ITEM 1. BUSINESS
	Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, as well as in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report.
GENERAL
	Spectrum Control, Inc. and its subsidiaries (the "Company") design, manufacture and market a broad line of control products and systems. The Company was founded 29 years ago as a solutions-oriented company, designing and manufacturing products to suppress or eliminate electromagnetic interference ("EMI"). The Company has adapted its core EMI filter technology into a complete line of capacitors, filters, filtered arrays, and filtered connectors. In recent years, the Company has expanded its focus by developing new lines of power products (commercial custom assemblies, military/aerospace multisection assemblies, power entry modules, and power line filters), microwave products (coaxial ceramic bandpass filters, duplexers, and dielectric resonators), and specialty ceramic products. The Company's products are used in virtually all industries worldwide, including telecommunications, aerospace, military, medical, computer, and industrial controls.
	The need for EMI products results from the increasing dependency of our society on electronic equipment of various kinds, including wireless communication systems. This equipment both emits, and is sensitive to, random electromagnetic waves over a broad spectrum of wave lengths, which can interfere with and degrade the performance of other electronic equipment. The Company's EMI products are designed to suppress the emission of unwanted waves or to reduce their strength to an innocuous level, by reflecting them from one component to another in series or by converting their energy into heat which is then dissipated.
	Spectrum Control, Inc. was incorporated in Pennsylvania in 1968. The Company's Interconnect Products Division, which manufactures various EMI filter products, is located in Fairview, Pennsylvania. The Company's executive offices and Control Products Division, which manufactures various power and microwave products, are located in Erie, Pennsylvania.
	Spectrum Control Technology, Inc., a wholly-owned subsidiary, maintains a facility in New Orleans, Louisiana, with advanced manufacturing equipment designed for the production of ceramic capacitors, resonators, and specialty ceramic products. Currently, this subsidiary primarily manufactures ceramic discoidal and tubular capacitors used in the Company's EMI filter products.
	Spectrum Control, GmbH, a wholly-owned subsidiary of the Company located in Schwabach, Germany, acts as a distributor for the Company's products in the European market.
MARKETS
	The Company's products are utilized in numerous applications including industrial equipment, instrumentation, computers, and medical equipment. The Company's primary markets, however, are communications equipment and military/aerospace.
COMMUNICATIONS EQUIPMENT
	For the past several years the communications industry has experienced significant worldwide growth. This growth has primarily resulted from increased business and consumer demand for wireless communication services. Cost reductions and performance improvements in such wireless communication products as cellular, personal communication services (PCS), and satellite-based voice and data systems have also contributed to this growth. As demand for wireless communication services grows, service providers are expanding associated infrastructure. Wireless communication systems can offer the functional advantages of wired communication systems without the costly and time consuming development of an extensive wired infrastructure. The relative advantages of wireless and wired communication systems with respect to cost, transmission quality, reliability and other factors depend on the specific applications for which such systems are used and the existence of a wired or wireless infrastructure already in place. The factors responsible for the market's growth, coupled with regulatory changes in the United States and abroad as well as advances in wireless communication technology, have led to significant growth in existing wireless telecommunication systems and the emergence of new wireless applications.
	The Company provides filtered arrays, filtered connectors, and power products to leading suppliers of communication systems. Using its solutions-oriented approach, the Company provides its original equipment manufacturer ("OEM") customers with products tailored to their specific transmission needs, anticipating and solving system architecture and performance.
	Approximately 34% of the Company's total revenue during fiscal year 1997 was derived from sales of its products to OEM customers in the telecommunication industry. Most of these products are custom designed not only to conform to the specifications and requirements of the particular customer, but also to meet the performance and quality standards set by the agency or other governmental body whose regulations are applicable to the specific equipment or usage involved. A significant reduction in orders from such customers would have a materially adverse effect on the Company's business.
MILITARY/AEROSPACE
	Military forces worldwide are dependent on sophisticated electronic equipment. Military aircraft and naval vessels generally contain extensive communication equipment, electronic countermeasure equipment for defense against enemy weapons, and radar systems. The Company provides low pass filters and multi-section assemblies to major equipment manufacturers for installation into these systems. The Company's customers, in turn, sell their equipment to major aerospace manufacturers or directly to governments.
	In fiscal year 1997, military/aerospace sales accounted for approximately 27% of the Company's total sales. The Company does not expect such sales to increase from the levels achieved in the 1997 fiscal year due to reductions in funding for new programs. While the Company has developed and will continue to develop products for military/aerospace programs, there can be no assurance that sales to such customers will not decrease in the future.
PRODUCTS
	The Company's current product offerings are organized into four primary product families: interconnect filter products, power products, microwave products, and specialty ceramic components.
INTERCONNECT FILTER PRODUCTS
	Control of unwanted electromagnetic waves is accomplished through various combinations of EMI suppression devices. The EMI suppression devices produced by the Company include those that are utilized as circuit components and whose function is to permit the desired frequencies to pass through a circuit while rejecting or preventing the unwanted signals. The majority of these products are composed of either reactive (reflecting energy) or loss (dissipating energy) elements or at times, combinations of the two. These products can be utilized as individual components or combined in various configurations to provide the amount of EMI control needed. The Company's interconnect products include low pass filters, filtered arrays, and filtered connectors.
	 LOW PASS FILTERS
	The Company's low pass filter offerings include hermetically sealed and resin sealed/solder-in filters and capacitors. The Company's hermetically sealed filters are primarily used in military/secure communications, aerospace, rocket ignitors, power supplies, signal lines, and certain medical equipment. Resin sealed/solder-in filters are used in a wide range of products including telecommunications equipment, transceivers, and industrial control systems.
	 FILTERED ARRAYS
	The Company's filtered array products include filter plate assemblies and filtered terminal blocks. Filter plates are predominantly utilized in telecommunication equipment including cellular base statements, linear power amplifiers, and cellular microcell repeaters. This product offering often provides an economical method of meeting electromagnetic compatibility (EMC) requirements. Filtered terminal blocks, which are designed with a rugged construction to protect the filtering elements, are primarily used in telecommunication equipment, industrial controls, uninterruptible power supplies, and instrumentation.
	 FILTERED CONNECTORS
	The Company offers a range of filtered D-Subminiature Connectors. These filtered connectors are used in numerous applications including telecommunications equipment, cellular base stations, secured communications, industrial process equipment, and certain personal computers.
	During the year ended November 30, 1997 approximately 80% of the Company's total revenue was generated from the sale of interconnect filter products.
POWER PRODUCTS
	Commencing in fiscal year 1996, the Company expanded its product offerings to include certain power products. This product offering currently includes commercial custom assemblies, multi-section assemblies, and power entry modules. Commercial custom assemblies consist of telecommunication racks, power supplies, industrial controls, and other value-added assemblies. The Company's multi-section products primarily serve the military/aerospace market with applications in satellite communications, electronic warfare, and ground/air weapon systems.
	During the year ended November 30, 1997 approximately 17% of the Company's total revenue was generated from the sale of power products.
MICROWAVE PRODUCTS
	Recently, the Company commenced the manufacture and sale of coaxial ceramic resonators, band pass filters, and duplexers. These products primarily serve the communications industry with applications in cellular telephones and base stations, satellite transceivers, wireless modems and LANS, and CATV.
	During the year ended November 30, 1997, approximately 2% of the Company's total revenue was generated from the sale of microwave products.
SPECIALTY CERAMIC COMPONENTS
	Spectrum Control Technology, Inc., a wholly-owned subsidiary of the Company, is currently developing a line of specialty ceramics and three-terminal devices. These products are primarily used in testing and measurement instruments, high frequency power supplies, RF amplifiers, and radio communication equipment.
	In fiscal 1997, sales of specialty ceramic components were not material.
BUSINESS SEGMENTS
	The Company currently operates exclusively in a single industry as manufacturer of electronic control products and systems.
	The Company expects that international sales will continue to account for a significant portion of its total sales. There can be no assurance, however, that the Company will be able to maintain or increase international demand for the Company's products or that the Company will be able to effectively meet that demand. The Company's international sales are predominantly denominated in U.S. dollars and German Deutsche Marks. An increase in the value of these currencies relative to other foreign currencies could make the Company's products more expensive and, therefore, potentially less competitive in those markets. Additional risks inherent in the Company's international business activities include potentially adverse tax consequences, repatriation of earnings, and the burdens of complying with a variety of foreign laws. There can be no assurance that such factors will not have an adverse effect on the Company's future results of operations.
PRODUCTION
	The Company substantially relies on its internal manufacturing capabilities for production of its control products and systems. The Company's wholly-owned subsidiary, Spectrum Control Technology, Inc. in New Orleans, Louisiana, designs and manufactures various ceramic components including tubular capacitors, discoidal capacitors, and resonators. The tubular and discoidal capacitors are primarily utilized in the manufacture of electronic filter products at the Company's Interconnect Products Division in Fairview, Pennsylvania. Coaxial ceramic dielectric resonators are principally used in the manufacture of band pass filters and duplexers at the Company's Control Products Division in Erie, Pennsylvania. Although the Company produces a standardized line of products for sale from inventory or through distributors, most orders require relatively short production runs of custom designed components.
	The Company purchases brass bushings, castings, miniature metal stampings, as well as other hardware used in the assembly and production of its products. These items are available from numerous sources. The principal raw materials used by the Company in the manufacture of ceramic capacitors and resonators are barium titanate ceramic, silver, palladium, and platinum. Precious metals are available from many sources; however, their prices may be subject to significant fluctuations and such fluctuations may have a material and adverse affect on the Company's operating results.
	The Company's customers demand a high level of quality. As a result, the Company maintains an extensive quality control system designed to meet the requirements of sophisticated defense and commercial communications products. The Company has been approved by defense customers under the requirements of the U.S. military quality system, which approval is also often accepted by commercial customers. In addition, the Company's Interconnect Products Division and Control Products Division have achieved and maintain ISO 9001 certification. In fiscal year 1998, Management expects the Company's Ceramic Components Division in New Orleans, Louisiana to also achieve ISO 9001 certification. There is no assurance, however, that the Division will achieve this quality certification.
	In recent years, a majority of the Company's capital investment has been expended to establish new production lines, increase capacity, and improve manufacturing processes. There can be no assurance that the Company can continue to make such investments in a timely manner so as to take advantage of market demand.
SALES AND DISTRIBUTION
	The Company sells its products primarily through manufacturers' representatives, managed by the Company's internal sales force, and distribution. Prior to fiscal 1997, the Company principally maintained representatives in the United States, Canada, Israel, and Europe. In 1997, the Company expanded its sales organization to include manufacturers' representatives in Mexico, Brazil, Australia, and much of Asia. In fiscal 1997, approximately 20% of the Company's consolidated sales was through distribution. Domestic distribution is done through various national and regional distributors. International distribution is done through the Company's wholly-owned German subsidiary, Spectrum Control GmbH.
	During fiscal year 1997, the Company sold its products to approximately 900 accounts. Sales of products to the Company's top ten customers represented 44% ($24.9 million) of total consolidated net sales in 1997. The company's largest single customer, an original equipment manufacturer of telecommunications equipment, represented 9% in 1997, 12% in 1996, and 14% in 1995 of total consolidated net sales. The Company's second largest single customer represented 7% of total consolidated net sales in 1997, 8% in 1996, and 9% in 1995. All of the Company's major customers are unaffiliated with Spectrum Control, Inc. and its subsidiaries.
	Shipments are made by common carrier. Since most of the Company's products are either small or miniaturized and light weight, shipping charges do not affect the Company's ability to compete for business domestically or abroad.
	No material portion of the Company's business is subject to renegotiation of profits or termination of contracts or sub-contracts at the election of the U.S. Government.
BACKLOG
	The Company's backlog, which consists of purchase orders by customers, totaled approximately $21.0 million at November 30, 1997 and $17.0 million at November 30, 1996. It is anticipated that approximately 90% of the Company's backlog as of November 30, 1997 will be shipped within one year. Annual requirement contracts are taken into backlog only to the extent that orders are actually released thereunder. Although the terms and conditions contained in the Company's quotation forms place certain restrictions on a customer's right to cancel, purchase orders generally provide for cancellation. In practice, the Company negotiates each cancellation and schedule change based on the cost it has incurred prior to such occurrence. The Company expects to continually reduce its average lead time (the length of time from the receipt of a customer order to shipment of finished product to the customer). As a result, the Company's backlog may decrease in the future due to reduced lead times.
EMPLOYEES
	As of November 30, 1997, the Company had a total of 763 employees, including 40 in sales, marketing and customer support; 63 in engineering and product development; 618 in manufacturing; and 42 in finance and administration. The Company's future success depends in significant part upon the continued service of its key technical and senior management personnel and its continued ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel is intense, and there can be no assurance that the Company can retain its key managerial and technical employees or that it can attract, assimilate, or retain other highly qualified technical and managerial personnel in the future. None of the Company's employees is represented by a labor union. The Company has not experienced any work stoppages and considers its relations with its employees to be good.
PROPRIETARY RIGHTS
	In connection with the manufacture and sale of control products and systems, the Company owns two (2) United States and two (2) foreign patents and has several patents pending. None of these patents and patent applications are critical to the Company's business. The Company's policy is to file patent applications to protect technology, inventions and improvements that are important to its business. There can be no assurance that patents will issue from any of the Company's pending applications or that any claims allowed from existing or pending patents will be sufficiently broad to protect the Company's technology. While the Company intends to protect its intellectual property rights vigorously, there can be no assurance that any patents held by the Company will not be challenged, invalidated or circumvented, or the rights granted thereunder will provide competitive advantages to the Company.
	The Company holds twenty (20) United States patents and forty-five (45) foreign patents relating to polymer multilayer technology. The Company has entered into several agreements regarding licensing the technology covered by these patents. However, it is not known what commercial value, if any, these patents and related licenses may have.
GOVERNMENT REGULATIONS
	The Company's products are incorporated into communications systems which are subject to various FCC regulations. Regulatory changes, including changes in the allocation of available frequency spectrum, could significantly impact the Company's operations by restricting development efforts by the Company's customers, obsoleting current products or increasing the opportunity for additional competition. Changes in, or the failure by the Company to comply with, applicable domestic and international regulations could have an adverse effect on the Company's business, operating results and financial condition. In addition, the increasing demand for wireless communications has exerted pressure on regulatory bodies worldwide to adopt new standards for such products and services, generally following extensive investigation of and deliberation over competing technologies. The delays inherent in this government approval process may cause the cancellation, postponement or rescheduling of the installation of communications systems by the Company's customers, which in turn may have a material adverse effect on the sale of products by the Company to such customers.
	In order to qualify as an approved supplier of EMI/EMC products for use in equipment purchased by the military services or aerospace programs, the Company is required to meet the applicable portions of the quality specifications and performance standards designed by the Air Force, the Army, and the Navy. The Company's products must also conform to the specifications of the Defense Electronic Supply Center for replacement parts supplied to the military. To the extent required, the Company meets or exceeds all of these specifications.
	The Company is subject to numerous federal, state and local regulations relating to air and water quality, the disposal of hazardous waste materials, safety, and health. Compliance with applicable environmental regulations has not significantly changed the Company's competitive position, capital spending, or earnings in the past and the Company does not presently anticipate that compliance with such regulations will change its competitive position, capital spending, or earnings for the foreseeable future. The Company continuously monitors regulatory matters and believes that it is currently in compliance in all material respects with applicable environmental laws and regulations.
COMPETITION
	The markets for the Company's products are intensely competitive and are characterized by price erosion, technological change, and product obsolescence. Among the Company's principal competitors are: Amp, AVX, Amphenol, Tusonix, and Trans-Tech. Many of the Company's current and potential competitors have significantly greater financial, technical, manufacturing, and marketing resources than the Company. These competitors may be able to engage in sustained price reductions in the Company's primary markets to gain market share. Furthermore, the Company currently supplies control products and systems to large OEM customers that are continuously evaluating whether to manufacture their own products and systems or purchase them from outside sources.
	The Company believes that its ability to compete in its current markets depends on factors both within and outside the Company's control, including the timing and success of new product introductions by the Company and its competitors, availability of ceramic and assembly manufacturing capability, the Company's ability to support decreases in selling price through operating cost reductions, adequate sources of raw materials, product quality, and general economic conditions. There can be no assurance that the Company will be able to compete successfully in the future.
RESEARCH AND DEVELOPMENT
	The Company's research and development efforts are focused on expanding the Company's materials technology, improving existing product offerings, developing new product offerings, and designing specialized production equipment to improve manufacturing efficiencies. As of November 30, 1997, the Company employed 63 individuals in engineering and product development. In addition to their design and development activities, the engineering staff participates with the Company's marketing department in proposal preparation and applications support for customers.
	Research and development expense amounted to $807,000 in 1997, $821,000 in 1996, and $771,000 in 1995.
OTHER MATTERS
	The business of the Company is not subject to any significant seasonal fluctuations.
	The Company does not believe that it has any special practices or special conditions affecting working capital items that are significant for an understanding of its business.
(1) In addition to the above mortgages, the Company's domestic properties are encumbered in connection with the collateralization of certain short-term and long-term bank indebtedness.
(2) In 1998, the Company expects to construct a 16,000 square foot addition to its Erie, PA facility which will be used as additional manufacturing space. The Company's office and other manufacturing space is considered adequate for its existing requirements and its projected business needs.
(3) In addition to the facilities described above, the Company leases certain sales office space.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
	The Company is not currently involved in any litigation of a material nature.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	No matters were submitted to a vote of security holders during the quarter ended November 30, 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 	MATTERS 	 	The Company's Common Stock is traded on the Nasdaq Stock Market under the symbol SPEC. The high and low sales prices for the Common Stock for each quarter during fiscal years 1997 and 1996 are set forth below.
					 High Low 	 Fiscal 1997 	 First quarter $ 4.13 $ 3.00 	 Second quarter 4.00 3.13 	 Third quarter 5.00 3.81 	 Fourth quarter 6.00 4.63
					 High Low 	 Fiscal 1996 	 First quarter $ 3.75 $ 2.88 	 Second quarter 6.25 3.00 	 Third quarter 6.13 3.50 	 Fourth quarter 4.63 3.00
	At January 30, 1998, the Company had 10,869,510 shares of Common Stock outstanding,which were held by approximately 2,300 registered stockholders. In recent years, the Company has not paid cash dividends on its Common Stock. While subject to periodic review, the current policy of the Board of Directors is to retain all earnings to provide funds for the continued growth of the Company.
(1) In 1993, the Company discontinued its hybrid integrated circuit ("HIC") operations and sold the related HIC assets. A loss of $2,916,000 was recognized and charged against income in 1993, consisting of $483,000 of HIC operating losses and a loss of $2,433,000 on the disposal of the HIC operations.
(2) In 1993, the Company recognized a gain on extinguishment of debt of $4,012,000, net of applicable income taxes of $446,000.
(3) In 1994, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative effect, through November 30, 1993, of this change in accounting amounted to $1,845,000 or $0.18 per share.
1997 Compared to 1996
Net Sales
	Consolidated 1997 net sales decreased by $861,000 or 1.5% from 1996. The decrease in sales primarily reflects reduced shipment volume of electromagnetic interference ("EMI") filtered arrays used by customers in telecommunications equipment, cellular base stations, and power amplifiers. Overall demand for the Company's products remained strong, however, with total customer orders of $60.9 million received in 1997, an increase of 7.8% from 1996.
Gross Margin
	Gross margin was $17.4 million or 30.8% of sales in 1997 compared to $18.1 million or 31.5% of sales in 1996. In addition to reduced sales volume, the decrease in gross margin primarily reflects changes in sales mix and the related impact of fixed manufacturing overhead and lower production requirements at the Company's ceramic products division in New Orleans, Louisiana.
Selling, General and Administrative Expense
	Selling expense remained relatively constant in 1997, with total selling expense of $6.5 million in 1997 and $6.6 million in 1996. General and administrative expense decreased during the year, amounting to $5.1 million or 9.2% of sales in 1997 and $6.0 million or 10.5% of sales in 1996. The decrease in general and administrative expense primarily reflects reduced expenses associated with the implementation of the Company's Rapid Response program. Although Rapid Response will continue to be implemented throughout 1998, the expenses associated with the program were principally incurred by the Company during 1996 in the form of consulting fees and employee education. Management believes that the full implementation of Rapid Response will significantly reduce manufacturing lead times, improve inventory turnover rates, and provide greater responsiveness to customers.
Other Income and Expense
	Interest expense decreased by $336,000, from $753,000 in 1996 to $417,000 in 1997. The decrease in interest expense reflects the Company's repayment of $5.6 million of bank indebtedness in 1997. The Company's average short-term interest rates were 8.3% in 1997 and 7.5% in 1996.
	The Company's German subsidiary transacts business with certain customers and vendors in currencies other than the Deutsche Mark. As a result, the Company recognizes gains and losses on foreign currency transactions. The Company incurred net gains of $12,000 in 1997 and $38,000 in 1996 on these foreign currency transactions.
	In 1997, the Company recognized $106,000 of other income from certain patent licensing activities.
Income Taxes
	The Company's effective income tax rate was 27.9% in 1997 and 27.8% in 1996, compared to an applicable statutory income tax rate of approximately 40.0%. Differences in the effective tax rate and statutory tax rate primarily reflect decreases in the deferred tax asset valuation allowance of $1.2 million in 1997 and $987,000 in 1996 relating to certain German net operating loss carryforwards.
	At November 30, 1997, the Company had recorded certain deferred tax assets, primarily related to U.S. tax credit carryforwards and German net operating loss carryforwards. Based upon the earnings history of the Company's U.S. and German operations, Management believes that it is more likely than not that these deferred tax assets will be realized during the carryforward period to offset future taxable income from ordinary and recurring operations.
1996 Compared to 1995
Net Sales
	Consolidated 1996 net sales increased by $8.0 million or 16.3% from 1995. The increase in sales primarily reflects additional shipment volume of EMI filtered connectors and EMI filtered arrays used by customers in the telecommunication industry. Overall, average selling prices declined slightly in 1996 as a result of competitive and market pressures.
Gross Margin
	Gross margin was $18.1 million or 31.5% of sales in 1996, compared to $16.1 million or 32.6% of sales in 1995. Along with the selling price pressures indicated above, 1996 gross margin was negatively affected by changes in sales mix. These negative impacts were partially offset by economies of scale realized with additional shipment volume.
Selling, General and Administrative Expense
	Selling, general and administrative expense, as a percentage of sales, was relatively stable during 1996 and 1995 at 22.0% and 22.4%, respectively. Because of greater sales volume, selling expense increased during the period, amounting to $6.6 million in 1996 and $6.2 million in 1995. In 1996, general and administrative expense amounted to $6.0 million, an increase of $1.2 million from 1995. This increase primarily reflects additional personnel costs, enhancements in the Company's information system, and expenses associated with the Company's Rapid Response program.
Other Income and Expense
	Interest expense decreased by $155,000 in 1996, with interest expense amounting to $753,000 in 1996 and $908,000 in 1995. The decrease in interest expense primarily reflects reduced bank indebtedness. The Company repaid indebtedness of $2.8 million in 1996 and $2.9 million in 1995. The Company's average short-term interest rates were 7.5% in 1996 and 8.5% in 1995.
	As previously indicated, the Company's German subsidiary transacts business with certain customers and vendors in currencies other than the Deutsche Mark. As a result, the Company incurred net gains of $38,000 in 1996 and net losses of $45,000 in 1995 on foreign currency transactions.
	In 1996, as part of Management's ongoing efforts to reduce operating costs, the Company sold certain land and building in Schwabach, Germany at a net selling price of $1.7 million. A loss of $27,000, representing the excess of the cost basis of the land and building over the net selling price, was realized and recorded as other expense in 1996.
Income Taxes
	The Company's effective income tax rate was 27.8% in 1996 and 27.1% in 1995. Differences in the effective tax rate and the applicable statutory tax rate primarily reflect decreases in the deferred tax asset valuation allowance of $987,000 in 1996 and $399,000 in 1995 relating to certain German net operating loss carryforwards.
Risk Factors That May Affect Future Results
	The Company's results of operations may be affected in the future by a variety of factors including: competitive pricing pressures, new product offerings by the Company and its competitors, new technologies, product cost changes, and product mix. In 1997, approximately 34.0% of the Company's sales were to customers in the telecommunication industry. Accordingly, any significant change in the telecommunication industry's activity level would have a direct impact on the Company's performance.
Liquidity, Capital Resources and Financial Condition
	The Company has a $6.0 million line of credit with PNC Bank of Erie, Pennsylvania (the "Bank"). Prior to March 18, 1997, borrowings and required payments under the revolving credit line were based upon an asset formula involving accounts receivable and inventories. On March 18, 1997, the line of credit agreement was renewed through April 30, 1999. Under the terms of the renewal, borrowings under the line of credit are no longer limited by an asset formula. The revolving credit line is collateralized by substantially all of the Company's tangible and intangible property, with interest rates on borrowings at or below the Bank's prevailing prime rate. At November 30, 1997, there were no borrowings outstanding under this financing arrangement.
	The Company's wholly-owned foreign subsidiary maintains unsecured Deutsche Mark lines of credit with German financial institutions aggregating $1.2 million (2.0 million DM). At November 30, 1997, outstanding borrowings under these lines of credit amounted to $40,000 (69,000 DM). Borrowings under the lines of credit bear interest at rates below the prevailing prime rate and are payable upon demand.
	The Company's liquidity continued to improve in 1997. At November 30, 1997, the Company had net working capital of $16.9 million, compared to $12.5 million at November 30, 1996 and $10.0 million at November 30, 1995. The Company's current ratio also improved in 1997, with current assets at 3.83 times current liabilities at November 30, 1997, compared to 2.20 at November 30, 1996 and 1.89 at November 30, 1995. Current financial resources, including working capital and existing lines of credit, and anticipated funds from operations are expected to be sufficient to meet cash requirements throughout 1998, including scheduled long-term debt repayment and planned capital expenditures.
	The Company's cash expenditures for property, plant and equipment amounted to $3.3 million in 1997, $3.8 million in 1996, and $3.1 million in 1995. These capital expenditures primarily related to manufacturing capacity expansion and establishing manufacturing capability for new product lines. At November 30, 1997, the Company had not entered into any material commitments for capital expenditures.
	Income taxes paid during the fiscal years ended November 30, 1997, 1996, and 1995 amounted to $854,000, $1.2 million, and $218,000, respectively. Management expects cash outlays for income taxes to be less than income tax expense for the next three fiscal years.
	As a result of increased profitability and lower working capital requirements, net cash from operations increased significantly in 1997. Net cash provided by operations amounted to $8.5 million in 1997, compared to $5.0 million in 1996. With the cash generated from operations in 1997, the Company repaid $5.6 million of bank indebtedness and invested $3.3 million in capital equipment and improvements.
	In addition to generating $5.0 million of net cash from operations in 1996, the Company realized cash proceeds of $1.7 million on the sale of certain land and building in Schwabach, Germany. This positive cash flow was utilized for capital additions of $3.8 million and repayment of $2.8 million of bank indebtedness.
	In 1995, net cash provided by operations amounted to $6.0 million. In addition to capital expenditures of $3.1 million, this cash flow was utilized to repay $2.9 million in indebtedness.
	As indicated above, the Company continued to reduce its bank indebtedness in 1997. The Company's total borrowed funds were $4.1 million at November 30, 1997, $9.7 million at November 30, 1996, and $12.7 million at November 30, 1995. The Company increased stockholders' equity by $4.2 million in 1997, primarily through earnings. Accordingly, the Company's debt to equity ratio continued to improve in 1997. Total liabilities to net worth was 0.36 at November 30, 1997, 0.58 at November 30, 1996, and 0.81 at November 30, 1995.
Environmental Matters
	The Company is subject to various laws and governmental regulations concerning environmental matters and employee health and safety. U.S. federal environmental legislation having particular impact on the Company includes the Toxic Substances Control Act; the Resource Conservation and Recovery Act; the Clean Water Act; and the Safe Drinking Water Act. The Company is also subject to the Occupational Safety and Health Administration ("OSHA") concerning employee safety and health matters. The United States Environmental Protection Agency ("EPA"), OSHA, and other federal agencies have the authority to promulgate regulations that have an impact on the Company operations.
	In addition to these federal activities, various states have been delegated certain authority under the aforementioned federal statutes. Many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to federal requirements. State and federal authorities may seek fines and penalties for violation of these laws and regulations. As part of its continuing environmental program, the Company has been able to comply with such environmental regulations without any materially adverse effect on its business. The Company is not currently involved in any legal proceedings involving environmental matters.
Impact of Inflation
	In recent years, inflation has not had a significant impact on the Company's operations. However, the Company continuously monitors operating price increases, particularly in connection with the supply of precious metals used in the Company's manufacturing of certain ceramic capacitors. To the extent permitted by competition, the Company passes increased costs on to its customers by increasing sales price over time. Sales increases reported in the accompanying financial statements, however, have substantially arisen from increased sales volume, not increases in selling prices.
Impact of Recently Issued Accounting Standards
	In February, 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15 and specifies the computation, presentation and disclosure requirements for earnings per share. SFAS No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997 and early application is not permitted. Accordingly, the Company will apply SFAS No. 128 for the quarter ended February 28, 1998 and restate prior period information as required under the statement. The Company does not expect the adoption of SFAS No. 128 to have a material impact on reported earnings per share.
	In June, 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting and Disclosures about Comprehensive Income" and No. 131, "Disclosures about Segments of an Enterprise", which are effective for fiscal years beginning after December 15, 1997. The Company is currently evaluating the effects of these new standards.
Impact of Year 2000 Issue
	The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. As a result, any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, prepare invoices, or engage in similar normal business activities.
	The Company has completed an assessment and determined that it will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. In addition, the Company has initiated formal communications with its significant suppliers and customers to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 Issues. Based upon this communication and assessment, Management anticipates that its total Year 2000 project costs will not be material.
	The total project is expected to be completed on or before December 31, 1998. The Company believes that with modifications to existing software and conversions to new software, the Year 2000 Issues will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company.
	The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on Management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties.
Forward-Looking Information
	Management's Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements which reflect Management's current views with respect to future manufacturing and operating performance, inventory turnover rates, and ongoing cash requirements. These forward-looking statements are subject to certain risks and uncertainties, including those identified below, which could cause actual results to differ materially from historical results or those anticipated. The words "believe", "expect", "anticipate" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. The following factors could cause actual results to differ materially from historical results or those anticipated: (1) increased competition in the Company's marketplace; (2) technology advances affecting the demand for the Company's products; (3) other changes in market demand, particularly among communications customers; (4) market acceptance and penetration for the Company's new product offerings; (5) changes in the overall economic climate; (6) operating cost fluctuations and availability of raw materials; and (7) unplanned capital replacement or expansion.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	The following consolidated financial statements of 	Spectrum Control, Inc. and subsidiaries are included herein:
								 Page 								 Number
		Report of Independent Auditors
		Consolidated Balance Sheets as of 			November 30, 1997 and 1996
		Consolidated Statements of Income for 			the years ended November 30, 			1997, 1996, and 1995
		Consolidated Statements of Stockholders' 			Equity for the years ended 			November 30, 1997, 1996, and 1995
		Consolidated Statements of Cash Flows 			for the years ended November 30, 			1997, 1996, and 1995
		Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders Spectrum Control, Inc.
We have audited the accompanying consolidated balance sheets of Spectrum Control, Inc. and subsidiaries as of November 30, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended November 30, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Spectrum Control, Inc. and subsidiaries as of November 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
						 ERNST & YOUNG LLP
Pittsburgh, Pennsylvania January 7, 1998
SPECTRUM CONTROL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies 	 	Principles of Consolidation 	 	The consolidated financial statements include the accounts of Spectrum Control, Inc. and its subsidiaries (the "Company"). The fiscal year of the Company's foreign subsidiary, Spectrum Control GmbH, ends October 31 to facilitate timely reporting. All significant intercompany accounts are eliminated upon consolidation.
	Cash Equivalents
	The Company considers all highly liquid money market instruments with original maturities of three months or less to be cash equivalents.
	Fair Value of Financial Instruments
	The carrying amounts of cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The interest rates on substantially all of the Company's bank borrowings are adjusted regularly to reflect current market rates. Accordingly, the carrying amounts of the Company's short-term and long-term borrowings also approximate fair value. The Company utilizes letters of credit to collateralize certain long-term borrowings. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined in the marketplace.
	Inventories
	Inventories are valued at the lower of cost or market, with cost for raw materials, work-in-process and finished goods at standard cost, which approximates the first-in, first-out basis.
	Property, Plant and Equipment
	Property, plant and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets using the straight line method. Expenditures for maintenance and repairs are charged against earnings in the year incurred; major replacements, renewals and betterments are capitalized and depreciated over their estimated useful lives. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts and any gain or loss is reflected in earnings.
	Intangibles and Other Assets
	Patents and patent rights are amortized to expense on a straight line basis over periods not exceeding 17 years. Technical documentation, consisting primarily of acquired engineering drawings and manufacturing documentation, is stated at cost and amortized on a straight line basis over five years. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future operating cash flows derived from such intangible assets is less than their carrying value.
	Debt issuance costs are amortized to expense on a straight line basis over the term of the related indebtedness.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
	Income Taxes
	The Company uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, using statutory tax rates in effect for the year in which the differences are expected to reverse.
	General business credits are accounted for by the flow through method.
	Foreign Currency Translation
	The assets and liabilities of the foreign subsidiary are translated into U.S. dollars at current exchange rates. Revenue and expense accounts of these operations are translated at average exchange rates prevailing during the year. These translation adjustments are accumulated in a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in determining net income for the year in which the exchange rate changes.
	Revenue Recognition
	Product sales are recorded at the time of shipment. Service revenues are recorded when the related services are performed.
	Advertising and Promotion
	Advertising and promotion costs are expensed as incurred. Advertising and promotion expense amounted to $574,000 in 1997, $486,000 in 1996, and $526,000 in 1995.
	Research and Development
	Research and development costs are expensed as incurred. Research and development expense amounted to $807,000 in 1997, $821,000 in 1996, and $771,000 in 1995.
	Stock-Based Compensation
	Stock options granted by the Company are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In accordance with APB 25, no stock-based compensation expense has been recognized in the accompanying financial statements, since the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of option grant.
	Earnings Per Common Share
	Earnings per common share is computed based on the weighted average number of shares of common stock outstanding during the year. The weighted average number of shares was 10,798,000 in 1997, 10,731,000 in 1996, and 10,585,000 in 1995. Although the Company has issued potentially dilutive common stock equivalents in the form of stock options, the dilutive effect of these securities in the aggregate is less than three percent of earnings per common share.
	Estimates
	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Inventories
	Inventories by major classification are as follows: 								 							 November 30 							 1997 1996 							 (in thousands)
	 Finished goods $ 2,159 $ 2,631 	 Work-in-process 5,364 5,549 	 Raw materials 4,587 3,897 						 $ 12,110 $ 12,077
3. Property, Plant and Equipment
	Property, plant and equipment consist of the following: 							 November 30 							 1997 1996 							 (in thousands)
	 Land and improvements $ 1,161 $ 1,161 	 Buildings and improvements 8,701 8,669 	 Machinery and equipment 22,996 28,774 	 Construction in progress 478 144 							33,336 38,748
	 Less accumulated depreciation 17,357 22,731 						 $ 15,979 $ 16,017
4. Other Assets
	Other assets consist of the following: 							 November 30 							 1997 1996 							 (in thousands)
	 Patents and patent rights $ 540 $ 549 	 Technical documentation 2,260 2,260 	 Debt issuance costs 384 384 							 3,184 3,193 	 Less accumulated amortization 2,685 2,478 							 499 715
	 	 Deferred income taxes 566 281
	 Deferred charges 175 205 						 $ 1,240 $ 1,201
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Short-Term Debt 	 	Short-term debt consists of the following:
						 November 30 						1997 1996 						 (in thousands)
	Notes payable - domestic 	 line of credit (1) $ - $ 2,300 	 	Notes payable - foreign 	 lines of credit (2) 40 978 		 		 Total $ 40 $ 3,278
	(1) The Company has a $6,000,000 line of credit with its 	 principal lending institution (the "Bank"). Weighted average 	 borrowings under the revolving credit line amounted to 	 $883,000 in 1997 and $4,261,000 in 1996, with average interest 	 rates of 8.30% in 1997 and 7.50% in 1996. The maximum amount 	 of borrowings under the line of credit at the end of any month 	 was $1,896,000 in 1997 and $5,164,000 in 1996. The revolving 	 credit line is collateralized by substantially all of the 	 Company's tangible and intangible property, with interest rates 	 on borrowings at or below the Bank's prevailing prime rate. The 	 line of credit agreement is subject to bi-annual Renegotiation 	 and renewal.
	(2) The Company's wholly-owned foreign subsidiary maintains 	 unsecured Deutsche Mark lines of credit with German financial 	 institutions aggregating $1,161,000 (2,000,000 DM) at 	 November 30, 1997 and $1,325,000 (2,000,000 DM) at 	 November 30, 1996. Weighted average borrowings under the 	 lines of credit amounted to $99,000 (172,000 DM) in 1997 and 	 $437,000 (661,000 DM) in 1996, with average interest rates of 	 7.12% in 1997 and 6.85% in 1996. The maximum amount of 	 borrowings under the lines of credit at the end of any month 	 was $320,000 (551,000 DM) in 1997 and $1,034,000 (1,561,000 DM) 	 in 1996. Borrowings bear interest at rates below the prevailing 	 prime rate and are payable upon demand.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Long-Term Debt
Long-term debt consists of the following: 							 November 30 						 1997 1996 							 (in thousands)
Industrial development authority notes at variable interest rate (4.00% at November 30, 1997 and 3.65% at November 30, 1996) (1) $ 2,300 $ 2,500
Industrial development authority notes at variable interest rate (4.23% at November 30, 1997 and 3.95% at November 30, 1996)(2) 1,500 1,900
Notes payable to foreign bank at an interest rate of 6.38% - 1,658
Industrial development authority notes and related bank mortgage notes at interest rates ranging from 4.00% to 7.75%, collateralized by certain land and buildings, and requiring monthly principal and interest payments of $13,000 through the year 1999 273 406
		 Total 4,073 6,464 		 Less current portion 743 2,392 		 Long-term debt $ 3,330 $ 4,072
(1) The industrial development authority notes are collateralized by certain land, building and equipment and an irrevocable letter of credit issued by the Company, through its principal lending institution. The notes bear interest at approximately 50% of the prevailing prime rate and require annual principal payments ranging from $200,000 to $300,000 through the year 2007.
(2) The industrial development authority notes are collateralized by an irrevocable letter of credit issued by the Company, through its principal lending institution. The notes bear interest at approximately 50% of the prevailing prime rate and require annual principal payments of $400,000 through the year 2000 with a final principal payment of $300,000 due in the year 2001.
Each of the above irrevocable letters of credit is collateralized by substantially all of the Company's tangible and intangible assets.
The aggregate maturities of all long-term debt during each of the five years ending November 30, 2002, are $743,000, $830,000, $600,000, $500,000, and $300,000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Other Income and Expense
Other income and expense consist of the following (in thousands):
					 1997 1996 1995 Patent licensing fees $ 106 $ - $ - Investment income 31 - - Gain (loss) on foreign currency 	transactions 12 38 (45) Gain (loss) on sale of property, 	plant and equipment (8) (18) 3 					 $ 141 $ 20 $ (42)
8. Income Taxes
For the years ended November 30, 1997, 1996, and 1995, income before income taxes consists of the following (in thousands):
					 1997 1996 1995 U.S. operations $ 4,583 $ 3,605 $ 3,140 Foreign operations 927 1,132 955 					 $ 5,510 $ 4,737 $ 4,095
	For the years ended November 30, 1997, 1996, and 1995, the provision for income taxes consists of the following (in thousands):
					 1997 1996 1995 Current
	Federal $ 1,055 $ 806 $ 200 	State 105 111 235
Deferred 376 402 676 					 $ 1,536 $ 1,319 $ 1,111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
	The difference between the provision for income taxes and the amount computed by applying the U.S. federal income tax rate in effect for the years ended November 30, 1997, 1996, and 1995 consists of the following (in thousands):
						 1997 1996 1995
Statutory federal income tax $ 1,873 $ 1,611 $ 1,392 State income taxes, net of federal tax benefit 69 73 155 Subpart F income, U.S. property investment 258 166 - Foreign tax rates 148 181 153 Decrease in deferred tax asset valuation allowance (1,194) (987) (399) Other items 382 275 (190) 						 $ 1,536 $ 1,319 $ 1,111
Significant components of the Company's net deferred tax assets and liabilities are as follows (in thousands): 							 November 30 Deferred tax assets: 1997 1996
Net operating loss carryforwards $ 868 $ 1,561 Tax credit carryforwards 638 1,280 Intangible assets 574 579 Investment in subsidiaries 544 689 Accrued expenses 219 214 Property, plant and equipment 116 116 Other 176 194 			Sub-total 3,135 4,633 Valuation allowance (principally related to certain net operating loss carryforwards) 62 1,256
			Deferred tax assets 3,073 3,377
Deferred tax liabilities:
Property, plant and equipment 2,431 2,463 Investment in subsidiaries 941 838
			Deferred tax liabilities 3,372 3,301
Net deferred tax assets (liabilities) $ (299) $ 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
						 November 30 						1997 1996 						 (in thousands) Net deferred tax assets:
Current $ 360 $ 96 Noncurrent 566 281
Net deferred tax liabilities:
Noncurrent (1,225) (301) 					 $ (299) $ 76
	The Company has not recorded deferred income taxes on the undistributed earnings of its foreign subsidiary because of management's intent to indefinitely reinvest such earnings. At November 30, 1997, the undistributed earnings of the foreign subsidiary amounted to $1,937,000 (3,337,000 DM). Upon distribution of these earnings in the form of dividends or otherwise, the Company may be subject to U.S. income taxes and foreign withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable on the eventual remittance of these earnings.
	During the years ended November 30, 1997, 1996, and 1995, the decrease in valuation allowance for deferred tax assets principally related to the utilization of certain foreign net operating loss carryforwards. During the years ended November 30, 1997 and 1996, the valuation allowance also decreased as a result of changes in the expected future realization of remaining foreign net operating loss carryforwards. Income tax expense for the years ended November 30, 1997, 1996, and 1995, includes $25,000, $108,000, and $49,000, respectively, relating to the allocation of tax benefits directly to contributed capital associated with the exercise of stock options.
	At November 30, 1997, the Company had U.S. minimum tax credits of $587,000 which may be carried forward indefinitely. At November 30, 1997, the Company's foreign subsidiary had approximately $1,208,000 (2,082,000 DM) of tax net operating loss carryforwards available to be carried forward indefinitely.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
	During the years ended November 30, 1997 and 1996, the weighted average fair value of options granted amounted to $0.97 per share and $0.95 per share, respectively. At November 30, 1997, the weighted average remaining contractual life of outstanding options was 3.0 years.
	The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") requires use of option valuation models that were not developed for use in valuing employee stock options.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
	Pro forma information regarding net income and earnings per share, required by SFAS No. 123, has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for options granted in 1997 and 1996 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6.00%; volatility factor of the expected market price of the Company's Common Stock of 0.30; a weighted average expected option life of five years; and a 2.00% dividend yield. For purposes of pro forma disclosures, the estimated fair value of options is amortized to expense over the options' vesting period. For the years ended November 30, 1997 and 1996, the Company's reported and pro forma net income and earnings per share are as follows: 						 1997 1996 	As reported: 	 Net income $3,974,000 $3,418,000 	 Earnings per common share $ 0.37 $ 0.32
	Pro forma: 	 Net income $3,935,000 $3,396,000 	 Earnings per common share $ 0.37 $ 0.32
10. Employee Savings Plan
	The Company has a savings plan, available to substantially all employees, which permits participants to make contributions by salary reduction pursuant to section 401(k) of the Internal Revenue Code. The Company matches employee contributions up to a maximum of 2.5% of compensation and may, at its discretion, make additional contributions to the plan. The Company's contribution to the plan was $180,000 in 1997, $182,000 in 1996, and $161,000 in 1995.
11. Concentration of Credit Risk
	Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and trade receivables. The Company invests available cash in money market securities of high credit quality financial institutions. At November 30, 1997 and 1996, approximately 34% and 36%, respectively, of the Company's accounts receivable were from customers in the telecommunication industry. To reduce credit risk, the Company performs periodic credit evaluations of its customers, but does not generally require advance payments or collateral. Credit losses to customers operating in the telecommunication industry have not been material.
12. Business Segments
	The Company currently operates exclusively in a single industry as manufacturer of electronic control products and systems. The Company's products include electromagnetic interference ("EMI") filters, EMI filtered arrays and connectors, power products, capacitors, dielectric resonators, bandpass filters and duplexers. These products are principally sold to manufacturers and distributors for use in numerous industries worldwide, including telecommunications, aerospace, military, computer and industrial controls.
14. Operating Leases
	The Company has entered into several operating lease agreements, primarily relating to sales office facilities and computer equipment. These leases are noncancelable and expire on various dates through 2006. Leases that expire generally are expected to be renewed or replaced by other leases. Future minimum rental payments for succeeding years under all operating leases are as follows: 		 		1998 $ 195,000 		1999 155,000 		2000 74,000 		2001 64,000 		2002 63,000 		Later years 221,000 				$ 772,000
	Total rent expense under all operating leases amounted to $517,000 in 1997, $397,000 in 1996, and $314,000 in 1995.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 	FINANCIAL DISCLOSURE
	None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	The information set forth under "Election of Directors" and "Directors of the Company" on pages 3 and 4 of the registrant's Proxy Statement for the annual meeting of shareholders to be held April 6, 1998 (the "Proxy Statement") is incorporated herein by reference.
	The following information is provided with respect to the 	executive officers of the Company:
	Name of Officer Age Position
	John P. Freeman 43 Vice President, Chief Financial Officer
	Joseph J. Gaynor 47 Vice President, General Manager 					of Spectrum Control Technology, Inc.
	Robert J. McKenna 44 Vice President Resource Development
	James A. Siegel 56 Treasurer
	Robert L. Smith 59 Vice President Quality and Technology
	Richard A. Southworth 55 President, Chief Executive Officer
	James F. Toohey 63 Secretary
	Brian F. Ward 38 Vice President Sales and Marketing
	Mr. Freeman is a graduate of Gannon University in Accounting and is a Certified Public Accountant and Certified Management Accountant. He joined the Company in 1988 as Controller. Prior to that time, he was a principal in a public accounting firm. In January, 1990, he was named Vice President and Chief Financial Officer.
	Mr. Gaynor is a graduate of the Georgia Institute of Technology with a bachelors degree in Mechanical Engineering. He joined the Company in 1991 as Vice President and General Manager of Spectrum Control Technology, Inc. Mr. Gaynor's prior work experience includes various engineering and manufacturing positions in specialty glass and electronic components.
	Mr. McKenna is a graduate of Gannon University in General Science. He was elected an officer of the Company in 1997 as Vice President Resource Development. Prior to joining the Company in 1991, Mr. McKenna held management positions with Advanced Cast Products and Johnson Controls.
	Mr. Siegel is a graduate of Gannon University in Accounting. He joined the Company as Corporate Controller in 1974, was appointed Assistant Treasurer in 1975, and Treasurer in 1984.
	Mr. Smith is a graduate of Cleveland Institute of Electronics and is a certified National Association of Radio and Telecommunications Engineer. He joined the Company in 1978 as Manager of EMC testing services and was named Vice President Quality and Technology in 1997. Prior to joining the Company, Mr. Smith was Product Engineering Manager of Erie Technological Products.
	Mr. Southworth is a graduate of Gannon University in Mechanical Engineering and Mathematics. He joined the Company in 1991 as Vice President and General Manager. Prior to joining the Company, Mr. Southworth held executive positions with National Water Specialties, Philips Components, Murata Electronics North America, and Erie Technological Products. In 1997, Mr. Southworth was named President and Chief Executive Officer.
	Mr. Toohey is a graduate of Gannon University and Dickinson School of Law and is a practicing member of the Erie County Bar Association. He is a member of the law firm of Quinn, Buseck, Leemhuis, Toohey & Kroto, Inc., general counsel to the Company, and has been a Director and Secretary of the Company since its organization.
	Mr. Ward is a Marketing graduate of Franklin Pearce College of Business. He joined the Company in 1994 as Director of Marketing and in 1997 was named Vice President Sales and Marketing. Prior to joining the Company, Mr. Ward held managerial positions in Engineering and Marketing with Clarostat Manufacturing Co. and Oak Grigsby, Inc.
	All executive officers are elected by the Board of Directors and serve at the discretion of the Board.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
	The information set forth under "Executive Compensation" on pages 6 through 11 of the Proxy Statement is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	The information set forth under "Securities Ownership" on pages 4 and 5 of the Proxy Statement is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	The information set forth under "Certain Relationships and Related Transactions" on page 6 of the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(1) Financial Statements - The following consolidated financial 	 statements of Spectrum Control, Inc. and subsidiaries are 	 included in Part II, Item 8: 								 Page No. 	 Report of Independent Auditors
	 Consolidated Balance Sheets as of November 30, 1997 and 1996 	 Consolidated Statements of Income for the Years Ended 	 November 30, 1997, 1996, and 1995 	 Consolidated Statements of Stockholders' Equity 	 for the Years Ended November 30, 1997, 1996, and 1995 	 Consolidated Statements of Cash Flows 	 for the Years Ended November 30, 1997, 1996, and 1995
	 Notes to Consolidated Financial Statements
(2) Financial Statement Schedules - The following financial statement 	 schedule is submitted herewith for the periods indicated therein.
	 Schedule II - Valuation and Qualifying Accounts
All other schedules are not submitted because they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. Columns omitted from the schedule filed have been omitted because the information is not applicable.
(3) Exhibits - The following is the index to exhibits for Spectrum 	 Control, Inc. and subsidiaries.
		 Description of Exhibit Page No.
		 Articles of Incorporation of registrant, 		 as amended, previously filed on February 25, 		 1981, as Exhibit 3.1 to Form S-1 registration 		 and incorporated herein by reference
		 By-laws of registrant, as amended, 		 previously filed on February 25, 1981, as 		 Exhibit 3.2 to Form S-1 registration and 		 incorporated herein by reference
		 Stock Option Plan of 1995, previously filed under 		 Form S-8 on January 22, 1996, and incorporated 		 herein by reference (10.1)
		 Non-Employee Directors' Stock Option Plan, 		 previously filed under Form S-8 on July 16, 1996, 		 and incorporated herein by reference (10.2)
		 Subsidiaries of the registrant (21) 		 		 Consent of Independent Auditors(23)
(b) Reports on Form 8-K
None
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
(1) Spectrum Control, Inc. 	100% - Owned Subsidiary 	Incorporated in the State of Delaware 	Investment Company
(2) Spectrum Engineering International, Inc. 	100% - Owned Subsidiary 	Incorporated in the State of Delaware 	Interest Charge Domestic International Sales Corporation
(3) Spectrum Control Technology, Inc. 	100% - Owned Subsidiary 	Incorporated in the State of Delaware 	Operating Company
(4) Spectrum Polytronics, Inc. 	96% - Owned Subsidiary 	Incorporated in the Commonwealth of Pennsylvania 	Former Operating Company
(5) Spectrum Control GmbH 	100% - Owned Subsidiary 	Incorporated in Germany 	Operating Company
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
	We consent to the incorporation by reference in the Registration Statement on Form S-8 dated May 11, 1987 pertaining to the Spectrum Control, Inc. Non-Qualified Stock Option Plan of 1987, the Registration Statement on Form S-8 dated January 22, 1996 pertaining to the Spectrum Control, Inc. Stock Option Plan of 1995, and the Registration Statement on Form S-8 dated July 16, 1996 pertaining to the Spectrum Control, Inc. 1996 Non-Employee Directors' Stock Option Plan, of our report dated January 7, 1998, with respect to the consolidated financial statements and schedule included in this Form 10-K of Spectrum Control, Inc.
			
							 ERNST & YOUNG LLP
Pittsburgh, Pennsylvania February 23, 1998
				SIGNATURES
	Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
					 Spectrum Control, Inc.
					 By: /s/Richard A. Southworth February 27, 1998 Richard A. Southworth 					 President and Chief Executive Officer
	Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
	/s/Edwin R. Bindseil Director February 27, 1998
	/s/John P. Freeman Director, February 27, 1998 				 Chief Financial Officer, 				 and Principal Accounting Officer 	
	/s/Melvin Kutchin Director February 27, 1998 	
	/s/John M. Petersen Director February 27, 1998
	/s/Gerald A. Ryan Director February 27, 1998 	
	/s/James F. Toohey Director February 27, 1998