-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PMGUppYO7HI5jumGmUy1xyLOKSk5E0DMaColUd5F0+RFxNHSsy+GruQNnhf6w7D5 zuMKG3Va5fPbdKfbg8NOVQ== 0000092769-97-000013.txt : 19970929 0000092769-97-000013.hdr.sgml : 19970929 ACCESSION NUMBER: 0000092769-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19970926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRUM CONTROL INC CENTRAL INDEX KEY: 0000092769 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 251196447 STATE OF INCORPORATION: PA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08796 FILM NUMBER: 97686498 BUSINESS ADDRESS: STREET 1: 6000 WEST RIDGE ROAD CITY: ERIE STATE: PA ZIP: 16506 BUSINESS PHONE: 8148351507 MAIL ADDRESS: STREET 2: 6000 WEST RIDGE ROAD CITY: ERIE STATE: PA ZIP: 16506 10-Q 1 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 August 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 September 15, 1997 Common, no par value 10,834,231 SPECTRUM CONTROL, INC. AND SUBSIDIARIES INDEX Page No. PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Condensed Balance Sheets -- August 31, 1997 and November 30, 1996 3-4 Consolidated Condensed Statements of Income - Thirteen Weeks Ended and Thirty-Nine Weeks Ended August 31, 1997 and 1996 5 Consolidated Condensed Statements of Cash Flows - Thirteen Weeks Ended and Thirty-Nine Weeks Ended August 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 8-12 PART II OTHER INFORMATION Item 6 Exhibits and Reports on Form 8K 13 Signature 14 SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS DOLLAR AMOUNTS IN THOUSANDS (UNAUDITED)
Aug. 31, 1997 Nov. 30, 1996 ASSETS CURRENT ASSETS Cash $ 870 $ 413 Accounts receivable, net of allowances 8,532 10,202 Inventories Finished goods 2,230 2,631 Work-in-process 5,124 5,549 Raw materials 5,075 3,897 Total inventories 12,429 12,077 Prepaid expenses and other current assets 242 303 Total current assets 22,073 22,995 PROPERTY, PLANT AND EQUIPMENT, at cost less accumulated depreciation of $25,141 in 1997 and $22,731 in 1996 15,767 16,017 OTHER ASSETS Intangible assets 388 524 Debt issuance costs 173 191 Deferred income taxes 281 281 Deferred charges 131 205 Total other assets 973 1,201 TOTAL ASSETS $38,813 $40,213 The accompanying notes are an integral part of the financial statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS DOLLAR AMOUNTS IN THOUSANDS (UNAUDITED)
Aug. 31, 1997 Nov.30, 1996 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt $ -- $ 3,278 Accounts payable 2,615 3,038 Accrued salaries and wages 1,395 1,308 Accrued interest 55 48 Accrued federal and state income taxes 221 72 Accrued other expenses 295 325 Current portion of long-term debt 1,944 2,392 Total current liabilities 6,525 10,461 LONG-TERM DEBT 3,777 4,072 DEFERRED INCOME TAXES 407 301 STOCKHOLDERS' EQUITY Common stock, no par value, authorized 25,000,000 shares, issued and outstanding 10,834,231 shares in 1997 and 10,774,233 shares in 1996 13,952 13,755 Retained earnings 14,542 11,890 Foreign currency translation adjustment (390) (266) Total stockholders' equity 28,104 25,379 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,813 $40,213 The accompanying notes are an integral part of the financial statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Thousands of Dollars Except Per Share Data) Thirteen Weeks Ended Thirty-Nine Weeks Ended 08/31/97 08/31/96 08/31/97 08/31/96 Net sales $13,969 $14,930 $41,058 $42,441 Cost of products sold 9,530 10,123 28,506 28,875 Selling, general and administrative expense 2,940 3,301 8,588 9,534 12,470 13,424 37,094 38,409 Income from operations 1,499 1,506 3,964 4,032 Other income (expense) Interest expense (109) (190) (363) (598) Other income and expense, net 80 (17) 80 (17) (29) (207) (283) (615) Income before provision for income taxes 1,470 1,299 3,681 3,417 Provision for income taxes 411 364 1,029 957 Net income $ 1,059 $ 935 $ 2,652 $2,460 Earnings per common share $ 0.10 $ 0.09 $ 0.25 $ 0.23 Weighted average number of common shares outstanding 10,806,696 10,758,726 10,785,133 10,717,647 The accompanying notes are an integral part of the financial statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS DOLLAR AMOUNTS IN THOUSANDS (UNAUDITED)
Thirty-Nine Weeks Ended Aug. 31, 1997 Aug. 31, 1996 NET CASH PROVIDED BY OPERATING ACTIVITIES $6,261 $3,055 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment -- 1,655 Purchase of property, plant and equipment (2,230) (3,027) Net cash used in investing activities (2,230) (1,372) CASH FLOWS FROM FINANCING ACTIVITIES Net repayment of short-term debt (3,278) (277) Repayment of long-term debt (510) (1,336) Net proceeds from issuance of common stock 197 132 Net cash used in financing activities (3,591) (1,481) EFFECT OF EXCHANGE RATE CHANGES ON CASH 17 (2) NET INCREASE IN CASH 457 200 CASH BEGINNING OF PERIOD 413 202 CASH END OF PERIOD $ 870 $ 402 CASH PAID DURING THE PERIOD FOR: Interest $ 356 $ 565 Income taxes 645 950 The accompanying notes are an integral part of the financial statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AUGUST 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). 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. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER 1997 VERSUS THIRD QUARTER 1996 Results of Operations Net sales decreased 6% during the period, with consolidated net sales of $14.0 million in the third quarter of 1997 and $14.9 million in the comparable quarter of 1996. During the third quarter of 1997, certain of the Company's telecommunication customers rescheduled or delayed receipt of the Company's electromagnetic interference ("EMI") filter products. However, overall demand for the Company's EMI filter products remained strong, with total customer orders received of $15.3 million during the third quarter of 1997, an increase of 22% from the third quarter of 1996. As a percentage of sales, gross margin remained stable during the period. During the thirteen weeks ended August 31, 1997, gross margin was $4.4 million or 32% of sales, compared to $4.8 million or 32% of sales for the comparable period of 1996. Selling, general and administrative expense decreased during the period, amounting to $2.9 million or 21% of sales for the third quarter of 1997, compared to $3.3 million or 22% of sales for the same period last year. As more fully discussed below, this decrease principally reflects reduced expenses associated with the Company's Rapid Response program. As a result of the Company's continued debt reduction, interest expense decreased by $81,000 during the period. For the third quarter of 1997, interest expense amounted to $109,000 compared to $190,000 for the comparable quarter of 1996. During the thirteen weeks ended August 31, 1997, the Company recognized other income or $80,000 in connection with certain patent licensing activity. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THIRTY-NINE WEEKS 1997 VERSUS THIRTY-NINE WEEKS 1996 Results of Operations Net sales decreased by 3% during the period, amounting to $41.1 million for the first thirty-nine weeks of 1997 and $42.4 million for the comparable period of 1996. However, customer orders received during the first nine months of 1997 amounted to $45.2 million, an increase of $507,000 from the same period last year. As a result, Management believes shipment levels will increase during the remainder of fiscal 1997. Overall, average selling prices remained relatively stable throughout the period. During the first thirty-nine weeks of 1997, gross margin was $12.6 million or 31% of sales compared to $13.6 million or 32% of sales for the same period last year. In addition to reduced sales volume, the decrease in gross margin primarily 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 third quarter of 1997, the Company completed a restructuring and consolidation of its assembly divisions to better reflect current market and manufacturing process synergies. Management anticipates that this restructuring will reduce manufacturing costs and improve gross margins. The Company did not incur any significant costs or charges in connection with this restructuring. As a percentage of sales, selling expense remained constant during the period at 11%, with total selling expense of $4.7 million in 1997 and $4.8 million in 1996. General and administrative expense decreased during the period, amounting to $3.9 million or 10% of sales during the first thirty-nine weeks of 1997, compared to $4.7 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. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Interest expense decreased by $235,000 during the period, from $598,000 in 1996 to $363,000 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 thirty-nine weeks of fiscal 1997 and 1996, compared to an applicable statutory income tax rate of approximately 40%. Differences in the effective tax rate and statutory tax rate primarily reflect changes in the deferred tax asset valuation allowance relating to certain foreign net operating loss carryforwards. 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 interest rates on borrowings at or below the Bank s prevailing prime rate. At August 31, 1997, there were no borrowings outstanding under this financing arrangement. The Company s wholly-owned foreign subsidiary maintains unsecured Deutsche Mark lines of credit with German financial institutions aggregating $1.1 million (2.0 million DM). At August 31, 1997, there were no borrowings outstanding against these lines of credit. Future borrowings, if any, under the lines of credit will bear interest at rates at or below the prevailing prime rate and will be payable upon demand. The Company s working capital continued to increase during the period. At August 31, 1997, the Company had net working capital of $15.5 million, compared to $12.5 million at November 30, 1996. The Company s current ratio also improved during the first thirty-nine weeks of fiscal 1997, with current assets at 3.38 times current liabilities at August 31, 1997 and 2.20 at November 30, 1996. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) As a result of improved accounts receivable and inventory turnover rates, net cash from operations increased significantly during the period. During the first three quarters of fiscal 1997, net cash provided by operations amounted to $6.3 million, an increase of $3.2 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 and 1998. During the first thirty-nine weeks of 1997, the Company s cash expenditures for property, plant and equipment amounted to $2.2 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 thirty-nine weeks of 1997, the Company also repaid $3.8 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. Impact of Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15 and specifies the computation, presentation and disclosure requirements for earnings per share. SFAS No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997 and early application is not permitted. Accordingly, the Company will apply SFAS No. 128 for the quarter ended February 28, 1998 and restate prior period information as required under the statement. The Company does not expect the adoption of SFAS No. 128 to have a material impact on reported earnings per share. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting and Disclosures about Comprehensive Income" and No. 131, "Disclosures about Segments of an Enterprise", which are effective for fiscal years beginning after December 15, 1997. The Company is currently evaluating the effects of these new standards. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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 affecting the demand for the Company s products; (3) other changes in market demand, particularly among communications 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) By: s/s John P. Freeman John P. Freeman, Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) Dated: September 26, 1997 EX-27 2 ART. 5 FDS FOR SECOND QUARTER 1997 FORM 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SPECTRUM CONTROL, INC. CONSOLIDATED BALANCE SHEET AT AUGUST 31, 1997 AND CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED AUGUST 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1997 1,000 9-MOS NOV-30-1997 AUG-31-1997 870 0 8928 396 12429 22073 40908 25141 38813 6525 3777 0 0 13952 14152 38813 41058 41058 28506 28506 0 0 363 3681 1029 2652 0 0 0 2652 .25 .25
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