|SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549                                                                                                                                                                                                                                                                                                       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|FORM 10Q                                                                                                                                                                                                                                                                                                                                                        
|QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                                                                                                                                                               
|For the Period Ended August 31, 2001                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                
|Spectrum Control, Inc.                                                                                                                                                                                                                                                                                                                                          
|Exact name of registrant as specified in its charter                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                
|Pennsylvania                                                                                                                                                                                                                                                                                                                                                    
|(State of other jurisdiction ofincorporation or organization)                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                
|8031 Avonia Road; Fairview, Pennsylvania                                                                                                                                                                                                                                                                                                                        
|(Address)                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                
|Registrant's telephone number, including area code:                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|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.
|                                                                                                                                                                                                                                                                                                                                                                
|YesX
No                                                                                                                                                                                                                                                                                                                                                         
|Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical date.                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                
|Class                                                                                                                                                                                                                                                                                                                                                           
|Common, no par value                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                

|                                       
|---------------------------------------
|SPECTRUM CONTROL, INC. AND SUBSIDIARIES
|                                       
|INDEX                                  
|                                       
|PART I                                 
|                                       
|Item 1.                                
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|                                       
|Item 2.                                
|                                       
|PART II                                
|                                       
|Item 6.                                
|                                       
|                                       
|                                       

SPECTRUM CONTROL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Dollar Amounts in Thousands(Unaudited)

|                                                                         |  | August 31, |  | November 30,
|------------------------------------------------------------------------ |  | ---------- |  | ------------
|                                                                         |  | 2001       |  | 2000        
|Assets                                                                   |  |            |  |             
|Current Assets                                                          
|Cash and cash equivalents                                                |  | $  10,585  |  | $  5,977    
|Accounts receivable, net of allowances                                   |  | 13,912     |  | 23,831      
|Inventories                                                              |  | 19,058     |  | 25,239      
|Prepaid expenses and other current assets                                |  | 3,291      |  | 1,072       
|Total current assets                                                     |  | 46,846     |  | 56,119      
|                                                                         |  |            |  |             
|Property, Plant And Equipment, at cost                                  
|less accumulated depreciation of $ 24,764                               
|in 2001 and $ 20,908 in 2000                                             |  | 22,319     |  | 23,490      
|                                                                        
|Other Assets                                                             |  |            |  |             
|Goodwill, net                                                            |  | 14,460     |  | 14,894      
|Other noncurrent assets                                                  |  | 610        |  | 720         
|Total other assets                                                       |  | 15,070     |  | 15,614      
|                                                                        
|Total Assets                                                             |  | $  84,235  |  | $  95,223   
|                                                                         |  |            |  |             
|Liabilities And Stockholders' Equity                                    
|Current Liabilities                                                      |  |            |  |             
|Accounts payable                                                         |  | $  3,816   |  | $  8,714    
|Accrued salaries and wages                                               |  | 1,442      |  | 3,002       
|Accrued interest                                                         |  | 100        |  | 75          
|Accrued other expenses                                                   |  | 455        |  | 826         
|Current portion of long-term debt                                        |  | 540        |  | 540         
|Total current liabilities                                                |  | 6,353      |  | 13,157      
|                                                                         |  |            |  |             
|Long-Term Debt                                                           |  | 2,827      |  | 2,107       
|Deferred Income Taxes                                                    |  | 1,605      |  | 3,413       
|                                                                         |  |            |  |             
|Stockholders' Equity                                                     |  |            |  |             
|Common stock, no par value, authorized                                  
|25,000,000 shares, issued 13,538,810                                    
|shares in 2001 and 13,448,052 in 2000                                    |  | 43,500     |  | 43,175      
|Retained earnings                                                        |  | 32,905     |  | 34,771      
|Treasury stock, 334,700 shares in 2001                                  
|and 70,000 shares in 2000, at cost                                       |  | (1,992)    |  | (294)       
|                                                                         |  | 74,413     |  | 77,652      
|Accumulated other comprehensive income                                  
|Foreign currency translation adjustment                                  |  | (963)      |  | (1,106)     
|Total stockholders' equity                                               |  | 73,450     |  | 76,546      
|                                                                         |  |            |  |             
|Total Liabilities And Stockholders' Equity                               |  | $  84,235  |  | $  95,223   
|                                                                         |  |            |  |             
|The accompanying notes are an integral part of the financial statements.

Top of Report

SPECTRUM CONTROL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)

|                                                                        
|------------------------------------------------------------------------
|(Amounts in Thousands Except Per Share Data)                            
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Net sales                                                               
|                                                                        
|Cost of products sold                                                   
|                                                                        
|Gross margin                                                            
|                                                                        
|Operating expenses                                                      
|Selling, general and                                                    
|administrative expense                                                  
|Restructuring charges                                                   
|                                                                        
|                                                                        
|Income ( loss ) from operations                                         
|                                                                        
|Other income ( expense )                                                
|Interest expense                                                        
|Other income and expense, net                                           
|                                                                        
|                                                                        
|Income ( loss ) before provision                                        
|for income taxes                                                        
|                                                                        
|Provision for income taxes (benefit)                                    
|                                                                        
|Net income ( loss )                                                     
|                                                                        
|Earnings (loss) per common share :                                      
|Basic                                                                   
|Diluted                                                                 
|                                                                        
|Average number of common shares                                         
|outstanding :                                                           
|Basic                                                                   
|Diluted                                                                 
|                                                                        
|The accompanying notes are an integral part of the financial statements.

Top of Report

SPECTRUM CONTROL, INC. AND
SUBSIDIARIESCondensed Consolidated Statements of Cash Flows(Unaudited)

|( Dollar Amounts in Thousands )                                         
|------------------------------------------------------------------------
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cash Flows From Operating Activities :                                  
|Net income (loss)                                                       
|Adjustments to reconcile net income ( loss )                            
|to net cash provided by operating activities :                          
|Depreciation                                                            
|Amortization                                                            
|Deferred income taxes                                                   
|Restructuring and other charges                                         
|Changes in assets and liabilities :                                     
|Accounts receivable                                                     
|Inventories                                                             
|Prepaid expenses and other assets                                       
|Accounts payable and accrued expenses                                   
|Net cash provided by operating activities                               
|                                                                        
|Cash Flows From Investing Activities :                                  
|Purchase of property, plant and equipment                               
|Payment for acquired businesses                                         
|Net cash used in investing activities                                   
|                                                                        
|Cash Flows From Financing Activities :                                  
|Net repayment of short-term debt                                        
|Borrowings of long-term debt                                            
|Repayment of long-term debt                                             
|Purchase of common stock                                                
|Net proceeds from issuance of common stock:                             
|Exercise of employee stock options                                      
|Exercise of stock warrants                                              
|Public stock offering                                                   
|Net cash provided by (used in) financing activities                     
|                                                                        
|Effect of exchange rate changes on cash                                 
|                                                                        
|Net increase in cash and cash equivalents                               
|                                                                        
|Cash and cash equivalents, beginning of period                          
|                                                                        
|Cash and cash equivalents, end of period                                
|                                                                        
|Cash paid during the period for :                                       
|Interest                                                                
|Income taxes                                                            
|                                                                        
|The accompanying notes are an integral part of the financial statements.

Top of Report

|SPECTRUM CONTROL, INC. AND
SUBSIDIARIESNotes to Condensed Consolidated Financial
StatementsAugust 31, 2001Note1-BasisofPresentationThe accompanying unaudited condensed consolidated 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.The balance sheet at November 30, 2000 has been derived
from the audited financial statements at that date but does not include all of
the information and notes required by generally accepted accounting principles
for complete financial statements.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, 2000.Certain prior year amounts have been reclassified to
conform with the current year presentation.Note2-PrinciplesofConsolidationThe condensed consolidated financial statements include the
accounts of Spectrum Control, Inc. and its Subsidiaries (the "Company"). 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.Note3-InventoriesInventories by major classification are as follows (in
thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                     | August 31, |  | November 30,
| | ------------------- | ---------- |  | ------------
| |                     | 2001       |  | 2000        
| |                     |            |  |             
| | Finished goods      | $  3,090   |  | $  4,111    
| | Work - in - process | 8,139      |  | 10,357      
| | Raw materials       | 7,829      |  | 10,771      
| |                     | $  19,058  |  | $  25,239   



|Note4-RestructuringandOtherChargesDuring the third quarter of fiscal 2001, the Company
adopted a plan to restructure its operations and reduce operating expenses in
response to a severe slowdown in the global telecommunications equipment market.
The restructuring plan is intended to reduce excess manufacturing capacity,
improve efficiencies, and align the Company's operations with current business
expectations. The plan includes consolidating manufacturing facilities,
writing-off slow moving inventories, and disposing of excess property and
equipment.In connection with this plan, the Company recorded
restructuring and other charges totaling $5,630,000 in the third quarter of
2001. The components of these charges, along with their related current period
activity, are presented below (in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      |                                                   | 2001 Activity                
|--------------------- | ------------------------------------------------- | -----------------------------
|Classification        | Description                                       | Restructuringand OtherCharges
|                     
|Cost of products sold | Inventory write-offs                              | $  5,145                     
|                     
|Restructuring charges | Employee severance costs                          | 135                          
|                     
|Restructuring charges | Loss on disposal of property, plant and equipment | 350                          
|                      |                                                   | $  5,630                     



|Major components of the restructuring plan include the
following:(1) The Company will close its two operating facilities in
Elizabethtown, Pennsylvania. Manufacturing in these facilities consists of
certain wireless products, specialty ceramic capacitors, and other signal
products. These operations will be consolidated into the Company's manufacturing
facilities in Juarez, Mexico; New Orleans, Louisiana; and Fairview,
Pennsylvania. As a result of consolidating operations, the Company expects to
realize losses of $ 350,000 on the disposal of excess property, plant and
equipment and incur employee severance costs of $135,000 associated with the
elimination of approximately 50 salaried positions. The Company anticipates the
closure of the Elizabethtown facilities, disposal of excess equipment, and
payment of employee severance costs to be substantially completed during the
fourth quarter of fiscal 2001. Although the Company is aggressively marketing
the closed Elizabethtown facilities for sale or lease, the time required to
consummate a transaction under acceptable terms is not subject to reasonable
estimation.(2) With the significant slowdown in the telecommunications
equipment market, certain customers have canceled orders and the Company has
experienced an overall decrease in demand for its products. As a result, the
Company increased its reserves for excess and slow moving inventories by $
5,145,000.A breakdown of the restructuring and other charges, by
operating segment, is as follows (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Operating Segment   | InventoryWrite-offs | EmployeeSeveranceCosts | Loss onDisposalof Property,Plant andEquipment
| | ------------------- | ------------------- | ---------------------- | ---------------------------------------------
|
| | Signal products     | $ 3,057             | $  -                   | $  -                                         
| | Power products      | 2,088               | -                      | -                                            
| | Unallocated amounts | -                   | 135                    | 350                                          
| |                     | $  5,145            | $  135                 | $  350                                       



|Note5-DerivativesandHedgingActivitiesFrom time to time, the Company enters into forward currency
exchange contracts in the regular course of business to manage its exposure
against foreign currency fluctuations on sales denominated in foreign
currencies. The terms of these contracts are generally six months or
less.In June 1998, the Financial Accounting Standards Board
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative is either offset against the change in fair value of assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
Company's adoption of SFAS No. 133 on December 1, 2000 did not have any impact
on the Company's consolidated statements of operations for the periods ended
August 31, 2001. The impact of SFAS No. 133 on the Company's reported financial
position at August 31, 2001 and other comprehensive income for the periods ended
August 31, 2001 is not material.Note6-NewAccountingPronouncementsIn December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB No. 101"), which clarifies the accounting rules for revenue
recognition in financial statements. In accordance with the provisions of SAB
No. 101, the Company will adopt the new accounting rules in the fourth quarter
of fiscal year ending November 30, 2001. Management does not expect the adoption
of SAB No. 101 to have a material impact on the Company's financial position or
results of operations.In June 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141"). SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations and requires all business
combinations to be accounted for under the purchase method. SFAS No. 141 also
modifies the criteria to recognize intangible assets apart from goodwill. The
requirements of SFAS No. 141 are generally effective June 30, 2001. The Company
will immediately follow the guidance set forth in SFAS No. 141 for any future
acquisitions.In June 2001, the FASB also issued Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). Under SFAS No. 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized, but will instead be subject to a
periodic impairment test at least annually. Other intangible assets will
continue to be amortized over their useful lives. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, with earlier adoption permitted.
The provisions of SFAS No. 142 must be adopted as of the beginning of a fiscal
year. The Company expects to adopt the new accounting rules in the first quarter
of fiscal year ending November 30, 2002. As a result of the non-amortization
provisions of SFAS No. 142, the Company expects an increase of approximately $
800,000 in pretax earnings during fiscal 2002 from this accounting change. The
Company will perform the required transitional impairment test of goodwill
during the first quarter of fiscal 2002 and has not yet determined what effect,
if any, this test will have on the financial position and results of operations
of the Company.Note7-Earnings(Loss)PerCommonShareThe following table sets forth the computation of basic and
diluted earnings (loss) per common share for the periods indicated:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | Three Months Ended |          | Nine Months Ended
|--------------------------------- | ------------------ | -------- | -----------------
|                                  | August 31,         |          | August 31,       
|                                  | 2001               | 2000     |                  
|Numerator for basic and          
|diluted earnings (loss) per      
|common share (in thousands):     
|                                 
|Net income (loss)                 | $  (4,309)         | $  2,902 |                  
|                                 
|Denominator for basic            
|earnings (loss) per common       
|share (in thousands):            
|                                 
|Weighted average                 
|shares outstanding                | 13,260             | 11,423   |                  
|                                 
|Denominator for diluted          
|earnings (loss) per common       
|share (in thousands):            
|                                 
|Weighted average                 
|shares outstanding                | 13,260             | 11,423   |                  
|Effect of dilutive securities:   
|Stock options                     | -                  | 287      |                  
|Stock warrants                    | -                  | 23       |                  
|                                 
|                                  | 13,260             | 11,733   |                  
|                                 
|Earnings (loss) per common share:
|                                 
|Basic                             | $  (0.32)          | $  0.25  |                  
|Diluted                           | $  (0.32)          | $  0.25  |                  

|Options and warrants to purchase 736,437 shares of Common
Stock, at a weighted average exercise price of $7.61 per share, were outstanding
during 2001 but were not included in the computation of diluted earnings (loss)
per share because their inclusion would be anti-dilutive.Note8-ComprehensiveIncome(Loss)The following table sets forth the computation of
comprehensive income (loss) for the periods indicated (in
thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | Three Months Ended |          | Nine Months Ended
|---------------------------- | ------------------ | -------- | -----------------
|                             | August 31,         |          | August 31,       
|                             | 2001               | 2000     |                  
|Net income (loss)            | $  (4,309)         | $  2,902 |                  
|Foreign currency translation
|adjustment                   | 10                 | (83)     |                  
|                            
|Comprehensive income (loss)  | $  (4,299)         | $  2,819 |                  

|Note9-OperatingSegmentsThe 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 current operations are conducted in two
segments: signal products and power products. The Company's Signal Products
Group manufactures a broad range of low pass EMI filters, filtered arrays,
filtered connectors, wireless products (coaxial ceramic resonators, patch
antennas, bandpass filters, and duplexers), and specialty ceramic capacitors.
The Power Technologies Group manufactures various power management and
conditioning products including power distribution units, power line filters,
and power entry devices. In addition, the Power Technologies Group has recently
developed and introduced an advanced systems product offering to become a
provider of more complex power management systems, including a line of digital
radio-frequency control equipment for remote and automatic electronic systems
management. The reportable segments are each managed separately because they
manufacture and sell distinct products with different production processes.The Company evaluates performance and allocates resources
to its operating segments based upon numerous factors, including segment income
or loss before income taxes. The accounting policies of the reportable segments
are the same as those utilized in thepreparation of the Company's consolidated financial
statements. However, substantially all of the Company's selling expenses,
general and administrative expenses, and nonoperating expenses are not allocated
to the Company's reportable operating segments and, accordingly, these expenses
are not deducted in arriving at segment income or loss. In addition, reportable
assets are comprised solely of property, plant, equipment, and
inventories.For each period presented, the accounting policies and
procedures used to determine segment income (loss) have been consistently
applied. Reportable segment information for the periods ended August 31, 2001
and 2000 is as follows (in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Three Months Ended August 31:       | Signal   | Power    |        
|----------------------------------- | -------- | -------- | -------
|                                    | Products | Products | Total  
|2001                               
|                                   
|Revenue from unaffiliated customers | 13,751   | 4,670    | 18,421 
|Segment income (loss)               | (1,396)  | (1,567)  | (2,963)
|                                   
|2000                               
|                                   
|Revenue from unaffiliated customers | 27,137   | 8,512    | 35,649 
|Segment income                      | 9,060    | 2,147    | 11,207 
|                                   
|Nine Months Ended August 31:       
|                                   
|2001                               
|                                   
|Revenue from unaffiliated customers | 57,665   | 16,848   | 74,513 
|Segment income                      | 9,795    | 352      | 10,147 
|                                   
|2000                               
|                                   
|Revenue from unaffiliated customers | 70,635   | 25,625   | 96,260 
|Segment income                      | 18,994   | 6,485    | 25,479 

|A reconciliation of total reportable segment income (loss)
to consolidated income (loss) before provision for income taxes for the periods
ended August 31, 2001 and 2000 is as follows (in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Three Months Ended |           | Nine Months Ended
|---------------------------------- | ------------------ | --------- | -----------------
|                                   | August 31,         |           | August 31,       
|                                   | 2001               | 2000      |                  
|                                  
|Total income (loss) for reportable
|segments                           | $  (2,963)         | $  11,207 |                  
|                                  
|Unallocated amounts:              
|                                  
|Selling, general and              
|administrative expense             | (3,552)            | (5,992)   |                  
|                                  
|Restructuring charges              | (485)              | -         |                  
|                                  
|Interest expense                   | (69)               | (564)     |                  
|                                  
|Other income                       | 144                | 29        |                  
|                                  
|Consolidated income (loss) before 
|provision for income taxes         | $  (6,925)         | $  4,680  |                  



Top of Report

|Management's Discussion and
Analysis of Financial Condition and Results of OperationsThe following discussion and analysis may be understood
more fully by reference to the consolidated financial statements, notes to the
consolidated financial statements, and management's discussion and analysis
contained in the Spectrum Control, Inc. and Subsidiaries annual report on Form
10-K for the fiscal year ended November 30, 2000. All references to "we", "us",
"our", or the "Company" in the following discussion and analysis mean Spectrum
Control, Inc. and its Subsidiaries.OverviewWe were founded as a solutions-oriented company, designing
and manufacturing products to suppress or eliminate electromagnetic interference
("EMI"). In recent years, we broadened our 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. Although our components and systems are used in many industries
worldwide, our largest market is the telecommunications industry. In fiscal year
2000, approximately 64.0% of our sales were to customers in the
telecommunications industry. Our products are used in numerous
telecommunications systems including wireless base stations, fiber optic
networks and switching equipment, wireless modems and LANs, Internet servers,
and global positioning systems. Other markets for our products include military,
aerospace, medical, instrumentation, industrial equipment, computer, and
automotive.Our operations are currently conducted in two business
segments: signal products and power products. Our Signal Products Group
manufactures a broad line of discrete EMI filters, filtered arrays, filtered
connectors, wireless products (coaxial ceramic resonators, patch antennas,
bandpass filters, and duplexers), and specialty ceramic capacitors (single
layer, temperature compensating, high voltage, and switch mode). Our Power
Technologies Group manufactures various power management and conditioning
products including power distribution units, power line filters, and power entry
devices. Recently, our Power Technologies Group developed and introduced an
advanced systems product offering to become a provider of more complex power
management systems, including a line of digital radio-frequency control
equipment for remote and automatic electronic systems management.Forward-Looking
InformationThe following discussion includes "forward-looking
statements" within the meaning of the federal securities laws, including
statements regarding: (1) our belief as to future market conditions, (2) our
anticipated capital expenditures and (3) our expected future operating
requirements and financing needs. The words "believe", "expect", "anticipate"
and similar expressions identify forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from historical results or those
anticipated. Factors that could cause or contribute to such differences include
those discussed in "Risk Factors That May Affect Future Results", as well as
those discussed elsewhere herein. Readers are cautioned not to place undue
reliance on these forward-looking statements.Results of
OperationsThe following table sets forth certain financial data, as a
percentage of net sales, for the three months and nine months ended August 31,
2001 and 2000:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Three Months Ended |        | Nine Months Ended
|------------------------------ | ------------------ | ------ | -----------------
|                               | August 31,         |        | August 31,       
|                               | 2001               | 2000   |                  
|                              
|Net sales                      | 100.0%             | 100.0% |                  
|Cost of products sold          | 112.9              | 67.9   |                  
|Gross margin                   | (12.9)             | 32.1   |                  
|Selling, general and          
|administrative expense         | 22.5               | 17.5   |                  
|Restructuring charges          | 2.6                | -      |                  
|Income (loss) from operations  | (38.0)             | 14.6   |                  
|Other income (expense)        
|Interest expense               | (0.4)              | (1.6)  |                  
|Other income and expense, net  | 0.8                | 0.1    |                  
|Income (loss) before provision
|for income taxes               | (37.6)             | 13.1   |                  
|Provision for income taxes     | (14.2)             | 5.0    |                  
|Net income (loss)              | (23.4)%            | 8.1%   |                  

|ThirdQuarter2001VersusThirdQuarter2000Net SalesNet sales decreased by $17.2 million during the period,
with consolidated net sales of $18.4 million in the third quarter of fiscal 2001 and $35.6
million in the comparable quarter of 2000. This decrease reflects reduced
shipment volume for substantially all of our product lines. Sales of signal
products amounted to $13.7 million in the current quarter, compared to $27.1
million in the third quarter of last year. Sales of power products decreased by
$ 3.8 million during the period, from $8.5 million in the third quarter of
fiscal 2000 to $ 4.7 million in the current quarter. Overall demand for our
products was very soft during the period, with total customer orders of $14.6
million received in the third quarter of fiscal 2001, a decrease of $23.0
million or 61.3% from the same period last year. In addition, we reduced our
sales order backlog by $8.2 million during the current quarter to reflect
previously recorded orders that our customers have requested to be postponed or
cancelled.As a result, our backlog at August 31, 2001, was
approximately $29.0 million, compared to $65.0 million at November 30, 2000.
Throughout the third quarter of 2001, our sales and customer order rates
continued to be negatively impacted by a severe slowdown in the
telecommunications industry. This slowdown reflects several factors including:
(1) reduced spending for infrastructure and network equipment by telephone
companies, Internet service providers, and original equipment manufacturers
("OEMs"); (2) excess component and systems inventories throughout the
telecommunications industry; and (3) an overall economic slowdown in the United
States and Europe. Although we believe the long-term growth potential for the
telecommunications industry remains strong, we expect the current poor market
conditions to continue throughout the remainder of fiscal year 2001 and first
half of fiscal 2002.Restructuring ChargesDuring the third quarter of fiscal 2001, we adopted a plan
to restructure our operations and reduce operating expenses in response to the
severe slowdown in the global telecommunications equipment market. The
restructuring plan is intended to reduce excess manufacturing capacity, improve
efficiencies, and align our operations with current business expectations. The
plan includes consolidating manufacturing facilities, writing-off slow moving
inventories, and disposing of excess property and equipment. In connection with
this plan, we recorded restructuring charges of $ 485,000 in the current period.
These restructuring charges consisted of employee severance costs and losses on
the disposal of excess fixed assets. In addition, we increased our inventory
reserves for excess and slow moving items by $ 5.1 million. These additional
inventory reserves have been included in cost of products sold for the third
quarter of fiscal 2001.Gross MarginFor the third quarter of fiscal 2001, gross margin was $
2.8 million or 15.1% of sales, excluding the additional inventory reserves of $
5.1 million discussed above. In the third quarter of last year, gross margin was
$11.4 million or 32.1% of sales. With the severe slowdown in the
telecommunications industry, our sales in the third quarter of fiscal 2001 were
significantly below previously planned levels. As a result, gross margin in the
current quarter was negatively impacted by labor inefficiencies and lower
absorption of fixed manufacturing overhead. At August 31, 2001, we had a total
workforce of 869 employees, a reduction of 855 or 49.6% from November 30, 2000.
In light of the current business conditions, we will continue to review our
organization and cost structure to further reduce operating expenses and improve
efficiencies.Selling, General and Administrative ExpenseIn the third quarter of fiscal 2001, selling expense
amounted to $ 2.4 million or 13.0% of sales, compared to $3.3 million or 9.3% of
sales in the same quarter of 2000. The increase in selling expense, as a
percentage of sales, principally reflects fixed selling expenses being absorbed
over lower sales volume and higher effective commission rates on sales of
product through distributors. General and administrative expense was
approximately $ 1.7 million in the third quarter of 2001, compared to $2.9
million in the comparable quarter of 2000. The decrease in general and
administrative expense primarily reflects reduced personnel costs. In addition,
general and administrative expense in the third quarter of 2000 included a
nonrecurring charge of $241,000 for debt issuance costs written-off upon the
early retirement of certain indebtedness.Other Income and ExpenseAs a result of reduced bank indebtedness, interest expense
decreased by $ 495,000 during the period. In August 2000, we sold 2.3 million
shares of our Common Stock in a public offering which resulted in net proceeds
of $27.8 million, after deducting issuance costs. The net proceeds of the
offering were used to repay $7.4 million of revolving line of credit
indebtedness and $17.3 million of term loan debt, with the remaining proceeds
added to cash and cash equivalents available for general corporate purposes.
Primarily as a result of this follow-on stock offering, our total bank
indebtedness at August 31, 2001 was reduced to $ 3.4 million.We realized interest income of $ 105,000 in the third
quarter of 2001 from temporary cash investments.Income TaxesOur effective income tax rate was 37.8% in 2001 and 38.0%
in 2000, compared to an applicable statutory federal and state income tax rate
of approximately 40.0%. Differences between the effective tax rate and statutory
income tax rate principally arise from state tax provisions and foreign income
taxes.NineMonths2001VersusNineMonths2000Net SalesFor the first nine months of fiscal 2001, net sales
decreased by $ 21.7 million or 22.6%, with consolidated sales of $ 74.5 million
in 2001 and $96.2 million in 2000. Sales of signal products decreased by $ 12.9
million during the period, amounting to $ 57.7 million during the first nine
months of fiscal 2001 and $70.6 million for the comparable period of 2000. Sales
of power products amounted to $ 16.8 million during the first nine months of
fiscal 2001, a decrease of $ 8.8 million from the same period last year. In
2001, power product sales included shipments of $ 2.0 million of our
newly-introduced advanced systems product offering. The overall decrease in
product sales primarily reflects current excess inventory levels for our signal
and power products throughout the telecommunications industry. Total customer
orders received in the first nine months of fiscal 2001 amounted to $55.8
million, a decrease of $57.9 million or 50.9% from the same period last year.
Overall selling prices remained relatively stable throughout the
period.Gross MarginFor the first nine months of fiscal 2001, gross margin was
$16.8 million or 22.6% of sales, excluding the additional inventory reserves of
$ 5.1 million previously discussed. In the comparable period of last year, gross
margin was $27.1 million or 28.1% of sales. The decline in gross margin
primarily reflects lower sales volume and manufacturing inefficiencies caused by
the abrupt downturn in product demand by our telecommunication customers.Selling, General and Administrative ExpenseDuring the first nine months of fiscal 2001, selling
expense amounted to $ 8.8 million or 11.8% of sales, compared to $9.1 million or
9.5% of sales for the same period last year. The increase in selling expense, as
a percentage of sales, primarily reflects higher effective commission rates and
the impact of fixed selling expenses and lower sales volume. General and
administrative expense was approximately $5.6 million during the first nine
months of fiscal 2001, compared to $6.8 million in the comparable period of
2000. The decrease in general and administrative expense reflects lower
personnel costs and the elimination of certain discretionary charges and
expenditures.Other Income and ExpenseInterest expense decreased by approximately $1.5 million
during the period, from $1.7 million in 2000 to $185,000 in 2001. The decrease
in interest expense primarily reflects reduced bank indebtedness. In addition,
weighted average interest rates declined slightly during the
period.We hold numerous United States and foreign patents relating
to polymer multilayer ("PML") technology. We realized license fee income of
$29,000 in the first nine months of fiscal 2001 and $375,000 in the comparable
period last year upon the granting of PML technology licenses. Although these
licenses, as well as other PML licenses that we have previously granted, require
certain royalties to be paid to us upon the sale of products utilizing PML
technology, it is not known what future commercial value, if any, these patents
and related licenses may have.We realized interest income of $316,000 in the first nine
months of fiscal 2001 from temporary cash investments.Risk Factors That May Affect Future
ResultsIn fiscal year 2000, approximately 64.0% of our sales were
to customers in the telecommunications industry. During the first nine months of
fiscal 2001, the telecommunications industry experienced a severe slowdown. If
this slowdown continues or intensifies, it will have a material negative impact
on our future operating performance. In addition, our results of operations may
be negatively affected in the future by a variety of other factors including:
competitive pricing pressures, new technologies which decrease the demand for
our products, new product offerings by our competitors, product cost changes,
changes in the overall economic climate, availability of raw materials, and
changes in product mix.Liquidity, Capital Resources and
Financial ConditionWe maintain a $12.0 million line of credit with our
principal lending institution, PNC Bank, N.A. of Erie, Pennsylvania, (the
"Bank"). This revolving credit line is unsecured, with interest rates on
borrowings at or below the prevailing prime rate. At August 31, 2001, no
borrowings were outstanding under the line of credit. The line of credit
agreement contains certain covenants, the most restrictive of which require us
to maintain designated minimum levels of net worth and profitability and impose
certain restrictions on us regarding additional indebtedness. Effective August
31, 2001, certain of these restrictive covenants were amended or waived by the
Bank. As a result, we were in compliance with all debt covenants at August 31,
2001. Our ability to borrow in the future under this credit facility is
dependent on our ongoing compliance with these covenants. Whether we
continue to comply with these restrictive covenants is largely dependent on our
ability to attain certain levels of operating performance and profitability in
the future, for which there can be no assurance. The current line of credit
agreement expires April 30, 2003.Our wholly-owned German subsidiary maintains unsecured
Deutsche Mark lines of credit with several German financial institutions
aggregating $1.6 million (DM 3.5 million). At August 31, 2001, no borrowings
were outstanding under these lines of credit. Future borrowings, if any, will
bear interest at rates below the prevailing prime rate and will be payable upon
demand.With reduced sales volume, our working capital requirements
decreased during the period. At August 31, 2001, we had net working capital of
$40.4 million, compared to $43.0 million at November 30, 2000. Our current ratio
remained strong throughout the first nine months of fiscal 2001. At August 31,
2001, current assets were 7.37 times current liabilities, compared to 4.27 at
the end of fiscal 2000.During the first nine months of fiscal 2001, our capital
expenditures for property, plant and equipment amounted to $3.0 million. These
capital expenditures were primarily for manufacturing equipment and tooling to
enhance operating efficiencies and increase capacity for certain product lines
within our Signal Products Group and Power Technologies Group. At August 31,
2001, we had not entered into any material commitments for capital
expenditures.We have initiated a stock repurchase program. Under this
program, we may repurchase up to $6.0 million of the Company's outstanding
Common Stock. Acquired shares are to be purchased in the open market or through
privately negotiated transactions at prevailing market prices. Funding for these
repurchases is expected to come from available cash reserves and borrowings
under our revolving line of credit facility. The amount and timing of the shares
repurchased are based on our ongoing assessment of the Company's capital
structure, liquidity, and the market price of the Company's Common Stock. The
repurchased shares are held as treasury stock. During the first nine months of
fiscal 2001, 264,700 shares were repurchased at an aggregate cost of $1.7
million. Since the adoption of the stock repurchase program, 334,700 shares have
been repurchased at a total cost of $2.0 million.In November 2000, we completed a 26,000 square foot
expansion to our existing manufacturing facility in Wesson, Mississippi.
Financing for this project was substantially provided by the State of
Mississippi through general obligation bonds issued in December 2000.
Accordingly, we received $950,000 of bond proceeds during the first nine months
of fiscal 2001. The bonds have a term of 15 years and bear interest at
5.36%.Current financial resources, including working capital and
existing lines of credit, and anticipated funds from operations are expected to
be sufficient to meet operating cash requirements throughout fiscal year 2001,
including scheduled long-term debt repayment, planned capital equipment
expenditures and possible stock repurchases. There can be no assurance, however,
that unplanned capital replacement or other future events will not require us to
seek additional debt or equity financing and, if so required, that it will be
available on terms acceptable to us.Despite current period operating losses, our overall cash
flow remained strong. Net cash generated by operating activities amounted to
$8.5 million during the first nine months of fiscal 2001, compared to $8.8
million in the same period of 2000. Operating cash flow was positively impacted
by reduced working capital requirements. In particular, as a result of lower
sales volume, accounts receivable decreased by $10.1 million during the first
nine months of fiscal 2001.At August 31, 2001, goodwill represented 17.2% of total
assets and 19.7% of stockholders' equity. A majority of this goodwill was
recognized in 1999 in connection with our acquisition of substantially all of
the assets of the Signal Conditioning Products Division of AMP Incorporated. We
currently amortize goodwill on a straight-line basis over a period of 20 years
and periodically review its carrying value for possible impairment. In the
accompanying financial statements, no impairment losses have been recognized in
any of the periods presented.Quantitative and Qualitative
Disclosures About Market RiskForeign CurrencyCertain of our European sales and related selling expenses
are denominated in German Deutsche Marks, British Pounds, and other local
currencies. In addition, certain of our operating expenses are denominated in
Mexican Pesos. As a result, fluctuations in currency exchange rates may affect
our operating results and cash flows. To manage our exposure to the Deutsche
Mark and British Pound, we occasionally enter into forward currency exchange
contracts. At August 31, 2001, no forward currency exchange contracts were
outstanding. For each of the periods presented herein, currency exchange rate
gains and losses were not material. In addition, an assumed 10.0% adverse change
in all foreign currencies in which we currently transact business would not have
a material impact on our operating results, financial position, or cash
flows.EuroCertain member countries of the European Union have
established fixed conversion rates between their existing currencies and the
European Union's common currency, the Euro. We have implemented all the
necessary enhancements to our sales order system, banking arrangements and
operational procedures to ensure Euro compliance. We are able to process orders,
invoice customers and accept payment in Euros throughout Europe. The
introduction of the Euro has not had any material adverse impact upon us. We
continue to monitor the risk of price erosion which could result from increased
price transparency among countries using the Euro.Interest Rate ExposureWe have market risk exposure relating to possible
fluctuations in interest rates. From time to time, we utilize interest rate swap
agreements to minimize the risks and costs associated with variable rate debt.
We do not enter into derivative financial instruments for trading or speculative
purposes. The interest rate swap agreements are entered into with major
financial institutions thereby minimizing the risk of credit loss. At August 31,
2001, no interest rate swap agreements were outstanding.New Accounting
PronouncementsIn December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" ("SAB No. 101"), which clarifies the accounting rules for revenue
recognition in financial statements. In accordance with the provisions of SAB
No. 101, we will adopt the new accounting rules in the fourth quarter of fiscal
year ending November 30, 2001. We do not expect the adoption of SAB No. 101 to
have a material impact on our financial position or results of
operations.In June 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141"). SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations and requires all business
combinations to be accounted for under the purchase method. SFAS No. 141 also
modifies the criteria to recognize intangible assets apart from goodwill. The
requirements of SFAS No. 141 are generally effective June 30, 2001. We will
immediately follow the guidance set forth in SFAS No. 141 for any future
acquisitions.In June 2001, the FASB also issued Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). Under SFAS No. 142, goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized, but will instead be subject to a
periodic impairment test at least annually. Other intangible assets will
continue to be amortized over their useful lives. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, with earlier adoption permitted.
The provisions of SFAS No. 142 must be adopted as of the beginning of a fiscal year. We expect
to adopt the new accounting rules in the first quarter of fiscal year ending
November 30, 2002. As a result of the non-amortization provisions of SFAS No.
142, we expect an increase of approximately $800,000 in pretax earnings during
fiscal 2002 from this accounting change. We will perform the required
transitional impairment test of goodwill during the first quarter of fiscal 2002
and have not yet determined what effect, if any, this test will have on our
financial position and results of operations.Top of Report
Exhibits and Reports on Form 8-K(b) Reports on Form 8-KNo reports on Form 8-K were filed during the quarter for
which this report is filed.
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|Signature                                                                                                                                                                                           
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|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.
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|Date:
    October 8, 2001                                                                                                                                                                           
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