-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, f5INEbU7p+Hf5b98SYu7ADywqJ6YaC/7D/V9Rior0VpcREDl3LfLB1PUkpBCkj19 V+t50YLFv7T7Z81y10q6/w== 0000092769-95-000005.txt : 19950713 0000092769-95-000005.hdr.sgml : 19950713 ACCESSION NUMBER: 0000092769-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950531 FILED AS OF DATE: 19950705 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRUM CONTROL INC CENTRAL INDEX KEY: 0000092769 STANDARD INDUSTRIAL CLASSIFICATION: 3670 IRS NUMBER: 251196447 STATE OF INCORPORATION: PA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08796 FILM NUMBER: 95552085 BUSINESS ADDRESS: STREET 1: 6000 WEST RIDGE ROAD CITY: ERIE STATE: PA ZIP: 16506 BUSINESS PHONE: 8148354000 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 May 31, 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 10,577,040 SPECTRUM CONTROL, INC. AND SUBSIDIARIES INDEX Page No. PART I FINANCIAL INFORMATION Consolidated Condensed Balance Sheets -- May 31, 1995 and November 30, 1994 3-4 Consolidated Condensed Statements of Income - Thirteen Weeks Ended and Twenty-Six Weeks Ended May 31, 1995 and 1994 5 Consolidated Condensed Statements of Cash Flows - Twenty-Six Weeks Ended May 31, 1995 and 1994 6 Notes to Consolidated Condensed Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II OTHER INFORMATION 10 SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Thousands of Dollars) May 31, 1995 November 30, 1994 ASSETS CURRENT ASSETS Cash and short-term investments $ 120 $ 102 Accounts receivable, net of allowances 8,461 7,717 Inventories Finished goods 1,736 1,756 Work-in-process 5,912 6,321 Raw materials 3,461 3,318 Total inventories 11,109 11,395 Prepaid expenses and other current assets 199 122 Total current assets 19,889 19,488 PROPERTY, PLANT AND EQUIPMENT, at cost less accumulated depreciation of $20,238 in 1995 and $19,005 in 1994 15,941 15,932 OTHER ASSETS Intangible assets 1,481 1,708 Deferred income taxes 574 846 Deferred charges 135 121 Total other assets 2,190 2,675 TOTAL ASSETS $ 38,020 $ 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) May 31, 1995 November 30, 1994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt $ 3,911 $ 4,096 Accounts payable 2,518 2,057 Accrued salaries and wages 976 1,047 Accrued interest 75 133 Accrued federal and state income taxes - 52 Accrued other expenses 847 774 Current portion of long-term debt 2,276 3,078 Total current liabilities 10,603 11,237 LONG-TERM DEBT 7,440 8,275 STOCKHOLDERS' EQUITY Common stock 13,374 13,350 Retained earnings 6,697 5,488 Foreign currency translation adjustment (94) (255) Total stockholders' equity 19,977 18,583 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,020 $ 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 Per Share Data) Thirteen Weeks Ended Twenty-Six Weeks Ended May 31,1995 May 31,1994 May 31,1995 May31,1994 Net sales $ 12,081 $ 11,933 $ 23,390 $21,993 Cost of products sold 8,274 8,311 16,141 15,582 Selling, general and administrative expense 2,636 2,337 5,088 4,689 10,910 10,648 21,229 20,271 Income from operations 1,171 1,285 2,161 1,722 Other income (expense) Interest expense (250) (254) (515) (487) Other income - 8 - 229 (250) (246) (515) (258) Income before provision for income taxes and cumulative effect of a change in accounting principle 921 1,039 1,646 1,464 Provision for income taxes 213 323 437 454 Income before cumulative effect of a change in accounting principle 708 716 1,209 1,010 Cumulative effect on prior years of changing the method of accounting for income taxes - - - 1,845 Net income $ 708 $ 716 $ 1,209 $ 2,855 Earnings per common share Income before cumulative effect of accounting $ 0.07 $ 0.07 $ 0.12 $ 0.10 change Cumulative effect of accounting change - - - 0.18 Net income $ 0.07 $ 0.07 $ 0.12 $ 0.28 SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) Dividends declared per common share - - - - Weighted average number of common shares outstanding 10,555,624 10,396,757 10,552,081 10,354,011 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) Twenty-Six Weeks Ended May 31, 1995 1994 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,996 $ 621 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (957) (877) Net cash used in investing activities (957) (877) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (repayment) of short-term debt (218) 984 Repayment of long-term debt (1,833) (1,110) Net proceeds from issuance of common stock 24 351 Net cash provided by (used in) financing activities (2,027) 225 EFFECT OF EXCHANGE RATE CHANGES ON CASH 6 - NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18 (31) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 102 293 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 120 $ 262 CASH PAID DURING THE PERIOD Interest $ 573 $ 449 Income taxes 205 298 The accompanying notes are an integral part of the financial statements. SPECTRUM CONTROL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MAY 31, 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. SPECTRUM CONTROL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MAY 31, 1995 CONTINUED 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 SECOND QUARTER 1995 VERSUS SECOND QUARTER 1994 Results of Operations Overall, net sales increased slightly during the period, with consolidated net sales of $12.1 million in 1995 and $11.9 million in 1994. In the second quarter of 1995, increased shipments to customers in the telecommunication industry were partially offset by reduced shipment volume to customers acting as prime suppliers to the military and aerospace industries. Gross margin was $3.8 million or 32% of the sales in 1995, compared to $3.6 million or 30% of sales in 1994. The increase in gross margin primarily reflects reductions in manufacturing overhead and changes in sales mix. Selling, general and administrative expense increased during the period. In the second quarter of 1995, selling, general and administrative expense was $2.6 million or 22% of sales, compared to $2.3 million or 20% of sales for the same period last year. In 1994, the Company delayed or postponed certain discretaionary expenses. Accordingly, although the Company is continuing its efforts to reduce operating costs, the reduction in 1994 selling, general and administrative expense is not expected to be sustained in 1995. Twenty-Six Weeks 1995 Versus Twenty-Six Weeks 1994 Results of Operations Consolidated 1995 net sales increased by $1.4 million or 6% from the first half 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. Overall, average selling prices remained relatively stable throughout the period. During the first half of 1995, gross margin was $7.2 million or 31% of sales, compared to $6.4 million or 29% of sales for the first half of 1994. During the first three months of 1994, gross margin was negatively impacted by increased production costs at the Comcpany's ceramic capacitor manufacturing operations in New Orleans, Louisiana. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED These ceramic capacitor production problems were substantially corrected later in 1994. In addition, 1995 gross margin was positively impacted by changes in sales mix and reductions in certain manufacturing overhead costs. Selling, general and administrative expense increased by $399,000 in the first half of 1995 and was 22% of net sales compared to 21% in 1994. This increase primarily reflects additional general and administrative expenses in 1995. As previously discussed, certain discretaionary expenses were delayed or postponed in 1994. Accordingly, Management believes that the current period selling, general and administrative expenses are more indicative of future expected operating costs. Interest expense increased $28,000 in 1995, from $487,000 in 1994 to $515,000 in 1995. The increase in interest expense reflects higher short-term interest rates. During the first half of 1995, average short-term interest rates were approximately 9%, compared to 7% during the first half of 1994. During the first half of 1994, the Company generated $229,000 of other income, principally from patent licensing activities. The Company's effective income tax rate was approximately 27% for the first half of 1995, compared to 31% for the comparable period of 1994. The decline in the 1995 effective tax rate primarily reflects decreases in the valuation allowance for deferred tax assets relating to foreign net operating loss carryforwards. 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 first half of 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 May 31,1995, the Company had borrowed $3.5 million under this financing arrangement, with an additional borrowing availability of approximately $2.5 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 May 31, 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 $1.1 million (1.5 million DM). At May 31, 1995, the Company had borrowed $380,000 (524,000 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 May 31, 1995, the Company had net working capital of $9.3 million compared to $8.3 million at November 30, 1994. Current assets were 1.88 times current liabilities at May 31, 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 half of 1995, net cash provided by operations amounted to $3.0 million, an increase of $2.4 million from the comparable period of 1994. In addition to capital expenditures of $1.0 million, this positive cash flow was utilized to repay $2.0 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 0.90 at May 31, 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 its behalf by the undersigned thereunto duly authorized. Spectrum Control, Inc. (Registrant) Date June 27, 1995 By /s/John P. Freeman John P. Freeman, Vice President and Chief Financial Officer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SPECTRUM CONTROL, INC. CONSOLIDATED CONDENSED BALANCE SHEET AT MAY 31, 1995, AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS FORM 10-Q FOR THE SECOND QUARTER ENDED MAY 31, 1995. 1,000 6-mos NOV-30-1995 MAY-31-1995 120 0 8,461 0 11,109 19,889 36,179 20,238 38,020 10,603 0 13,374 0 0 6,603 38,020 23,390 23,390 16,141 16,141 5,088 0 515 1,646 437 1,209 0 0 0 1,209 .12 .12
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