<PAGE>
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 August 31, 1996
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 latest practical
date.
Class Number of Shares Outstanding
as of September 15, 1996
Common, no par value 10,765,900
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets --
August 31, 1996 and November 30, 1995 3-4
Consolidated Condensed Statements of
Income -- Thirteen Weeks Ended and
Thirty-Nine Weeks Ended August 31, 1996
and 1995 5
Consolidated Condensed Statements of Cash
Flows -- Thirteen Weeks Ended and Thirty-
Nine Weeks Ended August 31, 1996 and 1995 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management s Discussion and Analysis
of Financial Condition and Results
of Operations 8-10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Thousands of Dollars)
Aug. 31, 1996 Nov. 30, 1995
ASSETS
CURRENT ASSETS
Cash $ 402 $ 202
Accounts receivable, net of
allowances 10,553 9,365
Inventories
Finished goods 2,496 1,876
Work-in-process 6,044 6,075
Raw materials 4,192 3,371
Total inventories 12,732 11,322
Prepaid expenses and other
current assets 410 226
Total current assets 24,097 21,115
PROPERTY, PLANT AND EQUIPMENT,
at cost,less accumulated
depreciation of $22,040
in 1996 and $20,897 in 1995 16,005 16,752
OTHER ASSETS
Intangible assets 635 984
Debt issuance costs 209 217
Deferred income taxes 135 332
Deferred charges 166 98
Total other assets 1,145 1,631
TOTAL ASSETS $41,247 $39,498
The accompanying notes are an integral part of the financial
statements.
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Thousands of Dollars)
Aug. 31, 1996 Nov.30, 1995
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Short-term debt $ 3,950 $ 4,252
Accounts payable 3,334 2,646
Accrued salaries and wages 1,553 1,725
Accrued interest 84 51
Accrued federal and state
income taxes 144 224
Accrued other expenses 871 405
Current portion of long-term debt 2,717 1,845
Total current liabilities 12,653 11,148
LONG-TERM DEBT 4,298 6,569
STOCKHOLDERS EQUITY
Common stock, no par value,
authorized 25,000,000 shares,
issued and outstanding
10,765,900 shares in 1996 and
10,635,399 shares in 1995 13,625 13,493
Retained earnings 10,932 8,472
Foreign currency translation
adjustment (261) (184)
Total stockholders equity 24,296 21,781
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $41,247 $39,498
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<PAGE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
(Thousands of Dollars Except Per Share Data)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Aug. 31, 1996Aug. 31, 1995 Aug. 31, 1996 Aug. 31, 1995
<S> <C> <C> <C> <C>
Net sales $14,930 $12,470 $42,441 $35,860
Cost of products sold 10,123 8,346 28,875 24,487
Selling, general and
administrative expense 3,301 2,741 9,534 7,829
13,424 11,087 38,409 32,316
Income from operations 1,506 1,383 4,032 3,544
Other income and expense
Interest expense 190 210 598 725
Other expense, net of
other income 17 -- 17 --
207 210 615 725
Income before provision
for income taxes 1,299 1,173 3,417 2,819
Provision for income
taxes 364 311 957 748
Net income $ 935 $ 862 $ 2,460 $ 2,071
Earnings per common share $ .09 $ 0.08 $ 0.23 $ 0.20
Dividends declared per
common share -- -- -- --
Weighted average number
of common shares
outstanding 10,758,726 10,585,853 10,717,647 10,563,532
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
Thirty-Nine Weeks Ended
Aug. 31, 1996 Aug. 31, 1995
NET CASH PROVIDED BY
OPERATING ACTIVITIES $3,055 $5,513
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of property,
plant and equipment 1,655 --
Purchase of property, plant
and equipment (3,027) (1,964)
Net cash used in investing
activities (1,372) (1,964)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net repayment of short-term debt (277) (1,385)
Repayment of long-term debt (1,336) (2,252)
Net proceeds from issuance
of common stock 132 62
Net cash used in financing
activities (1,481) (3,575)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (2) 3
NET INCREASE(DECREASE) IN CASH 200 (23)
CASH, BEGINNING OF PERIOD 202 102
CASH, END OF PERIOD $ 402 $ 79
CASH PAID DURING THE PERIOD FOR:
Interest $ 565 $ 757
Income taxes 950 205
The accompanying notes are an integral part of the financial
statements.
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 1996
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 notes 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 notes thereto
included in the Spectrum Control, Inc. and Subsidiaries annual
report on Form 10-K for the fiscal year ended November 30, 1995.
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.
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, the dilutive effect of these securities in the
aggregate is less than three percent of earnings per common
share.
<PAGE>
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter 1996 Versus Third Quarter 1995
Results of Operations
Net sales increased 20% during the period, with consolidated net
sales of $14.9 million in 1996 and $12.5 million in 1995. The
increase in sales reflects additional shipment volume in several
of the Company s electromagnetic interference ( EMI ) product
offerings, particularly EMI filtered connectors used by customers
in the telecommunication industry.
Gross margin was $4.8 million or 32% of sales in 1996, compared
to $4.1 million or 33% of sales in 1995. The decrease in gross
margin percentage principally reflects changes in sales mix.
As a percentage of sales, selling expense decreased to 11% or
$1.6 million in 1996, compared to 12% or $1.5 million in 1995.
General and administrative expense increased $502,000 during the
period, primarily related to additional personnel costs,
enhancements in the Company s information system, and expenses
associated with the implementation of the Company s Rapid
Response program. The Company expects to incur most of these
additional general and administrative expenses through the
remainder of 1996.
In July 1996, as part of Management s ongoing efforts to reduce
overhead costs, the Company sold certain land and building in
Schwabach, Germany at a net selling price of $1.7 million. A
loss of $17,000, representing the excess of the cost basis of the
land and building over the net selling price, was realized and
recorded as other expense during the third quarter of 1996.
Through the Company s wholly-owned subsidiary, Spectrum Control
GmbH, the land and building had been utilized as the Company s
European sales distribution office and warehouse. As part of the
sale agreement, the Company will leaseback a portion of the
property to continue its foreign sales distribution function.
Thirty-Nine Weeks 1996 Versus Thirty-Nine Weeks 1995
Results of Operations
Consolidated 1996 net sales increased by $6.6 million or 18% from
the comparable period of 1995. The increase in sales reflects
the continued growth of the Company s telecommunications
business. Overall, average selling prices declined slightly in
1996 as a result of competitive and market pressures.
<PAGE>
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
During the first thirty-nine weeks of 1996, gross margin was
$13.6 million or 32% of sales, compared to $11.4 million or 32%
of sales in the same period of 1995. Along with the selling
price pressures indicated above, 1996 gross margin was negatively
effected by changes in sales mix. These negative impacts were
offset by economies of scale realized with additional shipment
volume.
Selling, general and administrative expense increased by $1.7
million during the period and was 22% of sales in 1996 and 1995.
As a result of greater sales volume, selling expense increased to
$4.8 million or 11% of sales in 1996, compared to $4.4 million or
12% of sales in 1995. As discussed above, the Company has
incurred additional general and administrative expense in 1996
related to personnel costs, improvements to its business
information system, and initial implementation of the Company s
Rapid Response program. Management believes that the Rapid
Response program, which will be implemented throughout 1996 and
1997, will significantly reduce manufacturing lead times,
decrease inventories, and provide greater responsiveness to
customers.
Interest expense decreased by $127,000 during the period, from
$725,000 in 1995 to $598,000 in 1996. The decrease in interest
expense reflects reduced bank indebtedness and lower short-term
interest rates. During the first thirty-nine weeks of 1996,
average short-term interest rates were 8%, compared to 9% during
the same period of 1995.
The Company s effective income tax rate remained relatively
constant throughout the period at 28% for the first thirty-nine
weeks of 1996 and 27% for the comparable period of 1995.
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 repayments 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 average interest rates on all borrowings of
approximately 1/2% below the Bank s prevailing prime rate. At
August 31, 1996, the Company had borrowed $3.2 million under this
financing arrangement, with an additional borrowing availability
of approximately $2.8 million under the asset formula. The
current Line of Credit Agreement expires on April 30, 1997.
<PAGE>
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company s wholly-owned foreign subsidiary maintains unsecured
Deutsche Mark lines of credit with German financial institutions
aggregating $1.4 million (2.0 million DM). At August 31, 1996,
the Company had borrowed $702,000 (1.0 million 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 continued to increase during the
period. At August 31, 1996, the Company had net working capital
of $11.4 million compared to $10.0 million at November 30, 1995.
The Company s current ratio remained stable with current assets
at 1.90 times current liabilities at August 31, 1996 and 1.89 at
November 30, 1995.
As a result of increased accounts receivable and inventories, net
cash provided by operations decreased during the period. During
the first thirty-nine weeks of 1996, net cash provided by
operations amounted to $3.1 million, a decrease of $2.4 million
from the comparable period of 1995. During the first three
quarters of 1996, accounts receivable increased by $1.3 million
and inventories increased by $1.4 million. These increases
primarily reflect additional sales demand for the Company s EMI
products.
In addition to generating $3.1 million of net cash from
operations, the Company realized cash proceeds of $1.7 million in
1996 on the sale of certain land and building in Schwabach,
Germany. This positive cash flow was utilized for capital
additions and repayment of bank indebtedness. During the first
thirty-nine weeks of 1996, the Company s cash expenditures for
property, plant and equipment amounted to $3.0 million. These
capital expenditures principally related to manufacturing
capacity expansion and improvements. During this period, the
Company also repaid $1.6 million of bank indebtedness. The
Company expects that cash generated from operations and existing
lines of credit will be sufficient to meet its operating
requirements throughout 1996, including scheduled long-term debt
repayment and planned capital expenditures.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
<PAGE>
SIGNATURE
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: September 25, 1996 By: /s/ John P. Freeman
John P. Freeman, Vice President
and Chief Financial Officer
(Principal Accounting and
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
AUGUST 31, 1996 AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE
NINE-MONTH PERIOD ENDED AUGUST 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO ITS FORM 10-Q FOR THE THIRD QUARTER ENDED AUGUST 31, 1996.
</LEGEND>
<CIK> 0000092769
<NAME> JACK FREEMAN
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 402
<SECURITIES> 0
<RECEIVABLES> 10,553
<ALLOWANCES> 0
<INVENTORY> 12,732
<CURRENT-ASSETS> 24,097
<PP&E> 38,045
<DEPRECIATION> 22,040
<TOTAL-ASSETS> 41,247
<CURRENT-LIABILITIES> 12,653
<BONDS> 0
<COMMON> 13,625
0
0
<OTHER-SE> 10,671
<TOTAL-LIABILITY-AND-EQUITY> 41,247
<SALES> 42,441
<TOTAL-REVENUES> 42,441
<CGS> 28,875
<TOTAL-COSTS> 28,875
<OTHER-EXPENSES> 9,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 598
<INCOME-PRETAX> 3,417
<INCOME-TAX> 957
<INCOME-CONTINUING> 2,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,460
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
