenneth A. Swanstrom
Chairman/ CEO/ President
Dated: May 13, 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,521,653
<SECURITIES> 12,512,356
<RECEIVABLES> 30,109,952
<ALLOWANCES> 550,000
<INVENTORY> 27,856,433
<CURRENT-ASSETS> 82,245,823
<PP&E> 120,848,894
<DEPRECIATION> 47,298,407
<TOTAL-ASSETS> 159,087,310
<CURRENT-LIABILITIES> 17,176,784
<BONDS> 0
<COMMON> 89,590
0
0
<OTHER-SE> 132,938,982
<TOTAL-LIABILITY-AND-EQUITY> 159,087,310
<SALES> 46,724,908
<TOTAL-REVENUES> 47,004,621
<CGS> 32,131,336
<TOTAL-COSTS> 40,323,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,680,741
<INCOME-TAX> 2,415,000
<INCOME-CONTINUING> 4,265,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,265,741
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
