<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
Commission file Number 1-5356
PENN ENGINERRING & 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)
Registrant's telephone number, including area code:
(215) 766-8853
Indicate by check mark whether the registrant(1) has filed
all 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 latest practical
date: 1,675,082 shares of Class A common stock, $.01 par value, and
6,897,957 shares of common stock, $.01 par value, outstanding on
May 12, 2000.
<PAGE> 2
<TABLE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
PENN ENGINEERING & MANUFACTURING CORP.
CONDENSED CONSOLIDATED BALANCE SSHEETS
<CAPTION>
(Dollars in thousands)
ASSETS
(Unaudited)
March 31, 2000 December 31, 1999
------------------ -----------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,988 $ 4,231
Short-term investments 6,910 9,538
Accounts receivable-net 43,778 37,622
Inventories 39,736 43,292
Prepaid expenses 4,268 2,051
------- -------
Total current assets 102,680 96,734
------- -------
PROPERTY
Property, plant & equipment 142,509 140,592
Less accumulated depreciation 62,927 60,742
------- -------
Property - net 79,582 79,850
------- -------
GOODWILL 21,190 21,460
------- -------
OTHER ASSETS 3,350 3,500
------- -------
TOTAL $206,802 $201,544
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $10,190 $9,622
Lines of credit 8,582 5,850
Dividends payable 1,027 0
Accrued expenses:
Pension & profit sharing 2,014 984
Payroll & commissions 5,385 3,613
Other 3,046 2,175
------- -------
Total current liabilities 30,244 22,244
------- -------
ACCRUED PENSION COST 6,518 6,518
------- -------
DEFERRED INCOME TAXES 5,223 4,902
------- -------
LONG-TERM DEBT 7,500 15,000
------- -------
STOCKHOLDERS' EQUITY
Common stock 72 72
Class A common stock 18 18
Additional paid-in capital 37,056 37,056
Retained earnings 126,953 122,335
Accumulated other comprehensive
loss (1,346) (1,165)
Treasury stock (5,436) (5,436)
------- -------
Total stockholders' equity 157,317 152,880
------- -------
TOTAL $206,802 $201,544
======== ========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
PENN ENGINEERING & MANUFACTURING CORP.
STATEMENTS OF CONDENSED CONSOLIDATED INCOME
<CAPTION>
(Dollars in thousands except per share amounts)
THREE MONTHS ENDED
-----------------------------------
(Unaudited)
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net Sales $65,137 $46,000
Cost of Products Sold 44,060 31,512
------ ------
Gross Profit 21,077 14,488
Selling Expenses 6,540 4,934
General and Administrative Expenses 5,726 3,769
------ ------
Operating Profit 8,811 5,785
------ ------
Other Income (Expense):
Interest income 134 375
Interest expense (422)
Other, net 97 (65)
------ ------
Total Other Income (Expense) (191) 310
------ ------
Income Before Income Taxes 8,620 6,095
Provision for Income Taxes 2,975 2,039
------ ------
Net Income $5,645 $4,056
====== ======
PER SHARE DATA:
Basic earnings $0.66 $0.47
===== =====
Diluted earnings $0.66 $0.47
===== =====
Cash dividends declared $0.12 $0.12
===== =====
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
PENN ENGINEERING & MANUFACTURING CORP.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
<CAPTION>
(Dollars in thousands)
THREE MONTHS ENDED
---------------------------------
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $5,645 $4,056
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,240 2,075
Amortization 270
Loss (gain) on disposal of property 20 (175)
Changes in assets and liabilities:
Increase in receivables (6,227) (2,204)
Decrease (increase) in inventories 3,433 (1,887)
Increase in prepaid expenses (2,237) (336)
Decrease (increase) in other assets 150 (100)
Increase in accounts payable 569 646
Increase in accrued expenses 3,679 2,691
Increase in deferred income taxes -
noncurrent 321 207
----- -----
Net cash provided by operating
activities 7,863 4,973
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (2,065) (1,397)
Additions to held-to-maturity
investments 0 (11,092)
Proceeds from disposal of held-to-
maturity investments 2,609 7,943
Proceeds from disposal of property 46 215
----- -----
Net cash provided by (used in)
investing activities 590 (4,331)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 2,732 0
Net long-term repayments (7,500) 0
Issuance of common stock 0 2
----- -----
Net cash (used in) provided by
financing activities (4,768) 2
----- -----
Effect of exchange rate changes on cash 72 (41)
----- -----
Net increase in cash and cash equivalents 3,757 603
Cash and cash equivalents at
beginning of period 4,231 13,103
------ ------
Cash and cash equivalents at end of
period $ 7,988 $13,706
======= =======
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE> 5
PENN ENGINEERING & MANUFACTURING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
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
Company's Annual Report for the year ended December 31, 1999. 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 the Company's consolidated financial position at March 31,
2000 and 1999 and the consolidated statements of income and cash flows for the
three-month periods then ended. The results of operations for the three months
ended March 31, 2000 are not necessarily indicative of the results of
operations to be expected for the year ending December 31, 2000.
Note 2. Inventories
- -------------------
Substantially all of the Company's domestic fastener inventories are priced
on the last-in, first-out (LIFO) method, at the lower of cost or market. 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: (Dollars in thousands)
(Unaudited)
March 31, 2000 December 31, 1999
-------------- -----------------
Raw material $5,939 $5,472
Tooling 3,618 3,529
Work-in-process 12,342 12,463
Finished goods 17,837 21,828
------ ------
TOTAL $39,736 $43,292
======= =======
If the FIFO method of inventory valuation had been used by the Company for
all inventories, inventories would have been $9,800,000 and $9,562,000 higher
than reported at March 31, 2000 and December 31, 1999, respectively, and
net income would have been $156,000 and $67,000 higher than reported for the
three months ended March 31, 2000 and 1999, respectively. Included in other
assets is long-term tooling inventory totaling $3,350,000 and $3,500,000 at
March 31, 2000 and December 31, 1999, respectively.
Note 3. Lines of Credit
- -----------------------
As of March 31, 2000, the Company has three unsecured line-of-credit
facilities available. All lines-of-credit bear interest at interest rate
options provided in the facilities. The first line-of-credit facility permits
maximum borrowings of $15,000,000, due on demand. At March 31, 2000,
$2,078,000, bearing interest at 6.62%, was outstanding on this facility. The
availability of funds under this facility is periodically reviewed by the
bank. The second line-of-credit facility permits borrowings of up to
$10,000,000 and expires on September 27, 2000 unless extended by the bank. At
March 31, 2000, $6,504,000, bearing interest at 6.63%, was outstanding on this
facility. In addition to the above short-term lines of credit, the Company has
an unsecured line of credit with a bank that permits borrowings of up to
$30,000,000 to finance acquisitions. At March 31, 2000, $7,500,000, bearing
interest at 6.44%, was outstanding on this facility. The Company has a choice
of a three year revolving term for the acquisition line of credit or, on
September 27, 2000 the acquisition line of credit can be terminated and
transferred to a term loan to be repaid over periods ranging from three to
seven years. As such, the line of credit has been classified as long-term debt
at March 31, 2000. The acquisition line of credit requires the Company to
comply with certain financial covenants. At March 31, 2000 the Company was in
compliance with all financial covenants.
<PAGE> 6
PENN ENGINEERING & MANUFACTURING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2000
Note 4. Comprehensive Income
- ----------------------------
Total comprehensive income amounted to $5,464,000 and $3,468,000 for the
three months ended March 31, 2000 and 1999, respectively.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 6. Segment Information
- ---------------------------
(Dollars in thousands)
THREE MONTHS ENDED THREE MONTHS ENDED
March 31, 2000 March 31, 1999
-------------- --------------
Fasteners Motors Fasteners Motors
--------- ------ --------- ------
Revenue from external customers $54,931 $10,206 $38,055 $7,945
Operating profit 7,838 973 5,191 594
Segment assets 190,045 16,757 156,908 14,820
A reconciliation of combined operating profit for the fastener and motor
segments to consolidated income before income taxes is as follows:
THREE MONTHS ENDED
March 31, 2000 March 31, 1999
-------------- --------------
Total profit for reportable segments $8,811 $5,785
Other income (expense) (191) 310
----- -----
Income before income taxes $8,620 $6,095
====== ======
<PAGE> 7
PENN ENGINEERING & MANUFACTURING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2000
Note 7. Earnings Per Share Data
- -------------------------------
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
THREE MONTHS ENDED
March 31, 2000 March 31, 1999
-------------- --------------
(In Thousands, except per share data)
Basic:
Net income $5,645 $4,056
Average shares outstanding 8,562 8,633
----- -----
Basic EPS $0.66 $0.47
===== =====
Diluted:
Net income $5,645 $4,056
====== ======
Average shares outstanding 8,562 8,633
Net effect of dilutive stock options-
based on treasury stock method 34 11
----- -----
Totals 8,596 8,644
===== =====
Diluted EPS $0.66 $0.47
===== =====
Note 8. Reclassifications
- -------------------------
Certain reclassifications have been made to prior year amounts and balances
to conform with the 2000 presentation.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PENN ENGINEERING & MANUFACTURING CORP.
March 31, 2000
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Quarter Ended March 31, 2000 vs. Quarter Ended March 31, 1999
- -------------------------------------------------------------
Consolidated net sales for the quarter ended March 31, 2000 were $65.1
million, versus $46.0 million for the quarter ended March 31, 1999, a 41.5%
increase. Net sales to customers outside the United States for the quarter
ended March 31, 2000 were $16.8 million, versus $16.0 million for the
quarter ended March 31, 1999, a 5.0% increase. Net sales for the fastener
operation for the quarter ended March 31, 2000 were $54.9 million, versus
$38.1 million for the quarter ended March 31, 1999, a 44.1% increase.
Companies acquired during the second and third quarters of 1999 contributed
$4.6 million, or 27.4%, of this increase. The remainder of the increase is
directly related to the strong equipment requirements demand for the telecom,
datacom, and communciations markets plus the associated computing equipment
required to support this growth. Motor net sales were $10.2 million for the
quarter ended March 31, 2000, versus $7.9 million recorded for the quarter
ended March 31, 1999, an 29.1% increase.
The number of fastener units sold to the Company's global OEM direct
customers and its independent distribution network increased approximately
29.0% in the first quarter of 2000 compared to the first quarter of 1999. The
number of fastener units sold within North America increased approximately
51.0% in the first quarter of 2000 compared to the first quarter of 1999, and
represented approximately 73.3% of total fasteners sold in the first quarter
of 2000. This increase in the North America market was a result of strong
demand from the communications sector. The number of fastener units sold into
Europe increased approximately 2.2% in the first quarter of 2000 compared to
the first quarter of 1999 and represented approximately 21.6% of total
fasteners sold in the first quarter of 2000. The European market remains
strong however currency exchange rates and high interest rates have limited
growth. The number of fastener units sold into the Asia-Pacific region
decreased approximately 35.5% in the first quarter of 2000 compared to the
first quarter of 1999. Sales into the Asia-Pacific region were unusually
high during the first quarter of 1999 due to anticipated demand for personal
computer upgrades due to Y2K concerns. The average selling price for all
fasteners sold increased approximately 10.3% from the first quarter of 1999 to
the first quarter of 2000. Fastener product mix in the first quarter of 1999
was heavier in the lower priced studs and steel nut product lines while the
first quarter of 2000 saw a shift towards higher priced panel fasteners and
standoffs.
The number of motors sold increased 28.4% in the first quarter of 2000
compared to the first quarter of 1999. Increased demand from the data storage
and semiconductor equipment manufacturers contributed to the increase. The
average selling price of all motors sold remained the same from the first
quarter of 1999 to the first quarter of 2000.
Consolidated gross profit for the first quarter of 2000 was $21.1 million,
versus $14.5 million for the first quarter of 1999. Fastener gross profit
increased 45.7% in the first quarter of 2000 compared to the first quarter of
1999 while motor gross profit increased 44.2%. Both segments benefited from
increased volume which resulted in lower costs per unit.
Consolidated selling, general, and administrative expenses ("SG&A") for the
first quarter of 2000 were $12.3 million (18.8% of net sales), versus $8.7
million (18.9% of net sales) for the first quarter of 1999. SG&A in the first
quarter of 2000 included $272,000 of goodwill amortization related to 1999
acquisitions.
Consolidated net income for the first quarter of 2000 was $5.6 million,
versus $4.1 million for the first quarter of 1999. The Company incurred
$422,000 of interest expense in the first quarter of 2000 related to loans
outstanding to finance 1999 acquisitions.
<PAGE> 9
PENN ENGINEERING & MANUFACTURING CORP.
March 31, 2000
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations totaled $7.9 million for the three months
ended March 31, 2000 as compared to $5.0 million in the comparable period of
1999. Funds from operations were sufficient for capital expenditures and to
repay a portion of the Company's long-term debt. 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 foreseeable future.
Forward-Looking Statements
- --------------------------
Forward-looking statements are made throughout this Mnagement's Discussion
and Analysis. The Company's results may differ materially from those in the
forward-looking statements. Forward-looking statements are based on
management's current views and assumptions, and involve risks and
uncertainties that significantly affect expected results. For example,
operating results may be affected by external factors such as: changes in laws
and regulations, changes in accounting standards, fluctuations in the cost and
availability of the supply chain resources, and foreign economic conditions,
including currency rate fluctuations.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
- -----------------------------------------------------------------
There have been no material changes to Part 2, Item 7A of the Company's
Form 10-K Annual Report for the year ended December 31, 1999.
<PAGE> 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Reference is made to Part 1, Item 3 of the Company's Form 10-K Annual Report
for the year ended December 31, 1999.
Item 2. Changes in Securities
- -----------------------------
Not Applicable.
Item 3. Default upon Senior Securities
- --------------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not Applicable.
Item 5. Other Information
- -------------------------
a.) Acquisition
On April 11, 2000, the Company acquired the outstanding capital stock
of Atlas Engineering, Inc., of Tallmadge, Ohio for $3,000,000.
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 Company'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 Company's Form 10-K Annual Report for the
fiscal year ended December 31, 1994.)
27 Financial Statemet Data Schedule.
b). Reports on Form 8-K
None.
<PAGE> 11
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PENN ENGINEERING & MANUFACTURING CORP.
Dated: May 12, 2000 By: /s/ Kenneth A. Swanstrom
-----------------------------
Kenneth A. Swanstrom
Chairman/CEO
Dated: May 12, 2000 By: /s/ Mark W. Simon
-----------------------------
Mark W. Simon
Vice-President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-END> Mar-31-2000
<CASH> 7,988
<SECURITIES> 6,910
<RECEIVABLES> 44,778
<ALLOWANCES> 1,000
<INVENTORY> 39,736
<CURRENT-ASSETS> 102,680
<PP&E> 142,509
<DEPRECIATION> 62,927
<TOTAL-ASSETS> 206,802
<CURRENT-LIABILITIES> 30,244
<BONDS> 7,500
<COMMON> 90
0
0
<OTHER-SE> 157,227
<TOTAL-LIABILITY-AND-EQUITY> 206,802
<SALES> 65,137
<TOTAL-REVENUES> 65,368
<CGS> 44,060
<TOTAL-COSTS> 56,326
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 422
<INCOME-PRETAX> 8,620
<INCOME-TAX> 2,975
<INCOME-CONTINUING> 5,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,645
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.66
</TABLE>
