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, 2003
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.
(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
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). 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: 3,350,164 shares of Class A
common stock, $.01 par value, and 14,081,933 shares of common stock, $.01 par
value, outstanding on May 9, 2003.
Page 1 of 19 pages.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
PENN ENGINEERING & MANUFACTURING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
(unaudited)
CURRENT ASSETS March 31, 2003 December 31, 2002
-------------- -----------------
Cash and cash equivalents $8,164 $20,927
Short-term investments 232 233
Accounts receivable-net 34,592 25,373
Inventories 57,422 56,458
Refundable income taxes 1,596 1,939
Other current assets 1,930 1,641
------ -------
Total current assets 103,936 106,571
------- -------
PROPERTY
Property, plant & equipment 187,943 174,871
Less accumulated depreciation 91,064 88,202
------ ------
Property - net 96,879 86,669
------ ------
GOODWILL, NET 30,813 27,047
------ ------
OTHER ASSETS 5,169 4,692
----- -----
TOTAL $236,797 $224,979
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $7,485 $3,817
Bank debt 24,745 20,000
Dividends payable 0 1,042
Accrued expenses:
Pension & profit sharing 1,094 0
Payroll & commissions 3,485 3,087
Other 4,982 2,603
----- -----
Total current liabilities 41,791 30,549
------ ------
ACCRUED PENSION COST 3,778 3,778
----- -----
DEFERRED INCOME TAXES 7,458 7,435
----- -----
STOCKHOLDERS' EQUITY
Common stock 148 148
Class A common stock 35 35
Additional paid-in capital 41,085 40,682
Retained earnings 147,709 148,211
Accumulated other comprehensive income 879 227
Treasury stock (6,086) (6,086)
------ -------
Total stockholders' equity 183,770 183,217
------- -------
TOTAL $236,797 $224,979
======== ========
See Notes to Condensed Consolidated Financial Statements
PENN ENGINEERING & MANUFACTURING CORP.
STATEMENTS OF CONDENSED CONSOLIDATED INCOME
(Dollars in thousands except per share amounts)
THREE MONTHS ENDED
(unaudited)
March 31, 2003 March 31, 2002
Net Sales $44,814 $35,331
Cost of Products Sold 32,240 24,023
------ ------
Gross Profit 12,574 11,308
Selling Expenses 5,229 4,768
General and Administrative Expenses 6,267 5,705
----- -----
Operating Income 1,078 835
----- ---
Other (Expense) Income:
Interest income 47 16
Interest expense (307) (193)
Other, net (126) (136)
----- -----
Total Other (Expense) Income (386) (313)
----- -----
Income Before Income Taxes 692 522
Provision for Income Taxes 152 151
--- ---
Net Income $540 $371
==== ====
PER SHARE DATA:
Basic earnings $0.03 $0.02
===== =====
Diluted earnings $0.03 $0.02
===== =====
Cash dividends declared $0.06 $0.08
===== =====
See Notes to Condensed Consolidated Financial Statements
PENN ENGINEERING & MANUFACTURING CORP.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(Dollars in thousands)
THREE MONTHS ENDED
(unaudited)
March 31, 2003 March 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $540 $371
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,749 2,594
Amortization 1 3
Deferred income taxes 0 (2)
Foreign currency transaction losses 138 26
Gain on disposal of property (1) (2)
Changes in assets and liabilities:
Increase in receivables (5,425) (354)
Decrease (increase) in inventories 2,789 (1,458)
Decrease in refundable income taxes 332 4,545
Decrease in other current assets 196 624
Increase in other assets (477) 0
Increase in accounts payable 854 13
Increase (decrease) in accrued expenses 2,208 (225)
----- -----
Net cash provided by operating activities 3,904 6,135
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (1,258) (403)
Acquisitions of businesses (net of cash acquired) (9,941) 0
Proceeds from disposal of property 6 7
- -
Net cash used in investing activities (11,193) (396)
-------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term repayments (4,007) (3,622)
Dividends paid (2,085) (1,386)
Issuance of common stock 404 435
------- -------
Net cash used in financing activities (5,688) (4,573)
------- ------
Effect of exchange rate changes on cash 214 (34)
--- ----
Net (decrease) increase in cash and cash equivalents (12,763) 1,132
Cash and cash equivalents at beginning of period 20,927 8,421
------ -----
Cash and cash equivalents at end of period $8,164 $9,553
====== ======
See Notes to Condensed Consolidated Financial Statements
PENN ENGINEERING & MANUFACTURING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
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, 2002. 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, 2003 and 2002 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, 2003
are not necessarily indicative of the results of operations to be expected for
the year ending December 31, 2003. .
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, 2003 December 31, 2002
-------------- -----------------
Raw material $6,791 $4,566
Tooling 6,833 4,926
Work-in-process 8,577 7,935
Finished goods 35,221 39,031
------ ------
TOTAL $57,422 $56,458
======= =======
If the FIFO method of inventory valuation had been used by the Company for
all inventories, inventories would have been $10,246,000 and $10,100,000 higher
than reported at March 31, 2003 and December 31, 2002, respectively, and net
income would have been $114,000 and $131,000 higher than reported for the three
months ended March 31, 2003 and 2002, respectively. Long-term tooling inventory
totaling $2,000,000 at March 31, 2003 and $2,500,000 at December 31, 2002 is
included in Other Assets.
Note 3. Bank Debt
As of March 31, 2003, the Company has four unsecured line-of-credit
facilities available. All lines-of-credit bear interest at interest rate options
provided in the facilities and are reviewed annually by the banks for renewal.
The first two facilities are working capital facilities. The first facility is a
working capital facility that permits maximum borrowings of $7,000,000, due on
demand. At March 31, 2003, there was no outstanding amount on this facility. The
second facility is a general facility that allows for borrowings of up to
$40,000,000. At March 31, 2003, there was no amount outstanding on this
facility. The third facility allows for borrowings of up to $12,000,000. A
$9,000,000 term loan is currently outstanding on this facility at a rate of 3.6%
(3.1% after giving effect to interest rate swaps). This loan is payable in 12
equal monthly installments commencing January 31, 2003 with the final payment
due and payable on December 31, 2003. This loan is currently classified as
short-term debt.
The fourth facility permits borrowings of up to $8,000,000. At March 31,
2003, $8,000,000, bearing interest at 2.53% (3.35% after giving effect to
interest rate swaps) was outstanding on this facility and was classified as
short-term debt.
These line of credit facilities require the Company to comply with certain
financial covenants. At March 31, 2003, the Company was in compliance with all
financial covenants.
In addition to the above domestic line-of-credit facilities, the
Company's new subsidiary, Maelux SA (Note 7) has several short-term credit
facilities in place and there was $7,745,000 outstanding on such facilities at
March 31, 2003.
PENN ENGINEERING & MANUFACTURING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
Note 4. Comprehensive Income
Total comprehensive income amounted to $1,192,000 and $244,000 for the
three months ended March 31, 2003 and 2002, respectively.
Note 5. Accounting for Stock Options
The Company follows Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for stock options. Under APB 25, if the exercise price of stock
options granted equals or exceeds the market price of the underlying common
stock on the date of grant, no compensation expense is recognized. Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123") requires pro forma
information regarding net income and earnings per share as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period. Had compensation costs for the Company's plans
been determined based on the fair value at the grant date for awards under these
plans consistent with the method of SFAS No. 123, the impact on the Company's
financial results would have been as follows:
---------------- -----------------
(Dollars in thousands except per share amounts) 2003 2002
---------------- -----------------
Net income as reported $540 $371
Pro forma compensation cost, net of tax (279) (291)
---------------- -----------------
Pro forma net income $261 $80
================ =================
Basic earnings per share:
As reported $.03 $.02
Pro forma .02 --
Diluted earnings per share:
As reported $.03 $.02
Pro forma .01 --
Note 6. 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.
PENN ENGINEERING & MANUFACTURING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
Note 7. Acquisition
On February 5, 2003, the Company acquired all of the issued and outstanding
capital stock of Maelux SA and its sole operating company, M.A.E. S.p.A. (MAE)
of Offanengo, Italy for cash of $9,941,000, including acquisition related
expenses. MAE is a manufacturer of stepper, brush, and brushless DC motors
serving customers throughout Europe, and its operations are included with the
Company's motor segment. The results of the operations of MAE have been included
in the accompanying consolidated statement of income since the acquisition date.
The purchase price has been preliminarily allocated to MAE's assets and
liabilities as follows; accounts receivable - $4,008,000, inventory -
$3,871,000, property - $11,324,000, other current assets - $482,000, goodwill -
$3,528,000 and current liabilities including short-term bank debt - $13,272,000.
Additional consideration may be required based on the earnings of MAE
through year 2006. Any contingent payments will be recorded as additional
purchase price.
Note 8. Segment Information
(Dollars in Thousands)
THREE MONTHS ENDED THREE MONTHS ENDED
March 31, 2003 March 31, 2002
Fasteners Distribution Motors Fasteners Distribution Motors
Revenues from external customers $ 23,597 $11,266 $ 9,951 $19,475 $8,315 $7,541
Intersegment revenues 6,119 57 4,925
Operating profit 1,329 572 531 795 371 323
A reconciliation of combined operating profit for the reportable segments to
consolidated income before income taxes is as follows:
THREE MONTHS ENDED
March 31, 2003 March 31, 2002
-------------- --------------
Total profit for reportable segments $ 2,432 $ 1,489
Unallocated corporate expenses (1,354) (654)
Other income (expense) (386) (313)
------ -----
Income before income taxes $ 692 $ 522
======== =========
PENN ENGINEERING & MANUFACTURING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
Note 9. 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, 2003 March 31, 2002
-------------- --------------
(In Thousands, except per share data)
Basic:
Net income $ 540 $ 371
Weighted average shares outstanding 17,383 17,339
------ ------
Basic EPS $ 0.03 $ 0.02
========= =========
Diluted:
Net income $ 540 $ 371
========= =========
Weighted average shares outstanding 17,383 17,339
Net effect of dilutive stock options-based on treasury
stock method 25 329
---- ---
Totals 17,408 17,668
====== ======
Diluted EPS $ 0.03 $ 0.02
========= =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PENN ENGINEERING & MANUFACTURING CORP.
March 31, 2003
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Quarter Ended March 31, 2003 vs. Quarter Ended March 31, 2002
Consolidated net sales for the quarter ended March 31, 2003 were $44.8
million, versus $35.3 million for the quarter ended March 31, 2002, a 26.9%
increase. Net sales to customers outside the United States for the quarter ended
March 31, 2003 were $15.4 million, versus $12.0 million for the quarter ended
March 31, 2002, a 28.3% increase. Net sales for the fastener segment for the
quarter ended March 31, 2003 were $23.6 million, versus $19.5 million for the
quarter ended March 31, 2002, a 21.0% increase. Motor segment net sales were
$9.9 million for the quarter ended March 31, 2003, versus $7.5 million recorded
for the quarter ended March 31, 2002, a 32.0% increase. Net sales for the
distribution segment for the quarter ended March 31, 2003 were $11.3 million,
versus $8.3 million for the quarter ended March 31, 2002, a 36.1% increase.
Within the fastener segment, sales volume increased 24.9% in both the
domestic and international markets from the first quarter of 2002 to the first
quarter of 2003 while the average selling price declined due to an unfavorable
change in product mix. There was no change in per unit selling prices from
quarter to quarter. As the business climate improves in all markets served by
the Company, distributors are once again slowly replenishing inventory levels.
Within the motor segment, the number of motors sold increased approximately
12.2% in the first quarter of 2003 compared to the first quarter of 2002 while
the average selling price per motor decreased approximately 2.5%. The motor
segment also benefited from the acquisition of M.A.E. S.p.A. in February, 2003,
which contributed $1.7 million of net sales to the first quarter of 2003. The
decline in the average selling price was mainly due to an increase in the
percentage of lower priced brush motors sold in the first quarter of 2003
compared to the first quarter of 2002. Within the distribution division, sales
into Europe increased approximately 27.3%, sales into Asia increased
approximately 38.6%, and sales into North America increased approximately 3.7%
from the first quarter of 2002 to the first quarter of 2003. This segment
continues to experience growth internationally as personal computer and
electronics companies shift production to take advantage of lower assembly
costs.
Consolidated gross profit for the first quarter of 2003 was $12.6 million,
versus $11.3 million for the first quarter of 2002, an increase of 11.5%.
However, gross profit as a percent of sales decreased from 32.0% in the first
quarter of 2002 to 28.1% in the first quarter of 2003. In addition to the lower
average selling prices in both the fastener and motor segments, the Company's
gross profit was negatively impacted by increased wages, medical expenses,
unemployment taxes, and pension expense.
Consolidated selling, general, and administrative expenses for the first
quarter of 2003 were $11.5 million, versus $10.5 million for the first quarter
of 2002, a 9.5% increase. In addition to the increases for wages and employee
benefits mentioned above, the Company also experienced increased charges for
software maintenance and liability insurance.
Consolidated net income for the first quarter of 2003 was $540,000, versus
$371,000 for the first quarter of 2002. The Company benefited from a lower
effective income tax rate in the first quarter of 2003 due to increased foreign
activity.
PENN ENGINEERING & MANUFACTURING CORP.
March 31, 2003
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 2003 were $8.1 million compared
to $20.9 million at December 31, 2002 and $9.6 million at March 31, 2002.
Working capital totaled $62.1 million at March 31, 2003 compared to $76.0
million at December 31, 2002 and $79.2 million at March 31, 2002.
Net cash of $3.9 million was provided by operating activities for the three
months ended March 31, 2003 compared to $6.1 million provided by operating
activities for the three months ended March 31, 2002. The Company continued to
generate cash from further reductions in overall inventory levels during the
first quarter of 2003. However, as sales volume increased, the level of accounts
receivable also increased thus decreasing the amount of cash provided from
operations.
Net cash used in investing activities totaled $11.2 million for the three
months ended March 31, 2003 due mainly to the acquisition of MAE in February of
2003. The Company spent $1.3 million for capital additions in the first quarter
of 2003, the bulk of which was for a new heat treat furnace at the Company's
manufacturing facility in Ireland.
Net cash used in financing activities totaled $5.7 million for the three
months ended March 31, 2003 compared to $4.6 million for the three months ended
March 31, 2002. Because of the decreased capital expenditures, the Company
repaid short-term debt during both quarters. Despite the economic downturn and
its impact on the Company's earnings, the Company's strong cash and working
capital position have allowed for the continued payment of cash dividends of
$2.1 million for the three months ended March 31, 2003. This represents the
payment of the dividend declared in the fourth quarter of 2002, which was
accrued as of December 31, 2002, as well as the first quarter 2003 dividend
declared in January and paid in March 2003. The Company's earnings per share
have historically exceeded dividends declared and paid, and the Company expects
this to be the case in the future as the business climate recovers.
The Company's main contractual obligations are the repayment of its
short-term debt (see Note 3) and the payment of operating lease commitments
covering certain automobiles, office space, and office equipment which are
listed in Note 12 to the Company's Annual Report for the year ended December 31,
2002. The Company anticipates that its existing capital resources and cash flow
generated from future operations as well as existing short-term lines of credit
will enable it to maintain its current level of operations and its planned
growth for the foreseeable future.
Critical Accounting Policies
The Company has identified a number of its accounting polices that it has
determined to be critical. These critical accounting policies primarily relate
to financial statement assertions that are based on the estimates and
assumptions of management and the effect of changing those estimates and
assumptions could have a material effect on our financial statements. The
following is a summary of those critical accounting policies.
Inventories
The Company's domestic fastener inventories are priced on the last-in,
first-out (LIFO) method of accounting. Other inventories, representing
approximately 74% and 69% of total inventories at March 31, 2003 and December
31, 2002, respectively, are priced on the first-in, first-out (FIFO) method. The
original cost of inventory is written-down to its estimated net realizable value
based on projected sales of the inventory and the age of the inventory in stock.
If actual future demand or market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.
Provisions for the write-down of inventory are recorded in cost of products
sold.
PENN ENGINEERING & MANUFACTURING CORP.
March 31, 2003
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Accounts Receivable
The Company maintains an allowance for doubtful accounts for trade
receivables for which collectibility is uncertain. At March 31, 2003 and
December 31, 2002, this allowance was approximately $645,000 and $830,000,
respectively. In estimating uncollectible accounts, the Company considers
factors such as current overall economic conditions, industry-specific economic
conditions, and historical and anticipated customer performance. While the
Company believes that its procedures effectively address exposure for doubtful
accounts, changes in the economy, industry, or specific customer conditions may
require adjustments to the allowance.
Goodwill
SFAS No. 142 requires that goodwill no longer be amortized, and instead, be
tested for impairment on a periodic basis. At March 31, 2003, the Company had
$30,813,000 in goodwill. The process of evaluating the potential impairment of
goodwill is highly subjective and requires significant judgments at many points
during the analysis. In estimating the fair value of the reporting units with
recognized goodwill for the purposes of the Company's fiscal 2002 financial
statements, the Company made estimates and judgments about the future cash flows
of these reporting units. The Company's cash flow forecasts were based on
assumptions that are consistent with the plans and estimates the Company is
using to manage the underlying businesses. In addition, the Company made certain
judgments about allocating shared assets to the balance sheet for those
reporting units. Based on its estimates, the Company has concluded that there is
no impairment of its goodwill as of March 31, 2003. However, changes in these
estimates could cause one or more of the reporting units to be valued
differently in the future. The Company will evaluate its goodwill again for
impairment as of October 1, 2003, or sooner if deemed necessary by management.
Pensions
The Company accounts for its defined benefit pension plan in accordance
with SFAS No. 87, "Employers' Accounting for Pensions," which requires that
amounts recognized in the financial statements be determined on an actuarial
basis. The most significant elements in determining the Company's pension
expense are pension liability discount rates and the expected return on plan
assets. The pension discount rate reflects the current interest rate at which
pension liabilities could be settled at the end of the year. At the end of each
year, the Company determines the discount rate to be used to discount plan
liabilities. In estimating this rate, the Company looks to rates of return on
high-quality, fixed-income investments. At December 31, 2002, the Company
determined this rate to be 7.00% and no adjustment to this rate has been made in
the quarter ended March 31, 2003. Historically the Company has assumed that the
expected long-term rate of return on plan assets will be 8.00%, and this
expected rate of return has been used for many years. Although in the last two
years pension plan assets have earned substantially less than 8.00%, over the
long-term, the Company believes that the return assumption of 8.00% is
reasonable, based on expectations about future returns. Should the downward
trend in return on pension assets continue, future pension expense would likely
increase. The net effect of changes in discount rate, as well as the effect of
differences between the expected return and the actual return on plan assets
have been deferred in accordance with SFAS No. 87 and will ultimately affect
future pension expense.
PENN ENGINEERING & MANUFACTURING CORP.
March 31, 2003
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Derivative Instruments and Hedging
The Company manages risks associated with foreign exchange rates and
interest rates with derivative instruments. The Company does not use derivative
instruments for trading or speculative purposes and only uses derivatives when
there is an underlying exposure. The evaluation of hedge effectiveness is
subject to assumptions based on the terms and the timing of the underlying
exposures. All derivative instruments are recognized in the Consolidated Balance
Sheet at fair value, which is generally based on quoted market prices.
Forward-Looking Statements
Forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
under the Private Securities Litigation Reform Act of 1995, are made throughout
this Management'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 demand in
markets served by the Company, particularly the computer and telecommunications
markets, 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, 2002.
Item 4. Controls and Procedures.
Within 90 days prior to the date of filing of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Chief Executive Officer and the Chief
Financial Officer, of the design and operation of the Company's disclosure
controls and procedures. Based on this evaluation, the Company's management,
including the Chief Executive Officer and the Chief Financial Officer, concluded
that the Company's disclosure controls and procedures are effective for
gathering, analyzing, and disclosing the information the Company is required to
disclose in the reports it files under the Securities Exchange Act of 1934,
within the time periods specified in the SEC's rules and forms. There have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to the date of this
evaluation.
A control system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are met, and no
expectation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected.
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, 2002.
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
Not Applicable
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 March 31, 2001.)
3.2 By-laws, as amended (Incorporated by reference to Exhibit
3.2 of the Company's Form 10-K Annual Report for the year
ended December 31, 2001.)
99.1 Other Exhibit - Certification pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Other Exhibit - Certification pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements 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 15, 2003 By: /s/ Kenneth A. Swanstrom
Kenneth A. Swanstrom
Chairman/CEO
Dated: May 15, 2003 By: /s/ Mark W. Simon
Mark W. Simon
Senior Vice President/CFO
CERTIFICATION
I, Kenneth A. Swanstrom, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Penn Engineering &
Manufacturing Corp. for the quarter ended March 31, 2003;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared:
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 15, 2003
/s/ Kenneth A. Swanstrom
------------------------------------
Kenneth A. Swanstrom,
Chairman and Chief Executive Officer
CERTIFICATION
I, Mark W. Simon, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Penn Engineering &
Manufacturing Corp. for the quarter ended March 31, 2003;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared:
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 15, 2003
/s/ Mark W. Simon
-------------------------
Mark W. Simon,
Senior Vice President and
Chief Financial Officer
PENN ENGINEERING & MANUFACTURING CORP.
EXHIBIT INDEX
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 March 31, 2001.)
3.3 By-laws, as amended (Incorporated by reference to Exhibit
3.2 of the Company's Form 10-K Annual Report for the year
ended December 31, 2001.)
99.1 Other Exhibit - Certification pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Other Exhibit - Certification pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.