SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
(Amendment No. 1 to Form 8-K Filed April 12, 1999)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
June 9, 1999 (March 26,1999)
Date of Report (Date of earliest event reported)
Spectrum Control, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 0-8796 25-1196447
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
8031 Avonia Road Fairview, Pennsylvania 16415
(Address of Principal Executive Office)
814 (835-1650)
(Registrant's telephone number, including area code)
6000 West Ridge Road Erie, Pennsylvania 16506
(Former Name or Former Address, if Changed Since Last Report)
The registrant, in order to provide the financial statements
required to be included in the Current Report on Form 8-K dated
April 12,, 1999 in connection with the acquisition by the
registrant of substantially all of the assets of the Signal
Conditioning Products Division of AMP Incorporated, hereby amends
the following item of such Form 8-K as set forth in the pages
attached hereto.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
The financial statements and information in the following
table of contents and attached hereto are hereby filed with the
Commission in accordance with the above referenced item.
(a) Financial Statements of Business Acquired
Page
Report of Independent Auditors
Statement of Assets Purchased and
Liabilities Assumed of the Product Lines
Acquired from AMP Incorporated as of
December 31, 1998
Statements of Revenue and Direct Costs
and Expenses of the Product Lines Acquired
from AMP Incorporated for the Years Ended
December 31, 1998 and 1997
Notes to Financial Statements
(b) Unaudited Pro Forma Financial Information
Pro Forma Financial Information
Pro Forma Statement of Income
for the Three Month Period Ended
February 28, 1999 (Unaudited)
Notes to Pro Forma Statement of
Income for the Three Month Period
Ended February 28, 1999 (Unaudited)
Pro Forma Statement of Income for the
Year Ended November 30, 1998 (Unaudited)
Notes to Pro Forma Statement of
Income for the Year Ended
November 30, 1998 (Unaudited)
Pro Forma Balance Sheet as of
February 28, 1999 (Unaudited)
Notes to Pro Forma Balance Sheet as of
February 28, 1999 (Unaudited)
<PAGE>
(c) Exhibits
Exhibit
Exhibit Description Number
Asset Purchase Agreement, dated as of 2.1 *
March 26, 1999, by and between Spectrum
Control, Inc., AMP Incorporated, AMP Danmark
(an indirect subsidiary of AMP Incorporated),
and the Whitaker Corporation (a wholly-owned
subsidiary of AMP Incorporated). Registrant
agrees to furnish supplementally to the
Commission, upon request, a copy of any
omitted schedule.
* Previously 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 its behalf by the
undersigned thereunto duly authorized.
SPECTRUM CONTROL, INC.
(Registrant)
Date: June 9, 1999 By: /s/ John P. Freeman
John P. Freeman, Vice President
and Chief Financial Officer
(Principal Accounting and
Financial Officer)
<PAGE>
Report of Independent Auditors
To the Board of Directors and Shareholders
Spectrum Control, Inc.
We have audited the accompanying statement of assets purchased and
liabilities assumed of the product lines acquired from AMP Incorporated
as of December 31, 1998 and the related statements of revenue and direct
costs and expenses of the acquired product lines for each of the two
years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audits 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 financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
As discussed in Note 1, the accompanying financial statements have
been prepared solely to present the assets purchased and liabilities
assumed of the product lines acquired by Spectrum Control, Inc. from AMP
Incorporated as of December 31, 1998, and the revenue and direct costs
and expenses of the acquired product lines for the years ended December
31, 1998 and 1997, for the purpose of complying with the requirements of
the Securities and Exchange Commission (for inclusion in the Current
Report on Form 8-K/A of Spectrum Control, Inc.) and are not intended to
be a complete presentation of the financial position and results of
operations of the acquired product lines.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the assets purchased and liabilities
assumed of the product lines acquired from AMP Incorporated as of
December 31, 1998, and the revenue and direct costs and expenses of the
acquired product lines for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Pittsburgh, Pennsylvania
May 21, 1999
<PAGE>
<TABLE>
Statement of Assets Purchased and Liabilities Assumed
of the Product Lines Acquired from AMP Incorporated
December 31, 1998
(Dollar Amounts in Thousands)
<CAPTION>
<S>
Assets
<C>
Accounts receivable $ 1,053
Inventories (Note 3) 7,224
Total current assets 8,277
Property, plant and equipment, net (Note 4) 5,940
Total assets $ 14,217
Liabilities
Short-term debt (Note 5) $ 211
Accounts payable 434
Accrued salaries and wages 393
Total current liabilities 1,038
Net Assets Purchased $ 13,179
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Statements of Revenue and Direct Costs and Expenses
of the Product Lines Acquired from AMP Incorporated
For the Years Ended December 31, 1998 and 1997
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenue $ 23,589 $ 24,831
Direct costs and expenses
Cost of products sold 19,437 21,264
Selling, general and
administrative expenses 3,168 3,399
Interest expense 170 150
Total direct costs and expenses 22,775 24,813
Excess of revenue over direct costs and
expenses $ 814 $ 18
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
1. Basis of Presentation
On March 26, 1999, Spectrum Control, Inc. (the "Company")
acquired substantially all of the assets of the Signal Conditioning
Products Division ("SCPD") of AMP Incorporated ("AMP"). The assets
acquired relate directly and exclusively to the manufacture and sale
of ceramic-based electromagnetic interference filters, capacitive
film and Quietshield gaskets (the "Product Lines Acquired").
SCPD was not a legal entity and, except for product line
revenue and certain direct costs and expenses, no separate financial
statements were prepared. The assets and liabilities associated
with SCPD were components of a larger business unit. Accordingly,
other than inventory and certain accounts receivable and equipment,
the assets and liabilities of SCPD were not identified or maintained
in separate accounts. In addition, SCPD did not maintain its own
cash accounts. Under AMP"s centralized cash management system, cash
requirements of SCPD were generally provided directly by AMP, and
cash generated by SCPD was generally remitted directly to AMP.
Transaction systems used to record and account for cash
disbursements were provided by centralized AMP organizations outside
the defined scope of SCPD. Most of these corporate systems were not
designed to separately identify assets, liabilities, receipts, or
payments on a business specific basis. Given these constraints,
balance sheets of SCPD and related statements of operations and cash
flows have not been presented.
The accompanying Statement of Assets Purchased and Liabilities
Assumed and Statements of Revenue and Direct Costs and Expenses of
the Product Lines Acquired reflect AMP's historical book values,
adjusted downward to net realizable value where appropriate. These
financial statements are not intended to be a complete presentation
of the financial position and results of operations of the Product
Lines Acquired. The accompanying financial statements were prepared
solely to comply with the requirements of the Securities and
Exchange Commission (for inclusion in the Company's Current Report
on Form 8-K/A).
Certain direct expenses incurred by AMP and SCPD on behalf of
the Product Lines Acquired have been allocated to the Product Lines
Acquired on various bases which, in the opinion of management, are
reasonable. However, such expenses are not necessarily indicative
of the level of expenses which might have been incurred had the
Product Lines Acquired been operated as a separate company. The
accompanying Statements of Revenue and Direct Costs and Expenses of
the Product Lines Acquired do not include allocations of certain AMP
and SCPD overhead, general and administrative expenses, interest
expense, and income taxes as it is impracticable to arbitrarily
allocate such expenses on a retroactive basis.
2. Summary of Significant Accounting Policies
Fair Value of Financial Instruments
The carrying amounts of 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
bank borrowings are adjusted regularly to reflect current market
rates. Accordingly, the carrying amount of short-term debt also
approximates fair value.
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.
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
expensed as incurred; major replacements, renewals and betterments
are capitalized and depreciated over their estimated useful lives.
Foreign Currency Translation
The accompanying financial statements include the activity of
SCPD's Denmark operations. The assets purchased and liabilities
assumed of the Denmark operations have been translated into U.S.
Dollars using December 31, 1998 exchange rates. Revenue and expense
amounts of these operations have been translated at average exchange
rates prevailing during the period.
Revenue Recognition
Product sales are recorded at the time of shipment. Service
revenues are recorded when the related services are performed.
Pensions
AMP has noncontributory defined benefit pension plans covering
substantially all U.S. employees, including the employees of SCPD.
The benefits of these plans are based primarily on employees' years
of service and employees' compensation during the last years of
employment. The cost of these plans for active employees was
assigned to the Product Lines Acquired based on the respective
product lines' number of employees and sales.
Estimates
The preparation of the accompanying financial statements requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results may differ from those
estimates.
3. Inventories
At December 31, 1998, inventories consist of the following
(in thousands):
Finished goods $ 2,013
Work-in-process 3,095
Raw materials 2,116
$ 7,224
4. Property, Plant and Equipment
At December 31, 1998, property, plant and equipment consist of the
following (in thousands):
Land $ 61
Buildings and improvements 5,464
Machinery and equipment 10,067
15,592
Less accumulated depreciation 9,652
$ 5,940
For the years ended December 31, 1998 and 1997, depreciation expense
was $1,025,000 and $794,000, respectively.
5. Short-Term Debt
At December 31, 1998, short-term debt consists of $211,000
(1,350,000 DKK) of unsecured line of credit borrowings from the Den
Danske Bank of Copenhagen, Denmark. Borrowings under the line of
credit are payable upon demand and bear interest at or below the
prevailing prime rate.
6. Major Customer
The accompanying financial statements reflect revenues from a
single customer, an original equipment manufacturer of
telecommunication equipment, which represented approximately 19% of
total revenue in 1998 and 1997.
7. Related Party Transactions
The accompanying Statements of Revenue and Direct Costs and
Expenses of the Product Lines Acquired include significant
allocations of costs for functions and services (such as finance and
accounting, management information services, human resources, and
purchasing) that were provided to SCPD by centralized AMP
organizations outside the defined scope of SCPD. The costs of these
functions and services have been allocated to the Product Lines
Acquired using methods that management believes are reasonable. Such
allocations are not necessarily indicative of the costs that would
have been incurred if the Product Lines Acquired had been a separate
entity. For the years ended December 31, 1998 and 1997, total
allocated costs and expenses consist of the following:
1998 1997
Selling, general and
administrative expenses $ 279 $ 745
During 1998 and 1997, SCPD purchased certain materials and sold
certain products to AMP affiliated companies. In connection with
this activity, the Company and AMP have entered into a mutual supply
agreement under which AMP and its affiliates may purchase filtered
connectors from the Company and the Company may purchase connector
products and materials from AMP.
8. Impact of Year 2000 (Unaudited)
Some computer programs were written using two digits rather than
four digits to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date
using "00" as the year 1900 rather than the year 2000. This could
cause a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to
process transactions, send invoices, or engage in similar normal
business activities.
SCPD's computer systems are in the process of being integrated
with those of the Company. The Company is substantially complete
with the full implementation of all remediated systems and expects to
have SCPD fully integrated by September 1999. Should Year 2000
compliance not be achieved in a timely manner, the Company's
operations could be adversely affected. For further information on
the state of readiness refer to the Company's Form 10-Q for the
quarter ended February 28, 1999.
<PAGE>
Pro Forma Financial Information
On March 26, 1999, Spectrum Control, Inc. ("Spectrum")
acquired substantially all of the assets and assumed certain liabilities
of the Signal Conditioning Products Division ("SCPD") of AMP
Incorporated ("AMP"). Pursuant to an Asset Purchase Agreement, Spectrum
acquired AMP's ceramic filter manufacturing technology, electromagnetic
interference ("EMI") product lines, and related assets. The assets
acquired include inventories, equipment, tooling, intellectual property,
and certain accounts receivable, land and buildings. The cash purchase
price was approximately $20.3 million. Financing for the transaction
was provided by Spectrum's primary lending institution through a $20.0
million six year term loan. The transaction will be accounted for using
the purchase method of accounting.
The following unaudited pro forma statements of income for
the three months ended February 28, 1999 and the year ended November 30,
1998 assume that the acquisition was consummated at the beginning of the
respective periods. The following unaudited pro forma balance sheet as
of February 28, 1999 was prepared assuming the acquisition occurred on
February 28, 1999.
The unaudited pro forma adjustments are based on preliminary
assumptions of the allocation of the purchase price and are subject to
revision upon final settlement of all purchase price adjustments and the
completion of evaluations and other studies of the fair value of all
assets acquired and liabilities assumed. Actual purchase accounting
adjustments may differ from the pro forma adjustments presented herein,
although subsequent changes, if any, are not expected to be material.
The unaudited pro forma statements of income for the three
months ended February 28, 1999 and the year ended November 30, 1998
include adjustments for depreciation, amortization of goodwill, and
interest expense based upon the preliminary allocated cost of the
acquisition and its related financing. Pro forma adjustments have not
been made to reflect manufacturing cost savings which management
believes can be realized upon the combination of Spectrum's
manufacturing operations and that of SCPD or reduced general and
administrative expenses which management expects to be realized from the
planned integration of administrative functions. In addition, the
historical unaudited statements of SCPD do not include allocations of
all corporate overhead and financing costs incurred by AMP on behalf of
SCPD. Accordingly, the unaudited pro forma statements of income are not
necessarily indicative of the results that actually would have occurred
if the acquisition had been effective since the assumed dates, nor are
the statements necessarily indicative of future combined financial
position or earnings.
The unaudited pro forma financial statements should be read
in conjunction with the consolidated financial statements of Spectrum
Control, Inc. as filed with the Securities and Exchange Commission in
its Form 10-K for the year ended November 30, 1998 and Current Report on
Form 10-Q for the three months ended February 28, 1999.
<PAGE>
<TABLE>
Spectrum Control, Inc.
Pro Forma Statement of Income
For the Three Month Period Ended February 28 1999
Dollar Amounts in Thousands, Except Per Share Data
(Unaudited)
<CAPTION>
Historical Pro Forma
Spectrum SCPD Adjustments Pro Forma
(a)
<S> <C> <C> <C> <C>
Net sales $ 15,325 $ 3,800 $ - $ 19,125
Cost of products sold 10,913 2,915 (114) (b) 13,714
Gross margin 4,412 885 114 5,411
Selling, general and
administrative expense 2,980 594 167 (c) 3,741
Income from operations 1,432 291 (53) 1,670
Other income (expense)
Interest expense (53) (43) (357) (d) (453)
Other income and expense, net 11 (120) - (109)
(42) (163) (357) (562)
Income before provision
for income taxes 1,390 128 (410) 1,108
Provision for income taxes 527 48 (154) (e) 421
Net income $ 863 $ 80 $ (256) $ 687
Earnings per common share:
Basic $ 0.08 $ 0.06
Diluted $ 0.08 $ 0.06
Weighted average shares
outstanding 10,887,000 10,887,000
<PAGE>
Spectrum Control, Inc.
Notes to Unaudited Pro Forma Statement of Income
For the Three Month Period Ended February 28, 1999
(a) Represents the revenue and direct costs and expenses of the
Product Lines Acquired from AMP for the three month period
ended February 28, 1999, prepared on a basis consistent with
the Statements of Revenue and Direct Costs and Expenses
included in Item 7(a) of this Form 8-K/A.
(b) Reflects reduced depreciation expense from recording the
acquired fixed assets at fair value. Buildings and
improvements will be depreciated on a straight-line basis
over a 20 year period. Other fixed assets will be
depreciated over periods ranging from 3 to 6 years.
(c) Reflects the amortization of goodwill and patents recognized
in connection with the acquisition of SCPD. Goodwill will
be amortized on a straight-line basis over a 20 year period.
Patents will be amortized on a straight-line basis over
periods ranging from 10 to 17 years. Deferred debt issuance
costs, incurred in connection with securing the acquisition
financing, will be amortized ratably over the term of the
related indebtedness (6 years).
(d) Reflects increased interest expense arising from bank
borrowings of $20.0 million to finance the acquisition,
assuming an applicable interest rate of 8.00%.
(e) Adjustment to income tax provision to reflect the
approximate effective tax rate of Spectrum on the pro forma
results.
<PAGE>
</TABLE>
<TABLE>
Spectrum Control, Inc.
Pro Forma Statement of Income
For the Year Ended November 30, 1998
Dollar Amounts in Thousands, Except Per Share Data
(Unaudited)
<CAPTION>
Historical Pro Forma
Spectrum SCPD Adjustments Pro Forma
(a)
<S> <C> <C> <C> <C>
Net sales $ 59,868 $23,589 $ - $ 83,457
Cost of products sold 41,584 19,437 (456) (b) 60,565
Gross margin 18,284 4,152 456 22,892
Selling, general and
administrative expense 11,822 3,168 665 (c) 15,655
Income from operations 6,462 984 (209) 7,237
Other income (expense)
Interest expense (228) (170) (1,430) (d) (1,828)
Other income and expense, net 85 - - 85
(143) (170) (1,430) (1,743)
Income before provision
for income taxes 6,319 814 (1,639) 5,494
Provision for income taxes 2,385 - (311) (e) 2,074
Net income $ 3,934 $ 814 $ (1,328) $ 3,420
Earnings per common share:
Basic $ 0.36 $ 0.31
Diluted $ 0.36 $ 0.31
Weighted average shares
outstanding 10,907,000 10,907,000
<PAGE>
Spectrum Control, Inc.
Notes to Unaudited Pro Forma Statement of Income
For the Year Ended November 30, 1998
(a) Represents the revenue and direct costs and expenses of the
Product Lines Acquired from AMP for the year ended December
31, 1998, as included in Item 7(a) of this Form 8-K/A.
(b) Reflects reduced depreciation expense from recording the
acquired fixed assets at fair value. Buildings and
improvements will be depreciated on a straight-line basis
over a 20 year period. Other fixed assets will be
depreciated over periods ranging from 3 to 6 years.
(c) Reflects the amortization of goodwill and patents recognized
in connection with the acquisition of SCPD. Goodwill will
be amortized on a straight-line basis over a 20 year period.
Patents will be amortized on a straight-line basis over
periods ranging from 10 to 17 years. Deferred debt issuance
costs, incurred in connection with securing the acquisition
financing, will be amortized ratably over the term of the
related indebtedness (6 years).
(d) Reflects increased interest expense arising from bank
borrowings of $20.0 million to finance the acquisition,
assuming an applicable interest rate of 8.00%.
(e) Adjustment to income tax provision to reflect the
approximate effective tax rate of Spectrum on the pro forma
results.
<PAGE>
</TABLE>
<TABLE>
Spectrum Control, Inc.
Pro Forma Balance Sheet
February 28, 1999
Dollar Amounts in Thousands
(Unaudited)
<CAPTION>
Historical Pro Forma
Spectrum SCPD Adjustments Pro Forma
<S>
ASSETS
Current assets <C> <C> <C> <C>
Cash and cash equivalents $ 43 $ - $ - $ 43
Accounts receivable, net 11,342 2,801 (1,815) (a) 12,328
Inventories 13,990 8,441 (2,916) (b) 19,515
Prepaid expenses and other
current assets 1,024 171 (171) (a) 1,024
Total current assets 26,399 11,413 (4,902) 32,910
Property, plant and
equipment, net 16,246 6,327 (2,286) (b) 20,287
Other assets
Goodwill 2,576 1,044 11,238 (f) 14,858
Patents and patent rights 247 - 100 (b) 347
Debt issuance costs 158 - 260 (e) 418
Other 503 105 (105) (a) 503
Total other assets 3,484 1,149 11,493 16,126
Total assets $ 46,129 $ 18,889 $ 4,305 $ 69,323
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 400 $ 317 $ - $ 717
Account payable 3,698 662 (162) (a) 4,198
Accrued expenses 2,074 1,598 779 (c) 4,451
Current portion of
long-term debt 812 - 909 (d) 1,721
Total current liabilities 6,984 2,577 1,526 11,087
Long-term debt 2,481 - 19,091 (d) 21,572
Deferred income taxes 2,132 - - 2,132
Stockholders' equity
Common stock 14,470 - - 14,470
Retained earnings 20,661 - - 20,661
Treasury stock (294) - - (294)
Foreign currency
translation adjustment (305) - - (305)
Net assets of SCPD - 16,312 (16,312) (g) -
Total stockholders' equity 34,532 16,312 (16,312) 34,532
Total liabilities and
stockholders' equity $ 46,129 $ 18,889 $ 4,305 $ 69,323
<PAGE>
Spectrum Control, Inc.
Notes to Unaudited Pro Forma Balance Sheet
February 28, 1999
The unaudited balance sheets of Spectrum and SCPD as of
February 28, 1999 have been combined to reflect the pro forma impact of
the acquisition of SCPD by Spectrum as if the transaction had occurred
on February 28, 1999.
The following is a summary of the adjustments reflected in
the unaudited pro forma balance sheet:
(a) Eliminate SCPD assets not acquired by and liabilities not
assumed by Spectrum.
(b) Adjust historical cost of acquired assets to estimated fair
value on the date of acquisition.
(c) Record acquisition related costs.
(d) Record term loan used to finance the acquisition.
(e) Record deferred debt issuance costs incurred in connection
with the acquisition financing.
(f) Record the amount by which the purchase price, including
acquisition related costs, exceeds the fair market value of
assets acquired less liabilities assumed.
(g) Eliminate net assets of SCPD.
</TABLE>
