<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-12489
SPECTRAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2729372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Hall Road, Sturbridge, Massachusetts 01566
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 347-2261
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 shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No.
The number of shares of the registrant's Common Stock outstanding as of
October 31, 1995, was 5,353,353.
- 1 -
<PAGE> 2
PART I - FINANCIAL INFORMATION
SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS - ASSETS
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 954,558 $ 477,022
Current Portion of Marketable Securities 3,891,881 641,256
Accounts Receivable, Trade, net 7,892,381 6,183,461
Inventories 6,347,493 4,100,179
Current Deferred Income Taxes, net 303,000 303,000
Income Taxes Receivable 119,031 501,629
Prepaid Expenses and Other Current Assets 705,297 267,871
----------------- -----------------
Total Current Assets 20,213,641 12,474,418
Property, Plant and Equipment:
Land and Land Improvements 395,113 395,113
Buildings and Improvements 3,611,566 3,266,189
Machinery and Equipment 16,239,005 14,612,501
Construction in Progress 1,727,416 1,625,056
----------------- -----------------
21,973,100 19,898,859
Less Accumulated Depreciation and Amortization 12,143,926 10,482,710
----------------- -----------------
9,829,174 9,416,149
Other Assets:
Long-term Marketable Securities 1,129,102 5,196,903
License Agreements, net 1,054,637 1,205,300
Deferred Income Taxes, net 1,737,446 1,702,000
Goodwill, net 4,228,050 1,106,806
Other 104,803 260,361
----------------- -----------------
8,254,038 9,471,370
----------------- -----------------
Total Assets $ 38,296,853 $ 31,361,937
================= =================
</TABLE>
See accompanying notes to these consolidated condensed financial statements.
- 2 -
<PAGE> 3
SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS -
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 1,911,105 $ 751,455
Income Taxes Payable 82,539 --
Accrued Defined Benefit Pension Liability 85,514 65,571
Accrued Liabilities 2,226,825 2,200,825
--------------- -------------
Total Current Liabilities 4,305,983 3,017,851
Long-term Debt 10,000,000 5,240,000
Stockholders' Equity:
Common Stock, voting, $.10 par value; authorized
20,000,000 shares; outstanding 5,353,353 shares 535,335 520,741
Common Stock, non-voting, $.10 par value;
authorized 250,000 shares; no shares outstanding -- --
Paid-in Capital 26,441,246 26,028,279
Net Unrealized Loss on Marketable Securities (53,185) (242,438)
Retained Earnings (Deficit) (2,932,526) (3,202,496)
--------------- -------------
Total Stockholders' Equity 23,990,870 23,104,086
--------------- -------------
Total Liabilities & Stockholders' Equity $ 38,296,853 $ 31,361,937
=============== =============
</TABLE>
See accompanying notes to these consolidated condensed financial statements.
- 3 -
<PAGE> 4
SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------- -------------------------------
1995 1994 1995 1994
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 27,035,049 $ 18,560,632 $ 9,970,586 $ 6,135,369
Cost of Sales 17,940,556 13,128,982 6,611,149 4,868,553
------------ ------------ ----------- ------------
Gross Profit 9,094,493 5,431,650 3,359,437 1,266,816
Selling & Administrative Expenses 6,697,996 4,655,277 2,532,301 1,715,817
Research & Development Costs 2,103,447 1,360,817 690,902 759,003
------------ ------------ ----------- ------------
Income (Loss) from Operations 293,050 (584,444) 136,234 (1,208,004)
Other Income (Expense):
Interest Income 239,928 248,745 71,744 90,531
Interest Expense (434,087) (212,376) (180,356) (123,476)
Other 358,684 126,250 274,586 42,775
------------ ------------ ----------- ------------
164,525 162,619 165,974 9,830
------------ ------------ ----------- ------------
Income (Loss) before Taxes 457,575 (421,825) 302,208 (1,198,174)
Income Tax Expense(Benefit) 187,605 (156,800) 123,371 (477,800)
------------ ------------ ----------- ------------
Net Income (Loss) $ 269,970 $ (265,025) $ 178,837 $ (720,374)
============ ============ =========== ============
Weighted Average Number of Shares of
Common Stock Outstanding:
Primary 5,409,585 5,201,002 5,478,445 5,207,409
========= ========= ========= =========
Fully Diluted 5,358,701 5,201,002 5,420,290 5,207,409
========= ========= ========= =========
Net Income (Loss) per Share of Common Stock:
Primary $.05 $(.05) $.03 $(.14)
==== ====== ===== ======
Fully Diluted $.05 $(.05) $.03 $(.14)
==== ====== ===== ======
</TABLE>
See accompanying notes to these consolidated condensed financial statements.
- 4 -
<PAGE> 5
SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 269,970 $ (265,025)
Add (Deduct) Items Not Affecting Cash:
Depreciation and Amortization 1,688,263 1,270,070
Other Non-Cash Charges (150,195) (82,000)
Changes in Other Components of Working Capital (1,722,247) (225,502)
----------- ------------
Net Cash Provided by (Used for) Operating Activities 85,791 697,543
Cash Flows from Investing Activities:
Acquisition of Business (4,245,786) (6,636,284)
Acquisition of Property & Equipment (1,552,698) (1,559,975)
Net Proceeds from Sales (Purchases)
of Marketable Securities 1,002,668 (32,647)
----------- ------------
Cash Used in Investing Activities (4,795,816) (8,228,906)
Cash Flows from Financing Activities:
Borrowings of Long-term Debt 4,760,000 5,000,000
Reduction of Debt -- (366,673)
Proceeds from Exercise of Stock Options and Warrants 5,063 100,802
Proceeds from Issuance of Stock 422,498 --
----------- ------------
Cash Provided by Financing Activities 5,187,561 4,734,129
Increase (Decrease) in Cash and Cash Equivalents 477,536 (2,797,234)
Cash and Cash Equivalents at Beginning of Period 477,022 3,538,190
----------- ------------
Cash and Cash Equivalents at End of Period $ 954,558 $ 740,956
=========== ============
</TABLE>
See accompanying notes to these consolidated condensed financial statements.
- 5 -
<PAGE> 6
SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information for the nine months and three months ended
September 30, 1995, is unaudited but reflects all adjustments (consisting
solely of normal recurring adjustments) which the Company considers necessary
for a fair presentation of results for the interim periods. The results of
operations for the nine months ended September 30, 1995, are not necessarily
indicative of the results for the entire year.
The consolidated results for the nine months and three months ended
September 30, 1994, include the results of operations of the Company and its
two subsidiaries, SpecTran Specialty Optics Company and EBOT Acquisition Corp.,
from the date of acquisition, February 18, 1994, through September 30, 1994.
The consolidated results for the nine months and three months ended September
30, 1995, also include results of operations of Applied Photonic Devices, Inc.,
a wholly-owned subsidiary, from the date of its acquisition on May 23, 1995.
All significant intercompany balances and transactions have been eliminated.
These financial statements supplement, and should be read in conjunction
with, the Company's audited financial statements for the year ended December
31, 1994, as contained in the Company's Form 10-K as filed with the United
States Securities and Exchange Commission.
2. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Raw Materials $ 2,803,338 $ 1,751,859
Work in Process 1,121,765 779,067
Finished Goods 2,422,390 1,569,253
---------------- ----------------
$ 6,347,493 $ 4,100,179
================ ================
</TABLE>
- 6 -
<PAGE> 7
3. INCOME (LOSS) PER SHARE OF COMMON STOCK
Income per share of common stock is based on the weighted average of the
number of shares outstanding during the periods, including common stock
equivalents of stock purchase warrants and stock options for both primary and
fully diluted earnings per share for the nine months and three months ended
September 30, 1995. For the nine months and three months ended September 30,
1994, the stock purchase warrants and stock options have not been included in
the computations since the effect would be antidilutive.
4. ACQUISITION
On May 23, 1995, the Company purchased all of the outstanding capital stock
of Applied Photonic Devices, Inc. (APD) for cash and stock totaling $4.4
million, including the retirement of approximately $614,000 of APD bank debt.
The results of APD are included in the consolidated financial statements from
May 23, 1995.
Goodwill of $3,327,000 resulted from the purchase and is being amortized
over 15 years.
5. REORGANIZATION
In October 1995 the Company reorganized its operations into three business
units: SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty
Optics Company, and Applied Photonic Devices, Inc. SpecTran Communication
Fiber Technologies, Inc., a wholly-owned subsidiary, consists of the Company's
original communication fiber operation located in Sturbridge, MA. SpecTran
Specialty Optics Company and Applied Photonic Devices, Inc. are wholly-owned
subsidiaries formed as a result of SpecTran's acquisition of Ensign-Bickford
Optics Company in 1994 and the acquisition of Applied Photonic Devices, Inc. in
May of 1995. These business units will be headed respectively by John E.
Chapman, William B. Beck and Crawford L. Cutts.
- 7 -
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30,
1995 VERSUS 1994
Net Sales
Consolidated net sales for the three and nine month periods ended September
30, 1995, were $9,970,586 and $27,035,049, an increase of 62.5% and 45.7% from
each of the comparable periods in the prior year when net sales were $6,135,369
and $18,560,632, respectively. Included in 1995 are revenues from Applied
Photonic Devices from the May 23, 1995, acquisition date.
Sales volumes increased in both periods for both the Company's standard
datacommunication multimode fiber and single-mode optical fiber, with a
significant increase in single-mode optical fiber sales. Market selling prices
have remained stable during 1995. Compared to the three and nine month periods
of 1994, however, unit selling prices have declined in the comparable periods
of 1995, primarily in the single-mode product line.
Sales continue to remain strong in the specialty product area for SpecTran
Specialty Optics Company and the sales generated by Applied Photonic Devices
for its first full quarter were as expected.
Gross Profit
SpecTran earned a consolidated gross profit of $3,359,437 and $9,094,493
for the three and nine months ended September 30, 1995, respectively, which was
$2,092,621 (165.2%) and $3,662,843 (67.4%) higher than in the comparable
periods of the prior year, respectively. The gross margin, as a percentage of
sales, increased to 33.7% and 33.6% for the three and nine month periods ended
September 30, 1995, compared to 20.6% and 29.3% in the comparable periods of
the prior year, respectively. Improved yields and increased production volumes
in the communication fiber product lines are the primary reasons for the
improved gross profit margins in the 1995 periods.
Royalty expenses was 1.9% and 4.2% of SpecTran's sales for the three and
nine month periods, respectively, compared to 4.3% and 5.2% in the comparable
periods of 1994. The three month period of 1995 reflects a retroactive
adjustment made in the third quarter.
Selling and Administrative
Consolidated selling and administrative expenses increased by $816,484
(47.6%) and $2,042,719 (43.9%) during the three and nine month periods ended
September 30, 1995. As a percentage of sales these expenses declined slightly
during 1995 to 25.4% and 24.8% compared to 28.0% and 25.1% for the comparable
three and nine month periods in 1994. The selling and administrative expenses
in 1995 reflect a full nine months of expenses incurred by SpecTran Specialty
Optics Company compared with seven and a half months during 1994 and four
months of expenses incurred by Applied Photonic Devices, acquired in May 1995.
Increased expenditures in 1995 for
- 8 -
<PAGE> 9
business development activities and market development of single-mode fiber
also contributed to the increase.
Research and Development
Consolidated spending for internal research and development decreased in
the third quarter by $68,101 (9.0%) and increased by $742,630 (54.6%) for the
nine month period ended September 30, 1995, compared to the prior year three
and nine month periods. As a percentage of sales, consolidated research and
development costs were 6.9% and 7.8% versus 12.4% and 7.3% for the three and
nine months ended September 30, 1995 and 1994, respectively. The third quarter
of 1994 included increased spending levels related to the Company's single-mode
fiber product line. The Company continues to invest in programs to improve
manufacturing cost and product performance in both the single-mode and
multimode product lines.
Other Income (Expense), net
Consolidated other income (expense) improved by $156,144 (a factor of 16)
and $1,906 (1.2%) during the three and nine months ended September 30, 1995,
compared with the 1994 comparable periods. The third quarter of 1995 includes
other income of $274,586 primarily from non-recurring material recovery income.
Offsetting the income is decreased interest income of $18,787 and $8,817 for
the three and nine month periods of 1995 and increased interest expense of
$56,880 (46.1%) and $221,711(104.4%) for these same periods. Interest expense
increased during the three and nine month periods of 1995 as a result of
increased debt levels associated with the acquisition of Applied Photonic
Devices.
Net Income
Net income for the three and nine months of 1995 was $178,837, or 1.8% of
net sales and $269,970, or 1.0% of net sales, respectively. Net loss for the
same periods in 1994 was $720,374 and $265,025, respectively. This was a
positive difference of $899,211 and $534,995 for the three and nine month
periods, respectively.
Liquidity and Capital Resources
At September 30, 1995, the Company had net working capital of $15,907,658,
a current ratio of 4.7 to 1, and an aggregate of $954,558 in cash and cash
equivalents. In addition, the Company had total marketable securities of
$5,020,983, which could be converted to cash if needed, including $1,129,102
classified as long-term.
On May 23, 1995, the Company borrowed an additional $2,200,000 under its
existing bank loan agreement for the purchase of Applied Photonic Devices. On
September 5, 1995, the Company borrowed an additional $900,000 for working
capital purposes. The amount outstanding under this agreement at September 30,
1995, was $10.0 million.
The Company expects but cannot assure that existing working capital and
cash flow from operations should be sufficient to meet the Company's cash needs
in 1995.
- 9 -
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11.1 - Schedule of Earnings Per Share Calculation
(b) Reports on form 8-K
A report on Form 8-K was filed by the Registrant on June 6, 1995, to
report the acquisition of stock of Applied Photonic Devices, Inc. A
report on Form 8-K/A was filed on August 9, 1995, to provide the
audited financials and proforma information of the acquired entities.
SIGNATURES
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.
SPECTRAN CORPORATION
(Registrant)
Date: November 10, 1995 BY:
/s/ R. E. Jaeger
----------------------------
Raymond E. Jaeger
President and
Chief Executive Officer
Date: November 10, 1995 BY:
/s/ Bruce A. Cannon
----------------------------
Bruce A. Cannon
Senior Vice President and
Chief Financial Officer
- 10 -
<PAGE> 11
EXHIBIT INDEX
Exhibit 11.1 - Schedule of Earnings Per Share Calculation
Exhibit 27 - Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
SPECTRAN CORPORATION
EARNINGS PER SHARE CALCULATION
The following is a calculation of earnings per share for the nine
months and three months ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Calculation of Primary Earnings per Share 1995 1994 1995 1994
----------------------------------------- ---- ---- ---- ----
Average common shares outstanding 5,280,048 5,201,002 5,353,103 5,207,409
Shares assumed to be repurchased under treasury
stock method for stock options and stock purchase
warrants 129,537 -- 125,342 --
---------- ---------- --------- ----------
Total Shares 5,409,585 5,201,002 5,478,445 5,207,409
========== ========== ========= ==========
Net Income (loss) $ 269,970 $ (265,025) $ 178,837 $ (720,374)
========== ========== ========= ==========
Per Share Amount $.05 $(.05) $.03 $(.14)
==== ====== ==== ======
Calculation of Fully Diluted Earnings per Share
-----------------------------------------------
Average common shares outstanding 5,280,048 5,201,002 5,353,103 5,207,409
Shares assumed to be repurchased under treasury
stock method for stock options and stock purchase
warrants 78,653 -- 67,187 --
--------- --------- --------- ---------
Total Shares 5,358,701 5,201,002 5,420,290 5,207,409
========= ========= ========= =========
Net Income (loss) $ 269,970 $(265,025) $ 178,837 $(720,374)
========= ========== ========= =========
Per Share Amount $.05 $(.05) $.03 $(.14)
==== ===== ==== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 954,558
<SECURITIES> 3,891,881
<RECEIVABLES> 8,045,455
<ALLOWANCES> 153,074
<INVENTORY> 6,347,493
<CURRENT-ASSETS> 20,213,641
<PP&E> 21,973,100
<DEPRECIATION> 12,143,926
<TOTAL-ASSETS> 38,296,853
<CURRENT-LIABILITIES> 4,305,983
<BONDS> 0
<COMMON> 535,335
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 38,296,853
<SALES> 27,035,049
<TOTAL-REVENUES> 27,035,049
<CGS> 17,940,556
<TOTAL-COSTS> 17,940,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 434,087
<INCOME-PRETAX> 457,575
<INCOME-TAX> 187,605
<INCOME-CONTINUING> 269,970
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 269,970
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
