SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended May 31, 1995
Commission File Number 0-8796
SPECTRUM CONTROL, INC.
Exact name of registrant as specified in its charter
Pennsylvania 25-1196447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6000 West Ridge Road, Erie, Pennsylvania 16506
(Address) (Zip Code)
Registrant's telephone number, including area code (814)835-4000
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 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 the filing
requirements for at least the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by
this report.
CLASS NUMBER OF SHARES OUTSTANDING
Common, no par value 10,577,040
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets --
May 31, 1995 and November 30, 1994 3-4
Consolidated Condensed Statements of
Income - Thirteen Weeks Ended
and Twenty-Six Weeks Ended
May 31, 1995 and 1994 5
Consolidated Condensed Statements of
Cash Flows - Twenty-Six Weeks Ended
May 31, 1995 and 1994 6
Notes to Consolidated Condensed Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8-10
PART II OTHER INFORMATION 10
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Thousands of Dollars)
May 31, 1995 November 30, 1994
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 120 $ 102
Accounts receivable, net of
allowances 8,461 7,717
Inventories
Finished goods 1,736 1,756
Work-in-process 5,912 6,321
Raw materials 3,461 3,318
Total inventories 11,109 11,395
Prepaid expenses and other
current assets 199 122
Total current assets 19,889 19,488
PROPERTY, PLANT AND EQUIPMENT,
at cost less accumulated
depreciation of $20,238
in 1995 and $19,005 in 1994 15,941 15,932
OTHER ASSETS
Intangible assets 1,481 1,708
Deferred income taxes 574 846
Deferred charges 135 121
Total other assets 2,190 2,675
TOTAL ASSETS $ 38,020 $ 38,095
The accompanying notes are an integral part of the financial
statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Thousands of Dollars)
May 31, 1995 November 30, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 3,911 $ 4,096
Accounts payable 2,518 2,057
Accrued salaries and wages 976 1,047
Accrued interest 75 133
Accrued federal and state
income taxes - 52
Accrued other expenses 847 774
Current portion of long-term debt 2,276 3,078
Total current liabilities 10,603 11,237
LONG-TERM DEBT 7,440 8,275
STOCKHOLDERS' EQUITY
Common stock 13,374 13,350
Retained earnings 6,697 5,488
Foreign currency translation
adjustment (94) (255)
Total stockholders' equity 19,977 18,583
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 38,020 $ 38,095
The accompanying notes are an integral part of the financial
statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(Thousands of Dollars Except Per Share Data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
May 31,1995 May 31,1994 May 31,1995 May31,1994
Net sales $ 12,081 $ 11,933 $ 23,390 $21,993
Cost of products sold 8,274 8,311 16,141 15,582
Selling, general and
administrative
expense 2,636 2,337 5,088 4,689
10,910 10,648 21,229 20,271
Income from operations 1,171 1,285 2,161 1,722
Other income (expense)
Interest expense (250) (254) (515) (487)
Other income - 8 - 229
(250) (246) (515) (258)
Income before provision
for income taxes and
cumulative effect of
a change in accounting
principle 921 1,039 1,646 1,464
Provision for income
taxes 213 323 437 454
Income before cumulative
effect of a change
in accounting
principle 708 716 1,209 1,010
Cumulative effect on
prior years of
changing the method
of accounting for
income taxes - - - 1,845
Net income $ 708 $ 716 $ 1,209 $ 2,855
Earnings per common
share
Income before cumulative
effect of accounting $ 0.07 $ 0.07 $ 0.12 $ 0.10
change
Cumulative effect of
accounting change - - - 0.18
Net income $ 0.07 $ 0.07 $ 0.12 $ 0.28
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Dividends declared per
common share - - - -
Weighted average number
of common shares
outstanding 10,555,624 10,396,757 10,552,081 10,354,011
The accompanying notes are an integral part of the financial statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
Twenty-Six Weeks Ended May 31,
1995 1994
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 2,996 $ 621
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant
and equipment (957) (877)
Net cash used in investing
activities (957) (877)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds (repayment) of
short-term debt (218) 984
Repayment of long-term debt (1,833) (1,110)
Net proceeds from issuance
of common stock 24 351
Net cash provided by
(used in) financing
activities (2,027) 225
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 6 -
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 18 (31)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 102 293
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 120 $ 262
CASH PAID DURING THE PERIOD
Interest $ 573 $ 449
Income taxes 205 298
The accompanying notes are an integral part of the financial
statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MAY 31, 1995
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, the
accompanying financial statements include all adjustments which
are normal, recurring and necessary to present fairly
the results for the interim periods. Operating results for
interim periods are not necessarily indicative of the results
that may be expected for the year. For further information,
refer to the consolidated financial statements and
footnotes thereto included in the Spectrum Control, Inc. and
Subsidiaries annual report on Form 10-K for the fiscal year
ended November 30, 1994.
Note 1 --- Principles of Consolidation
The consolidated condensed financial statements include the
accounts of Spectrum Control, Inc. and its
subsidiaries (the Company), all of which are wholly-owned, except
for Spectrum Polytronics, Inc. which is 96% owned.
To facilitate timely reporting, the fiscal quarters of a foreign
subsidiary are based upon a fiscal year which ends
October 31. All significant intercompany accounts are eliminated
upon consolidation.
Note 2 --- Foreign Currency Translation
The assets and liabilities of the foreign subsidiary are
translated into U.S. dollars at current exchange rates.
Revenue and expense accounts of these operations are translated
at average exchange rates prevailing during the
period. These translation adjustments are accumulated in a
separate component of stockholders' equity. Foreign
currency transaction gains and losses are included in determining
net income for the period in which the exchange
rate changes.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MAY 31, 1995
CONTINUED
Note 3 --- Earnings Per Common Share
Earnings per common share is computed based on the weighted
average number of shares of common stock
outstanding during the period of computation. Although the
Company has issued potentially dilutive common stock
equivalents in the form of stock options and warrants, the
dilutive effect of these securities in the aggregate is less
than three percent of earnings per common share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1995 VERSUS SECOND QUARTER 1994
Results of Operations
Overall, net sales increased slightly during the period, with
consolidated net sales of $12.1 million in 1995 and $11.9
million in 1994. In the second quarter of 1995, increased
shipments to customers in the telecommunication industry
were partially offset by reduced shipment volume to customers
acting as prime suppliers to the military and aerospace
industries.
Gross margin was $3.8 million or 32% of the sales in 1995,
compared to $3.6 million or 30% of sales in 1994. The increase
in gross margin primarily reflects reductions in manufacturing
overhead and changes in sales mix.
Selling, general and administrative expense increased during
the period. In the second quarter of 1995, selling, general
and administrative expense was $2.6 million or 22% of sales,
compared to $2.3 million or 20% of sales for the same period
last year. In 1994, the Company delayed or postponed certain
discretaionary expenses. Accordingly, although the Company is
continuing its efforts to reduce operating costs, the
reduction in 1994 selling, general and administrative
expense is not expected to be sustained in 1995.
Twenty-Six Weeks 1995 Versus Twenty-Six Weeks 1994
Results of Operations
Consolidated 1995 net sales increased by $1.4 million or 6%
from the first half of 1994. The increase in sales reflects
additional shipment volume in several of the Company's
electromagnetic interference ("EMI") product offerings,
particularly EMI filtered connectors and EMI filter plates
used by customers in the telecommunication industry.
Overall, average selling prices remained relatively stable
throughout the period.
During the first half of 1995, gross margin was $7.2 million
or 31% of sales, compared to $6.4 million or 29% of sales
for the first half of 1994. During the first three months of
1994, gross margin was negatively impacted by increased
production costs at the Comcpany's ceramic capacitor
manufacturing operations in New Orleans, Louisiana.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONTINUED
These ceramic capacitor production problems were substantially
corrected later in 1994. In addition, 1995 gross margin was
positively impacted by changes in sales mix and reductions in
certain manufacturing overhead costs.
Selling, general and administrative expense increased by
$399,000 in the first half of 1995 and was 22% of net sales
compared to 21% in 1994. This increase primarily reflects
additional general and administrative expenses in 1995.
As previously discussed, certain discretaionary expenses
were delayed or postponed in 1994. Accordingly, Management
believes that the current period selling, general and
administrative expenses are more indicative of future
expected operating costs.
Interest expense increased $28,000 in 1995, from $487,000 in
1994 to $515,000 in 1995. The increase in interest
expense reflects higher short-term interest rates. During the
first half of 1995, average short-term interest rates were
approximately 9%, compared to 7% during the first half of
1994.
During the first half of 1994, the Company generated $229,000
of other income, principally from patent licensing activities.
The Company's effective income tax rate was approximately
27% for the first half of 1995, compared to 31% for the
comparable period of 1994. The decline in the 1995 effective
tax rate primarily reflects decreases in the valuation
allowance for deferred tax assets relating to foreign net
operating loss carryforwards.
Effective December 1, 1993, the Company adopted Statement of
Financial Accounting Standards No.109. "Accounting
for Income Taxes" ("SFAS No. 109"). The cumulative effect,
through November 30, 1993, of adopting the new method of
accounting for income taxes amounted to approximately $1.8
million or $0.18 per share. As permitted by SFAS No. 109.
prior period financial statements were not restated.
Accordingly, the cumulative effect of this change in accounting
for income taxes was included in net income in the Company's
consolidated statement of income for the first half of 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONTINUED
Liquidity, Capital Resources and Financial Condition
The Company has a $6.0 million line of credit with PNC Bank of
Erie, Pennsylvania (the "Bank"). Under the terms of the
Line of Credit Agreement, borrowings and required payments are
based upon an asset formula involving accounts
receivable and inventories. The revolving credit line is
collateralized by substantially all of the Company's tangible and
intangible property, with interest on all borrowings at rates
approximating the Bank's prevailing prime rate. At May 31,1995,
the Company had borrowed $3.5 million under this financing
arrangement, with an additional borrowing availability of
approximately $2.5 million under the asset formula. The current
Line of Credit Agreement expires on April 30, 1997.
The Line of Credit Agreement contains certain negative
covenants. These negative covenants require the Company to
receive prior written approval from the Bank before the Company
permits any additional encumbrances on its assets,
guarantees or incurs any additional indebtedness, or merges or
consolidates with any entity. In addition, the Line of Credit
Agreement requires the Company to maintain certain minimum levels
of tangible net worth and operating cash flow. At
May 31, 1995, the Company was in compliance with all of
these financial covenants.
The Company's wholly-owned foreign subsidiary maintains
unsecured Deutsche Mark lines of credit with German
financial institutions aggregating $1.1 million (1.5 million DM).
At May 31, 1995, the Company had borrowed $380,000 (524,000 DM)
against these lines of credit. Borrowings under the
lines of credit bear interest at rates approximating the
prevailing prime rate and are payable upon demand.
The Company's working capital and current ratio continued to
improve during the period. At May 31, 1995, the
Company had net working capital of $9.3 million compared to $8.3
million at November 30, 1994. Current assets were 1.88
times current liabilities at May 31, 1995, compared to 1.73
at November 30, 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONTINUED
During the first half of 1995, net cash provided by
operations amounted to $3.0 million, an increase of
$2.4 million from the comparable period of 1994. In addition to
capital expenditures of $1.0 million, this positive cash flow was
utilized to repay $2.0 million of indebtedness. As a result of
this debt reduction and the increase in stockholders' equity from
earnings during the period, the Company's debt to equity ratio
also continued to improve. Total liabilities to net worth were
0.90 at May 31, 1995 versus 1.05 at November 30, 1994.
The Company expects that cash generated from operations and
existing lines of credit will be sufficient to meet its
operating requirements throughout 1995, including scheduled
long-term debt repayment and planned capital expenditures.
Impact of Inflation
In recent years, inflation has not had a significant impact on
the Company's operations. However, the Company continuously
monitors operating price increases, particularly in connection
with the supply of precious metals used in the Company's
manufacturing of ceramic capacitors. To the extent permitted by
competition, the Company passes increased costs on to its
customers by increasing sales prices over time. Sales increases
reported during the current period, however, have substantially
arisen from increased sales volume, not increases in selling
prices.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Spectrum Control, Inc.
(Registrant)
Date June 27, 1995 By /s/John P. Freeman
John P. Freeman,
Vice President
and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SPECTRUM
CONTROL, INC. CONSOLIDATED CONDENSED BALANCE SHEET AT MAY 31, 1995, AND
CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE SIX-MONTH PERIOD ENDED MAY
31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS FORM 10-Q FOR THE
SECOND QUARTER ENDED MAY 31, 1995.
</LEGEND>
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<INVENTORY> 11,109
<CURRENT-ASSETS> 19,889
<PP&E> 36,179
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<CURRENT-LIABILITIES> 10,603
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<COMMON> 13,374
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<OTHER-SE> 6,603
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<SALES> 23,390
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<CGS> 16,141
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