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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, 1997
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
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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
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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 16, 1998, the aggregate market value based on the closing sales
price on that date of the voting and non-voting common equity held by
non-affiliates of the Registrant was approximately $153,629,840.
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 6,927,123 shares of Common Stock outstanding on December 31,
1997.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Registrant's 1997 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 1998 Annual Meeting of
Stockholders to be filed with the Commission 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................................................. 4
Item 3. Legal Proceedings.......................................... 5
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 7A. Quantitative and Qualitative Disclosure About Market Risk.. 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. ............................................................. 8
Item 10. Directors and Executive Officers of the Registrant......... 8
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.
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. The Registrant's new 120,000 square foot
fastener facility in Winston-Salem, North Carolina, was completed in July 1997.
This new facility has replaced the 58,000 square foot North Carolina plant,
which the Registrant intends to sell. Therefore, the Registrant's total fastener
manufacturing floor space is approximately 375,000 square feet.
(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 24 and 25 of the Registrant's 1997 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 81% of the Registrant's sales in 1997, 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.
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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, 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, 1995, 1996 and 1997:
Percentage of Total Sales
-------------------------
Year Ended Electric
December 31 Fasteners Motors
----------- --------- --------
1995 80% 20%
1996 82% 18%
1997 81% 19%
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
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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, 1997, 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 1997. 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.
The Registrant also believes its Pittman division maintained its
competitive position in the electric motor market in 1997.
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 totaled approximately $20,854,000 for the
year ended December 31, 1995, $21,830,000 for the year ended December 31, 1996,
and $20,687,000 for the year ended December 31, 1997, or approximately 14.8%,
and 13.6%, and 12.3%, respectively, of the Registrant's consolidated net sales
in such years. Sales of fasteners to another of the Registrant's authorized
distributors totaled approximately $19,827,000 for the year ended December 31,
1997, or approximately 11.8% of the Registrant's consolidated net sales during
the year.
As of December 31, 1997, the Registrant had an order backlog of $57,249,000
compared with $44,359,000 as of December 31, 1996. The Registrant estimates that
substantially all of its backlog as of December 31, 1997 will be shipped during
its fiscal year ending December 31, 1998.
The raw materials used by the Registrant are generally available in
adequate supply.
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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, 1995, 1996 and 1997 were
approximately $1,460,000, $1,520,000, and $2,944,000, 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, 1997, 1,368 persons were employed by the Registrant, 38
more than were employed as of December 31, 1996. 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
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 24 and 25 of the Registrant's
1997 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, 1997, the Registrant's principal plants and offices, all
of which (other than the Singapore office) were owned by the Registrant, were as
follows:
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Location Size of Facility Use of Facility
-------- ---------------- ---------------
Danboro, Pennsylvania 230,000 sq. ft building on Executive offices and
106.9 acres manufacture of fasteners
Winston-Salem, 120,000 sq. ft. building Manufacture of components
North Carolina on 16.3 acres for fasteners
Winston-Salem, 58,280 sq. ft. building Vacant. Available for Sale.
North Carolina on 6 acres
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 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 24 of the Registrant's
1997 Annual Report to Stockholders which is included as Exhibit (13) to this
Form 10-K.
-5-
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 58 Chairman of the Board, Chief
Executive Officer and President
Martin Bidart 61 Vice President - Manufacturing
Raymond L. Bievenour 54 Vice President - Sales/Marketing
Joseph F. Lopes 64 Vice President - Quality
(Retired on December 31, 1997)
Mark W. Simon 59 Vice President - Finance
and Corporate Secretary
Francis P. Wilson 58 Vice President - Engineering
Kent R. Fretz 60 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, except for Mr. Wilson, who was hired on June 23, 1997. From 1993 to prior
to joining the Company in 1997, Mr. Wilson was Director of Engineering for the
International Division of Emhart Fastening Technologies, a subsidiary of Black &
Decker. From 1991 to 1993, Mr. Wilson served as Director of Advanced
Technologies of M/ACom Omni Spectra.
Mr. Lopes retired on December 31, 1997, and his position is currently
vacant. The Registrant has retained an executive search firm to assist with the
replacement for Mr. Lopes.
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.
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PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Registrant's Common Stock (non-voting), par value $0.01, is
traded on the New York Stock Exchange under the symbol "PNN." The Registrant's
Class A Common Stock (voting), par value $0.01, is traded on the New York Stock
Exchange under the symbol "PNNA." As of March 16, 1998, there were 616 holders
of record of the Registrant's Common Stock and 480 holders of record of the
Registrant's Class A Common Stock. Additional information with respect to this
Item 5 is incorporated by reference to page 15 of the Registrant's 1997 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 10 of the Registrant's 1997
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 14
of the Registrant's 1997 Annual Report to Stockholders, which is included as
Exhibit (13) to this Form 10-K Report.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The answer to this Item is incorporated by reference to pages 16 through 26
of the Registrant's 1997 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.
-7-
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning directors is incorporated by reference to the
Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
the year ended December 31, 1997. 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 the
Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
the year ended December 31, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information concerning this item is incorporated by reference to the
Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
the year ended December 31, 1997.
Item 13. Certain Relationships and Related Transactions.
Information concerning this item is incorporated by reference to the
Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
the year ended December 31, 1997.
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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, 1997 and 1996. .......... 16*
Statements of Consolidated Income for the years ended December 31,
1997, 1996 and 1995. ................................................ 17*
Statements of Changes in Consolidated Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995. ............... 18*
Statements of Consolidated Cash Flows for the years ended
December 31, 1997, 1996 and 1995. ................................... 19*
Notes to Consolidated Financial Statements. .........................20-25*
Independent Auditors' Report. ....................................... 26*
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* Refers to the respective page of the Registrant's 1997 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.
2. Financial Schedules.
None.
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, 1997, the Registrant filed a Current
Report on Form 8-K on October 3, 1997, reporting under Item 4 the change from
Deloitte & Touche LLP as its independent auditors to Ernst & Young LLP as its
certifying accountant.
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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 30, 1998 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 30, 1998
- ----------------------------- (Principal Executive Officer)
Kenneth A. Swanstrom
/s/ Mark W. Simon V.P. Finance, Corporate March 30, 1998
- ----------------------------- Secretary and Director
Mark W. Simon (Principal Financial
and Accounting Officer)
/s/ Willard S. Boothby, Jr. Director March 30, 1998
- -----------------------------
Willard S. Boothby, Jr.
/s/ Lewis W. Hull Director March 30, 1998
- -----------------------------
Lewis W. Hull
Director March , 1998
- -----------------------------
Thomas M. Hyndman, Jr.
/s/ Maurice D. Oaks Director March 30, 1998
- -----------------------------
Maurice D. Oaks
/s/ Charles R. Smith Director March 30, 1998
- -----------------------------
Charles R. Smith
/s/ Daryl L. Swanstrom Director March 30, 1998
- -----------------------------
Daryl L. Swanstrom
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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) 1997 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.)
(21) Subsidiaries of the Registrant.
(23) Independent Auditors' Consents.
(27) Financial Data Schedule (Electronic Filing Only).
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