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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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.
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(Exact name of registrant as specified in its charter)
Delaware 23-0951065
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1000, Danboro, Pennsylvania 18916
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (215) 766-8853
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Class A Common Stock, $.01 par value New York Stock Exchange
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 27, 1997, the aggregate market value based on the closing sales
price on that date of the voting stock held by non-affiliates of the Registrant
was approximately $15,480,118.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date: 1,707,082 shares of Class A
Common Stock and 6,971,246 shares of Common Stock outstanding on March 27, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Registrant's 1996 Annual Report to Stockholders filed as
Exhibit (13) are incorporated by reference in Items 1, 3, 5, 6, 7, 8
and 14.
2. Portions of the Proxy Statement for Registrant's 1997 Annual Meeting of
Stockholders filed as Exhibit (20) are incorporated by reference in Items
10, 11, 12 and 13.
PENN ENGINEERING & MANUFACTURING CORP.
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INDEX TO FORM 10-K REPORT
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PAGE
----
I. PART I. .................................................... 1
Item 1. Business............................................ 1
Item 2. Properties.......................................... 5
Item 3. Legal Proceedings................................... 6
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 6
Executive Officers of the Registrant................ 6
II. PART II. .................................................... 7
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................... 7
Item 6. Selected Financial Data............................. 7
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................... 7
Item 8. Financial Statements and Supplementary Data......... 7
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.............................. 7
III. PART III. .................................................... 7
Item 10. Directors and Executive Officers of
the Registrant.................................... 7
Item 11. Executive Compensation.............................. 8
Item 12. Security Ownership of Certain
Beneficial Owners and Management.................. 8
Item 13. Certain Relationships and Related Transactions...... 8
IV. PART IV. .................................................... 9
Item 14. Exhibits, Financial Statements and
Schedules and Reports on Form 8-K................. 9
PART I
Item 1. Business.
(a) General Development of Business.
The Registrant, a Delaware corporation, was incorporated in 1942. The
primary businesses of the Registrant have been:
(i) The development, manufacture, and sale of PEM(R) self-clinching
and broaching fasteners, inserts for plastic, and automatic insertion equipment
for such fasteners sold under the name PEMSERTER(R); and
(ii) The development, manufacture, and sale through the Registrant's
Pittman division of permanent magnet field, brush-commutated dc electric motors
under the Pittman(R) and Pitmo(R) trademarks, and electronically commutated
brushless dc servomotors under the Elcom(R) trademark.
During 1996 the Registrant reclassified its existing common stock into
Class A Common Stock and issued a dividend of three shares of non-voting Common
Stock for each outstanding share of Class A Common Stock. This dividend had the
same effect on the total number of shares outstanding as a four-for-one stock
split. The Registrant subsequently completed a public offering of an additional
1,850,000 shares of Common Stock, ceased trading both classes on the American
Stock Exchange and began trading both classes on the New York Stock Exchange.
The Registrant also instituted both an employee stock purchase plan, in which
30% of its employees are now participating, and a stock option plan, which
includes substantially all of the Registrant's employees. These two programs
will further tie the interest of the Registrant's employees to those of the
stockholders.
In early 1997, the Registrant completed its Danboro, Pennsylvania
expansion and renovation program, adding approximately 43,000 square feet of
additional manufacturing and office space. This much needed addition provided
the Registrant the opportunity to reorganize many of its manufacturing
processes. One of the largest capital projects ever undertaken by the
Registrant, this new building allows for the flexibility to reposition a total
of 460 pieces of manufacturing equipment. The Registrant has now converted
approximately 60% of its manufacturing in Danboro to "cells," which the
Registrant believes will result in increased efficiencies and productivity gains
associated with this manufacturing method. The end result of this reorganization
is that lead times for certain fastener product lines have been reduced by
approximately one-half, and the ability to react to customer demand has been
increased.
The Registrant's new 120,000 square foot fastener facility in
Winston-Salem, North Carolina, is scheduled for completion in June 1997. This
new facility will replace the present 58,000 square foot North Carolina plant,
which the Registrant intends to sell. When this new building is completed, the
Registrant's total fastener manufacturing floor space will be approximately
375,000 square feet.
-1-
In March 1996, the Registrant acquired its previously independent
Singapore distributor and created a master distributor and sales office for its
fastener operations in the Asia-Pacific market. This new facility, functioning
similarly to the Registrant's European master distributor and sales office in
Doncaster, England, provides distribution channels in the important Pacific Rim
market, which the Registrant believes will serve as a staging ground for future
growth in this area.
(b) Financial Information About Industry Segments.
The answer to this Item is incorporated by reference to Note 12 of the
Notes to Consolidated Financial Statements "Financial Reporting for Segments of
the Registrant" on pages 23 and 24 of the Registrant's 1996 Annual Report to
Stockholders which is included as Exhibit (13) to this Form 10-K Report.
(c) Narrative Description of Business.
The Registrant is the world's leading manufacturer of self-clinching
fasteners used by the computer, data communications, telecommunications, general
electronics, automotive, and avionics industries. PEM self-clinching fasteners,
which accounted for approximately 82% of the Registrant's sales in 1996, were
first developed by the Registrant's founder in 1942. Self-clinching fasteners
become an integral part of the material in which they are installed and provide
a reliable means of attaching components to sheet metal or plastic. Typical
applications for the Registrant's fastener products include personal computers,
computer cabinetry, power supplies, instrumentation, telecommunications
equipment, and certain automobile parts, such as air bags and windshield wipers.
The Registrant's Pittman division manufacturers high performance permanent
magnet dc motors used in electronics, medical, and manufacturing applications.
The Registrant's fasteners are primarily used by sheet metal
fabricators which utilize the Registrant's fasteners to produce sub-assemblies
for original equipment manufacturers ("OEMs"). Both OEMs and their
subcontractors seek fastening solutions which provide lower total installed cost
and are highly reliable, thereby lowering production and service costs. The
Registrant's application engineers and independent distributors continually work
in close collaboration with OEMs and their subcontractors to determine
appropriate fastener applications, which often results in OEMs specifying the
Registrant's fasteners. Self-cinching fasteners generally compete against loose
hardware, such as nuts and bolts. The Registrant's fasteners typically sell at a
premium to loose hardware. However, the Registrant's fasteners generally result
in lower overall manufacturing costs.
The Company also manufactures and sells manual and automated presses
for fastener installation under the PEMSERTER trademark. The rapid and accurate
installation provided by PEMSERTER presses, together with the Company's broad
range of fastener products, provides the Company's customers with a complete
fastening system.
The Registrant's Pittman division produces high-quality,
high-performance, permanent magnet dc motors used in light-weight precision
applications such as archival storage, printing,
-2-
copying, robotics, and medical diagnostic equipment and centrifuges. Pittman's
broad range of products are typically adapted to the specific requirements of
individual customers.
The manufacture and sale of (i) self-clinching and broaching fasteners
and inserts for plastic and (ii) direct current electric motors are the
Registrant's only lines of business. The following table sets forth information
with respect to the percentage of total sales attributable to each of the
Registrant's principal products which accounted for 10% or more of consolidated
revenues in each of the fiscal years ended December 31, 1994, 1995 and 1996:
Percentage of Total Sales
-----------------------------
Year Ended Electric
December 31 Fasteners Motors
----------- --------- --------
1994 79% 21%
1995 80% 20%
1996 82% 18%
The Company's fastener products are sold through a worldwide network of
approximately 40 authorized distributors located in 30 countries and the
Company's subsidiaries in Singapore and England. Many of the distributors and
engineering representative organizations have been affiliated with the Company
for more than 20 years. The Company's independent distributors, which maintain
their own inventories of the Company's products, may sell other industrial
components, but are not allowed to carry fasteners which compete with the
Company's products. The Company's return allowances, which are made through the
exchange of inventory, have generally averaged less than 1% of sales. Customers
receive technical support from the Company's worldwide network of independent
engineering representatives. The Company's engineers work in collaboration with
individual manufacturers early in the design process to engineer fastening
solutions that often result in the specification of PEM fasteners in new
products. The Company supplies its customers and distributors through warehouses
in Doncaster, England and Singapore, in addition to maintaining an inventory at
its Danboro, Pennsylvania facility.
Domestic sales of Pittman motors are handled by technical sales
representatives who have the expertise to combine Pittman's motor products with
available motion system components and deliver a complete motion control system
to the customer. European sales are conducted through an exclusive agreement
with a Swiss manufacturer of precision motors that utilize a different
technology from, and are complementary to, Pittman's motors.
During the year ended December 31, 1996, conditions in the domestic
market for fasteners continued to be highly competitive. It is not possible to
determine with accuracy the relative competitive position of the Registrant in
the market for self-clinching, broaching and insert fasteners. The Registrant
believes that it has maintained its market share during 1996. Approximately ten
other companies are known to be competing with the Registrant in the manufacture
and sale of such fasteners, some of which also manufacture products other than
self-clinching, broaching and insert fasteners.
-3-
The Registrant also believes its Pittman division maintained its
competitive position in the electric motor market in 1996.
Among the Registrant's principal customers for fasteners and
PEMSERTERS(R) are manufacturers of business machines, personal computers and
computer peripherals, electronic and communications equipment, electrical
equipment, industrial controls instrumentation, vending machines, automotive
subcontractors and other fabricated metal products. The principal customers for
the direct current electric motors and servomotors are manufacturers of
automated production equipment, instruments, computer peripherals, business
machines and medical equipment. In the opinion of the Registrant, no material
part of its business is dependent upon a single customer or a few customers, the
loss of any one or more of which would have a material adverse effect on the
business of the Registrant. However, sales of fasteners to one of the
Registrant's authorized distributors totalled approximately $16,554,000 for the
year ended December 31, 1994, $20,854,000 for the year ended December 31, 1995
and $21,830,000 for the year ended December 31, 1996, or approximately 13.6%,
14.8% and 13.6%, respectively, of the Registrant's consolidated net sales in
such years.
As of December 31, 1996, the Registrant had an order backlog of
$44,359,000 compared with $70,364,000 as of December 31, 1995. The Registrant
estimates that substantially all of its backlog as of December 31, 1996 will be
shipped during its fiscal year ending December 31, 1997.
The raw materials used by the Registrant are generally available in
adequate supply.
The Registrant holds a number of patents, and has patent applications
pending, in the United States and various foreign countries. Management
believes, however, that the Registrant's business is not materially dependent on
any patent or group of patents. The principal trademarks of the Registrant are
registered in the United States and various foreign countries.
Research and development is carried on by the operating personnel of
the Registrant on a continuing basis. The amounts expended for research and
development for the fiscal years ended December 31, 1994, 1995 and 1996 were
approximately $1,136,000, $1,460,000 and $1,520,000, respectively.
The Registrant believes that compliance with federal, state and local
laws and regulations that have been enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, will not have a material adverse effect upon the earnings or
competitive position of the Registrant.
As of December 31, 1996, 1,330 persons were employed by the Registrant,
119 more than were employed as of December 31, 1995. None of the Company's
personnel are governed by collective bargaining agreements, and the Company has
never experienced a strike. The Company believes that its labor rates are
comparable to those of its competitors and that the Company's relations with its
employees are good. The Registrant does not consider its business to be seasonal
in any material respect, nor is any material portion of the Registrant's
business
-4-
subject to the renegotiation of profits or termination of contracts at the
election of the Government.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
The answer to this Item is incorporated by reference to Note 12
"Financial Reporting for Segments of the Company" on pages 23 and 24 of the
Registrant's 1996 Annual Report to Stockholders, which is included as Exhibit
(13) to this Form 10-K. Also, all foreign sales except for those of PEM
International, Ltd. and PEM International (Singapore) Pte Ltd. are sold F.O.B.,
the Registrant's factory, payable in U.S. dollars. Sales in the United Kingdom
and Western Europe are made through the Registrant's wholly owned subsidiary,
PEM International, Ltd. and are denominated in pounds sterling. Sales in the
Pacific Rim are made through the Registrant's wholly owned subsidiary, PEM
International (Singapore) Pte Ltd. and are denominated in Singapore dollars. All
foreign sales are subject to special risks of exchange controls and restrictions
on the repatriation of funds and also may be affected by the imposition or
increase of taxes and/or tariffs and international instability.
Item 2. Properties.
As of December 31, 1996, the Registrant's principal plants and offices,
all of which (other than the Singapore office) were owned by the Registrant,
were as follows:
Location Size of Facility Use of Facility
-------- ---------------- ---------------
Danboro, Pennsylvania 230,000 sq. ft. building Executive offices and
on 106.9 acres manufacture of fasteners
Winston-Salem, 58,280 sq. ft. building Manufacture of components
North Carolina on 3.4 acres for fasteners
Harleysville, 58,000 sq. ft. building Manufacture of dc motors
Pennsylvania on 6 acres
Suffolk, Virginia 50,000 sq. ft. building Manufacture of components
on 17.2 acres for fasteners
Doncaster, South 10,500 sq. ft. building Office and warehouse for
Yorkshire, England on 5.25 acres the distribution of fasteners
Singapore 3,700 sq. ft. Office and warehouse for
the distribution of fasteners
The Registrant considers all of its plants and equipment to be modern
and well maintained. The Registrant has purchased a 16.3 acre commercial plot in
Winston-Salem, North
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Carolina. The Registrant is building a 120,000 square foot facility at this
location, which is scheduled for completion by June 1997. Upon completion of
this new facility, the Registrant intends to sell its existing North Carolina
facility.
The Registrant carries fire, casualty, business interruption, and
public liability insurance for all of its facilities in amounts which are deemed
adequate.
Item 3. Legal Proceedings.
The answer to this Item is incorporated by reference to Note 11 of
Notes to Consolidated Financial Statements "Contingencies" on page 22 of the
Registrant's 1996 Annual Report to Stockholders which is included as Exhibit
(13) to this Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
Certain information about the executive officers of the Registrant is
as follows:
Name Age Position Held With the Registrant
Kenneth A. Swanstrom 57 Chairman of the Board, Chief
Executive Officer and President
Martin J. Bidart 60 Vice President - Manufacturing
Raymond L. Bievenour 53 Vice President - Sales/Marketing
Joseph F. Lopes 63 Vice President - Quality
Mark W. Simon 58 Vice President - Finance
and Corporate Secretary
Kent R. Fretz 59 Vice President and General
Manager - Pittman division
All of the executive officers of the Registrant have been principally
employed as officers or employees of the Registrant for more than the past five
years. The executive officers of the Registrant are elected each year at the
organization meeting of the Board of Directors of the Registrant which is held
following the Annual Meeting of Stockholders.
-6-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
During 1996 the Registrant reclassified its existing common stock into
Class A Common Stock and issued a dividend of three shares of non-voting Common
Stock for each outstanding share of Class A Common Stock. This dividend had the
same effect on the total number of shares outstanding as a four-for-one stock
split. The Registrant subsequently completed a public offering of an additional
1,850,000 shares of Common Stock, ceased trading both classes on the American
Stock Exchange and began trading both classes on the New York Stock Exchange.
Additional information on this Item is incorporated by reference to page 13 of
the Registrant's 1996 Annual Report to Stockholders, which is included as
Exhibit (13) to this Form 10-K Report.
Item 6. Selected Financial Data.
The Five-Year Financial Data and other financial information for the
Registrant is incorporated by reference to page 9 of the Registrant's 1996
Annual Report to Stockholders, which is included as Exhibit (13) to this Form
10-K Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The answer to this Item is incorporated by reference to pages 10
through 12 of the Registrant's 1996 Annual Report to Stockholders, which is
included as Exhibit (13) to this Form 10-K Report.
Item 8. Financial Statements and Supplementary Data.
The answer to this Item is incorporated by reference to pages 14
through 24 of the Registrant's 1996 Annual Report to Stockholders, which is
included as Exhibit (13) to this Form 10-K Report, and the schedules included
herewith.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning directors is incorporated by reference to pages
7 through 9 and pages 15 to 16 of the Registrant's Proxy Statement for its 1997
Annual Meeting of Stockholders, which is
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included as Exhibit (20) to this Form 10-K Report. Information with respect to
executive officers of the Registrant is included in Part I of this Form 10-K
report.
Item 11. Executive Compensation.
Information concerning this item is incorporated by reference to pages
9 through 11 and page 15 of the Registrant's Proxy Statement for its 1997 Annual
Meeting of Stockholders, which is included as Exhibit (20) to this Form 10-K
Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information concerning this item is incorporated by reference to pages
2 through 6 of the Registrant's Proxy Statement for its 1997 Annual Meeting of
Stockholders, which is included as Exhibit (20) to this Form 10-K Report.
Item 13. Certain Relationships and Related Transactions.
Information concerning this item is incorporated by reference to page
16 of the Registrant's Proxy Statement for its 1997 Annual Meeting of
Stockholders, which is included as Exhibit (20) to this Form 10-K Report.
-8-
PART IV
Item 14. Exhibits, Financial Statements and Schedules and Reports on Form 8-K.
(a) Financial Statements, Financial Schedules and Exhibits Filed.
1. Consolidated Financial Statements.
The following Consolidated Financial Statements of the Registrant and
its subsidiaries are filed as part of this Form 10-K Report:
Page
----
Consolidated Balance Sheets at December 31, 1996 and 1995 14*
Statements of Consolidated Income for the years ended
December 31, 1996, 1995 and 1994. 15*
Statements of Changes in Consolidated Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994. 16*
Statements of Consolidated Cash Flows for the years ended
December 31, 1996, 1995 and 1994. 17*
Notes to Consolidated Financial Statements. 18-24*
Independent Auditors' Report 24*
2. Financial Schedules.
None.
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* Refers to the respective page of the Registrant's 1996 Annual Report to
Stockholders, which is filed as Exhibit (13) to this Form 10-K Report.
With the exception of the portions of such Annual Report specifically
incorporated by reference in this Item, and in Items 1, 3, 5, 6, 7 and 8
hereof, such Annual Report shall not be deemed filed as a part of this
Form 10-K Report or otherwise deemed subject to the liabilities of Section
18 of the Securities Exchange Act of 1934.
3. Exhibits.
Reference is made to the Exhibit Index on page 11 of this
Form 10-K.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1996, the Registrant did
not file any reports on Form 8-K.
-9-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 28, 1997 By:/s/ Kenneth A. Swanstrom
-------------------------------
Kenneth A. Swanstrom,
Chairman/CEO/President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Kenneth A. Swanstrom Chairman/CEO/President March 28, 1997
- ----------------------------- (Principal
Kenneth A. Swanstrom Executive Officer)
/s/ Mark W. Simon V.P. Finance, Corporate March 28, 1997
- ----------------------------- Secretary and Director
Mark W. Simon (Principal Financial
and Accounting Officer)
/s/ Willard S. Boothby, Jr. Director March 28, 1997
- -----------------------------
Willard S. Boothby, Jr.
- ----------------------------- Director March , 1997
Frank S. Hermance
/s/ Lewis W. Hull Director March 28, 1997
- -----------------------------
Lewis W. Hull
/s/ Thomas M. Hyndman, Jr. Director March 28, 1997
- -----------------------------
Thomas M. Hyndman, Jr.
Director March , 1997
- -----------------------------
Maurice D. Oaks
/s/ Daryl L. Swanstrom Director March 28, 1997
- -----------------------------
Daryl L. Swanstrom
-10-
PENN ENGINEERING & MANUFACTURING CORP.
EXHIBIT INDEX
Item Description
- ---- -----------
(3)(i) Restated Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 of the Registrant's
Form 10-Q Quarterly Report for the period ended June 30,
1996.)
(3)(ii) By-laws of the Registrant, as amended. (Incorporated by
reference to Exhibit 3(ii) of the Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1994.)
(10)(i) Right of First Refusal dated as of September 5, 1986 between
the Registrant and Lawrence W. Swanstrom and Daryl E.
Swanstrom. (Incorporated by reference to Exhibit A to the
Company's Form 8-Current Report dated September 5, 1986, the
date of the earliest event reported.)
(10)(ii) 1996 Equity Incentive Plan. (Incorporated by reference to the
Registrant's Form S-8 Registration Statement No. 333-20101
filed with the Commission on January 21, 1997.)
(10)(iii) 1996 Employee Stock Purchase Plan. (Incorporated by reference
to the Registrant's Form S-8 Registration Statement No.
333-13073 filed with the Commission on September 30, 1996.)
(13) 1996 Annual Report to Stockholders. (Only those pages
expressly incorporated by reference in Items 1, 3, 5, 6, 7, 8,
and 14 of this Form 10-K report.)
(17) Letter re Change in Accounting Principles.
(20) Proxy Statement for the Registrant's 1996 Annual Meeting of
Stockholders.
(21) Subsidiaries of the Registrant
(23) Independent Auditors' Consent
(27) Financial Data Schedule
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