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 February 28, 1995
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 close of the period covered by
this report.
CLASS NUMBER OF SHARES OUTSTANDING
Common, no par value 10,548,540
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets --
February 28, 1995 and November 30, 1994 3 - 4
Consolidated Condensed Statements of
Income - Thirteen Weeks Ended
February 28, 1995 and 1994 5
Consolidated Condensed Statements of
Cash Flows - Thirteen Weeks Ended
February 28, 1995 and 1994 6
Notes to Consolidated Condensed Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8-9
PART II OTHER INFORMATION 9
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Thousands of Dollars)
February 28, 1995 November 30, 1994
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 139 $ 102
Accounts receivable, net of
allowances 8,049 7,717
Inventories
Finished goods 1,930 1,756
Work-in-process 5,816 6,321
Raw materials 3,789 3,318
Total inventories 11,535 11,395
Deferred income taxes 152 152
Prepaid expenses and other
current assets 53 122
Total current assets 19,928 19,488
PROPERTY, PLANT AND EQUIPMENT,
at cost less accumulated
depreciation of $19,562
in 1995 and $19,005 in 1994 15,639 15,932
OTHER ASSETS
Intangible assets 1,591 1,708
Deferred income taxes 695 846
Deferred charges 129 121
Total other assets 2,415 2,675
TOTAL ASSETS $ 37,982 $ 38,095
The accompanying notes are an integral part of the financial
statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(Thousands of Dollars)
February 28, 1995 November 30, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 4,042 $ 4,096
Accounts payable 2,907 2,057
Accrued salaries and wages 883 1,047
Accrued interest 92 133
Accrued federal and state
income taxes 56 52
Accrued other expenses 636 774
Current portion of long-term debt 2,602 3,078
Total current liabilities 11,218 11,237
LONG-TERM DEBT 7,675 8,275
STOCKHOLDERS' EQUITY
Common stock 13,350 13,350
Retained earnings 5,989 5,488
Foreign currency translation
adjustment (250) (255)
Total stockholders' equity 19,089 18,583
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 37,982 $ 38,095
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 Share Data)
Thirteen weeks ended February 28,
1995 1994
Net sales $ 11,309 $ 10,060
Cost of products sold 7,867 7,271
Selling, general and
administrative
expense 2,452 2,352
10,319 9,623
Income from operations 990 437
Other income (expense)
Interest expense (265) (233)
Other income - 221
(265) (12)
Income before provision
for income taxes and
cumulativeeffect of
a change inaccounting
principle 725 425
Provision for income
taxes 224 131
Income before cumulative
effect of a change
in accounting
principle 501 294
Cumulative effect on
prior years of
changing the method
of accounting for
income taxes - 1,845
Net income 501 2,139
Earnings per common
share
Income before cumulative
effect of accounting
change $ 0.05 $ 0.03
Cumulative effect of
accounting change - 0.18
Net income 0.05 0.21
Dividends declared per
common share - -
Weighted average number
of common shares
outstanding 10,548,540 10,311,264
The accompanying notes are an integral part of the financial
statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Thousands of Dollars)
Thirteen Weeks Ended February 28,
1995 1994
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 1,431 $ 562
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property, plant
and equipment (264) (514)
Net cash used in investing
activities (264) (514)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds (repayment) of
short-term debt (54) 191
Repayment of long-term debt (1,076) (322)
Net proceeds from issuance
of common stock - 5
Net cash used in financing
activities (1,130) (126)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - (21)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 37 (57)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 102 293
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 139 $ 236
CASH PAID DURING THE PERIOD
Interest $ 306 $ 193
Income taxes 33 38
The accompanying notes are an integral part of the financial
statements.
SPECTRUM CONTROL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FEBRUARY 28, 1995
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 footnotes 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
footnotes thereto included in the Spectrum Control, Inc. and
Subsidiaries annual report on Form 10-K for the fiscal year
ended November 30, 1994.
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 and warrants, 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
Results of Operations
Consolidated 1995 net sales increased by $1.2 million or 12%
from the first quarter of 1994. The increase in sales
reflects additional shipment volume in several of the Company's
electromagnetic interference ("EMI") product offerings,
particularly EMI filtered connectors and EMI filter plates used
by customers in the telecommunication industry.
Gross margin was $3.4 million or 31% of sales in 1995, compared
to $2.8 million or 28% of sales in 1994. During the
first quarter of 1994, gross margin was negatively impacted by
increased production costs at the Company's ceramic
capacitor manufacturing operations in New Orleans, Louisiana.
These ceramic capacitor production problems were
substantially corrected later in 1994.
Selling, general and administrative expense was $2.5 million or
22% of sales in 1995, compared to $2.4 million or 23%
of sales in 1994. The decrease in selling, general and
administrative expense, as a percentage of sales, primarily
reflects
economies of scale realized with increased sales volume.
Interest expense increased $32,000 in 1995, from $233,000 in
1994 to $265,000 in 1995. The increase in interest
expense reflects higher short-term interest rates. During the
first quarter of 1995, average short-term interest rates were
approximately 9%, compared to 7% during the first quarter of
1994.
During the first quarter of 1994, the Company generated
$221,000 from patent licensing activities.
Effective December 1, 1993, the Company adopted Statement of
Financial Accounting Standards No.109. "Accounting
for Income Taxes" ("SFAS No. 109"). 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 were not restated.
Accordingly, the cumulative effect of this change in accounting
for income taxes was included in net income in the Company's
consolidated statement of income for the thirteen weeks ended
February 28, 1994.
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"). Under the terms of the
Line of Credit Agreement, borrowings and required payments are
based upon an asset formula involving accounts
receivable and inventories. The revolving credit line is
collateralized by substantially all of the Company's tangible and
intangible property, with interest on all borrowings at rates
approximating the Bank's prevailing prime rate. At February 28,
1995, the Company had borrowed $3.9 million under this financing
arrangement, with an additional borrowing availability of
approximately $2.1 million under the asset formula. The current
Line of Credit Agreement expires on April 30, 1997.
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
February 28, 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 $993,000 (1.5 million DM). At
February 28, 1995, the Company had borrowed $149,000
(225,000 DM) 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.
The Company's working capital and current ratio continued to
improve during the period. At February 28, 1995, the
Company had net working capital of $8.7 million compared to $8.3
million at November 30, 1994. Current assets were 1.78
times current liabilities at February 28, 1995, compared to 1.73
at November 30, 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -
CONTINUED
During the first thirteen weeks of 1995, net cash provided by
operations amounted to $1.4 million, an increase of
$869,000 from the comparable period of 1994. In addition to
capital expenditures of $264,000, this positive cash flow was
utilized to repay $1.1 million of indebtedness. As a result of
this debt reduction and the increase in stockholders' equity from
earnings during the period, the Company's debt to equity ratio
also continued to improve. Total liabilities to net worth were
0.99 at February 28, 1995 versus 1.05 at November 30, 1994.
The Company expects that cash generated from operations and
existing lines of credit will be sufficient to meet its
operating requirements throughout 1995, including scheduled
long-term debt repayment and planned capital expenditures.
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 prices over time. Sales increases
reported during the current period, however, have substantially
arisen from increased sales volume, not increases in selling
prices.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
SIGNATURES
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)
Date March 30, 1995 By /s/John P. Freeman
John P. Freeman,
Vice President
and Chief Financial
Officer
EX-27
2
5
3-MOS
NOV-30-1995
FEB-28-1995
139
0
8,049
0
11,535
19,928
35,201
19,562
37,982
11,218
0
13,350
0
0
5,739
37,982
11,309
11,309
7,867
7,867
2,452
0
265
725
224
501
0
0
0
501
.05
.05