SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended February 28, 1997
Commission File Number 0-8796
Spectrum Control, Inc.
Exact name of registrant as specified in its charter
Pennsylvania 25-1196447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6000 West Ridge Road; Erie, Pennsylvania 16506
(Address) (Zip Code)
Registrant's telephone number, including area code: 814-835-4000
Not Applicable
Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class Number of Shares Outstanding
as of March 15, 1997
Common, no par value 10,774,233
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets --
February 28, 1997 and November 30, 1996
Consolidated Condensed Statements of Income --
Thirteen Weeks Ended February 28, 1997 and
February 29, 1996
Consolidated Condensed Statements of Cash Flows --
Thirteen Weeks Ended February 28, 1997 and
February 29, 1996
Notes to Consolidated Condensed Financial
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signature
<PAGE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Dollar Amounts in Thousands
(UNAUDITED)
<CAPTION>
Feb. 28, 1997 Nov. 30, 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 408 $ 413
Accounts receivable, net of
allowances 9,057 10,202
Inventories
Finished goods 2,651 2,631
Work-in-process 5,043 5,549
Raw materials 4,663 3,897
Total inventories 12,357 12,077
Prepaid expenses and other
current assets 401 303
Total current assets 22,223 22,995
PROPERTY, PLANT AND EQUIPMENT,
at cost,less accumulated
depreciation of $23,423
in 1997 and $22,731 in 1996 15,880 16,017
OTHER ASSETS
Intangible assets 478 524
Debt issuance costs 185 191
Deferred income taxes 281 281
Deferred charges 142 205
Total other assets 1,086 1,201
TOTAL ASSETS $39,189 $40,213
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Dollar Amounts in Thousands
(UNAUDITED)
<CAPTION>
Feb. 28, 1997 Nov.30, 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS
EQUITY
CURRENT LIABILITIES
Short-term debt $ 2,044 $ 3,278
Accounts payable 2,978 3,038
Accrued salaries and wages 1,020 1,308
Accrued interest 37 48
Accrued federal and state
income taxes 152 72
Accrued other expenses 428 325
Current portion of long-term debt 2,185 2,392
Total current liabilities 8,844 10,461
LONG-TERM DEBT 4,040 4,072
DEFERRED INCOME TAXES 328 301
STOCKHOLDERS' EQUITY
Common stock, no par value,
authorized 25,000,000 shares,
issued and outstanding 10,774,223
shares in 1997 and 1996 13,755 13,755
Retained earnings 12,544 11,890
Foreign currency translation
adjustment (322) (266)
Total stockholders' equity 25,977 25,379
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $39,189 $40,213
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Dollar Amounts in Thousands Except Per Share Data
(UNAUDITED)
<CAPTION>
Thirteen Weeks Ended
Feb. 28, 1997 Feb. 29, 1996
<S> <C> <C>
Net sales $12,712 $13,869
Cost of products sold 8,998 9,573
Selling, general and
administrative expense 2,676 3,104
11,674 12,677
Income from operations 1,038 1,192
Interest expense 130 202
Income before provision
for income taxes 908 990
Provision for income taxes 254 277
Net income $ 654 $ 713
Earnings per common share $ 0.06 $ 0.07
Dividends declared per
common share $ -- $ --
Weighted average number of
common shares outstanding 10,774,233 10,654,185
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Dollar Amounts in Thousands
(UNAUDITED)
<CAPTION>
Thirteen Weeks Ended
Feb. 28, 1997 Feb. 29, 1996
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 1,873 $ 874
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant
and equipment (587) (967)
Net cash used in investing
activities (587) (967)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds(repayment) of
short-term debt (1,203) 862
Repayment of long-term debt (104) (708)
Net proceeds from issuance
of common stock -- 52
Net cash provided by (used
in) financing activities (1,307) 206
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 16 (6)
NET INCREASE(DECREASE) IN CASH (5) 107
CASH, BEGINNING OF PERIOD 413 202
CASH, END OF PERIOD $ 408 $ 309
CASH PAID DURING THE PERIOD FOR:
Interest $ 141 $ 224
Income taxes 18 213
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
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, 1996.
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.
Results of Operations
Net sales decreased 8% during the period, with consolidated net
sales of $12.7 million in 1997 and $13.9 million in 1996.
Customer orders during the fourth quarter of 1996 were soft,
amounting to $11.8 million. This softening of customer orders,
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
particularly from telecommunication customers, resulted in lower
shipments for the first quarter of fiscal 1997. Customer orders
received during the first thirteen weeks of fiscal 1997, however,
increased to $14.1 million. As a result, Management believes
shipment levels will increase during the second quarter of 1997.
Gross margin was $3.7 million or 29% of sales in 1997, compared
to $4.3 million or 31% of sales in 1996. The decrease in gross
margin primarily reflects the impact of fixed manufacturing
overhead and lower shipment levels.
As a percentage of sales, selling expense remained constant
during the period at 11%, with total selling expense of $1.5
million in 1997 and $1.6 million in 1996. General and
administrative expense decreased during the period, amounting to
$1.2 million or 10% of sales during the first quarter of 1997,
compared to $1.5 million or 11% of sales for the comparable
period of 1996. The decrease in general and administrative
expense primarily reflects reduced expenses associated with the
implementation of the Company's Rapid Response program. Although
Rapid Response will continue to be implemented throughout 1997
and 1998, the expenses associated with the program were
principally incurred by the Company during fiscal 1996 in the
form of consulting fees and employee education. Accordingly,
Management expects that overall general and administrative
expense in 1997 will be lower than fiscal 1996 levels.
Interest expense decreased by $72,000 during the period, from
$202,000 in 1996 to $130,000 in 1997. The decrease in interest
expense primarily reflects reduced bank indebtedness. Overall
average interest rates remained stable throughout the period.
The Company's effective income tax rate also was constant at 28%
for the first thirteen weeks of fiscal 1997 and 1996.
Liquidity, Capital Resources and Financial Condition
The Company has a $6.0 million line of credit with PNC Bank of
Erie, Pennsylvania (the Bank ). Prior to March 18, 1997,
borrowings and required payments under the revolving credit line
were based upon an asset formula involving accounts receivable
and inventories. On March 18, 1997, the line of credit agreement
was renewed through April 30, 1999. Under the terms of the
renewal, borrowings under the line of credit are no longer
limited by an asset formula. The revolving credit line is
collateralized by substantially all of the Company's tangible and
intangible property, with current interest rates on borrowings
below the Bank's prevailing prime rate. At February 28, 1997,
the Company had borrowed $1.7 million under this financing
arrangement.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company's wholly-owned foreign subsidiary maintains unsecured
Deutsche Mark lines of credit with German financial institutions
aggregating $1.2 million (2.0 million DM). At February 28,
1997, the Company had borrowed $334,000 (551,000 DM) against
these lines of credit. Borrowings under the lines of credit
currently bear interest at rates below the prevailing prime rate
and are payable upon demand.
The Company's working capital continued to increase during the
period. At February 28, 1997, the Company had net working
capital of $13.4 million, compared to $12.5 million at November
30, 1996. The Company's current ratio also improved during the
first thirteen weeks of fiscal 1997, with current assets at 2.51
times current liabilities at February 28, 1997 and 2.20 at
November 30, 1996.
As a result of improved accounts receivable and inventory
turnover rates, net cash from operations increased significantly
during the period. During the first thirteen weeks of fiscal
1997, net cash provided by operations amounted to $1.9 million,
an increase of $1.0 million from the comparable period of 1996.
With the ongoing implementation of the Company's Rapid Response
program, Management anticipates that inventory turnover rates
will continue to improve throughout 1997.
During the first quarter of 1997, the Company's cash expenditures
for property, plant and equipment amounted to $587,000. These
capital expenditures primarily related to operating improvements
and manufacturing equipment for new product offerings, including
resonator and band pass filter products. During the first
thirteen weeks of 1997, the Company also repaid $1.3 million of
bank indebtedness. Current financial resources, including
working capital and existing lines of credit, and anticipated
funds from operations are expected to be sufficient to meet cash
requirements throughout 1997, including scheduled long-term debt
repayment and planned capital expenditures.
Forward-Looking Information
Management's Discussion and Analysis of Financial Condition and
Results of Operations includes forward-looking statements which
reflect Management's current views with respect to future
shipment and operating expense levels, inventory turnover rates,
and ongoing cash requirements. These forward-looking statements
are subject to certain risks and uncertainties, including those
identified below, which could cause actual results to differ
materially from historical results or those anticipated. The
words believe, expect, anticipate and similar expressions
identify forward-looking statements. Readers are cautioned not
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
to place undue reliance on these forward-looking statements. The
following factors could cause actual results to differ materially
from historical results or those anticipated: (1) increased
price competition in the Company's marketplace; (2) technology
advances effecting the demand for the Company's products; (3)
other changes in market demand, particularly among telecommu-
nications customers; (4) market acceptance and penetration for
the Company's new product offerings; (5) changes in the overall
economic climate; (6) operating cost fluctuations and
availability of raw materials; and (7) unplanned capital
replacement or expansion.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SPECTRUM CONTROL, INC.
(Registrant)
Date: March 25, 1997 By: /s/ John P. Freeman
John P. Freeman, Vice President
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SPECTRUM CONTROL, INC. CONSOLIDATED BALANCE SHEET AT FEBRUARY 28, 1997
AND CONSOLIDATED STATEMENT OF INCOME FOR THE QUARTER ENDED FEBRUARY 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS FORM 10-Q FOR
THE QUARTER ENDED FEBRUARY 28, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 9439
<ALLOWANCES> 382
<INVENTORY> 12357
<CURRENT-ASSETS> 22223
<PP&E> 39303
<DEPRECIATION> 23423
<TOTAL-ASSETS> 39189
<CURRENT-LIABILITIES> 8844
<BONDS> 4040
0
0
<COMMON> 13755
<OTHER-SE> 12222
<TOTAL-LIABILITY-AND-EQUITY> 39189
<SALES> 12712
<TOTAL-REVENUES> 12712
<CGS> 8998
<TOTAL-COSTS> 8998
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 908
<INCOME-TAX> 254
<INCOME-CONTINUING> 654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 654
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
