<PAGE>
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 March 31, 1997
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
April 25, 1997, was 6,903,531.
1
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PART I - FINANCIAL INFORMATION
SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands except per share amounts
(unaudited)
<TABLE>
Three Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Net Sales .............................................. $ 16,228 $ 13,472
Cost of Sales .......................................... 9,686 8,716
-------- --------
Gross Profit ........................................... 6,542 4,756
Selling and Administrative Expenses .................... 3,982 2,819
Research and Development Costs ......................... 781 909
-------- --------
Income from Operations ................................. 1,779 1,028
-------- --------
Other Income (Expense):
Interest Income ..................................... 276 68
Interest Expense .................................... (353) (186)
Other, Net .......................................... (53) 33
-------- --------
Other Income (Expense), net ......................... (130) (85)
-------- --------
Income before Income Taxes ............................. 1,649 943
Income Tax Expense ..................................... 567 259
-------- --------
Income before Equity in Joint Venture .................. 1,082 684
Income from Joint Venture, Net of Income Taxes ......... 40 --
-------- --------
Net Income ............................................. $ 1,122 $ 684
======== ========
Weighted Average Number of Common Shares Outstanding ... 6,623 5,750
======== ========
Net Income per Common Share ............................ $ .17 $ .12
======== ========
</TABLE>
See accompanying notes to these consolidated condensed financial statements.
2
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SPECTRAN CORPORATION
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
<TABLE>
March 31,December 31
1997 1996
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents ............................. $ 1,569 $ 3,565
Current Portion of Marketable Securities .............. 30,628 13,822
Trade Accounts Receivable, net ........................ 9,875 7,621
Inventories ........................................... 7,656 7,254
Deferred Income Taxes, net ............................ 791 791
Prepaid Expenses and Other Current Assets ............. 3,142 1,316
-------- --------
Total Current Assets ....................................... 53,661 34,369
Property, Plant and Equipment, net ......................... 21,903 17,890
Other Assets:
Long-term Marketable Securities ....................... 1,968 1,595
License Agreements, net ............................... 753 804
Deferred Income Taxes, net ............................ 964 814
Goodwill, net ......................................... 930 950
Investment in Joint Venture ........................... 4,180 4,135
Other Long-term Assets ................................ 1,876 1,899
-------- --------
Total Other Assets .................................... 10,671 10,197
-------- --------
Total Assets ..................................... $ 86,235 $ 62,456
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable ...................................... $ 3,656 $ 3,763
Income Taxes Payable .................................. 453 301
Accrued Liabilities ................................... 5,444 5,989
-------- --------
Total Current Liabilities ............................. 9,553 10,053
Long-term Debt ............................................. 24,000 24,000
Stockholders' Equity:
Common Stock, voting, $.10 par value; authorized
20,000,000 shares; outstanding 6,902,196 shares and
5,400,071 shares in 1997 and 1996, respectively ... 690 540
Common Stock, non-voting, $.10 par value;
authorized 250,000 shares; no shares outstanding .. -- --
Paid-in Capital ....................................... 49,915 26,884
Net Unrealized Loss on Marketable Securities .......... (40) (16)
Retained Earnings ..................................... 2,117 995
-------- --------
Total Stockholders' Equity ............................ 52,682 28,403
-------- --------
Total Liabilities & Stockholders' Equity ......... $ 86,235 $ 62,456
======== ========
</TABLE>
See accompanying notes to these consolidated condensed financial statements.
3
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SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
Dollars in thousands
(unaudited)
<TABLE>
Three Months Ended
March 31,
---------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income .............................................. $ 1,122 $ 684
Reconciliation of Net Income to Net Cash Used in
Operating Activities:
Depreciation and Amortization ...................... 933 706
Other Non-Cash Charges ............................. (243) (71)
Changes in Other Components of Working Capital ..... (4,896) (1,749)
--------- -------
Net Cash Used in Operating Activities .............. (3,084) (430)
Cash Flows from Investing Activities:
Acquisition of Property,Plant and Equipment ........ (4,848) (2,065)
Purchase of Marketable Securities .................. (119,494) (6,011)
Proceeds from Sale/Maturity of Marketable Securities 102,289 7,916
Investment in Joint Venture ........................ (40) --
--------- -------
Cash Used in Investing Activities .................. (22,093) (160)
Cash Flows from Financing Activities
Proceeds from Exercise of Stock Options and Warrants 11 2
Issuance of Stock .................................. 23,170 --
--------- -------
Cash Provided by Financing Activities .............. 23,181 2
Decrease in Cash and Cash Equivalents ................... (1,996) (588)
Cash and Cash Equivalents ............................... 3,565 1,625
--------- -------
Cash and Cash Equivalents at End of Period .............. $ 1,569 $ 1,037
========= =======
</TABLE>
See accompanying notes to these consolidated condensed 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 ended March 31, 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 three months
ended March 31, 1997, are not necessarily indicative of the results for the
entire year.
The consolidated results for the three months ended March 31, 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"). In December 1996 the Company announced
the formation of General Photonics, LLP, a 50-50 joint venture between the
Company and General Cable Corporation ("General Cable"), a 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 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>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Raw Materials . $3,932 $3,677
Work in Process 1,193 1,209
Finished Goods 2,531 2,368
------ ------
$7,656 $7,254
====== ======
</TABLE>
5
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3. PROPERTY, PLANT & EQUIPMENT
<TABLE>
March 31, December 31,
Property, plant and equipment consisted of 1997 1996
(in thousands): ---- ----
<S> <C> <C>
Land and Land Improvements ................... $ 937 $ 937
Buildings and Improvements ................... 3,840 3,840
Machinery and Equipment ...................... 22,930 19,213
Construction in Progress ..................... 9,742 8,611
------- -------
37,449 32,601
Less Accumulated Depreciation and Amortization 15,546 14,711
------- -------
$21,903 $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, a selling stockholder.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared to Three Months Ended
March 31, 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 MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Net Sales ........................... 100.0% 100.0%
Cost of Sales ....................... 59.7% 64.7%
---- ----
Gross Profit ........................ 40.3% 35.3%
Selling and Administrative Expenses . 24.5% 20.9%
Research and Development Cost ....... 4.8% 6.8%
----- -----
Income from Operations .............. 11.0% 7.6%
Other income (Expense), net ......... (.8)% (.6)%
----- -----
Income before Income Taxes .......... 10.2% 7.0%
Income Tax Expense .................. 3.5% 1.9%
----- -----
Income before Equity in Joint Venture 6.7% 5.1%
Income from Joint Venture, net ...... .2% --%
----- -----
Net Income .......................... 6.9% 5.1%
===== =====
</TABLE>
Net Sales
- ---------
Net sales increased $2.8 million, or 20.5%, from $13.5 million for the
three months ended March 31, 1996, to $16.2 million for the three months
ended March 31, 1997. Sales for the 1996 period include the sales of Applied
Photonic Devices, Inc. ("APD"), certain assets of which were sold in 1996 to
form General Photonics, a joint venture with General Cable. On a comparative
basis, excluding APD sales from the 1996 period, sales increased 41.1% for the
three months ended March 31, 1997 compared to the three months ended March 31,
1996. This increase was primarily due to strong market demand for the Company's
multimode and single-mode communication fiber. Selling prices for multimode and
single-mode have increased in the first three months of 1997 compared to the
comparable period of 1996, largely due to strong market demand and the Company's
ability to pass through certain raw material cost increases in the case of
multimode fiber.
Gross Profit
- ------------
Gross profit increased $1.8 million, or 37.6%, from $4.8 million for the
three months ended March 31, 1996, to $6.5 million for the three months ended
March 31, 1997. As a percentage of net sales, the gross profit increased to
40.3% for the three months ended March 31, 1997 from 35.3% for the three month
ended March 31, 1996. This increase in gross profit was primarily due to
increased net sales in the 1997 period, lower production costs resulting from
manufacturing process and yield improvements and higher 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 4.2%
in the three months ended March 31, 1996 to 3.2% for the three months ended
March 31, 1997 primarily due to an increase in the net sales not subject to
royalty.
7
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Selling and Administration
- --------------------------
Selling and administrative expenses increased $1.2 million, or 41.3%, from
$2.8 million for the three months ended March 31, 1996 to $4.0 million for the
three months ended March 31, 1997. Included in the first three months of 1997
are $700,000 of costs associated with the Company's one-time management
reorganization change and training costs which will continue throughout the
year. As a percentage of net sales, selling and administrative expenses
increased to 24.5% for the three months ended March 31, 1997 from 20.9% for the
three months ended March 31, 1996. Exclusive of the management reorganization
and training costs, selling and administrative expenses decreased as a
percentage of net sales in the 1997 first quarter to 20.2%.
Research and Development
- ------------------------
Research and development costs decreased $128,000, or 14.1%, from $909,000
for the three months ended March 31, 1996 to $781,000 for the three months ended
March 31, 1997. The decrease was largely attributed to an increase in research
and development funded by customers of the Company's SpecTran Specialty Optics
subsidiary. As a percentage of net sales, research and development costs
decreased from 6.8% for the three months ended March 31, 1996 to 4.8% for the
three months ended March 31, 1997.
Other Income (Expense), net
- ---------------------------
Other income (expense), net declined by $45,000 for the three months ended
March 31, 1997 compared to the same period of 1996. Interest income increased in
1997 by $208,000 due to a higher level of cash available for investment as a
result of the Company's successful secondary public offering in February, 1997.
Interest expense, net of capitalized interest, increased by $167,000 in 1997 due
to the increase in debt related to the Company's capacity expansion.
Income Taxes
- ------------
A tax provision of 34.4% of pre-tax income was provided for the three
months ended March 31, 1997 compared to a tax provision of 27.5% of pre-tax
income for the comparable period 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 a reductions in the valuation allowance for deferred tax
assets. The Company believes that it is more likely than not that the additional
deferred tax assets will be realized through the utilization of operating loss
and tax credit carryforwards.
Income from Equity in Joint Venture
- -----------------------------------
The Company realized income of $40,000, 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 ended March 31, 1997 was $1.1 million
or 6.9% of net sales. Net income for the same period in 1996 was $684,000, or
5.1% of net sales. Net income increased primarily as a result of the increased
sales and gross profit for the three months ended March 31, 1997 compared to the
same period in 1996.
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,a selling stockholder.
This offering raised approximately $23.0 million for the Company. Approximately
$4.8 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.
8
<PAGE>
As of March 31, 1997, the Company had approximately $34.1 million of cash,
cash equivalents and marketable securities, including approximately $2.0 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 March
31, 1997 had working capital of approximately $44.1 million, and a current ratio
to 5.6 to 1.
The Company has plans for capacity expansion requiring significant capital
expenditures through the remainder of 1997. Total planned expenditures for
capacity expansion include approximately $32.0 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.
Management Reorganization
- -------------------------
On March 21, 1997, Dr. Raymond E. Jaeger, Chairman of the Board Directors,
resumed the additional role of Chief Executive Officer of the Company while Mr.
Glenn E. Moore, formerly the Company's CEO, left the Company to pursue other
interests. This management change will have not have any effect on the Company's
near-term or future performance.
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: May 13, 1997 BY:
/s/ Raymond E. Jaeger
----------------------
Raymond E. Jaeger
President,
Chief Executive Officer and
Chairman of the Board of Directors
Date: May 13, 1997 BY:
/s/ Bruce A. Cannon
--------------------
Bruce A. Cannon
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
10
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<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,569
<SECURITIES> 30,628
<RECEIVABLES> 10,075
<ALLOWANCES> 200
<INVENTORY> 7,656
<CURRENT-ASSETS> 53,661
<PP&E> 37,449
<DEPRECIATION> 15,546
<TOTAL-ASSETS> 86,235
<CURRENT-LIABILITIES> 9,553
<BONDS> 0
0
0
<COMMON> 690
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 86,235
<SALES> 16,228
<TOTAL-REVENUES> 16,228
<CGS> 9,686
<TOTAL-COSTS> 9,686
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 353
<INCOME-PRETAX> 1,689
<INCOME-TAX> 567
<INCOME-CONTINUING> 1,122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,122
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
