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 Thirteen Weeks Ended February 29, 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 such filing
requirements for 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
Common Stock, AS OF MARCH 15, 1996
no par value 10,733,900
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SPECTRUM CONTROL, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets --
February 29, 1996 and November 30, 1995
Consolidated Condensed Statements of
Income - Thirteen Weeks Ended
February 29, 1996 and February 28, 1995
Consolidated Condensed Statements of
Cash Flows - Thirteen Weeks Ended
February 29, 1996 and February 28, 1995
Notes to Consolidated Condensed Financial
Statements
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II OTHER INFORMATION
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SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Thousands of Dollars)
February 29, November 30,
1996 1995
ASSETS
CURRENT ASSETS
Cash $ 309 $ 202
Accounts receivable, net of
allowances 9,328 9,365
Inventories
Finished goods 2,001 1,876
Work-in-process 6,365 6,075
Raw materials 3,796 3,371
Total inventories 12,162 11,322
Prepaid expenses and other current
assets 446 226
Total current assets 22,245 21,115
PROPERTY, PLANT AND EQUIPMENT,
at cost less accumulated
depreciation of $21,538 in
1996 and $20,897 in 1995 16,982 16,752
OTHER ASSETS
Intangible assets 1,077 1,201
Deferred income taxes 272 332
Deferred charges 90 98
Total other assets 1,439 1,631
TOTAL ASSETS $ 40,666 $ 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)
February 29, November 30,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 5,114 $ 4,252
Accounts payable 3,171 2,646
Accrued salaries and wages 1,274 1,725
Accrued interest 29 51
Accrued federal and state
income taxes 250 224
Accrued other expenses 679 405
Current portion of long-term debt 1,434 1,845
Total current liabilities 11,951 11,148
LONG-TERM DEBT 6,204 6,569
STOCKHOLDERS' EQUITY
Common stock 13,545 13,493
Retained earnings 9,185 8,472
Foreign currency translation
adjustment (219) (184)
Total stockholders' equity 22,511 21,781
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 40,666 $ 39,498
The accompanying notes are an integral part of the financial
statements.
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(Thousands of Dollars
Except Per Share Data)
Thirteen Weeks Ended
February 29, February 28,
1996 1995
Net Sales $ 13,869 $ 11,309
Cost of products sold 9,573 7,867
Selling, general and administrative
expense 3,104 2,452
12,677 10,319
Income from operations 1,192 990
Interest expense 202 265
Income before provision for
income taxes 990 725
Provision for income taxes 277 224
Net income $ 713 $ 501
Earnings per common share $ 0.07 $ 0.05
Dividends declared per common share - -
Weighted average number of common
shares outstanding 10,654,185 10,548,540
The accompanying notes are an integral part of the financial
statements.
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
Thirteen Weeks Ended
February 29, February 28,
1996 1995
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 874 $ 1,431
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and
equipment (967) (264)
Net cash used in investing
activities (967) (264)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds(repayment) of short-
term debt 862 (54)
Repayment of long-term debt (708) (1,076)
Net proceeds from issuance of
common stock 52 -
Net cash provided by (used in)
financing activities 206 (1,130)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (6) -
NET INCREASE IN CASH 107 37
CASH, BEGINNING OF PERIOD 202 102
CASH, END OF PERIOD $ 309 $ 139
CASH PAID DURING THE PERIOD FOR:
Interest $ 224 $ 306
Income taxes $ 213 33
The accompanying notes are an integral part of the financial
statements.
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FEBRUARY 29, 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
RESULTS OF OPERATIONS
Net sales increased 23% during the period, with consolidated
net sales of $13.9 million in 1996 and $11.3 million in 1995.
The increase in sales of approximately $2.6 million reflects the
continued strength of the telecommunications market and the
Company's increased military market share. Overall, average
selling prices remained relatively stable throughout the period.
Gross margin was $4.3 million or 31% of sales in 1996, compared
to $3.4 million or 30% of sales in 1995. The increase in gross
margin principally reflects economies of scale realized with
additional shipment volume.
Selling, general and administrative expense, as a percentage
of sales, was constant during the period with overall expenses of
$3.1 million or 22% of sales in 1996 and $2.5 million or 22% of
sales in 1995. As a result of greater sales volume, selling
expense increased in 1996, amounting to $1.6 million in 1996 and
$1.4 million in 1995. General and administrative expense
increased 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.
Management believes that this 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 $63,000 during the period, from
$265,000 in 1995 to $202,000 in 1996. The decrease in interest
expense reflects reduced bank indebtedness and lower short-term
interest rates. During the first quarter of 1996, average
short-term interest rates were approximately 8%, compared to 9%
during the first quarter of 1995.
During the first quarter of 1996, the Company's effective
income tax rate was 28% compared to 31% during the same period
last year. The decline in effective tax rate reflects decreases
in the valuation allowance for deferred tax assets relating to
certain foreign and state net operating loss carryforwards.
<PAGE>
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 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
February 29, 1996, the Company had borrowed $5.1 million under
this financing arrangement, with an additional borrowing
availability of approximately $900,000 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 February 29,
1996, 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 $1.4 million (2.0 million DM). At
February 29, 1996, the Company had no outstanding borrowings
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 February 29, 1996,
the Company had net working capital of $10.3 million compared to
$10.0 million at November 30, 1995. Current assets were 1.86
times current liabilities at February 29, 1996 compared to 1.89
at November 30, 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
As a result of increased inventories, net cash provided by
operations decreased during the period. During the first
thirteen weeks of 1996, net cash provided by operations amounted
to $874,000, a decrease of $557,000 from the comparable period of
1995. Inventory levels increased by $865,000, 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 quarter of 1996, the Company's cash
expenditures for property, plant and equipment amounted to
approximately $1.0 million. These capital expenditures primarily
related to manufacturing capacity expansion and improvements.
During the first thirteen weeks of 1996, the Company also repaid
$708,000 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
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 March 26, 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 FEBRUARY 29,
1996, AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE THREE-MONTH
PERIOD ENDED FEBRUARY 29, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFER-
ENCE TO ITS FORM 10-Q FOR THE FIRST QUARTER ENDED FEBRUARY 29, 1996.
</LEGEND>
<CIK> 0000092769
<NAME> SPECTRUM CONTROL INC
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> FEB-29-1996
<CASH> 309
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<RECEIVABLES> 9,328
<ALLOWANCES> 0
<INVENTORY> 12,162
<CURRENT-ASSETS> 22,245
<PP&E> 38,520
<DEPRECIATION> 21,538
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<CURRENT-LIABILITIES> 11,951
<BONDS> 0
<COMMON> 13,545
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<SALES> 13,869
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<CGS> 9,573
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<INTEREST-EXPENSE> 202
<INCOME-PRETAX> 990
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