-----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, Kq9jopNIWld4xSQ14S1C9s+mLHooGcKYDffAvG2D9dVZPyiHm89Wjo6DPnQhIaKQ IA3ml/NmgD1WcSRrCOsRuw== 0000092769-96-000014.txt : 19961002 0000092769-96-000014.hdr.sgml : 19961002 ACCESSION NUMBER: 0000092769-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961001 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: 1934 Act SEC FILE NUMBER: 000-08796 FILM NUMBER: 96637767 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, 1996 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, 1996 Common, no par value 10,765,900 SPECTRUM CONTROL, INC. AND SUBSIDIARIES INDEX PAGE NO. PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Condensed Balance Sheets -- August 31, 1996 and November 30, 1995 3-4 Consolidated Condensed Statements of Income -- Thirteen Weeks Ended and Thirty-Nine Weeks Ended August 31, 1996 and 1995 5 Consolidated Condensed Statements of Cash Flows -- Thirteen Weeks Ended and Thirty- Nine Weeks Ended August 31, 1996 and 1995 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 Signature 12 SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Thousands of Dollars) Aug. 31, 1996 Nov. 30, 1995 ASSETS CURRENT ASSETS Cash $ 402 $ 202 Accounts receivable, net of allowances 10,553 9,365 Inventories Finished goods 2,496 1,876 Work-in-process 6,044 6,075 Raw materials 4,192 3,371 Total inventories 12,732 11,322 Prepaid expenses and other current assets 410 226 Total current assets 24,097 21,115 PROPERTY, PLANT AND EQUIPMENT, at cost,less accumulated depreciation of $22,040 in 1996 and $20,897 in 1995 16,005 16,752 OTHER ASSETS Intangible assets 635 984 Debt issuance costs 209 217 Deferred income taxes 135 332 Deferred charges 166 98 Total other assets 1,145 1,631 TOTAL ASSETS $41,247 $39,498 The accompanying notes are an integral part of the financial statements. SPECTRUM CONTROL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Thousands of Dollars) Aug. 31, 1996 Nov.30, 1995 LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES Short-term debt $ 3,950 $ 4,252 Accounts payable 3,334 2,646 Accrued salaries and wages 1,553 1,725 Accrued interest 84 51 Accrued federal and state income taxes 144 224 Accrued other expenses 871 405 Current portion of long-term debt 2,717 1,845 Total current liabilities 12,653 11,148 LONG-TERM DEBT 4,298 6,569 STOCKHOLDERS EQUITY Common stock, no par value, authorized 25,000,000 shares, issued and outstanding 10,765,900 shares in 1996 and 10,635,399 shares in 1995 13,625 13,493 Retained earnings 10,932 8,472 Foreign currency translation adjustment (261) (184) Total stockholders equity 24,296 21,781 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $41,247 $39,498 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, 1996Aug. 31, 1995 Aug. 31, 1996 Aug. 31, 1995 Net sales $14,930 $12,470 $42,441 $35,860 Cost of products sold 10,123 8,346 28,875 24,487 Selling, general and administrative expense 3,301 2,741 9,534 7,829 13,424 11,087 38,409 32,316 Income from operations 1,506 1,383 4,032 3,544 Other income and expense Interest expense 190 210 598 725 Other expense, net of other income 17 -- 17 -- 207 210 615 725 Income before provision for income taxes 1,299 1,173 3,417 2,819 Provision for income taxes 364 311 957 748 Net income $ 935 $ 862 $ 2,460 $ 2,071 Earnings per common share $ .09 $ 0.08 $ 0.23 $ 0.20 Dividends declared per common share -- -- -- -- Weighted average number of common shares outstanding 10,758,726 10,585,853 10,717,647 10,563,532 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 Aug. 31, 1996 Aug. 31, 1995 NET CASH PROVIDED BY OPERATING ACTIVITIES $3,055 $5,513 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment 1,655 -- Purchase of property, plant and equipment (3,027) (1,964) Net cash used in investing activities (1,372) (1,964) CASH FLOWS FROM FINANCING ACTIVITIES Net repayment of short-term debt (277) (1,385) Repayment of long-term debt (1,336) (2,252) Net proceeds from issuance of common stock 132 62 Net cash used in financing activities (1,481) (3,575) EFFECT OF EXCHANGE RATE CHANGES ON CASH (2) 3 NET INCREASE(DECREASE) IN CASH 200 (23) CASH, BEGINNING OF PERIOD 202 102 CASH, END OF PERIOD $ 402 $ 79 CASH PAID DURING THE PERIOD FOR: Interest $ 565 $ 757 Income taxes 950 205 The accompanying notes are an integral part of the financial statements. SPECTRUM CONTROL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AUGUST 31, 1996 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, 1995. 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, 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 1996 Versus Third Quarter 1995 Results of Operations Net sales increased 20% during the period, with consolidated net sales of $14.9 million in 1996 and $12.5 million in 1995. The increase in sales reflects additional shipment volume in several of the Company s electromagnetic interference ( EMI ) product offerings, particularly EMI filtered connectors used by customers in the telecommunication industry. Gross margin was $4.8 million or 32% of sales in 1996, compared to $4.1 million or 33% of sales in 1995. The decrease in gross margin percentage principally reflects changes in sales mix. As a percentage of sales, selling expense decreased to 11% or $1.6 million in 1996, compared to 12% or $1.5 million in 1995. General and administrative expense increased $502,000 during the period, primarily related to additional personnel costs, enhancements in the Company s information system, and expenses associated with the implementation of the Company s Rapid Response program. The Company expects to incur most of these additional general and administrative expenses through the remainder of 1996. In July 1996, as part of Management s ongoing efforts to reduce overhead costs, the Company sold certain land and building in Schwabach, Germany at a net selling price of $1.7 million. A loss of $17,000, representing the excess of the cost basis of the land and building over the net selling price, was realized and recorded as other expense during the third quarter of 1996. Through the Company s wholly-owned subsidiary, Spectrum Control GmbH, the land and building had been utilized as the Company s European sales distribution office and warehouse. As part of the sale agreement, the Company will leaseback a portion of the property to continue its foreign sales distribution function. Thirty-Nine Weeks 1996 Versus Thirty-Nine Weeks 1995 Results of Operations Consolidated 1996 net sales increased by $6.6 million or 18% from the comparable period of 1995. The increase in sales reflects the continued growth of the Company s telecommunications business. Overall, average selling prices declined slightly in 1996 as a result of competitive and market pressures. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During the first thirty-nine weeks of 1996, gross margin was $13.6 million or 32% of sales, compared to $11.4 million or 32% of sales in the same period of 1995. Along with the selling price pressures indicated above, 1996 gross margin was negatively effected by changes in sales mix. These negative impacts were offset by economies of scale realized with additional shipment volume. Selling, general and administrative expense increased by $1.7 million during the period and was 22% of sales in 1996 and 1995. As a result of greater sales volume, selling expense increased to $4.8 million or 11% of sales in 1996, compared to $4.4 million or 12% of sales in 1995. As discussed above, the Company has incurred additional general and administrative expense in 1996 related to personnel costs, improvements to its business information system, and initial implementation of the Company s Rapid Response program. Management believes that the Rapid Response program, which will be implemented throughout 1996 and 1997, will significantly reduce manufacturing lead times, decrease inventories, and provide greater responsiveness to customers. Interest expense decreased by $127,000 during the period, from $725,000 in 1995 to $598,000 in 1996. The decrease in interest expense reflects reduced bank indebtedness and lower short-term interest rates. During the first thirty-nine weeks of 1996, average short-term interest rates were 8%, compared to 9% during the same period of 1995. The Company s effective income tax rate remained relatively constant throughout the period at 28% for the first thirty-nine weeks of 1996 and 27% for the comparable period of 1995. 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 average interest rates on all borrowings of approximately 1/2% below the Bank s prevailing prime rate. At August 31, 1996, the Company had borrowed $3.2 million under this financing arrangement, with an additional borrowing availability of approximately $2.8 million under the asset formula. The current Line of Credit Agreement expires on April 30, 1997. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company s wholly-owned foreign subsidiary maintains unsecured Deutsche Mark lines of credit with German financial institutions aggregating $1.4 million (2.0 million DM). At August 31, 1996, the Company had borrowed $702,000 (1.0 million 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 continued to increase during the period. At August 31, 1996, the Company had net working capital of $11.4 million compared to $10.0 million at November 30, 1995. The Company s current ratio remained stable with current assets at 1.90 times current liabilities at August 31, 1996 and 1.89 at November 30, 1995. As a result of increased accounts receivable and inventories, net cash provided by operations decreased during the period. During the first thirty-nine weeks of 1996, net cash provided by operations amounted to $3.1 million, a decrease of $2.4 million from the comparable period of 1995. During the first three quarters of 1996, accounts receivable increased by $1.3 million and inventories increased by $1.4 million. These increases primarily reflect additional sales demand for the Company s EMI products. In addition to generating $3.1 million of net cash from operations, the Company realized cash proceeds of $1.7 million in 1996 on the sale of certain land and building in Schwabach, Germany. This positive cash flow was utilized for capital additions and repayment of bank indebtedness. During the first thirty-nine weeks of 1996, the Company s cash expenditures for property, plant and equipment amounted to $3.0 million. These capital expenditures principally related to manufacturing capacity expansion and improvements. During this period, the Company also repaid $1.6 million of bank indebtedness. The Company expects that cash generated from operations and existing lines of credit will be sufficient to meet its operating requirements throughout 1996, including scheduled long-term debt repayment and planned capital expenditures. 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) Date: September 25, 1996 By: /s/ John P. Freeman John P. Freeman, Vice President and Chief Financial Officer (Principal Accounting and 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, 1996 AND CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE NINE-MONTH PERIOD ENDED AUGUST 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ITS FORM 10-Q FOR THE THIRD QUARTER ENDED AUGUST 31, 1996. 0000092769 JACK FREEMAN 1,000 9-MOS NOV-30-1996 JUN-01-1996 AUG-31-1996 402 0 10,553 0 12,732 24,097 38,045 22,040 41,247 12,653 0 13,625 0 0 10,671 41,247 42,441 42,441 28,875 28,875 9,551 0 598 3,417 957 2,460 0 0 0 2,460 0.23 0.23
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