Spectrum Control Reports First Quarter Profit Customer Orders Increase 63% - Brief Article

Cambridge Telcom Report, March 27, 2000

Spectrum Control, Inc. (Nasdaq: SPEC), a manufacturer of electronic control products and systems, Thursday reported results for the first quarter ended February 29, 2000.

For the first quarter of fiscal 2000, the Company reported net income of $1,059,000 or ten cents per share (nine cents diluted) on sales of $28,524,000. For the comparable period of 1999, the Company had net income of $863,000 or eight cents per share on sales of $15,325,000. Customer orders received during the first quarter of fiscal 2000 amounted to $37,758,000, an increase of $14,653,000 or 63% from the same period last year.

Dick Southworth, the Company's President and Chief Executive Officer, commented, "For the sixth consecutive quarter, the Company achieved record levels of customer orders. This strong customer demand reflects a continued vibrant marketplace for our telecommunication products, as well as the positive impact of the Company's March 1999 acquisition of the Signal Conditioning Products Division of AMP Incorporated ("SCPD"). During the first three months of fiscal 2000, customer orders for our Signal Products Group (discrete EMI filters, filtered arrays, filtered connectors, datacom interconnects, ceramic capacitors, and wireless filters) amounted to $26.8 million, an increase of $13.7 million or 104% from the first quarter of 1999. Approximately half of this growth is directly attributable to the acquisition of SCPD. Customer orders for the Company's Power Products Group (power distribution systems, single line filters, power entry modules, and commercial custom assemblies) grew to $10.9 million during the first quarter of fiscal 2000, a 10% increase from the same period last year. Demand for our signal and power products continues to be driven by growth in the communications equipment market for such applications as Internet servers, datacom switching equipment, fiber optic networking equipment, global positioning systems, and wireless modems."

Mr. Southworth added, "Sales grew to $28.5 million in the first quarter, up $13.2 million or 86% from the comparable period of 1999. This increase was attained despite several customers delaying, to later in the year, previously planned first quarter delivery requirements. As a result of these order push- outs, shipments during the first quarter were $1.7 million less than planned levels. With our continued strong customer order rate, the Company must increase its manufacturing capacity to meet future shipment requirements. Accordingly, commencing in the second quarter of this year, the Company will lease a new 45,000 square foot manufacturing facility in Juarez, Mexico. Significant manufacturing operations in this facility, however, are not expected to commence until the third or fourth quarter of fiscal 2000."

Mr. Southworth continued, "The Company generated income from operations of $1.9 million during the first quarter, an increase of 32% from the same period last year. This operating profit was achieved despite lower than anticipated gross margins. As a percentage of sales, gross margin was approximately 23% during the first quarter of fiscal 2000, compared to 29% for the comparable period last year. The decrease in gross margin percentage primarily reflects manufacturing yield losses and resultant higher labor costs incurred during the integration of SCPD into the Company's Signal Products Group. As part of this integration, the Company is redesigning certain SCPD products and production processes which is expected to ultimately reduce manufacturing costs and improve operating efficiencies. The Company currently anticipates the integration process to be substantially completed during the second quarter of fiscal 2000. Accordingly, we believe gross margins will improve throughout the remainder of the year."

Mr. Southworth concluded, "At the end of the first quarter, the Company had a record customer order backlog of $56.5 million, up 20% from the end of fiscal 1999 and up 92% from a year ago. With this exceptionally strong backlog and a robust communications equipment marketplace, we are very optimistic about the remainder of the year."

Spectrum Control, Inc. ("Spectrum" or the "Company") was founded as a solutions-oriented company, designing and manufacturing products to suppress or eliminate electromagnetic interference ("EMI"). In recent years, the Company has broadened its focus and product lines to become a Control Products and Systems Company, providing a wide range of components and systems used to condition, regulate, transmit, receive, or govern electronic performance. The Company's operations are currently conducted in two business segments: signal products and power products. The Company's Signal Products Group manufactures a broad line of discrete EMI filters, filtered arrays, filtered connectors, wireless products (coaxial ceramic resonators, bandpass filters, and duplexers), and specialty ceramic capacitors (single layer, temperature compensating, high voltage, and switch mode). The Power Products Group manufactures various power management and conditioning products including power distribution systems, power line filters, and power entry modules. Although these signal and power products are used in virtually all industries worldwide, the Company's largest market segment is communications equipment. Approximately 60% of the Company's sales are to customers in the telecommunication industry.