SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1995
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 0-8796
SPECTRUM CONTROL, INC.
(a Pennsylvania Corporation)
(I.R.S. Employer Identification No. 25-1196447)
6000 West Ridge Road, Erie, Pennsylvania 16506
Telephone 814-835-4000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock - No Par Value National Association of
Securities Dealers'
National Market
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, and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [ X ].
At January 31, 1996, the aggregate market value of voting Common
Stock held by non-affiliates of the registrant based on a closing price
of $3.125 was $28,771,141. As of January 31, 1996, the registrant
had outstanding 10,715,399 shares of Common Stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the annual meeting of
shareholders to be held April 1, 1996 are incorporated by reference into
Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Spectrum Control, Inc. was incorporated in Pennsylvania in 1968.
Spectrum Control, Inc. and its consolidated subsidiaries (the "Company")
design, manufacture and market a broad line of electromagnetic compatibility
(EMC) products designed to protect electronic equipment against interference
from random electromagnetic waves. The Company provides an integrated
approach to EMC problem solving by offering customers consulting, diagnostic
testing and manufacturing services. These services include testing for EMC
problems (at the Company's own test facilities or on location), analyzing
test results, proposing design solutions, producing the required components
and supplying these components on a continuing basis. A majority of the
Company's products are custom designed, in many instances at the recommendation
of Company engineers based upon their analysis of test results. The Company
sells its EMC testing services and components to a broad base of customers for
use in communication systems, data processing, telecommunications, process
control and other equipment. On occasion, the Company also acts as an
engineering consultant with respect to EMC problems where no purchase of the
Company's product is contemplated. Less than 1% of the Company's revenue is
derived from pure consulting. However, a number of the Company's manufactured
product applications result from consulting activity.
The need for EMC products results from the increasing dependency of
our society on electrical equipment of various kinds, ranging from radios and
televisions to sophisticated computers and communication systems. This
equipment both emits, and is sensitive to, random electromagnetic waves over
a broad spectrum of wave lengths, which can interfere with and degrade the
performance of other electric equipment. The Company's products are designed
to suppress the emission of unwanted waves or to reduce their strength to an
innocuous level, by reflecting them from one component to another in series or
by converting their energy into heat which is then dissipated.
Spectrum Control Technology, Inc., a wholly-owned subsidiary, maintains
a facility in New Orleans, Louisiana, with advanced manufacturing equipment
designed for the production of ceramic capacitors. Currently, this subsidiary
primarily manufactures ceramic discoidal and tubular capacitors used in the
Company's EMC filter products.
Spectrum Control, GmbH, a wholly-owned subsidiary of the Company located
in Schwabach, Germany (the "Subsidiary"), acts as a distributor for the
Company's electronic filter products in the European market. Prior to June 1,
1993, the Subsidiary also designed, manufactured and sold active electronic
components in the form of hybrid integrated circuits ("HIC"). Effective
June 1, 1993, the Company adopted a formal plan to discontinue the Subsidiary's
HIC operations and sell the related HIC assets. An estimated loss of $2.4
million on the disposal of the discontinued HIC operation was provided for
and charged against income in the year ended November 30, 1993. This
provision represented the estimated loss on the disposal of HIC assets,
severance pay and other direct costs and expenses expected to be incurred
upon the discontinuance of HIC operations, and expected operating losses
during the phase-out period of HIC operations. In 1994, the phase-out of HIC
operations was completed and all HIC assets were sold at actual losses
approximating the $2.4 million provision.
<PAGE>
PRODUCTS
Control of unwanted electromagnetic waves is accomplished through various
combinations of electromagnetic interference (EMI) suppression devices. The
EMI suppression devices currently produced by the Company include those that
are utilized as circuit components and whose function is to permit the desired
frequencies to pass through a circuit while rejecting or preventing the
unwanted signals. The majority of these products are composed of either
reactive (reflecting energy) or loss (dissipating energy) elements or at times,
combinations of the two. These products can be utilized as individual
components or combined in various configurations to provide the amount of EMI
control needed.
The Company also manufactures and sells passive electromagnetic components
including ceramic discoidal capacitors and tubular capacitors (Spectrum Control
Technology, Inc.).
The Company's products are sold to manufacturers of a wide variety of
electronic equipment, including telephone systems, mobile radios and CATV
systems; navigational aids and radio communication systems used in military
and commercial aircraft; communications and telemetry systems used in
aerospace programs; computers and computer peripherals and various types of
electronic testing equipment.
Approximately 40% of the Company's total revenue during fiscal year 1995
was derived from sales of its components for use in telecommunications. Most
of these components are custom designed not only to conform to the
specifications and requirements of the particular purchaser, but also to meet
the performance and quality standards set by the agency or other governmental
body whose regulations are applicable to the specific equipment or usage
involved. A significant reduction in orders from such customers would have
a materially adverse effect on the Company's business.
BUSINESS SEGMENTS
The Company currently operates exclusively in a single industry as
manufacturer of electronic components and a consultant in the field of
electromagnetic compatibility.
<PAGE>
<TABLE>
The Company has operations in the United States and Germany.
Transfers between geographic areas are recorded at amounts reflecting
competitive profit margins for resale activities. The geographic
distribution of sales, operating profit and identifiable assets for
1995, 1994, and 1993 is as follows
(in thousands):
<CAPTION>
UNITED
1995 STATES GERMANY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C>
Revenue from unaffiliated
customers $41,251 $8,046 $ - $49,297
Transfers between geographic
areas 5,347 - 5,347 -
Total revenues 46,598 8,046 5,347 49,297
Operating income 3,854 1,191 - 5,045
Identifiable assets at
November 30, 1995 34,052 5,746 300 39,498
UNITED
1994 STATES GERMANY ELIMINATIONS TOTAL
Revenue from unaffiliated
customers $37,970 $5,689 $ - $43,659
Transfers between geographic
areas 3,809 - 3,809 -
Total revenues 41,779 5,689 3,809 43,659
Operating income 1,976 1,320 - 3,296
Identifiable assets at
November 30, 1994 33,857 4,488 250 38,095
UNITED
1993 STATES GERMANY ELIMINATIONS TOTAL
Revenue from unaffiliated
customers $36,415 $4,921 $ - $41,336
Transfers between geographic
areas 2,826 - 2,826 -
Total revenues 39,241 4,921 2,826 41,336
Operating income 3,854 1,295 - 5,149
Identifiable assets at
November 30, 1993 33,850 4,627 285 38,192
<FN>
In 1995, 1994, and 1993, the Company had export sales of $13,295,000,
$9,141,000, and $9,687,000 respectively. In each of these years, export
sales represented approximately 27%, 21%, and 23%, respectively, of the
Company's consolidated net sales.
</FN>
</TABLE>
<PAGE>
PRODUCTION
The Company's wholly-owned subsidiary, Spectrum Control Technology, Inc.
in New Orleans, Louisiana, designs and manufactures ceramic capacitors. These
elements are utilized in the manufacture and assembly of various electronic
filter products at the Company's Electromagnetic Division and Connecting De-
vices Division, both of which are located in Fairview, Pennsylvania.
Although the Company produces a standardized line of electronic filter
products for sale from inventory and to customer order, most orders require
relatively short production runs of custom designed components.
The Company purchases brass bushings, castings, miniature metal stamp-
ings, as well as other hardware used in the assembly and production of its
components. These items are available from numerous sources. The principal
raw materials used by the Company in the manufacture of ceramic capacitors
are silver, palladium, platinum and barium titanate ceramic. Precious metals
are available from many sources; however, their prices may be subject to
significant fluctuations.
Historically, the Company has not experienced difficulty in obtaining
any of the component parts or raw materials necessary for its manufacturing
operations.
SALES AND DISTRIBUTION
The Company markets its products through direct factory sales, its own
field sales engineers, as well as sales representatives, agents and
distributors. The Company's field sales engineers are able to match the
Company's product offerings to customer requirements through specifications
provided by customer buyers and design engineers. In so doing, the field
sales engineer serves a dual role of designing solutions to electromagnetic
compatibility problems, as well as conducting normal field sales activities.
During fiscal year 1995, the Company sold its products to approximately
1,200 accounts. Sales of components to the Company's top ten customers
represented 50% ($24.7 million) of total consolidated net sales in 1995.
The Company's largest single customer, an original equipment manufacturer of
telecommunications equipment, represented 14% in 1995, and 12% in 1994 and
1993 of total consolidated net sales. The Company's second largest single
customer represented 9% of total consolidated net sales in 1995 and 1994,
and 5% in 1993. All of the Company's major customers are unaffiliated with
Spectrum Control, Inc. and its subsidiaries.
The Company maintains in inventory certain standard component products.
Domestic distribution is done through various national and regional
distributors. International distribution is done through Spectrum Control
GmbH.
Shipments are made by common carrier. Since the components are either
small or miniaturized and light weight, shipping charges do not affect the
Company's ability to compete for business domestically or abroad.
No material portion of the Company's business is subject to renegotiation
of profits or termination of contracts or sub-contracts at the election of the
U.S. Government.
<PAGE>
BACKLOG
The Company's backlog, which consists of purchase orders by customers,
totalled approximately $18.7 million at November 30, 1995 and $13.9 million
at November 30, 1994. It is anticipated that approximately 90% of the
Company's backlog as of November 30, 1995 will be shipped within one year.
Annual requirement contracts are taken into backlog only to the extent that
orders are actually released thereunder. Although the terms and conditions
contained in the Company's quotation forms place certain restrictions on a
customer's right to cancel, purchase orders generally provide for
cancellation. In practice, the Company negotiates each cancellation and
schedule change based on the cost it has incurred prior to such occurrence.
During the next two years, the Company expects to significantly reduce its
average lead time (the length of time from the receipt of a customer order
to shipment of finished product to the customer). As a result, the Company's
backlog may decrease in the future due to reduced lead times.
EMPLOYEES
At November 30, 1995, the Company employed 792 persons, including
officers. The Company has never suffered a work stoppage and regards its
employee relations as good. The employees are not covered by collective
bargaining agreements.
PATENTS
The Company is the owner of United States Patents for a solderless
mounting filter connection and filtered-shielded D-Subminiature connectors.
While these patents are believed to have commercial value, they are not
material to the Company's business.
The Company holds twenty (20) United States Patents relating to polymer
multilayer technology. The Company has entered into several agreements
regarding licensing the technology covered by these patents. However, it is
not known what commercial value these patents and related licenses may have.
None of the Company's issued patents have been legally challenged.
GOVERNMENTAL REGULATIONS
In order to qualify as an approved supplier of EMI/EMC products for use in
equipment purchased by the military services or aerospace programs, the
Company is required to meet the applicable portions of the quality
specifications and performance standards designed by the Air Force, the Army,
the Navy, NASA, NSA and the AEC. The Company's products must also conform to
the specifications of the Defense Electronic Supply Center for replacement
parts supplied to the military. Components produced by the Company for use
in commercial and industrial equipment must conform to the specifications of
certain other agencies concerned with EMC problems, including the Bureau of
Radiological Health, the Department of Transportation and the Department of
Defense, in addition to the FCC. To the extent required, the Company meets or
exceeds all of these specifications.
<PAGE>
The Company is subject to numerous federal, state and local regulations
relating to air and water quality, the disposal of hazardous waste materials,
safety, and health. Compliance with applicable environmental regulations has
not significantly changed the Company's competitive position, capital spending,
or earnings in the past and the Company does not presently anticipate that
compliance with such regulations will change its competitive position, capital
spending, or earnings for the foreseeable future. The Company continuously
monitors regulatory matters and believes that it is currently in compliance
in all material respects with applicable environmental laws and regulations.
COMPETITION
The Company is subject to competition in all of its marketing areas.
There are presently over twenty (20) other firms engaged in producing
electromagnetic compatibility components, a number of which have substantially
larger financial resources and facilities. It is difficult to determine the
annual sales volume of competing firms, because a number of such competitors
are also engaged in other lines of business or are closely held and,
accordingly, authoritative statistics are not available.
Among the Company's principal competitors are: AMP, AVX, Amphenol,
Captor, Corcom and Tusonix. The Company believes that it is competitive with
these companies in the areas of quality, delivery, price and technological
innovation; however, to the extent it produces a broader line of EMC products
and provides customers with more complete testing facilities, the Company
believes that it may enjoy a competitive advantage. Obsolescence has not
been a material factor in the Company's business in the past; however, in
common with other manufacturers of sophisticated electrical products, the
possibility exists that technological developments by competitors may have
an adverse effect on the Company's business.
RESEARCH AND DEVELOPMENT
In recent years, the Company's research and development efforts have
focused on expanding the Company's materials technology, improving existing
product offerings, developing product offering variations, and designing
specialized production equipment to improve manufacturing efficiencies.
Research and development expense amounted to $771,000 in 1995, $237,000
in 1994, and $555,000 in 1993.
OTHER MATTERS
The business of the Company is not subject to any significant
seasonal fluctuations. The Company does not believe that it has any
special practices or special conditions affecting working capital items
that are significant for an understanding of its business.
<PAGE>
ITEM 2. PROPERTIES
PRINCIPAL
BALANCE
OUTSTANDING
APPROXIMATE AT 11/30/95
SQUARE FEET ON RELATED
LOCATION FUNCTION OF FLOOR AREA OWNERSHIP MORTGAGE
8061 Avonia Road Manufacturing, 36,000 Owned $ 499,000
Fairview, PA EMI Testing
6000 West Ridge Road Manufacturing, 25,000 Owned $ 32,000
Fairview, PA Corporate Offices
4100 Michoud Blvd. Manufacturing 100,000 Owned $ 2,800,000
New Orleans, LA
Hansastrasse 6 Sales
Schwabach, Germany Distribution 25,000 Owned $2,068,000
(1) In addition to the above mortgages, the Company's domestic properties
are encumbered in connection with the collateralization of certain short term
and long-term bank indebtedness.
(2) The Company's office and manufacturing space is adequate for its
existing requirements and its projected business needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any litigation of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
<TABLE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol SPEC. The high and low sales prices for the Common Stock for each
quarter during fiscal years 1995 and 1994 are set forth below.
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal 1995
First quarter $ 2.38 $ 1.63
Second quarter 3.00 2.00
Third quarter 4.25 2.25
Fourth quarter 4.50 3.13
HIGH LOW
Fiscal 1994
First quarter $ 5.00 $ 3.63
Second quarter 4.13 2.63
Third quarter 3.13 2.25
Fourth quarter 3.13 1.88
<FN>
At January 31, 1996, the Company had 10,715,399 shares of Common Stock
outstanding, which were held by approximately 8,000 stockholders of record.
The Company has not paid cash dividends on its Common Stock since 1988.
While subject to periodic review, the current policy of the Board of
Directors is to retain all earnings to provide funds for the continued growth
of the Company.
</FN>
<PAGE>
</TABLE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
YEARS ENDED NOVEMBER 30
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1995 1994 1993 1992 1991
Operating Data
<S> <C> <C> <C> <C> <C>
Net sales $49,297 $43,659 $41,336 $31,590 $26,790
Income (loss)
from continuing
operations 2,984 2,055 3,898 1,992 (844)
Income (loss) from
discontinued
operations (1) - - (2,916) (560) 153
Extraordinary
item (2) - - 4,012 - -
Accounting
change (3) - 1,845 - - -
Net income (loss) 2,984 3,900 4,994 1,432 (691)
Earnings (loss)
per common share:
Continuing
operations 0.28 0.19 0.38 0.20 (0.09)
Discontinued
operations - - (0.28) (0.05) 0.02
Extraordinary
item - - 0.39 - -
Accounting change - 0.18 - - -
Net income 0.28 0.37 0.49 0.15 (0.07)
Dividends per share - - - - -
Financial Position
Total assets 39,498 38,095 38,192 37,034 35,218
Long-term debt 6,569 8,275 9,701 16,537 18,958
Stockholders'
equity 21,781 18,583 14,165 9,132 6,686
<FN>
(1) In 1993, the Company adopted a formal plan to discontinue its hybrid
integrated circuit operations ("HIC") and sell the related HIC assets. A
loss of $2,433,000 on the disposal of the discontinued HIC operations was
provided for and charged against income in 1993. HIC operating results have
been segregated and reported separately from continuing operations for each
of the years included above. See Note 3 of the Notes to Consolidated
Financial Statements.
(2) In 1993, the Company recognized a gain on extinguishment of debt of
$4,012,000, net of of applicable income taxes of $446,000. See Note 8 of
the Notes to Consolidated Financial Statements.
(3) In 1994, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". The cumulative effect, through
November 30, 1993, of this change in accounting amounted to $1,845,000 or
$0.18 per share. See Note 2 of the Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated 1995 net sales increased by $5.6 million or 13% from 1994.
The increase in sales primarily reflects additional shipment volume of
electromagnetic interference ("EMI") filter plates and EMI filtered connectors
used by customers in the telecommunication industry. Overall, average selling
prices declined in 1995 and 1994 as a result of competitive and market
pressures.
Consolidated 1994 net sales increased by $2.3 million or 6% from 1993.
The increase in sales reflects additional shipment volume in several of the
Company's product offerings, including EMI multi-section filters used in
various applications and EMI filter plates used in telecommunications.
Consolidated 1993 net sales included $1.3 million in shipments from the
customer order backlog purchased from Murata Erie North America, Ltd. as
part of the Asset Purchase Agreement described below.
Gross margin was $16.1 million or 33% of sales in 1995, compared to
$13.0 million or 30% of sales in 1994, and $15.1 million or 36% of sales
in 1993. In 1993, gross margin was positively impacted by a favorable
sales mix which included significant shipments of certain EMI filter
products used in military and aerospace applications. Along with the
selling price pressures indicated above, 1994 gross margin was negatively
impacted by increased production costs at the Company's ceramic capacitor
manufacturing operation in New Orleans, Louisiana. These ceramic capacitor
production problems were substantially corrected late in 1994. In addition
to these reduced production costs, 1995 gross margin reflects economies of
scale realized with additional shipment volume.
The Company continuously attempts to identify and implement programs to
reduce manufacturing costs and improve product yields at all of its
manufacturing locations. Management currently anticipates the impact of
several material cost reduction programs will begin to be realized in
the second half of fiscal year 1996.
Selling, general and administrative expense, as a percentage of sales,
was stable in 1995 and 1994 with overall expenses of $11.0 million or 22% of
sales in 1995 and $9.7 million or 22% of sales in 1994. As a result of
greater sales volume, selling expense increased in 1995, amounting to $6.2
million in 1995 and $5.4 million in 1994.
Selling, general and administrative expense was $9.7 million or 22% of
sales in 1994, compared to $9.9 million or 24% of sales in 1993. As a
percentage of sales, selling expense remained relatively constant at 12%
in 1994 and 1993. General and administrative expense declined in 1994,
principally as a result of delaying or foregoing certain discretionary
expenditures.
Interest expense decreased by $95,000 in 1995, $154,000 in 1994 and
$257,000 in 1993, with interest expense amounting to $908,000 in 1995,
$1.0 million in 1994, and $1.2 million in 1993. In addition to the debt
restructuring described below, the Company repaid indebtedness of $2.9
million in 1995, $3.0 million in 1994, and $2.9 million in 1993. The Company's
average short-term interest rates were 8.5% in 1995, 7.5% in 1994, and 7.4%
in 1993.
<PAGE>
The Company's German subsidiary transacts business with certain
customers and vendors in currencies other than the Deutsche Mark. As a
result, the Company recognizes gains and losses on foreign currency
transactions. The Company incurred net losses of $45,000 in 1995 and
$80,000 in 1994, and net gains of $62,000 in 1993, on these foreign currency
transactions.
The Company's effective tax rate on income from continuing operations
was approximately 27% in 1995, 23% in 1994, and 8% in 1993. As discussed
below, the Company adopted a new method of accounting for income taxes
effective December 1, 1993. The increase in the 1995 and the 1994 effective
tax rates primarily reflects changes under the new method of accounting in
the recognition of tax benefits from the utilization of net operating loss
carryforwards.
Spectrum Control, GmbH, a wholly-owned subsidiary of the Company located
in Schwabach, Germany (the "Subsidiary"), acts as a distributor for the
Company's electronic filter products in the European market. Prior to June 1,
1993, the Subsidiary also designed, manufactured and sold active electronic
components in the form of hybrid integrated circuits ("HIC"). Effective June 1,
1993, the Company adopted a formal plan to discontinue the Subsidiary's HIC
operations and sell the related HIC assets. An estimated loss of $2.4
million on the disposal of the discontinued HIC operations was provided for
and charged against income in the year ended November 30, 1993. This
provision represented the estimated loss on the disposal of HIC assets,
severance pay and other direct costs and expenses expected to be incurred upon
the discontinuance of HIC operations, and expected operating losses during
the phase-out period of HIC operations. In 1994, the phase-out of HIC
operations was completed and all HIC assets were sold at actual losses
approximating the $2.4 million provision.
HIC operating losses for the six months ended May 31, 1993 amounted to
$483,000, with net sales of approximately $1.2 million and operating expenses
of $1.7 million. During the phase-out of HIC operations, operating losses
amounted to $653,000, with net sales of $991,000 and operating expenses of
approximately $1.6 million. Because of limitations on recording benefits of
net operating loss carryforwards, the Company has not recorded a tax benefit
for the losses of the discontinued HIC operations.
Spectrum Control Technology, Inc., a wholly-owned subsidiary of the
Company ("Spec Tech"), financed the acquisition of certain land, building and
equipment in 1986 by assuming a $7.8 million industrial development authority
bond issue. In February, 1993, the Company entered into separate agreements
with the bondholders to purchase all of the remaining outstanding bonds with
an aggregate face value of $7.7 million (the "Purchase Agreements"). Under
the terms of the Purchase Agreements, the Company acquired the outstanding
bonds at an aggregate purchase price of approximately $3.2 million. In
addition, the Company granted stock warrants that entitle the former bond-
holders to purchase an aggregate of 275,000 shares of the Company's Common
Stock through February, 1996, at exercise prices ranging from $4.00 to $5.00
per share. In August, 1993, the Company and PNC Bank of Erie, Pennsylvania
(the "Bank") completed a refinancing arrangement under which industrial
development authority bonds in the principal amount of $3.2 million were
issued to refund the original bond issue. The newly issued bonds, which bear
interest at approximately 50% of the prevailing prime rate, are col-
lateralized by SpecTech's land, building and equipment and the guaranty of
the Company, and have annual scheduled principal payments ranging from
$200,000 to $300,000 through the year 2007.
<PAGE>
As a result of this debt restructuring, the Company recognized an
extraordinary gain of approximately $4.5 million, representing the difference
between the face value of the bonds of $7.7 million and the fair market value
of the consideration given to the bondholders of approximately $3.2 million.
The extraordinary gain, net of applicable income taxes of $446,000, has been
included in the Company's results of operations for the year ended November 30,
1993.
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Previously, the Company had recorded income taxes in accordance with Statement
of Financial Accounting Standards No. 96. The changes in accounting for
income taxes required by SFAS No. 109 include, among other provisions,
changes in the criteria for recognizing deferred tax assets.
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 have not been restated. Accordingly, the cumulative effect of this
change in accounting for income taxes has been included in net income in the
Company's Consolidated Statement of Income for the year ended November 30,1994.
At November 30, 1995, the Company has recorded net deferred tax assets
of $371,000, primarily related to U.S. net operating loss and tax credit
carryforwards. At November 30, 1995, the Company has U.S. net operating loss
carryforwards for tax purposes of $3.3 million and U.S. tax credit
carryforwards of $234,000, expiring at varying dates through the year 2006.
Based upon the earnings history of the Company's U.S. operations, Management
has determined that it is more likely than not that these deferred tax assets
will be realized during the carryforward period to offset future taxable income
from ordinary and recurring operations.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
In 1992, the Company executed an Asset Purchase Agreement (the "Agree-
ment") to acquire certain assets of Murata Erie North America, Ltd. ("Murata
Erie"), an Ontario, Canada manufacturing corporation. The assets acquired
consisted of inventory, tooling, engineering drawings, manufacturing doc-
umentation, and customer order backlog for the electronic filter products
formerly produced at the Murata Erie manufacturing facility in Trenton,
Ontario, Canada. Under the Agreement, the cost of the assets acquired was
contingent upon the Company's usage of the inventory and shipments from the
Company's Electromagnetic Division through May, 1994. As a result, the total
acquisition cost of the assets and the related obligation to Murata Erie
amounted to $3.9 million. The Company's obligation to Murata Erie required
quarterly principal and interest payments from April, 1993 through May, 1995,
with interest at the prevailing prime rate. At November 30, 1995, the
Company's obligation had been fully repaid and there was no remaining
obligation to Murata Erie.
The Company maintains a $6.0 million revolving line of credit with PNC
Bank of Erie, Pennsylvania (the "Bank"). Under the terms of the Line of
Credit Agreement, borrowings and required payments under the revolving credit
line are based upon an asset formula involving accounts receivable and in-
ventories. The revolving credit line is collateralized by substantially all
of the Company's tangible and intangible property, with average interest
rates on borrowings of approximately 1/2% below the Bank's prevailing prime
rate. At November 30, 1995, the Company had additional borrowing avail-
ability of approximately $2.4 million under the asset formula. The current
Line of Credit Agreement expires on April 30, 1997.
<PAGE>
The Line of Credit Agreement contains certain negative convenants. 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 minimum levels of tangible net worth and operating cash
flow. At November 30, 1995, the Company was in compliance with all of these
financial covenants.
In 1994, the Company and the Bank entered into an agreement whereby $2.4
million of outstanding borrowings under the Company's revolving line of credit
was converted to a term loan. Under the agreement, the related term note
bears interest at 8.3% and requires monthly principal and interest payments of
$105,000 through June, 1996. The term note is collateralized by substantially
all of the Company's tangible and intangible property. At November 30, 1995,
the remaining obligation under the term loan amounted to $715,000.
The Company has also entered into a Reimbursement Agreement with the Bank.
The Reimbursement Agreement relates to an irrevocable letter of credit issued
by the Bank which collateralizes certain industrial development authority
financing of the Company's majority-owned subsidiary, Spectrum Polytronics,
Inc. The related industrial development authority notes, which had an
outstanding balance of $2.3 million at November 30, 1995 and $2.7 million at
November 30, 1994, require annual payments of $400,000 plus interest through
the year 2001. Substantially all of the Company's tangible and intangible
assets have been pledged as collateral for this indebtedness. In addition,
the Reimbursement Agreement contains the same financial covenants included
in the Company's Line of Credit Agreement.
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 November 30, 1995, and $993,000 (1.5 million DM)
at November 30, 1994. The Company had borrowed $682,000 (968,000 DM) at
November 30, 1995, and $395,000 (596,000 DM) at November 30, 1994, 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.
As a result of sustained debt reduction, the Company's working capital
and current ratio continued to improve in 1995. At November 30, 1995, the
Company had net working capital of $10.0 million, compared to $8.3 million at
November 30, 1994. Current assets were 1.89 times current liabilities at
November 30, 1995, compared to 1.73 at November 30, 1994.
The Company's cash expenditures for property, plant, and equipment
amounted to approximately $3.1 million in 1995, $1.7 million in 1994, and
$2.2 million in 1993. These capital expenditures primarily related to
manufacturing capacity expansion and improvements. At November 30, 1995,
the Company had not entered into any material commitments for capital
expenditures. Management anticipates that the funding for future capital
expenditures will continue to be provided by operating cash flow.
Income taxes paid during the fiscal years ended November 30,1995, 1994,
and 1993 amounted to $218,000, $336,000, and $96,000, respectively.
Management expects cash outlays for income taxes to be less than income tax
expense for the next three fiscal years.
In 1995, net cash provided by operations amounted to $6.0 million. In
addition to capital expenditures of $3.1 million, this positive cash flow was
utilized to repay $2.9 million of indebtedness.
<PAGE>
In 1994, net cash provided by operations amounted to $3.1 million. Other
sources of cash during 1994 included $1.1 million from the sale of certain
property, plant and equipment and $351,000 from the issuance of Common Stock
upon the exercise of employee stock options. In addition to capital
expenditures of $1.7 million, this positive cash flow was utilized to repay
$3.0 million of indebtedness.
As indicated above, the Company continued to reduce its bank and other
indebtedness in 1995. The Company's total borrowed funds were $ 12.7 million
at November 30, 1995, $15.4 million at November 30, 1994, and $17.6 million
at November 30, 1993. The Company increased total stockholders' equity by
$3.2 million in 1995, primarily through earnings. Accordingly, the Company's
debt to equity ratio continued to improve in 1995. Total liabilities to net
worth were 0.81 at November 30, 1995, 1.05 at November 30, 1994, and 1.70 at
November 30, 1993.
ENVIRONMENTAL MATTERS
Company is subject to various laws and governmental regulations concerning
environmental matters and employee health and safety. U.S. Federal
environmental legislation having particular impact on the Company includes the
Toxic Substances Control Act; the Resource Conservation and Recovery Act; the
Clean Water Act; and the Safe Drinking Water Act. The Company also is subject
to the Occupational Safety and Health Administration ("OSHA") concerning
employee safety and health matters. The United States Environmental Protection
Agency ("EPA"), OSHA, and other federal agencies have the authority to
promulgate regulations that have an impact on the Company operations.
In addition to these federal activities, various states have been
delegated certain authority under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety
and health laws and regulations, some of which are similar to federal
requirements. State and federal authorities may seek fines and penalties for
violation of these laws and regulations. As part of its continuing
environmental program, the Company has been able to comply with such
environmental regulations without any materially adverse effect on its
business. The Company is not currently involved in any legal proceedings
involving environmental matters.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company believes that recently issued accounting standards, including
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and No. 123, "Accounting for Stock-Based Compensation", will not have a
material impact on the Company's financial position or results of operations.
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 price over time. Sales increases reported
during the last three years in the accompanying financial statements, however,
have substantially arisen from increased sales volume, not increases in
selling prices.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Spectrum Control,Inc.
and subsidiaries are included herein:
Report of Independent Auditors
Consolidated Balance Sheets as of
November 30, 1995 and 1994
Consolidated Statements of Income
for the years ended November
30, 1995, 1994, and 1993
Consolidated Statements of Stockholders'
Equity for the years ended
November 30, 1995, 1994, and 1993
Consolidated Statements of Cash Flows
for the years ended November 30,
1995, 1994, and 1993
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Spectrum Control, Inc.
We have audited the accompanying consolidated balance sheets of Spectrum
Control, Inc. and subsidiaries as of November 30, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended November 30, 1995. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
<PAGE>
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Spectrum Control, Inc. and subsidiaries as of November 30, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended November 30, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in the year ended
November 30, 1994.
ERNST & YOUNG LLP
Erie, Pennsylvania
January 10, 1996
<PAGE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Current assets
Cash $ 202 $ 102
Accounts receivable, less
allowances of $306 in 1995
and $221 in 1994 9,365 7,717
Inventories (Note 4) 11,322 11,395
Deferred income taxes (Note 10) 39 152
Prepaid expenses and other
current assets 187 122
Total current assets 21,115 19,488
Property, plant and equipment, net (Note 5) 16,752 15,932
Other assets (Note 6) 1,631 2,675
Total assets $39,498 $38,095
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt (Note 7) $ 4,252 $ 4,096
Accounts payable 2,646 2,057
Accrued salaries and wages 1,725 1,047
Accrued interest 51 133
Accrued federal and state
income taxes 224 52
Accrued other expenses 405 774
Current portion of long-term
debt (Note 8) 1,845 3,078
Total current liabilities 11,148 11,237
Long-term debt (Note 8) 6,569 8,275
Stockholders' equity
Common stock, no par value,
authorized 25,000,000 shares,
issued and outstanding
10,635,399 shares in 1995 and
10,548,540 in 1994 13,493 13,350
Retained earnings 8,472 5,488
Foreign currency translation
adjustment (184) (255)
Total stockholders' equity 21,781 18,583
Total liablities and
stockholders' equity $39,498 $38,095
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
<PAGE>
</TABLE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
1995 1996 1993
<S> <C> <C> <C>
Net sales $49,297 $43,659 $41,336
Cost of products sold 33,236 30,629 26,271
Selling, general and administrative
expense 11,016 9,734 9,916
44,252 40,363 36,187
Income from operations 5,045 3,296 5,149
Other income (expense)
Interest expense (908) (1,003) (1,157)
Other income and expense,
net (Note 9) (42) 364 226
(950) (639) (931)
Income from continuing operations
before provision for income taxes 4,095 2,657 4,218
Provision for income taxes (Note 10) 1,111 602 320
Income from continuing operations 2,984 2,055 3,898
Discontinued operations (Note 3)
Loss from hybrid integrated
circuit operations - - (483)
Loss on dispoal of hybrid inte-
grated circuit operations, in-
cluding operating losses of $653
during phase-out period - - (2,433)
- - (2,916)
Income before extraordinary item
and cumulative effect of a
change in accounting principle 2,984 2,055 982
Extraordinary item (Note 8)
Gain on extinguishment of debt,
net of applicable income taxes
of $446 - - 4,012
Income before cumulative effect
of a change in accounting
principle 2,984 2,055 4,994
Cumulative effect on prior years
of changing the method of
accounting for income taxes
(Note 2) - 1,845 -
Net income $ 2,984 $ 3,900 $ 4,994
<PAGE>
Earnings (loss) per common share
Continuing operations $ 0.28 $ 0.19 $ 0.38
Discontinued operations - - (0.28)
Extraordinary item - - 0.39
Accounting change - 0.18 -
Net income $ 0.28 $ 0.37 $ 0.49
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
FOREIGN TOTAL
RETAINED CURRENCY STOCK-
COMMON EARNINGS TRANSLATION HOLDERS'
STOCK (DEFICIT) ADJUSTMENT EQUITY
<S> <C> <C> <C> <C>
Balance - November 30, 1992 $12,663 $(3,406) $(125) $ 9,132
Net income - 4,994 - 4,994
Issuance of 130,901 shares
of common stock 283 - - 283
Purchase and retirement of
15,707 shares of
common stock (65) - - (65)
Foreign currency
translation adjustment - - (179) (179)
Balance - November 30, 1993 12,881 1,588 (304) 14,165
Net income - 3,900 - 3,900
Issuance of 245,068 shares
of common stock 370 - - 370
Purchase and retirement
of 6,482 shares of
common stock (19) - - (19)
Tax benefits from exercise
of stock options 118 - - 118
Foreign currency translation
adjustment - - 49 49
<PAGE>
Balance - November 30, 1994 13,350 5,488 (255) 18,583
Net income - 2,984 - 2,984
Issuance of 89,868 shares
of common stock 101 - - 101
Purchase and retirement
of 3,009 shares of
common stock (7) - - (7)
Tax benefits from exercise
of stock options 49 - - 49
Foreign currency translation
adjustment - - 71 71
Balance - November 30, 1995 $13,493 $8,472 $(184) $21,781
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,984 $3,900 $4,994
Adjustments to reconcile net income
to net cash provided by
operating activities:
Cumulative effect of accounting
change - (1,845) -
Extraordinary item - - (4,458)
Depreciation and amortization 2,848 2,603 2,599
Deferred income taxes 676 519 446
Loss (gain) on sale of property,
plant and equipment (3) (125) 98
Write-down of assets of
discontinued operations - - 426
Changes in assets and liabilities:
Accounts receivable (1,507) 404 (2,149)
Inventories 115 (359) (220)
Prepaid expenses and
other assets (55) (55) 141
Accounts payable and
accrued expenses 970 (1,915) 2,114
Net cash provided by
operating activities 6,028 3,127 3,991
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property,
plant and equipment 25 1,077 1,055
Purchase of property, plant
and equipment (3,057) (1,704) (2,153)
Net cash used in investing activities (3,032) (627) (1,098)
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds of short-term debt 115 1,653 598
Repayment of long-term debt (3,062) (4,654) (3,523)
Net proceeds from issuance of
common stock 94 351 218
Net cash used in financing activities (2,853) (2,650) (2,707)
Effect of exchange rate changes on cash (43) (41) (96)
Net increase (decrease) in cash 100 (191) 90
Cash, beginning of year 102 293 203
Cash, end of year $ 202 $ 102 $ 293
Cash paid during the year for:
Interest $ 990 $998 $1,147
Income taxes 218 336 96
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated 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. The fiscal year of the Company's foreign subsidiary, Spectrum
Control GmbH, ends October 31 to facilitate timely reporting. All
significant intercompany accounts are eliminated upon consolidation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts
payable, and accrued liabilities approximate fair value due to the short
term maturities of these assets and liabilities. The interest rates on
substantially all of the Company's bank borrowings are adjusted regularly
to reflect current market rates. Accordingly, the carrying amounts of the
Company's short-term and longterm borrowings also approximate fair value.
The Company utilizes letters of credit to collateralize certain long-term
borrowings. The letters of credit reflect fair value as a condition of
their underlying purpose and are subject to fees competitively determined
in the market place.
INVENTORIES
Inventories are valued at the lower of cost or market, with
cost for raw materials, work-in-process and finished goods at standard cost,
which approximates the first-in, first-out basis.
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
computed over the estimated useful lives of the assets using the straight
line method. Expenditures for maintenance and repairs are charged against
earnings in the year incurred; major replacements, renewals and betterments
are capitalized and depreciated over their estimated useful lives. The cost
and accumulated depreciation of assets sold or retired are removed from the
respective accounts and any gain or loss is reflected in earnings.
INTANGIBLE ASSETS
Debt issuance costs are amortized to expense on a straight line
basis over the term of the related indebtedness. Patents and patent rights
are amortized to expense on a straight line basis over periods not exceeding
17 years. Technical documentation, consisting primarily of acquired en-
gineering drawings and manufacturing documentation, is stated at cost and
amortized on a straight line basis over five years.
INCOME TAXES
Effective December 1, 1993, the Company adopted Statement of Fi-
nancial Accounting Standards No. 109, "Accounting for Income Taxes."
Accordingly, the Company uses the liability method in accounting for income
taxes. Deferred tax assets and liabilities are recorded for temporary
differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements.
General business credits are accounted for by the flow through method.
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 year. 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 year in which the
exchange rate changes.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. For
financial statement presentation purposes, these costs are included in selling,
general and administrative expense. Research and development expense amounted
to $771,000 in 1995, $237,000 in 1994, and $555,000 in 1993.
EARNINGS PER COMMON SHARE
Earnings per common share is computed based on the weighted average
number of shares of common stock outstanding during the year. The weighted
average number of shares was 10,585,000 in 1995, 10,449,000 in 1994, and
10,268,000 in 1993. 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.
<PAGE>
2. ACCOUNTING CHANGE
Effective December 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). Previously, the Company had recorded income taxes in
accordance with Statement of Financial Accounting Standards No. 96. The
changes in accounting for income taxes required by SFAS No. 109 include,
among other provisions, changes in the criteria for recognizing deferred
tax assets.
The cumulative effect, through November 30, 1993, of adopting
the new method of accounting for income taxes amounted to $1,845,000 or
$0.18 per share. As permitted by SFAS No. 109, prior period financial
statements have not been restated. Accordingly, the cumulative effect
of this change in accounting for income taxes has been included in net
income in the Company's Consolidated Statement of Income for the year
ended November 30, 1994.
3. DISCONTINUED OPERATIONS
Spectrum Control, GmbH, a wholly-owned subsidiary of the Company
located in Schwabach,Germany (the "Subsidiary"), acts as a distributor for
the Company's electronic filter products in the European market. Prior to
June 1, 1993, the Subsidiary also designed, manufactured and sold active
electronic components in the form of hybrid integrated circuits ("HIC").
Effective June 1, 1993, the Company adopted a formal plan to discontinue
the Subsidiary's HIC operations and sell the related HIC assets. An estimated
$2,433,000 on the disposal of the discontinued HIC operations was
provided for and charged against income in the year ended November 30, 1993.
This provision represented the estimated loss on the disposal of HIC assets,
severance pay and other direct costs and expenses expected to be incurred upon
the discontinuance of HIC operations, and expected operating losses during
the phase-out period of HIC operations. In 1994, the phase-out of HIC
operations was completed and all HIC assets were sold at actual losses
approximating the $2,433,000 provision.
HIC operating losses for the six months ended May 31, 1993 amounted
to $483,000, with net sales of $1,203,000 and operating expenses of $1,686,000.
During the phase-out of HIC operations, operating losses amounted to $653,000,
with net sales of $991,000 and operating expenses of $1,644,000. Because of
limitations on recording benefits of net operating loss carryforwards, the
Company has not recorded a tax benefit for the losses of the discontinued HIC
operations.
4. INVENTORIES
Inventories by major classification are as follows:
NOVEMBER 30
1995 1994
(in thousands)
Finished goods $ 1,876 $ 1,756
Work-in-process 6,075 6,321
Raw materials 3,371 3,318
$11,322 $11,395
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
NOVEMBER 30
1995 1994
(in thousands)
Land and improvements $ 1,578 $ 1,510
Buildings and improvements 10,719 10,361
Machinery and equipment 25,186 22,848
Construction in progress 166 218
37,649 34,937
Less accumulated depreciation 20,897 19,005
$16,752 $15,932
6. OTHER ASSETS
Other assets consist of the following:
NOVEMBER 30
1995 1994
(in thousands)
Intangible assets
Debt issuance costs $ 384 $ 384
Patents and patent rights 526 504
Technical documentation 2,260 2,260
3,170 3,148
Less accumulated amortization 1,969 1,440
1,201 1,708
Deferred income taxes 332 846
Deferred charges 98 121
$1,631 $2,675
7. SHORT-TERM DEBT
At November 30, 1995 and 1994, short-term debt included $3,570,000 and
$3,701,000, respectively, of borrowings under a Line of Credit Agreement
between the Company and its principal lending institution (the "Bank").
Borrowings and required payments under the revolving credit line are based upon
an asset formula involving accounts receivable and inventories, with maximum
borrowings limited to $6,000,000. At November 30, 1995, the Company had
additional borrowing availability of $2,430,000 under the asset formula.
Weighted average borrowings under the revolving credit line amounted to
$3,210,000 in 1995, and $4,035,000 in 1994, with average interest rates
of 8.45% in 1995 and 7.50% in 1994. The revolving credit line is
collateralized by substantially all of the Company's tangible and intangible
property, with average interest rates on borrowings of approximately 1/2%
below the Bank's prevailing prime rate. The current Line of Credit Agreement
expires on April 30, 1997.
<PAGE>
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 November 30, 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
$1,056,000 (1,500,000 DM) at November 30, 1995, and $993,000 (1,500,000 DM)
at November 30,1994. The Company had borrowed $682,000 (968,000 DM) at
November 30, 1995, and $395,000 (596,000 DM) at November 30, 1994, against
these lines of credit. Borrowings currently bear interest at rates
approximating the prevailing prime rate and are payable upon demand. Weighted
average borrowings under the lines of credit amounted to $311,000 (442,000 DM)
in 1995 and $306,000 (462,000 DM) in 1994.
8. LONG-TERM DEBT
Long-term debt consists of the following:
NOVEMBER 30
1995 1994
(in thousands)
Industrial development authority notes
at variable interest rate
(3.85% at November 30, 1995
and 3.80% at November 30, 1994) (1) $2,800 $3,000
Industrial development authority notes
at variable interest rate
(4.29% at November 30, 1995
and 3.76% at November 30, 1994) (2) 2,300 2,700
Term loan payable to bank at an
interest rate of 8.30% (3) 715 1,900
Notes payable to foreign bank at an
interest rate of 6.38%, collateralized
by certain land, building and equipment,
and requiring quarterly principal payments
of $76,000 through the year 2002 2,068 2,230
Industrial development authority notes
and related bank mortgage notes at
interest rates ranging from 4.00%
to 7.75%, collateralized by certain
land and buildings, and requiring monthly
principal and interest payments of
$13,000 through the year 1999 531 648
Other liabilities - 875
Total 8,414 11,353
Less current portion 1,845 3,078
Long-term debt $6,569 $8,275
<PAGE>
(1) Spectrum Control Technology, Inc. a wholly-owned subsidiary of the Company
(the "Subsidiary"), financed the acquisition of certain land, building and
equipment in 1986 by assuming a $7,8000,000 industrial development authority
bond issue. In February, 1993, the Company entered into separate agreements
with the bondholders to purchase all of the remaining outstanding bonds with
an aggregate face value of $7,700,000 (the "Purchase Agreements"). Under the
terms of the Purchase Agreements, the Company acquired the outstanding bonds
at an aggregate purchase price of $3,242,000. In addition, the Company granted
stock warrants that entitle the former bondholders to purchase an aggregate of
275,000 shares of the Company's Common Stock through February, 1996, at
exercise prices ranging from $4.00 to $5.00 per share. In August, 1993, the
Company and its principal lending institution (the "Bank") completed a
refinancing arrangement under which industrial development authority bonds in
the principal amount of $3,200,000 were issued to refund the original bond
issue. As a result of this debt restructuring, the Company recognized an
extraordinary gain of $4,458,000, representing the difference between the face
value of the bonds of $7,700,000 and the fair market value of the consideration
given to the bondholders of $3,242,000. The extraordinary gain, net of
applicable income taxes of $446,000, has been included in the Company's results
of operations for the year ended November 30, 1993.
The current industrial development authority bonds, which bear interest at
approximately 50% of the prevailing prime rate, are collateralized by the
Subsidiary's land, building and equipment and the guaranty of the Company, and
have annual scheduled principal payments ranging from $200,000 to $300,000
through the year 2007. At November 30, 1995 and 1994, the aggregate principal
balance of outstanding bonds amounted to $2,800,000 and $3,000,000,
respectively.
(2) The Company has entered into a Reimbursement Agreement with the Bank.
The Reimbursement Agreement relates to an irrevocable letter of credit issued
by the Bank which collateralizes certain industrial development authority fi-
nancing of the Company's majority-owned subsidiary, Spectrum Polytronics,
Inc. The related industrial development authority notes, which had an
aggregate principal balance outstanding of $2,300,000 at November 30, 1995
and $2,700,000 at November 30, 1994, require annual principal payments of
$400,000 through the year 2001. Substantially all of the Company's tangible
and intangible assets have been pledged as collateral for this indebtedness.
In addition, the Reimbursement Agreement contains the same financial
covenants included in the Company's Line of Credit Agreement (see Note 7).
(3) In June, 1994, the Company and the Bank entered into an agreement whereby
$2,400,000 of outstanding borrowings under the Company's revolving line of
credit was converted to a term loan. Under this agreement, the related term
note is collateralized by substantially all of the Company's tangible and
intangible property and requires monthly principal and interest payments of
$105,000 through June, 1996.
The aggregate maturities of all long-term debt during each of the five years
ending November 30, 2000, are $1,845,000, $1,038,000, $1,047,000, $1,134,000,
and $904,000.
<PAGE>
9. OTHER INCOME AND EXPENSE
Other income and expense consists of the following (in thousands):
1995 1994 1993
Patent licensing fees $- $303 $247
Investment income - 16 15
Gain (loss) on foreign currency
transactions (45) (80) 62
Gain (loss) on sale of property,
plant and equipment 3 125 (98)
$(42) $364 $226
10. INCOME TAXES
For the years ended November 30, 1995, 1994, and 1993, pretax
income from continuing operations was $3,140,000, $1,607,000, and $2,829,000
for the Company's U.S. operations and $955,000, $1,050,000, and $1,389,000
for the Company's foreign operations.
For the years ended November 30, 1995, 1994, and 1993, the
provision for taxes on income from continuing operations consists of the
following (in thousands):
1995 1994 1993
Current
Federal $ 200 $ 30 $ 78
State 235 53 242
Deferred 676 519 -
$1,111 $602 $32
The difference between the provision for income taxes and the amount
computed by applying the U.S. federal income tax rate in effect for the years
ended November 30, 1995, 1994, and 1993 consists of the following (in
thousands):
1995 1994 1993
Statutory federal income tax $1,392 $903 $1,434
State income taxes, net of federal
tax benefit 155 35 242
Alternative minimum tax - - 78
Decrease in deferred tax asset
valuation allowance (399) (311) -
Utilization of net operating loss
carryforward - - (1,491)
Other items (37) (25) 57
$1,111 $602 $ 320
<PAGE>
Significant components of the Company's net deferred
tax assets are as follows (in thousands):
November 30
Deferred tax assets: 1995 1994
Net operating loss carryforwards $3,507 $4,723
Investment in subsidiaries 857 1,096
Tax credit carryforwards 577 376
Intangible assets 483 372
Accrued expenses 274 255
Property, plant and equipment 119 119
Other 142 118
Sub-total 5,959 7,059
Valuation allowance (principally
related to certain net operating
loss carryforwards) 2,243 2,642
Deferred tax assets 3,716 4,417
Deferred tax liabilities:
Property, plant and equipment 2,530 2,626
Investment in subsidiaries 815 781
Other - 12
Deferred tax liabilities 3,345 3,419
Net deferred tax assets $ 371 $ 998
Current $ 39 $ 152
Noncurrent 332 846
$ 371 $ 998
For the year ended November 30, 1993, deferred income tax
expense related to the following (in thousands):
Depreciation and amortization $(353)
Losses of subsidiary 217
Leases 58
Compensated absences (25)
Inventory valuation (21)
Deferred compensation 10
Bad debts (7)
Other items (8)
(129)
Net operating loss and tax credit
carryforwards used to reduce
otherwise required deferred taxes 129
$-
<PAGE>
During the year ended November 30, 1995, the valuation allowance for
deferred tax assets decreased by $399,000, principally related to the
utilization of certain net operating loss carryforwards. Deferred income tax
expense for the years ended November 30, 1995 and 1994, includes $49,000 and
$118,000, respectively, relating to tax benefits associated with the exercise
of stock options.
In connection with an extraordinary gain of $4,458,000 on the
extinguishment of debt, deferred income taxes of $446,000 were recorded in the
year ended November 30,1993. These deferred income taxes represent the state
income tax effect of certain temporary differences, principally related to
property, plant and equipment.
At November 30, 1995, the Company has U.S. net operating loss
carryforwards for tax purposes of $3,332,000 and U.S. tax credit carryforwards
of $234,000, expiring at varying dates through the year 2006. At November 30,
1995, the Company's foreign subsidiary has approximately $3,932,000 of tax net
operating loss carryforwards available to be carried forward indefinitely.
11. SUPPLEMENTAL CASH FLOW INFORMATION
The Company incurred obligations of $553,000 in 1994 and $1,223,000 in
1993 in connection with the acquisition of certain intangible assets under an
asset purchase agreement.
12. COMMON STOCK OPTIONS
The Company has a Non-Qualified Stock Option Plan which provides for
granting to officers and key employees options to purchase up to 1,000,000
shares of the Company's Common Stock. The option price is not less than the
market price for the Company's Common Stock on the date of the grant. The
options become exercisable at varying dates and generally expire five years
from the date of the grant.
<PAGE>
<TABLE>
A summary of the non-qualified stock option data for the years ended
November 30, 1995, 1994, and 1993 is a follows:
<CAPTION>
NUMBER
OF SHARES
UNDER OPTION PRICE
OPTION PER SHARE AGGREGATE
<S> <C> <C> <C>
Outstanding -
November 30, 1992 606,740 $0.44-4.09 $1,926,000
Granted during the year 102,902 2.66-4.13 367,000
Exercised during the year (130,901) 0.50-3.23 (284,000)
Cancellations (17,833) 0.50-4.09 (47,000)
Outstanding -
November 30, 1993 560,908 0.44-4.13 962,000
Granted during the year 122,000 2.50-4.25 470,000
Exercised during the year (245,068) 0.50-2.45 370,000)
Cancellations (8,371) 1.00-4.25 (35,000)
Outstanding -
November 30, 1994 429,469 0.44-4.25 1,027,000
Granted during the year 84,500 1.88-3.56 172,000
Exercised during the year (89,868) 0.44-1.38 (101,000)
Cancellations (10,000) 2.63 (26,000)
Outstanding -
November 30, 1995 414,101 $0.88-4.25 $1,072,000
Exercisable -
November 30, 1995 161,599 0.88-4.13 $ 251,000
<FN>
At November 30, 1995, options to purchase 57,896 shares of Common
Stock were available for grant under the Non-Qualified Stock Option Plan.
The Company has also adopted the Stock Option Plan of 1995 (the "1995
Plan"). The 1995 Plan provides for the granting of incentive stock options and
non-qualified stock options to officers, directors, key employees, and advisors
of the Company. Under the 1995 Plan, options must be granted at not less than
fair market value. The aggregate number of shares of the Company's Common
Stock which may be sold or delivered under the 1995 Plan may not exceed
500,000 shares plus an additional amount each year of one percent of the
Company's outstanding shares, determined as of December 31 of each year. At
November 30, 1995, no options had been granted under the 1995 Plan.
</FN>
</TABLE>
<PAGE>
13. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan which permits participants to
make contributions by salary reduction pursuant to section 401(k) of the
Internal Revenue Code. The Company matches contributions up to a maximum of
2.5% of compensation and may, at its discretion, make additional contributions
to the plan. In connection with the required match, the Company's contribution
to the plan was $161,000 in 1995, $130,000 in 1994, and $133,000 in 1993. An
additional discretionary contribution to the plan of $75,000 was accrued and
charged against income in 1993.
14. BUSINESS SEGMENTS AND CONCENTRATION OF CREDIT RISK
The Company currently operates exclusively in a single industry as
manufacturer of electronic components and a consultant in the field of
electromagnetic compatibility. At November 30, 1995 and 1994, approximately
40% and 34%, respectively, of the Company's accounts receivable were from
customers in the telecommunication industry. The Company performs periodic
credit evaluations of its customers and generally does not require advance
payments or collateral. Credit losses to customers dealing in the
telecommunication industry have not been material.
<TABLE>
The Company has operations in the United States and Germany. Transfers
between geographic areas are recorded at amounts reflecting competitive profit
margins for resale activities. The geographic distribution of sales, operating
profit and identifiable assets for 1995, 1994, and 1993 is as follows (in
thousands):
<CAPTION>
UNITED
1995 STATES GERMANY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C>
Revenue from unaffiliated
customers $41,251 $8,046 $- $49,297
Transfers between geographic
areas 5,347 - 5,347 -
Total revenues 46,598 8,046 5,347 49,297
Operating income 3,854 1,191 - 5,045
Identifiable assets at
November 30, 1995 34,052 5,746 300 39,498
UNITED
1994 STATES GERMANY ELIMINATIONS TOTAL
Revenue from unaffiliated
customers $37,970 $5,689 $- $43,659
Transfers between geographic
areas 3,809 - 3,809 -
Total revenues 41,779 5,689 3,809 43,659
Operating income 1,976 1,320 - 3,296
Identifiable assets at
November 30, 1994 33,857 4,488 250 38,095
<PAGE>
UNITED
1993 STATES GERMANY ELIMINATIONS TOTAL
Revenue from unaffiliated
customers $36,415 $4,921 $- $41,336
Transfers between geographic
areas 2,826 - 2,826 -
Total revenues 39,241 4,921 2,826 41,336
Operating income 3,854 1,295 - 5,149
Identifiable assets at
November 30, 1993 33,850 4,627 285 38,192
<FN>
In 1995, 1994, and 1993, the Company had export sales of $13,295,000,
$9,141,000, and $9,687,000 respectively, In each of these years, export sales
represented approximately 27%, 21% and 23%, respectively, of the Company's
consolidated net sales. The Company's largest single customer, an original
equipment manufacturer of telecommunications equipment, represented 14% in
1995, and 12% in 1994 and 1993 of total consolidated net sales.
</FN>
</TABLE>
<TABLE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<CAPTION>
YEAR ENDED NOVEMBER 30, 1995
FIRST SECOND THIRD FOURTH
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $11,309 $12,081 $12,470 $13,437
Gross margin 3,442 3,807 4,124 4,688
Net income 501 708 862 913
Earnings per common
share (1) 0.05 0.07 0.08 0.09
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1994
FIRST SECOND THIRD FOURTH
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $10,060 $11,933 $10,226 $11,440
Gross margin 2,789 3,622 2,748 3,871
Income before cumulative
effect of accounting
change 294 716 496 549 (2)
Net income 2,139 716 496 549 (2)
Earnings per common
share (1)
Income before cumulative
effect of accounting
change 0.03 0.07 0.05 0.05
Cumulative effect of
accounting change 0.18 - - -
Net income 0.21 0.07 0.05 0.05
<PAGE>
<FN>
(1) Earnings per common share are computed independently for each of
the quarters presented. Therefore, the sum of the quarterly earnings per share
may not equal the total computed for the year.
(2) The fourth quarter, 1994 operating results include an expense of
$456,000 incurred in connection with the settlement of a legal dispute.
</FN>
</TABLE>
16. RELATED PARTY TRANSACTIONS
The Company receives certain legal services from a firm, two principals
of which are Directors of the Company. Total legal fees paid to this firm
amounted to $32,000 in 1995 and 1994, and $27,000 in 1993.
17. OPERATING LEASES
The Company has entered into several operating lease agreements,
primarily relating to computer and other office equipment. These leases are
noncancelable and expire on various dates through 1999. Leases that expire
generally are expected to be renewed or replaced by other leases. Future
minimum rental payments for succeeding years under all operating leases are
as follows:
<TABLE>
<S> <C>
1996 $150,000
1997 121,000
1998 22,000
1999 9,000
$302,000
<FN>
Total rent expense under all operating leases amounted to $314,000 in
1995, $377,000 in 1994, and $693,000 in 1993.
</FN>
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under "Election of Directors" and
"Directors of the Company" on pages 4 and 5 of the registrant's Proxy
Statement for the annual meeting of shareholders to be held April 1,
1996 (the "Proxy Statement") is incorporated herein by reference.
The following information is provided with respect to the
executive officers of the Company:
<TABLE>
<CAPTION>
NAME OF OFFICER AGE POSITION
<S> <C> <C>
John P. Freeman 41 Vice President, Chief
Financial Officer
Joseph J. Gaynor 45 Vice President,
General Manager
of Spectrum Control
Technology, Inc.
John L. Johnston 53 President, Chief Executive
Officer
Robert J. McKenna 42 Vice President of Human
Resources
James A. Siegel 54 Treasurer
Richard A. Southworth 53 Vice President, General
Manager of
Electromagnetic Division
James F. Toohey 61 Secretary
Richard E. Zaday 56 Vice President of Sales
</TABLE>
Mr. Freeman is a graduate of Gannon University in Accounting and is a
Certified Public Accountant and Certified Management Accountant. He joined the
Company in 1988 as Controller. Prior to that time, he was a principal in a
public accounting firm. In January, 1990, he was named Vice President and
Chief Financial Officer.
Mr. Gaynor is a graduate of the Georgia Institute of Technology with
a bachelors degree in Mechanical Engineering. He joined the Company in 1991
as Vice President and General Manager of Spectrum Control Technology, Inc.
Mr. Gaynor's prior work experience includes various engineering and
manufacturing positions in specialty glass and electronic components.
Mr. Johnston is a graduate of Gannon University in General Science
and was elected in 1990 as President and Chief Executive Officer of the
Company. Prior to joining the Company, Mr. Johnston held executive positions
with Allen-Bradley, Murata-Erie North America, and Erie Technological Products.
<PAGE>
Mr. McKenna is a graduate of Gannon University in General Science. He
was elected an officer of the Company in 1994 as Vice President of Human
Resources. Prior to joining the Company in 1991, Mr. McKenna held management
positions with Advanced Cast Products and Johnson Controls.
Mr. Siegel is a graduate of Gannon University in Accounting. He joined
the Company as Corporate Controller in 1974, was appointed Assistant Treasurer
in 1975, and Treasurer in 1984.
Mr. Southworth is a graduate of Gannon University in Mechanical
Engineering and Mathematics. He joined the Company in 1991 as Vice President
and General Manager of the Electromagnetic Division. Prior to joining the
Company, Mr. Southworth held executive positions with National Water
Specialties, Philips Components, Murata-Erie North America, and Erie
Technological Products.
Mr. Toohey is a graduate of Gannon University and Dickinson School of
Law and is a practicing member of the Erie County Bar Association. He is a
member of the law firm of Quinn, Buseck, Leemhuis, Toohey & Kroto, Inc.,
general counsel to the Company, and has been a Director and Secretary of the
Company since its organization.
Mr. Zaday is a graduate of Cal State - LA in electronic engineering.
He joined the Company in 1990 as Distribution Sales Manager and was named
Vice President of Sales in 1994. Prior to joining the Company, Mr. Zaday held
sales positions with Spectrol Electronics, Alpha Wire, and TriadUtrad.
All executive officers are elected by the Board of Directors and serve
at the discretion of the Board.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under "Executive Compensation" on pages 7
through 12 of the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under "Securities Ownership" on pages 5
and 6 of the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(1) Financial Statements - The following consolidated financial
statements of Spectrum Control, Inc.and subsidiaries are included
in Part II, Item 8:
Report of Independent Auditors
Consolidated Balance Sheets as of November 30, 1995 and 1994
Consolidated Statements of Income for the Years Ended
November 30, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity for the
Years Ended November 30, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years Ended
November 30, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules - The following financial
statement schedule is submitted herewith for the periods
indicated therein.
Schedule II - Valuation and Qualifying Accounts
All other schedules are not submitted because they are not
required or are not applicable, or the required information is
shown in the consolidated financial statements or notes thereto.
Columns omitted from the schedule filed have been omitted because
the information is not applicable.
(3) Exhibits - The following is the index to exhibits for Spectrum
Control, Inc. and subsidiaries.
Description of Exhibit
Articles of Incorporation of registrant,
as amended, previously filed on
February 25, 1981, as Exhibit 3.1 to
Form S-1 registration and incorporated
herein by reference
By-laws of registrant, as amended,
previously filed on February 25, 1981,
as Exhibit 3.2 to Form S-1 registration
and incorporated herein by reference
Subsidiaries of the registrant (22)
Consent of Independent Auditors(23)
<PAGE>
(b) Reports on Form 8-K
None
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(FOR THE THREE YEARS ENDED NOVEMBER 30, 1995)
(DOLLAR AMOUNTS IN THOUSANDS)
(CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
<S> <C> <C> <C> <C>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
Year ended November 30, 1993
Allowance for doubtful accts. $ 89 $ 141 $ 42(1) $ 188
Year ended November 30, 1994
Allowance for doubtful accts. $ 188 $ 62 $ 29(1) $ 221
Valuation allowance for
deferred tax assets - 2,773 131(2) 2,642
$ 188 $ 2,835 $ 160 $2,863
Year ended November 30, 1995
Allowance for doubtful accts. $ 221 $ 130 $ 45(1) $ 306
Valuation allowance for
deferred tax assets 2,642 - 399(2) 2,243
$ 2,863 $ 130 $ 444 $2,549
<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) Decrease in valuation allowance, principally related to tax loss
carryforwards of the Company's foreign subsidiary.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Sspectrum Control, Inc.
By: /s/John L. Johnston
John L. Johnston
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
/s/John L. Johnston Director, President, and February 14, 1996
Chief Executive Office
/s/John P. Freeman Director, Vice President, February 14, 1996
Chief Financial Officer,
and Principal Accounting
Officer
/s/Edwin R. Bindseil Director February 14, 1996
/s/Gerald A. Ryan Director February 14, 1996
/s/James F. Toohey Director February 14, 1996
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
(1) Spectrum Control, Inc.
100% - Owned Subsidiary
Incorporated in the State of Delaware
Investment Company
(2) Spectrum Engineering International, Inc.
100% - Owned Subsidiary
Incorporated in the State of Delaware
Interest Charge Domestic
International Sales Corporation
(3) Spectrum Control Technology, Inc.
100% - Owned Subsidiary
Incorporated in the State of Delaware
Operating Company
(4) Spectrum Polytronics, Inc.
96% - Owned Subsidiary Incorporated in
the Commonwealth of Pennsylvania
Former Operating Company
(5) Spectrum Control GmbH
100% - Owned Subsidiary Incorporated in Germany
Operating Company
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 dated May 11, 1987 pertaining to the Non-Qualified
Stock Option Plan of 1987 and the Registration Statement on Form S-8
dated January 22, 1996 pertaining to the Stock Option Plan of 1995 of
Spectrum Control, Inc. of our report dated January 10, 1996, with respect
to the consolidated financial statements and schedule included in this
Form 10-K of Spectrum Control, Inc.
ERNST & YOUNG LLP
Erie, Pennsylvania
February 12, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF
NOVEMBER 30, 1995 AND CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED
NOVEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-K FOR THE YEAR ENDED 11/30/95.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 202
<SECURITIES> 0
<RECEIVABLES> 9,671
<ALLOWANCES> 306
<INVENTORY> 11,322
<CURRENT-ASSETS> 21,115
<PP&E> 37,649
<DEPRECIATION> 20,897
<TOTAL-ASSETS> 39,498
<CURRENT-LIABILITIES> 11,148
<BONDS> 0
<COMMON> 13,493
0
0
<OTHER-SE> 8,288
<TOTAL-LIABILITY-AND-EQUITY> 39,498
<SALES> 49,297
<TOTAL-REVENUES> 49,297
<CGS> 33,236
<TOTAL-COSTS> 33,236
<OTHER-EXPENSES> 11,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 908
<INCOME-PRETAX> 4,095
<INCOME-TAX> 1,111
<INCOME-CONTINUING> 2,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,984
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
