-----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, EdyQoSG4oWVCbKQh0VMr4/10JKgZjk4S7EUASkPuMz9BR+NEP4FQrEhv7j/qSODA CmyVxgM5hu2LQbNXXoQimQ== 0000092769-95-000008.txt : 19951004 0000092769-95-000008.hdr.sgml : 19951004 ACCESSION NUMBER: 0000092769-95-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19950926 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: 95576052 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 August 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 10,607,615 SPECTRUM CONTROL, INC. AND SUBSIDIARIES INDEX PAGE NO. PART I FINANCIAL INFORMATION Consolidated Condensed Balance Sheets -- August 31, 1995 and November 30, 1994 3-4 Consolidated Condensed Statements of Income - Thirteen Weeks Ended and Thirty-Nine Weeks Ended August 31, 1995 and 1994 5-6 Consolidated Condensed Statements of Cash Flows - Thirty-Nine Weeks Ended August 31, 1995 and 1994 7 Notes to Consolidated Condensed Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 PART II OTHER INFORMATION 12 SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Thousands of Dollars)
August 31, 1995 November 30,1994 ASSETS CURRENT ASSETS Cash and short-term investments $ 79 $ 102 Accounts receivable, net of allowances 8,348 7,717 Inventories Finished goods 1,578 1,756 Work-in-process 6,238 6,321 Raw materials 3,661 3,318 Total inventories 11,477 11,395 Prepaid expenses and other current assets 196 274 Total current assets 20,100 19,488 PROPERTY, PLANT AND EQUIPMENT, at cost less accumulated depreciation of $20,815 in 1995 and $19,005 in 1994 16,350 15,932 OTHER ASSETS Intangible assets 1,359 1,708 Deferred income taxes 381 846 Deferred charges 85 121 Total other assets 1,825 2,675 TOTAL ASSETS $ 38,275 $ 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) August 31, 1995 November 30, 1994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt $ 2,720 $ 4,096 Accounts payable 3,123 2,057 Accrued salaries and wages 1,114 1,047 Accrued interest 101 133 Accrued federal and state income taxes 78 52 Accrued other expenses 1,063 774 Current portion of long-term debt 2,274 3,078 Total current liabilities 10,473 11,237 LONG-TERM DEBT 7,001 8,275 STOCKHOLDERS' EQUITY Common stock 13,412 13,350 Retained earnings 7,559 5,488 Foreign currency translation adjustment (170) (255) Total stockholders' equity 20,801 18,583 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,275 $ 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 Thirty-Nine Weeks Ended Aug 31,1995 Aug 31,1994 Aug 31,1995 Aug 31,1994 Net sales $ 12,470 $ 10,226 $ 35,860 $ 32,219 Cost of products sold 8,346 7,478 24,487 23,061 Selling, general and administrative expense 2,741 1,963 7,829 6,651 11,087 9,441 32,316 29,712 Income from operations 1,383 785 3,544 2,507 Other income (expense) Interest expense (210) (267) (725) (754) Other income - 199 - 428 (210) (68) (725) (326) Income before provision for income taxes and cumulative effect of a change in accounting principle 1,173 717 2,819 2,181 Provision for income taxes 311 221 748 675 Income before cumulative effect of a change in accounting principle 862 496 2,071 1,506 Cumulative effect on prior years of changing the method of accounting for income taxes - - - 1,845 Net income $ 862 $ 496 $ 2,071 $ 3,351 Earnings per common share Income before cumulative effect of accounting change $ 0.08 $ 0.05 $ 0.20 $ 0.14 Cumulative effect of accounting change - - - 0.18 Net income $ 0.08 $ 0.05 $ 0.20 $ 0.32 Dividends declared per common share - - - - Weighted average number of common shares outstanding 10,585,853 10,548,540 10,563,532 10,418,854 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) Thirty-Nine Weeks Ended August 31, 1995 1994 NET CASH PROVIDED BY $ 5,513 $ 2,411 OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of property, plant and equipment - 1,078 Purchase of property, plant and equipment (1,964) (1,208) Increase in other assets - (998) Net cash used in investing activities (1,964) (1,128) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (repayment) of short-term debt (1,385) 240 Repayment of long-term debt (2,252) (1,925) Net proceeds from issuance of common stock 62 351 Net cash used in financing activities (3,575) (1,334) EFFECT OF EXCHANGE RATE CHANGES ON CASH 3 - NET DECREASE IN CASH AND CASH EQUIVALENTS (23) (51) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 102 293 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 79 $ 242 CASH PAID DURING THE PERIOD Interest $ 757 $ 678 Income taxes 205 388 The accompanying notes are an integral part of the financial statements. SPECTRUM CONTROL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AUGUST 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 Regulations 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, 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 Third Quarter 1995 Versus Third Quarter 1994 Results of Operations Net sales increased 22% during the period, with consolidated net sales of $12.5 million in 1995 and $10.2 million in 1994. The increase in sales of approximately $2.3 million primarily reflects additional shipment volume of electromagnetic interference ("EMI") filtered connectors and EMI filter plates used by customers in the telecommunication industry. Gross margin was $4.1 million or 33% of sales in 1995, compared to $2.7 million or 27% of sales in 1994. The increase in gross margin principally reflects changes in sales mix and reduced production costs at the Company's ceramic manufacturing operation in New Orleans, Louisiana. Selling, general and administrative expense increased during the period. In the third quarter of 1995, selling, general and administrative expense was $2.7 million or 22% of sales, compared to $2.0 million or 19% of sales for the same period last year. In 1994, the Company delayed or postponed certain discretionary 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. As a result of reduced bank indebtedness, the Company's interest expense decreased by $57,000 during the period, from $267,000 in the third quarter of 1994 to $210,000 in the third quarter of 1995. In August of 1994, the Company's majority-owned subsidiary, Spectrum Polytronics, Inc., sold certain land and building, realizing a gain of $143,000. This gain was included in other income for the third quarter ended August 31, 1994. Thirty-Nine Weeks 1995 Versus Thirty-Nine Weeks 1994 Results of Operations Consolidated 1995 net sales increased by $3.6 million or 11% from the comparable period of 1994. During the first thirty-nine weeks of 1995, increased shipments to customers in the telecommunication industry more than offset reduced shipment volume to customers acting as prime suppliers to the military and aerospace industries. Overall, average selling prices remained relatively stable throughout the period. During the first thirty-nine weeks of 1995, gross margin was $11.4 million or 32% of sales, compared to $9.2 million or 29% of sales in the same period of 1994. In 1994, gross margin was negatively impacted by increased ceramic capacitor manufacturing costs. These ceramic capacitor production problems were substantially corrected during the fourth quarter of 1994. In addition, 1995 gross margin was positively impacted by changes in sales mix and economies of scale realized with additional shipment volume. Selling, general and administrative expense increased by $1.2 million in 1995 and was 22% of net sales compared to 21% in 1994. As a percentage of sales, selling expense remained relatively constant throughout the period. General and administrative expense, however, increased by $473,000 in 1995. As previously discussed, certain discretionary 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 decreased $29,000 in 1995, from $754,000 in 1994 to $725,000 in 1995. The decrease in interest expense reflects reduced bank indebtedness, which was partially offset by higher short-term interest rates. During the first thirty-nine weeks of 1995, average short-term interest rates were approximately 9% compared to 7% during the same period of 1994. During the first thirty-nine weeks of 1994, the Company generated $428,000 of other income, principally consisting of patent licensing fees and a gain from the sale of certain land and building. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) The Company's effective income tax rate was approximately 27% for the first thirty-nine weeks 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 certain foreign and state 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 thirty-nine weeks of 1994. 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 repayments 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 August 31, 1995, the Company had borrowed $2.6 million under this financing arrangement, with an additional borrowing availability of approximately $3.3 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 August 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 August 31, 1995, the Company had borrowed $119,000 (166,000 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 August 31, 1995, the Company had net working capital of $9.6 million compared to $8.3 million at November 30, 1994. Current assets were 1.92 times current liabilities at August 31, 1995, compared to 1.73 at November 30, 1994. During the first thirty-nine weeks of 1995, net cash provided by operations amounted to $5.5 million, an increase of $3.1 million from the comparable period of 1994. In addition to capital expenditures of $1.9 million, this positive cash flow was utilized to repay $3.6 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 0.84 at August 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) 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 No reports on Form 8-K were filed during the quarter for which this report if 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 September 26, 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 AUGUST 31, 1995, AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE NINE-MONTH PERIOD ENDED AUGUST 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS FORM 10-Q FOR THE THIRD QUARTER ENDED AUGUST 31, 1995. 1,000 9-MOS NOV-30-1995 AUG-31-1995 79 0 8,348 0 11,477 20,100 37,165 20,815 38,275 10,473 0 13,412 0 0 7,389 38,275 35,860 35,860 24,487 24,487 7,829 0 725 2,819 748 2,071 0 0 0 2,071 .20 .20
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