<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended May 31, 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 June 16, 1997
Common, no par value 10,774,233
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SPECTRUM CONTROL, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets --
May 31, 1997 and November 30, 1996 3-4
Consolidated Condensed Statements of
Income - Thirteen Weeks Ended
and Twenty-Six Weeks Ended
May 31, 1997 and 1996 5
Consolidated Condensed Statements of
Cash Flows - Thirteen Weeks Ended
and Twenty-Six Weeks Ended
May 31, 1997 and 1996 6
Notes to Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-11
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8K 12
Signature 13
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<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DOLLAR AMOUNTS IN THOUSANDS
(UNAUDITED)
<CAPTION>
May 31, 1997 Nov. 30, 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 307 $ 413
Accounts receivable, net of
allowances 9,182 10,202
Inventories
Finished goods 2,279 2,631
Work-in-process 5,106 5,549
Raw materials 4,930 3,897
Total inventories 12,315 12,077
Prepaid expenses and other
current assets 320 303
Total current assets 22,124 22,995
PROPERTY, PLANT AND EQUIPMENT,
at cost less accumulated
depreciation of $24,304
in 1997 and $22,731 in 1996 15,703 16,017
OTHER ASSETS
Intangible assets 431 524
Debt issuance costs 179 191
Deferred income taxes 281 281
Deferred charges 151 205
Total other assets 1,042 1,201
TOTAL ASSETS $38,869 $40,213
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DOLLAR AMOUNTS IN THOUSANDS
(UNAUDITED)
[CAPTION]
May 31, 1997 Nov.30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
[S] [C] [C]
CURRENT LIABILITIES
Short-term debt $ 1,411 $ 3,278
Accounts payable 2,782 3,038
Accrued salaries and wages 1,215 1,308
Accrued interest 57 48
Accrued federal and state
income taxes 61 72
Accrued other expenses 251 325
Current portion of long-term debt 2,056 2,392
Total current liabilities 7,833 10,461
LONG-TERM DEBT 3,807 4,072
DEFERRED INCOME TAXES 365 301
STOCKHOLDERS' EQUITY
Common stock, no par value,
authorized 25,000,000 shares,
issued and outstanding 10,774,233
shares in 1997 and 1996 13,755 13,755
Retained earnings 13,483 11,890
Foreign currency translation
adjustment (374) (266)
Total stockholders' equity 26,864 25,379
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $38,869 $40,213
[FN]
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
(Thousands of Dollars Except Per Share Data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
05/31/97 05/31/96 05/31/97 05/31/96
<S> <C> <C> <C> <C>
Net sales $14,376 $13,642 $27,088 $27,511
Cost of products sold 9,977 9,179 18,975 18,752
Selling, general and
administrative expense 2,971 3,129 5,647 6,233
12,948 12,308 24,622 24,985
Income from operations 1,428 1,334 2,466 2,526
Interest expense 125 206 255 408
Income before provision
for income taxes 1,303 1,128 2,211 2,118
Provision for
income taxes 364 316 618 593
Net income $ 939 $ 812 $ 1,593 $1,525
Earnings per
common share $ 0.09 $ 0.08 $ 0.15 $ 0.14
Weighted average number
of common shares
outstanding 10,774,233 10,738,270 10,774,233 10,696,995
<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 AMOUNT IN THOUSANDS
(UNAUDITED)
<CAPTION>
Twenty-Six Weeks Ended
May 31, 1997 May 31, 1996
<S> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $3,463 $2,035
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant
and equipment (1,309) (2,094)
Net cash used in investing
activities (1,309) (2,094)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds (repayment) of
short-term debt (1,867) 1,153
Repayment of long-term debt (408) (1,123)
Net proceeds from issuance
of common stock -- 94
Net cash provided by
(used in) financing
activities (2,275) 124
EFFECT OF EXCHANGE RATE
CHANGES ON CASH 15 (5)
NET INCREASE (DECREASE) IN CASH (106) 60
CASH BEGINNING OF PERIOD 413 202
CASH END OF PERIOD $ 307 $ 262
CASH PAID DURING THE PERIOD FOR:
Interest $ 246 $ 394
Income taxes 436 715
<FN>
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<PAGE>
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MAY 31, 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER 1997 VERSUS SECOND QUARTER 1996
Results of Operations
Net sales increased 5% during the period, with consolidated net
sales of $14.4 million in the second quarter of 1997 and $13.6
million in the comparable quarter of 1996. The increase in sales
reflects additional shipment volume in several of the Company s
electromagnetic interference ( EMI ) product offerings,
particularly EMI custom assemblies used by telecommunication and
other commercial customers in various filtered power distribution
systems.
Gross margin was $4.4 million or 31% of sales in 1997, compared
to $4.5 million or 33% of sales in 1996. The decrease in gross
margin, as a percentage of sales, principally reflects changes in
sales mix and the related impact of fixed manufacturing overhead
and lower production requirements at the Company s ceramic
capacitor manufacturing operation in New Orleans, Louisiana.
During the second quarter of 1997, the Company adopted a plan to
restructure and consolidate its existing filter assembly
divisions to reflect current market and manufacturing process
synergies. Management anticipates that this restructuring, which
will be completed during the third quarter of fiscal 1997, will
reduce manufacturing costs and improve gross margins. The
Company does not expect to incur any significant costs or charges
in connection with this restructuring.
Selling, general and administrative expense decreased during the
period, amounting to $3.0 million or 21% of sales for the second
quarter of 1997, compared to $3.1 million or 23% of sales for the
same period last year. The Company continuously identifies and
implements cost reduction programs designed to improve operating
efficiencies and reduce related operating expenses. As a result,
despite greater sales volume, selling expense decreased by
$65,000 in 1997 compared to 1996, and general and administrative
expense decreased by $93,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
TWENTY-SIX WEEKS 1997 VERSUS TWENTY-SIX WEEKS 1996
Results of Operations
Net sales were relatively stable during the period, amounting to
$27.1 million for the first half of 1997 and $27.5 million for
the comparable period of 1996. Demand for the Company s
products, however, continued to increase. Customer orders
received during the first half of 1997 amounted to $30.0 million,
an increase of $5.6 million or 23% from the second half of fiscal
1996. As a result, Management believes shipment levels will
increase during the second half of 1997.
During the first half of 1997, gross margin was $8.1 million or
30% of sales, compared to $8.8 million or 32% of sales for the
first half of 1996. As indicated above, the decrease in gross
margin primarily reflects the impact of fixed manufacturing
overhead and lower production requirements at the Company s
ceramic capacitor manufacturing facility.
As a percentage of sales, selling expense remained constant
during the period at 12%, with total selling expense of $3.1
million in 1997 and $3.3 million in 1996. General and
administrative expense decreased during the period, amounting to
$2.5 million or 9% of sales during the first half of 1997,
compared to $2.9 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 $153,000 during the period, from
$408,000 in 1996 to $255,000 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 half of fiscal 1997 and 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Liquidity, Capital Resources and Financial Condition
The Company has a $6.0 million line of credit with PNC Bank of
Erie, Pennsylvania (the Bank ). 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 May 31, 1997, the
Company had borrowed $1.4 million under this financing
arrangement.
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 May 31, 1997,
there were no borrowings outstanding against these lines of
credit. Future borrowings under the lines of credit will bear
interest at rates below the prevailing prime rate and will be
payable upon demand.
The Company s working capital continued to increase during the
period. At May 31, 1997, the Company had net working capital of
$14.3 million, compared to $12.5 million at November 30, 1996.
The Company s current ratio also improved during the first half
of fiscal 1997, with current assets at 2.82 times current
liabilities at May 31, 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 half of fiscal 1997, net
cash provided by operations amounted to $3.5 million, an increase
of $1.4 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
During the first twenty-six weeks of 1997, the Company s cash
expenditures for property, plant and equipment amounted to $1.3
million. 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 half of 1997, the Company also repaid
$2.3 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
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
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 telecommunications
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.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on ts behalf by the undersigned thereunto duly authorized.
SPECTRUM CONTROL, INC.
(Registrant)
By: s/s John P. Freeman
John P. Freeman, Vice President
and Chief Financial Officer
(Principal Accounting and
Financial Officer
Dated: June 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SPECTRUM CONTROL, INC. CONSOLIDATED BALANCE SHEET AT MAY 31, 1997 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED MAY 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS FORM 10-Q FOR THE
QUARTER ENDED MAY 31, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 307
<SECURITIES> 0
<RECEIVABLES> 9565
<ALLOWANCES> 383
<INVENTORY> 12315
<CURRENT-ASSETS> 22124
<PP&E> 40007
<DEPRECIATION> 24304
<TOTAL-ASSETS> 38869
<CURRENT-LIABILITIES> 7833
<BONDS> 3807
0
0
<COMMON> 13755
<OTHER-SE> 13109
<TOTAL-LIABILITY-AND-EQUITY> 38869
<SALES> 27088
<TOTAL-REVENUES> 27088
<CGS> 18975
<TOTAL-COSTS> 18975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 2211
<INCOME-TAX> 618
<INCOME-CONTINUING> 1593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1593
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
