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, 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 close of the period covered by
this report.
CLASS NUMBER OF SHARES OUTSTANDING
AS OF JUNE 15, 1996
Common, no par value 10,755,900
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SPECTRUM CONTROL, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets --
May 31, 1996 and November 30, 1995 3-4
Consolidated Condensed Statements of
Income - Thirteen Weeks Ended
and Twenty-Six Weeks Ended
May 31, 1996 and 1995 5
Consolidated Condensed Statements of
Cash Flows - Thirteen Weeks Ended
amd Twenty-Six Weeks Ended
May 31, 1996 and 1995 6
Notes to Consolidated Condensed Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8-9
PART II OTHER INFORMATION 9
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<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
(Thousands of Dollars)
May 31, 1996 November 30, 1995
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 262 $ 202
Accounts receivable, net of
allowances 9,593 9,365
Inventories
Finished goods 2,297 1,876
Work-in-process 6,672 6,075
Raw materials 4,365 3,371
Total inventories 13,334 11,322
Prepaid expenses and other
current assets 582 226
Total current assets 23,771 21,115
PROPERTY, PLANT AND EQUIPMENT,
at cost less accumulated
depreciation of $22,173
in 1996 and $20,897 in 1995 17,365 16,752
OTHER ASSETS
Intangible assets 960 1,201
Deferred income taxes 204 332
Deferred charges 88 98
Total other assets 1,252 1,631
TOTAL ASSETS $42,388 $39,498
The accompanying notes are an integral part of the financial
statements.
</TABLE>
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SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
(Thousands of Dollars)
May 31, 1996 November 30, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Short-term debt $ 5,368 $ 4,252
Accounts payable 4,355 2,646
Accrued salaries and wages 1,452 1,725
Accrued interest 65 51
Accrued federal and state
income taxes 77 224
Accrued other expenses 638 405
Current portion of long-term debt 1,223 1,845
Total current liabilities 13,178 11,148
LONG-TERM DEBT 5,930 6,569
STOCKHOLDERS' EQUITY
Common stock 13,587 13,493
Retained earnings 9,997 8,472
Foreign currency translation
adjustment (304) (184)
Total stockholders' equity $23,280 21,781
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $42,388 $39,498
The accompanying notes are an integral part of the financial
statements.
</TABLE>
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SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
(Thousands of Dollars Except Per Share Data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
May 31,1996 May 31,1995 May 31,1996 May 31,1995
<S> <C> <C> <C> <C>
Net sales $13,642 $12,081 $27,511 $23,390
Cost of products sold 9,179 8,274 18,752 16,141
Selling, general and
administrative expense 3,129 2,636 6,233 5,088
12,308 10,910 24,985 21,229
Income from operations 1,334 1,171 2,526 2,161
Interest expense 206 250 408 515
Income before provision
for income taxes 1,128 921 2,118 1,646
Provision for income
taxes 316 213 593 437
Net income $ 812 $ 708 $ 1,525 $ 1,209
Earnings per common
share $0.08 $0.07 $0.14 $0.12
Dividends declared per
common share -- -- -- --
Weighted average number
of common shares
outstanding 10,738,270 10,555,624 10,696,995 10,552,081
The accompanying notes are an integral part of the financial statements.
</TABLE>
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SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
Twenty-Six Weeks Ended May 31,
<TABLE>
1996 1995
<S> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 2,035 $2,996
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant
and equipment (2,094) (957)
Net cash used in investing
activities (2,094) (957)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds (repayment) of
short-term debt 1,153 (218)
Repayment of long-term debt (1,123) (1,833)
Net proceeds from issuance
of common stock 94 24
Net cash provided by
(used in) financing
activities 124 (2,027)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (5) 6
NET INCREASE IN CASH 60 18
CASH, BEGINNING OF PERIOD 202 102
CASH, END OF PERIOD $ 262 $ 120
CASH PAID DURING THE PERIOD FOR
Interest $ 394 $ 573
Income taxes $ 715 $ 205
The accompanying notes are an integral part of the financial
statements.
</TABLE>
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SPECTRUM CONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MAY 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
SECOND QUARTER 1996 VERSUS SECOND QUARTER 1995
Results of Operations
Net sales increased 13% during the period, with consolidated net
sales of $13.6 million in 1996 and $12.1 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 and EMI filter
plates used by customers in the telecommunication industry.
Gross margin was $4.5 million or 33% of sales in 1996 compared
to $3.8 million or 32% of sales in 1995. The increase in gross
margin percentage principally reflects economies of scale
realized with additional shipment volume.
As a result of greater sales volume, selling expense increased
to $1.7 million or 12% of sales in 1996, compared to $1.5 million
or 12% of sales in 1995. General and administrative expense
increased $322,000 during the period, primarily related to
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 these additional
general and administrative expenses throughout 1996.
Twenty-Six Weeks 1996 Versus Twenty-Six Weeks 1995
Results of Operations
Consolidated 1996 net sales increased by $4.1 million or 18%
from the first half of 1995. The increase in sales reflects the
continued growth of the Company's telecommunications business.
Overall, average selling prices remained relatively stable
throughout the period.
During the first half of 1996, gross margin was $8.8 million or
32% of sales, compared to $7.2 million or 31% of sales for the
first half of 1995. Apart from additional sales volume, the
increase in gross margin primarily reflects changes in sales mix
and reductions in certain manufacturing overhead costs.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expense increased by $1.1
million in the first half of 1996 and was 23% of net sales
compared to 22% in 1995. As a percentage of sales, selling
expense remained constant at 12% or $3.3 million in 1996 and $2.9
million in 1995. As discussed above, the Company has incurred
additional general and administrative expense in 1996 for
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 $107,000 during the period, from
$515,000 in 1995 to $408,000 in 1996. The decrease in interest
expense reflects reduced bank indebtedness and lower short-term
interest rates. During the first half of 1996, average short-
term interest rates were 8%, compared to 9% during the same
period in 1995.
The Company's effective income tax rate remained relatively
constant throughout the period at 28% for the first half 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 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 average
interest rates on all borrowings of approximately 1/2% below the
Bank's prevailing prime rate. At May 31,1996, the Company had
borrowed $4.9 million under this financing arrangement, with an
additional borrowing availability of approximately $1.1 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 $1.3 million (2.0 million DM). At May
31, 1996, the Company had borrowed $480,000 (734,000 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 remained
relatively unchanged during the period. At May 31, 1996, the
Company had net working capital of $10.6 million compared to
$10.0 million at November 30, 1995. Current assets were 1.80
times current liabilities at May 31, 1996, compared to 1.89 at
November 30, 1995.
As a result of increased inventories, net cash provided by
operations decreased during the period. During the first half of
1996,net cash provided by operations amounted to approximately
$2.0 million, a decrease of $961,000 from the comparable period
of 1995. Inventory levels increased by $2.1 million, principally
as a result of additional sales demand and planned stocking
increases. Management anticipates that the benefits of the
Company's Rapid Response program, including improved inventory
turnover rates, will begin to be realized late in 1996.
During the first half of 1996, The Company's cash expenditures
for property, plant and equipment amounted to approximately $2.1
million. These capital expenditures primarily related to
manufacturing capacity expansion and improvements. During the
first twenty-six weeks of 1996, the Company also repaid $1.1
million of long-term 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
(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 25, 1996 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, 1996 AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE
SIX-MONTH PERIOD ENDED MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ITS FORM 10-Q FOR THE SECOND QUARTER ENDED MAY 31, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<CASH> 262
<SECURITIES> 0
<RECEIVABLES> 9,593
<ALLOWANCES> 0
<INVENTORY> 13,334
<CURRENT-ASSETS> 23,771
<PP&E> 39,538
<DEPRECIATION> 22,173
<TOTAL-ASSETS> 42,388
<CURRENT-LIABILITIES> 13,178
<BONDS> 0
<COMMON> 13,587
0
0
<OTHER-SE> 9,693
<TOTAL-LIABILITY-AND-EQUITY> 42,388
<SALES> 27,511
<TOTAL-REVENUES> 27,511
<CGS> 18,752
<TOTAL-COSTS> 18,752
<OTHER-EXPENSES> 6,233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408
<INCOME-PRETAX> 2,118
<INCOME-TAX> 593
<INCOME-CONTINUING> 1,525
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,525
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
