Spectrum Control Inc. (SPEC, Financial) filed Quarterly Report for the period ended 2009-08-31.
Spectrum Control Inc. and its subsidiaries design manufacture and market a broad line of control products and systems. The company was founded as a solutions-oriented company designing and manufacturing products to suppress or eliminate electromagnetic interference. The company has adapted its core EMI filter technology into a complete line of capacitors filters filtered arrays and filtered connectors. The company's products are used in virtually all industries worldwide including aerospace telecommunications military medical computer and industrial controls. Spectrum Control Inc. has a market cap of $123.2 million; its shares were traded at around $9.79 with a P/E ratio of 13.4 and P/S ratio of 0.9. Spectrum Control Inc. had an annual average earning growth of 73.3% over the past 5 years.
During the current quarter, selling expense amounted to $2.8 million or 8.7% of sales, compared to $2.8 million or 8.4% of sales for the same period last year. The increase in selling expense, as a percentage of sales, primarily reflects certain fixed selling costs being absorbed over lower sales volume. Aggregate general and administrative expense was $1.8 million in the third quarter of fiscal 2009, versus $2.2 million in the comparable period of fiscal 2008. The decrease in general and administrative expense reflects a net gain of $528,000, representing the excess of insurance recoveries over the carrying value of certain assets destroyed by water and fire damage earlier this year at two of our manufacturing facilities. In the current quarter, the impact of this gain was partially offset by increased legal and professional expenses.
For the first nine months of fiscal 2009, our net sales increased by $1.4 million or 1.4%, with consolidated sales of $98.2 million compared to $96.8 million in the same period in fiscal 2008. This increase in sales reflects $9.1 million of SatCon product shipments, along with additional shipment volumes for many of our products used in military/defense applications. In the first nine months of fiscal 2009, excluding the impact of our SatCon acquisition, sales of our microwave products increased by $3.4 million or 10.6% from a year ago. This increase was driven by numerous military/defense applications and programs. These shipment increases were partially offset by an $8.9 million reduction in sales for our advanced specialty products, a $1.5 million reduction in sales for our sensors and controls products and a $717,000 decrease in sales of our power management systems, reflecting the worldwide recession and its impact on most of our commercial markets.
Total material costs amounted to $22.7 million or 23.1% of sales in the first nine months of fiscal 2009, versus $23.1 million or 23.9% of sales for the same period last year. This decrease in material costs reflects numerous factors, including changes in sales mix and continued global sourcing of raw material requirements. As a percentage of sales, our labor costs remained relatively stable. Direct labor costs were $12.3 million or 12.6% of sales in the first nine months of fiscal 2009, compared to $12.4 million or 12.8% of sales for the first nine months of fiscal 2008. Manufacturing overhead costs amounted to $38.2 million or 38.9% of sales in the first nine months of fiscal 2009, versus $37.8 million or 39.1% of sales in the comparable period of fiscal 2008. The decrease in manufacturing overhead, as a percentage of sales, principally reflects the impact of certain fixed manufacturing costs being absorbed over greater sales volume.
For the first nine months of fiscal 2009, interest expense decreased by $38,000 to $206,000, compared to $244,000 for the same period a year ago. For the first three quarters of fiscal 2009, interest expense on borrowings under our domestic line of credit amounted to $77,000, with weighted average borrowings of $5.0 million and a weighted average interest rate of 2.02%. For the first three quarters of fiscal 2008, interest expense on our line of credit borrowings was $107,000, with weighted average borrowings of $3.7 million and a weighted average interest rate of 3.76%.
The purchase price for the acquired property consisted of: (a) $1.00, plus (b) closing costs of $695,000 including realtor commissions, transfer taxes, and legal fees; plus (c) the assumption of, and indemnification of Murata against, all environmental liabilities related to the property. The acquired property has known environmental conditions that require remediation, and certain hazardous materials previously used on the property have migrated into neighboring third party areas. These environmental issues arose from the use of chlorinated organic solvents including tetrachloroethylene (PCE) and trichloroethylene (TCE). As a condition to the purchase, we entered into an agreement with the Pennsylvania Department of Environmental Protection (PADEP) pursuant to which: (a) we agreed to remediate all known environmental conditions relating to the property to a specified industrial standard, with our costs for remediating such conditions being capped at $4.0 million; (b) PADEP released Murata from further claims by Pennsylvania under specified state laws for the known environmental conditions; and (c) we purchased an insurance policy providing clean-up cost cap coverage (for known and unknown pollutants) with a combined coverage limit of approximately $8.2 million, and pollution legal liability coverage (for possible third party claims) with an aggregate coverage limit of $25.0 million. The total premium cost for the insurance policy, which has a ten-year term and an aggregate deductible of $650,000, was $4.8 million. The cost of the insurance associated with the environmental clean-up ($3.6 million) is being charged to general and administrative expense in direct proportion to the actual remediation costs incurred. The cost of the insurance associated with the pollution legal liability coverage ($1.2 million) is being charged to general and administrative expense on a pro rata basis over the ten-year policy term.
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Highlight of Business Operations:
Net cash provided by operating activities was $13.8 million in the first nine months of fiscal 2009, compared to $7.5 million for the first nine months of 2008. The $6.3 million increase in operating cash flow was generated, in part, by improved accounts receivable and inventory turnover rates. In the three quarters of fiscal 2009, our positive operating cash flow and existing cash reserves enabled us to repay $10.0 million of our short-term bank borrowings and fund capital expenditures of $2.9 million.During the current quarter, selling expense amounted to $2.8 million or 8.7% of sales, compared to $2.8 million or 8.4% of sales for the same period last year. The increase in selling expense, as a percentage of sales, primarily reflects certain fixed selling costs being absorbed over lower sales volume. Aggregate general and administrative expense was $1.8 million in the third quarter of fiscal 2009, versus $2.2 million in the comparable period of fiscal 2008. The decrease in general and administrative expense reflects a net gain of $528,000, representing the excess of insurance recoveries over the carrying value of certain assets destroyed by water and fire damage earlier this year at two of our manufacturing facilities. In the current quarter, the impact of this gain was partially offset by increased legal and professional expenses.
For the first nine months of fiscal 2009, our net sales increased by $1.4 million or 1.4%, with consolidated sales of $98.2 million compared to $96.8 million in the same period in fiscal 2008. This increase in sales reflects $9.1 million of SatCon product shipments, along with additional shipment volumes for many of our products used in military/defense applications. In the first nine months of fiscal 2009, excluding the impact of our SatCon acquisition, sales of our microwave products increased by $3.4 million or 10.6% from a year ago. This increase was driven by numerous military/defense applications and programs. These shipment increases were partially offset by an $8.9 million reduction in sales for our advanced specialty products, a $1.5 million reduction in sales for our sensors and controls products and a $717,000 decrease in sales of our power management systems, reflecting the worldwide recession and its impact on most of our commercial markets.
Total material costs amounted to $22.7 million or 23.1% of sales in the first nine months of fiscal 2009, versus $23.1 million or 23.9% of sales for the same period last year. This decrease in material costs reflects numerous factors, including changes in sales mix and continued global sourcing of raw material requirements. As a percentage of sales, our labor costs remained relatively stable. Direct labor costs were $12.3 million or 12.6% of sales in the first nine months of fiscal 2009, compared to $12.4 million or 12.8% of sales for the first nine months of fiscal 2008. Manufacturing overhead costs amounted to $38.2 million or 38.9% of sales in the first nine months of fiscal 2009, versus $37.8 million or 39.1% of sales in the comparable period of fiscal 2008. The decrease in manufacturing overhead, as a percentage of sales, principally reflects the impact of certain fixed manufacturing costs being absorbed over greater sales volume.
For the first nine months of fiscal 2009, interest expense decreased by $38,000 to $206,000, compared to $244,000 for the same period a year ago. For the first three quarters of fiscal 2009, interest expense on borrowings under our domestic line of credit amounted to $77,000, with weighted average borrowings of $5.0 million and a weighted average interest rate of 2.02%. For the first three quarters of fiscal 2008, interest expense on our line of credit borrowings was $107,000, with weighted average borrowings of $3.7 million and a weighted average interest rate of 3.76%.
The purchase price for the acquired property consisted of: (a) $1.00, plus (b) closing costs of $695,000 including realtor commissions, transfer taxes, and legal fees; plus (c) the assumption of, and indemnification of Murata against, all environmental liabilities related to the property. The acquired property has known environmental conditions that require remediation, and certain hazardous materials previously used on the property have migrated into neighboring third party areas. These environmental issues arose from the use of chlorinated organic solvents including tetrachloroethylene (PCE) and trichloroethylene (TCE). As a condition to the purchase, we entered into an agreement with the Pennsylvania Department of Environmental Protection (PADEP) pursuant to which: (a) we agreed to remediate all known environmental conditions relating to the property to a specified industrial standard, with our costs for remediating such conditions being capped at $4.0 million; (b) PADEP released Murata from further claims by Pennsylvania under specified state laws for the known environmental conditions; and (c) we purchased an insurance policy providing clean-up cost cap coverage (for known and unknown pollutants) with a combined coverage limit of approximately $8.2 million, and pollution legal liability coverage (for possible third party claims) with an aggregate coverage limit of $25.0 million. The total premium cost for the insurance policy, which has a ten-year term and an aggregate deductible of $650,000, was $4.8 million. The cost of the insurance associated with the environmental clean-up ($3.6 million) is being charged to general and administrative expense in direct proportion to the actual remediation costs incurred. The cost of the insurance associated with the pollution legal liability coverage ($1.2 million) is being charged to general and administrative expense on a pro rata basis over the ten-year policy term.
Read the The complete ReportSPEC is in the portfolios of Richard Snow of Snow Capital Management, L.P..
