<PAGE>
UNITED STATES 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 June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT 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
July 31, 1997, was 6,948,880.
1
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PART I - FINANCIAL INFORMATION
SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands except per share amounts
(unaudited)
<TABLE>
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales .............................. $ 32,109 $ 28,754 $ 15,881 $ 15,281
Cost of Sales .......................... 19,405 18,680 9,719 9,964
------ ------ ----- -----
Gross Profit ........................... 12,704 10,074 6,162 5,317
Selling and Administrative Expenses .... 7,888 6,267 3,906 3,448
Research and Development Costs ......... 1,598 1,581 817 671
----- ----- --- ---
Income from Operations ................. 3,218 2,226 1,439 1,198
Other Income (Expense):
Interest Income ........................ 765 121 489 53
Interest Expense ....................... (464) (320) (111) (133)
Other, Net ............................. (11) 63 42 29
--- -- -- --
Other Income (Expense), net ............ 290 (136) 420 (51)
--- ---- --- ---
Income before Income Taxes ............. 3,508 2,090 1,859 1,147
Income Tax Expense ..................... 1,193 573 626 314
----- --- --- ---
Income before Equity in Joint Venture .. 2,315 1,517 1,233 833
Income from Joint Venture,
Net of Income Taxes ............. 137 -- 97 --
--- -- -- --
Net Income ............................. $ 2,452 $ 1,517 $ 1,330 $ 833
======== ======== ======== ========
Weighted Average Number of Common
Shares Outstanding .............. 6,965 5,893 7,308 6,036
===== ===== ===== =====
Net Income per Common Share .......... $ .35 $ .26 $ .18 $ .14
======== ======== ======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
2
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SPECTRAN CORPORATION
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
<TABLE>
June 30,December 31,
1997 1996
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents ............................. $ 1,930 $ 3,565
Current Portion of Marketable Securities .............. 18,650 13,822
Trade Accounts Receivable, net ........................ 9,367 7,621
Inventories ........................................... 7,970 7,254
Deferred Income Taxes, net ............................ 791 791
Prepaid Expenses and Other Current Assets ............. 3,092 1,316
------- --------
Total Current Assets .................................. 41,800 34,369
Property, Plant and Equipment, net ......................... 32,706 17,890
Other Assets:
Long-term Marketable Securities ....................... 5,391 1,595
License Agreements, net ............................... 703 804
Deferred Income Taxes, net ............................ 1,114 814
Goodwill, net ......................................... 911 950
Investment in Joint Venture ........................... 4,272 4,135
Other Long-term Assets ................................ 1,862 1,899
------- --------
Total Other Assets .................................... 14,253 10,197
------- --------
Total Assets ..................................... $88,759 $ 62,456
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable ...................................... $ 3,635 $ 3,763
Income Taxes Payable .................................. 611 301
Accrued Liabilities ................................... 6,322 5,989
------- --------
Total Current Liabilities ............................. 10,568 10,053
Long-term Debt ............................................. 24,000 24,000
Stockholders' Equity:
Common Stock, voting, $.10 par value; authorized
20,000,000 shares; outstanding 6,946,830 shares and
5,400,071 shares in 1997 and 1996, respectively ... 695 540
Common Stock, non-voting, $.10 par value;
authorized 250,000 shares; no shares outstanding .. -- --
Paid-in Capital ....................................... 50,046 26,884
Net Unrealized Gain(Loss) on Marketable Securities .... 3 (16)
Retained Earnings ..................................... 3,447 995
------- --------
Total Stockholders' Equity ............................ 54,191 28,403
------- --------
Total Liabilities & Stockholders' Equity ......... $88,759 $ 62,456
======= ========
</TABLE>
See accompanying notes to these consolidated financial statements.
3
<PAGE>
SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(unaudited)
<TABLE>
Six Months Ended
June 30,
--------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income .............................................. $ 2,452 $ 1,517
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization ...................... 1,939 1,467
Other Non-Cash Charges ............................. (562) (286)
Equity in Net Income of Unconsolidated Joint Venture (137) --
Changes in Other Components of Working Capital ..... (3,482) (1,649)
Loss on Disposition of Equipment ................... 2 --
--------- ---------
Net Cash Provided by Operating Activities .......... 212 1,049
Cash Flows from Investing Activities:
Acquisition of Property,Plant and Equipment ........ (16,559) (4,361)
Purchase of Marketable Securities .................. (199,493) (7,193)
Proceeds from Sale/Maturity of Marketable Securities 190,888 10,086
--------- ---------
Cash Used in Investing Activities .................. (25,164) (1,468)
Cash Flows from Financing Activities:
Borrowings of Long-term Debt ....................... -- 1,000
Proceeds from Exercise of Stock Options and Warrants 240 159
Issuance of Stock, net ............................. 23,077 --
--------- ---------
Cash Provided by Financing Activities .............. 23,317 1,159
Increase(Decrease) in Cash and Cash Equivalents ......... (1,635) 740
Cash and Cash Equivalents at Beginning of Period ........ 3,565 1,625
--------- ---------
Cash and Cash Equivalents at End of Period .............. $ 1,930 $ 2,365
========= =========
</TABLE>
See accompanying notes to these consolidated financial statements.
4
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SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The financial information for the three months and six months ended June
30, 1997, is unaudited but reflects all adjustments (consisting solely of normal
recurring adjustments) which the Company considers necessary for a fair
statement of results for the interim period. The results of operations for the
six months ended June 30, 1997, are not necessarily indicative of the results
for the entire year.
The consolidated results for the three months and six months ended June 30,
1997, include the accounts of SpecTran Corporation (the Company) and its
wholly-owned subsidiaries, SpecTran Communication Fiber Technologies, Inc.
("SpecTran Communication"), SpecTran Specialty Optics Company ("SpecTran
Specialty"), and Applied Photonic Devices, Inc. ("APD") which holds the
Company's investment in General Photonics. In December 1996 the Company
announced the formation of General Photonics, LLC, a 50-50 joint venture between
the Company and General Cable Corporation ("General Cable"), a former subsidiary
of Wassall plc. The Company sold certain of the assets of APD to General Cable
and then contributed the remaining non-cash assets of APD to General Photonics
for a 50% equity interest. The investment in General Photonics is accounted for
under the equity method of accounting pursuant to which the Company records its
50% interest in General Photonics' net operating results. Prior to the formation
of General Photonics, APD's results of operations, including net sales and
expenses, were consolidated with those of the Company. 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,
1996, as contained in the Company's Form 10-K as filed with the United States
Securities and Exchange Commission.
2. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Raw Materials $3,873 $3,677
Work in Process 1,187 1,209
Finished Goods 2,910 2,368
----- -----
$7,970 $7,254
====== ======
</TABLE>
5
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3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment consisted of
(in thousands):
<TABLE>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Land and Land Improvements $ 978 $ 937
Buildings and Improvements 3,878 3,840
Machinery and Equipment 24,322 19,213
Construction in Progress 19,946 8,611
------ -----
49,124 32,601
Less Accumulated Depreciation and Amortization 16,418 14,711
------ ------
$32,706 $17,890
======= =======
</TABLE>
4. INCOME 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. Fully diluted income per share approximates
primary income per share for all periods presented.
5. SECONDARY PUBLIC OFFERING OF COMMON STOCK
On February 18, 1997 the Company completed a secondary public offering of
1,500,000 shares of common stock at a price of $19.00 per share. Of the
1,500,000 shares, 1,300,000 were sold by the Company and 200,000 by Allen and
Company, Incorporated, a selling stockholder.
6
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item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1997 Compared to Three and Six Months
Ended June 30, 1996
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 61.2% 65.2% 60.4% 65.0%
---- ---- ---- ----
Gross Profit 38.8% 34.8% 39.6% 35.0%
Selling and Administrative Expenses 24.6% 22.6% 24.6% 21.8%
Research and Development Cost 5.1% 4.4% 5.0% 5.5%
--- --- --- ---
Income from Operations 9.1% 7.8% 10.0% 7.7%
Other Income(Expense), net 2.6% (.3)% .9% (.4)%
--- --- -- ---
Income before Income Taxes 11.7% 7.5% 10.9% 7.3%
Income Tax Expense 3.9% 2.0% 3.7% 2.0%
--- --- --- ---
Income before Equity in Joint Venture 7.8% 5.5% 7.2% 5.3%
Income from Joint Venture, net .6% --% .4% --%
-- -- -- --
Net Income 8.4% 5.5% 7.6% 5.3%
=== === === ===
</TABLE>
Net Sales
- ---------
Net sales of $15.9 million and $32.1 million for the three months and six
months ended June 30, 1997, were $600,000, or 3.9%, and $3.4 million, or 11.7%,
higher than for the comparable periods of 1996. Sales for the 1996 periods
include the sales of Applied Photonic Devices, Inc. ("APD"), certain assets of
which were sold in December 1996 to form General Photonics, a joint venture with
General Cable. On a comparative basis, excluding APD sales from the 1996
periods, sales for the three months and six months ended June 30, 1997 compared
to the three months and six months ended June 30, 1996 increased 24.1% and
32.2%, respectively. Net sales increased in all business units reflecting
continued market demand with a substantial increase in single-mode fiber sales.
Selling prices for single-mode have increased in the first three months and six
months of 1997 compared to the comparable periods of 1996, largely due to market
demand. Selling prices for multimode have remained relatively stable in 1997
compared to 1996.
Gross Profit
- ------------
Gross profit of $6.2 million and $12.7 million for the three months and six
months ended June 30, 1997, was $845,000, or 15.9%, and $2.6 million, or 26.1%,
higher than for the comparable periods of 1996. As a percentage of net sales,
the gross profit increased to 38.8% and 39.6% for the three months and six
months ended June 30, 1997, from 34.8% and 35.0% for the three months and six
months ended June 30, 1996. This increase in gross profit was primarily due to
increased net sales in the 1997 periods, lower production costs for the
Company's standard products resulting from manufacturing process and yield
improvements, and higher single-mode selling prices. In addition, the 1997
results do not include the lower margin cabling revenues of General Photonics.
As a percentage of net sales, royalties decreased from 4.0% and 4.1% in the
three months and six months ended June 30, 1996 to 2.5% and 2.8% for the three
months and six months ended June 30, 1997 primarily due to an increase in the
percentage of net sales not subject to royalty.
7
<PAGE>
Selling and Administrative
- --------------------------
Selling and administrative expenses increased $458,000, or 13.3%, and $1.6
million, or 25.9%, for the three months and six months ended June 30, 1997.
Included in the three months and six months of June 30, 1997 are $400,000 and
$1.1 million, respectively, of costs associated with the Company's one-time
management reorganization and training costs, with the latter continuing
throughout the year. As a percentage of net sales, selling and administrative
expenses increased to 24.6% for both the three months and six months ended June
30, 1997 from 22.6% and 21.8% for the three months and six months ended June 30,
1996. Exclusive of the management reorganization and training costs, selling and
administrative expenses decreased as a percentage of net sales for the three
months and six months ended June 30, 1997 to 22.1% and 21.1%, respectively.
Research and Development
- ------------------------
Research and development costs increased $146,000, or 21.8%, and $17,000,
or 1.1%, for the three months and six months ended June 30, 1997, compared with
the same periods in 1996. As a percentage of net sales, research and development
costs increased from 4.4% for the three months ended June 30, 1996 to 5.1% for
the three months ended June 30, 1997, and decreased from 5.5% for the six months
ended June 30, 1996, to 5.1% for the six months ended June 30, 1997. The Company
continues to invest in programs to improve manufacturing cost and product
performance in both multimode and single-mode product lines, to develop new
special performance fiber products and to develop alternative process
technologies.
Other Income (Expense), net
- ---------------------------
Other income (expense), net improved by $471,000 and $426,000, for the
three months and six months ended June 30, 1997 compared with the same periods
in 1996. Interest income increased for the three months and six months ended
June 30, 1997 by $436,000 and $644,000, respectively, due to a higher level of
cash available for investment as a result of the Company's secondary public
offering in February, 1997. Net interest expense decreased by $22,000 for the
three months ended June 30, 1997 due to a higher level of capitalized interest
associated with the Company's capacity expansion programs. Interest expense, net
of capitalized interest, increased for the six months ended June 30, 1997 by
$144,000 compared to the same periods in 1996 due to the increase in debt
related to the Company's capacity expansion.
Income Taxes
- ------------
A tax provision of 33.7% and 34.0% of pre-tax income was provided for the
three months and six months ended June 30, 1997 compared to a tax provision of
27.4% of pre-tax income for the comparable periods in 1996. The effective tax
rates for the 1996 and 1997 periods were lower than the statutory combined
federal and state tax rates due primarily to reductions in the valuation
allowance for deferred tax assets.
Income from Equity in Joint Venture
- -----------------------------------
The Company realized income of $97,000 and $137,000 for the three months
and six months ended June 30, 1997, net of tax, from its equity in General
Photonics, the joint venture formed in December, 1996 with General Cable. In
1996, the results of Applied Photonic Devices, Inc., the predecessor to General
Photonics, were included in consolidated results.
Net Income
- ----------
Net income for the three months and six months ended June 30, 1997
increased by $497,000, or 59.7%, and $935,000, or 61.6%, compared with the same
periods of 1996. The improvement was largely attributable to improved
manufacturing yields and efficiencies which resulted in higher production
available for sale at higher margins.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of cash are cash flow from operations,
established bank credit facilities and existing cash balances. In February the
Company completed a secondary public offering for a total of 1,500,000 shares of
common stock at a price of $19.00 per share. Of the 1,500,000 shares, 1,300,000
were sold by the Company and 200,000 by Allen and Company, Incorporated, a
selling stockholder. This offering raised approximately $23.0 million for the
Company. Approximately $16.5 million of this was used to fund the Company's
continuing capacity expansion. The remaining amount was temporarily invested in
short-term marketable securities until needed for capital expansion.
As of June 30, 1997, the Company had approximately $26.0 million of cash,
cash equivalents and marketable securities, including approximately $5.4 million
in marketable securities, classified as long-term assets, which could be
converted to cash if necessary. In addition, the Company has an unused $20.0
million revolving credit agreement with its principal bank. The Company at June
30, 1997 had working capital of approximately $31.2 million and a current ratio
of 4.0 to 1.
The Company currently has underway capacity expansion requiring significant
capital expenditures through the remainder of 1997. Total planned expenditures
for capacity expansion include approximately $38.0 million for SpecTran
Communication and approximately $9.0 million for SpecTran Specialty. When
completed, these expansions are expected to increase SpecTran Communication's
capacity by 100% and SpecTran Specialty's by 50%. The Company intends to finance
these expansions through a combination of cash flow from operations and existing
cash and marketable security balances.
Forward Looking Statements
- --------------------------
This report contains forward looking statements which are subject to a
number of risks and uncertainties that may cause actual results to differ
materially from expectations. These uncertainties include, but are not limited
to, general economic conditions and competitive conditions in markets served by
the Company.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
which this report was filed.
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: August 11, 1997 BY:
/s/ Raymond E. Jaeger
---------------------
Raymond E. Jaeger
President,
Chief Executive Officer and
Chairman of the Board of Directors
Date: August 11, 1997 BY:
/s/ Bruce A. Cannon
--------------------
Bruce A. Cannon
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000718487
<NAME> Spectran Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,930
<SECURITIES> 18,650
<RECEIVABLES> 9,584
<ALLOWANCES> 217
<INVENTORY> 7,970
<CURRENT-ASSETS> 41,800
<PP&E> 49,124
<DEPRECIATION> 16,418
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<CURRENT-LIABILITIES> 10,568
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0
0
<COMMON> 695
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<CGS> 19,405
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</TABLE>
