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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
For the fiscal year ended December 31, 1995 / X /
OR
For the transition period from ................to .................... / /
Commission file number 0-12489
SPECTRAN CORPORATION
(Exact name of the registrant as specified in its charter)
04-2729372
(I.R.S. Employer 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None
..............................................................................
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
..............................................................................
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: X No:
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
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The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing price of such stock, on
February 29, 1996: $42,160,000.
The number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date: 5,353,686 shares of common stock,
$.10 par value, outstanding on February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The information required for Part III hereof is incorporated by reference from
the Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders to
be filed within 120 days after the end of the Registrant's fiscal year.
PART I
ITEM 1. BUSINESS.
SpecTran Corporation ("SpecTran," the "Company" or the "Registrant"),
which was reorganized in 1995 to operate through three wholly owned
subsidiaries, develops, manufactures and markets flexible glass fibers for use
as optical waveguide fibers ("optical fibers") and value added fiber optic
products. SpecTran Communication Fiber Technologies, Inc. develops,
manufactures and markets multimode optical fiber primarily for domestic data
communications applications and single-mode fiber for both domestic and
international data communication and telecommunications applications. SpecTran
Specialty Optics Company, acquired in February 1994, develops, manufactures and
markets value added fiber optic products such as special performance fibers and
fiber optic cables, coatings and certain related equipment for use in a variety
of emerging and developing specialty product markets. Applied Photonic
Devices, Inc., acquired in May 1995, develops, manufactures and markets
standard and specialty fiber optic cable as well as cable assemblies.
Technology
Optical fibers are hair-thin, solid strands of high quality glass
which are usually combined in cables for transmitting information in the form
of light pulses from one point to another. An optical fiber consists of a core
of high purity glass which transmits light with little signal loss, typically
encased within a covering layer of high purity glass referred to as optical
cladding, designed to reduce signal loss through the side walls of the fiber.
The information to be transmitted is converted from electrical impulses into
light waves by a laser or light emitting diode. At the point of reception, the
light waves are converted back into electrical impulses by a photo-detector.
Communication by means of light waves guided through glass fibers
offers a number of advantages over other modes of communication including
metallic conductors and, unlike metallic conductors, are immune to
electromagnetic and radio frequency interference. Signals of equal strength
can be transmitted over longer distances through optical fibers than through
metallic conductors, thus requiring fewer repeaters. Fiber optic cables, into
which several optical fibers are usually incorporated,
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are substantially smaller and lighter than metallic cables of the same capacity
and can be installed and used in confined spaces. Optical fibers also have
advantages over satellite and line of sight transmissions such as microwave, in
that fiber optic cables provide interference-free communications that offer a
high degree of security.
The Company typically manufactures optical fibers by introducing
vapors and gases of varying chemical compositions into a special glass tube in
a clean, controlled environment. The glass tube, which will ultimately form
all or a portion of the optical cladding, and the vapors and gases are
simultaneously heated and oxide particles, formed through a reaction of
chemical vapors with oxygen, are deposited on and adhere to the inside of the
tube. As the particles attach to the tube wall, they are fused to create a
layer of high purity glass. Succeeding layers of glass of the same or
different compositions are deposited in this fashion to permit the transmission
of light in accordance with the desired specifications. The glass tube is then
collapsed into a rod, or primary preform, consisting of a deposited core, in
certain instances some deposited clad, and the cladding provided by the glass
tube. In most cases an additional cladding layer is added to this primary
preform. The rod is then placed at the top of a fiber drawing tower, heated
until it softens and drawn into a fiber of predetermined diameter.
The Company has patented technology which permits the direct deposit
of high purity glass, thus reducing or eliminating the need for glass tubes,
which can be used independently or in conjunction with its existing processes.
This technology is most suitable for the low-cost manufacture of single-mode,
long-distance fibers and for the manufacture of glass rods for the production
of specialty optical fibers. The Company owns certain hard polymer claddings
and coatings and fiber termination technology known as "crimp/cleave," which
permits easier attachment of optical fibers to connectors and other components
and has certain proprietary technology used for the cabling of optical fiber.
The Company also owns technology related to the processing of a wide variety of
polymeric compounds for the manufacture of optical fiber cable. This
technology provides environmental protection for both outdoor cables and
nonflammable, low smoke, low toxicity cables used inside buildings. In
addition, the Company considers the designs of its optical fiber cable products
to provide a significant competitive advantage.
Optical Fiber and Related Products
SpecTran presently manufactures and sells a variety of optical fibers
and value added optical fiber products. The Company's short-distance, or
multimode, fibers are used for communications within a computer, between
computers and peripherals as well as in local and wide area networks. The
Company's long-distance, or single-mode, fibers are used for carrying
commercial data communications and telecommunications signals.
The Company also manufactures a wide variety of specialty optical
fibers and related products that are typically incorporated into a customer's
product or systems based on their special characteristics or benefits. Certain
specialty optical fibers marketed by the Company are solid glass or
glass/polymer hybrid structures. Their application can be broadly categorized
into fibers for communications, power delivery or sensing. These general
categories may be further engineered for a wide range of physical special
products including, for example, fibers designed for low cost
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communications links, various laser delivery applications, extremely high power
laser delivery applications, radiation resistant industrial and military
applications, ultra-high speed communications, sensors, soldered or hermetic
attachments to semiconductor devices such as laser diodes or integrated optics
packages, underwater and/or down-hole applications and certain hot and/or
adverse environments, high and/or long-term reliability applications and data
collection, sensors and certain medical applications. The Company produces
fiber, bundle, special designs and complex assemblies for the industrial,
telecommunication, short haul data communication, medical, military, aerospace
and transportation markets. The Company is a leader in field applicable
"crimp/cleave" connector systems and associated hardware for the attachment of
optical fibers to connectors and other components.
The Company also develops, markets and sells optical fiber cable and
components for indoor (tight buffered cables) and outdoor (loose tube
gel-filled) data, video and voice applications. In addition, the Company
produces high fiber count loose tube splitter kits (allowing for easy
termination for loose tube cables) and other splitter and breakout cable
termination systems.
Proprietary Rights
The Company considers its proprietary know-how with respect to the
development and manufacture of flexible glass fibers and value added optical
fiber products to be a valuable asset. This know-how includes formulation of
new glass compositions, development of special fiber coatings, coating
application, fiber design, fiber drawing, optical fiber cabling methods, fiber
crimping, gluing, polishing, cleaving, proprietary testing capabilities,
development and implementation of manufacturing processes and quality control
techniques, and design and construction of manufacturing and quality control
equipment. In addition, application knowledge and product combination
knowledge are also considered to be valuable assets of the Company.
The Company has from Corning, Incorporated ("Corning"), formerly
Corning Glass Works, a limited, non-assignable, non-exclusive, royalty-bearing
license to make, use and sell optical fibers under certain of Corning's United
States patents owned or filed for on or before January 1, 1996, in the field of
optical fibers. See Note 4 of "Notes to Consolidated Financial Statements."
This license agreement extended and expanded a previous similar license. The
license contains certain annual quantity limitations not applicable to sales
made directly or indirectly (through cablers or other companies) to certain
customers such as Corning, AT&T and the United States Government, which
increase annually through the year 2000. The quantity of optical fiber
licensed for manufacture under this license is significantly greater than was
permitted under the prior license. The license has a term equal to the life of
the last to expire of the Corning or Company patents licensed under the
agreement. Corning has the right to terminate the license in the event that
more than thirty percent of the Company's voting stock is acquired, directly or
indirectly, by another manufacturing company. The Company is required to grant
back to Corning a non-exclusive royalty-free license for any patent it owned or
filed for on or before January 1, 1996, in the field of optical fibers.
The Company has from AT&T Technologies, Inc. ("AT&T Technologies"),
formerly Western Electric Company, Incorporated, a subsidiary of American
Telephone and Telegraph Company ("AT&T"), a non-assignable, non-exclusive,
unlimited, royalty-bearing license under all patents covering optical fiber and
optical fiber cable owned by AT&T Technologies or which AT&T
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Technologies and its affiliates have the right to license on or before August
15, 1986. The Company granted back to AT&T Technologies and to AT&T a
non-exclusive, royalty-free license under patents the Company may obtain
relating to optical fiber inventions made on or before August 15, 1986. The
license extends for the life of the last to expire of the patents licensed
under the agreement.
Approximately 43% of the Company's sales during 1995 were subject to
the Corning license and 61% subject to the AT&T license. These license
agreements required aggregate royalty payments by the Company of approximately
8.5% of net sales of the Company's products manufactured under the agreements
during 1995. The Company believes that manufacturing and sale of its
single-mode fiber is not subject to the Corning license agreement. The Company
presently does not expect to need the Corning license for the manufacture of
its multimode fiber after 1999.
The Company's specialty fiber operation has a non-exclusive,
royalty-bearing license granted by Sumitomo Electric Industries, Ltd. to make,
use and sell primary coated optical fiber, preforms or glass rods for optical
fiber in the United States under one of Sumitomo's United States and foreign
patents and to use and sell primary coated optical fiber, preforms or glass
rods for optical fiber worldwide, except Japan. The license terminates upon
termination of the underlying patents. None of the Company's production of
optical fibers was subject to royalties under this license during 1995.
The Company and its subsidiaries own 25 U.S. patents relating to
products, processes and equipment in the fields of optical fibers, optical
connectors, coatings and cleaving tools. It has also filed applications for
two additional patents in the same fields of use. The Company believes that
under the terms of existing cross-license agreements, the optical fiber patents
would be required to be made available to Corning and certain of those patents
would be required to be made available to AT&T, on a royalty-free basis.
The Company is using its registered trademark SPECTRAGUIDE for its
optical fiber and, for certain of its optical fiber value added fiber products,
the registered trademarks HCS (Hard Clad Silica), Avioptics, Flightguide,
Ultrasil, PYROCOAT, V-System, V-Pin and OPTI-Pak.
Research and Development
Research and development activities, and the Company's ability to
develop and improve products employing both existing and new technology, are
important to the Company. During the fiscal years ended December 31, 1995,
1994 and 1993, the Company spent $2,826,867, $1,974,466 and $953,703,
respectively, on research and development. The Company's personnel conduct
virtually all of its research and development activities with some external
consulting. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Customers and Marketing
The Company sells its standard optical fibers to various cable
manufacturers, internationally and domestically, which assemble them into
cables for resale in configurations of their own design. Specialty fiber
products are sold directly to a large number of OEM manufacturers, product
development groups, international distributors and manufacturer's
representatives, installers,
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universities and governmental agencies primarily for use in the
telecommunications, short-haul datacommunications, medical, military, aerospace
and transportation markets. Optical fiber cable and cable accessories are
sold, directly and through independent sales representatives, domestically and
internationally, to the data communications, video, security, transportation,
utilities and process control markets.
For the year ended December 31, 1995, sales of the Company's optical
fiber products to each of two companies (in alphabetical order, Chromatic
Technologies, Inc and Optical Cable Corporation) were equal to ten percent or
more of the Company's revenues. These two companies together accounted for 24%
of the Company's revenues. The loss of either of these customers could have a
material adverse effect on the Company's operations. See Note 9 of "Notes to
Consolidated Financial Statements."
The Company markets its standard data communications and
telecommunications optical fiber products principally through direct sales in
the United States and through a network of manufacturer representatives
internationally. Specialty fiber products are marketed domestically through a
direct field sales engineering force and internationally through a network of
technical distributors and sales representatives. Optical fiber cable and
cable components are marketed through a direct sales force and a network of
distributors and sales representatives. The Company advertises in trade
publications, distributes brochures and other material to its mailing list of
potential customers worldwide and attends and demonstrates its products at
trade shows, technical symposia and standards committees.
Backlog
As of January 31, 1996, the Company's backlog of orders was
approximately $17,400,000, as compared to a backlog of $10,100,000 as of March
17, 1995. The entire backlog as of January 31, 1996 is expected to be
delivered during 1996.
Competition
The number of participants in the optical fiber industry is to some
extent limited by patents covering the fundamental optical fiber technology,
the need for substantial capital investment, and the availability of highly
specialized equipment and personnel with the requisite technical expertise.
However, the Company believes that certain patents relating to the production
of single-mode fiber have expired in many countries, including the United
States, and no longer block entry.
During most of 1995 market competition moderated as fiber supply began
to tighten in the face of increasing worldwide demand for single-mode and
multimode fiber and pricing has become more stable. Competition for specialty
markets in 1995 was moderate, except in the medical market, where due to flat
growth, price pressures on specialty fiber suppliers intensified. Competition
for supply of optical fiber cables is strong, although the Company has
attempted to focus on certain types of value added optical fiber cables that
serve specific and specialized needs so that in a number of situations it has
been the only producer of such cable for a period of time.
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Optical fibers offer a number of advantages over other means of
transmitting information, such as through metallic wire, satellite and other
line of sight transmissions (e.g., microwaves) and compete favorably with them
although there has been an increase in interest in wireless communications in
the marketplace. Many companies producing such other means of transmitting
information have substantially greater resources and operating experience than
the Company. In emerging markets and in applications where the use of optical
fiber is new or not well understood, the Company often competes with mature,
existing technology.
The Company produces and sells optical fibers both for general
applications, including data communications and telecommunications, and for
specialized markets as well as optical fiber cable and cable components. While
there may be somewhat less competition in the specialized markets, all of these
markets are extremely competitive. The Company's main competitors for its
general applications fibers, including both data communications and
telecommunications, are its licensors to whom the Company pays royalties and
who have substantially greater resources and operating experience than the
Company. The Company's main competitors for its specialty fibers generally
have been smaller operations, although some of those competitors are part of a
company with substantially greater resources than the Company. The Company's
main competitors for its optical fiber cable products are large companies with
substantially greater resources and operating experience than the Company. The
Company competes for sales based upon its ability to fill orders promptly at
competitive prices, product performance, product features, unique proprietary
products and product combinations, flexibility, quality and service.
Raw Materials and Quality Control
The basic raw materials required for the manufacture of the Company's
products are high quality raw glass tubes and rods, various chemicals and
gases, preforms and certain polymers. The Company believes that its sources of
supply of these raw materials are adequate and that alternative sources are
available.
The Company's quality control programs are essential to its success.
They are designed to maintain strict tolerances during the manufacturing
process and to assure performance standards of its optical fibers. The Company
performs quality control testing on all of the optical fiber it produces. The
Company designs and builds at its corporate facilities much of its automated
standard product manufacturing and some of its quality control systems. In
November 1995, the Company's fiber making operation became certified under the
ISO 9001 standard which is an internationally recognized, quality system
consisting of a set of functions, policies and operating methodologies which
are designed to ensure process consistency. Both the Company's specialty
optical fiber and its optical cable operations utilize internal testing
procedures based on the internationally recognized "Fiber Optic Test
Procedures" and have in place and continue to develop specialized proprietary
testing systems and procedures to support the requirements of specialty fiber
and cable customers. The Company's specialty fiber operation became ISO 9001
certified in March 1996.
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Employees
As of December 31, 1995, the Company employed 300 persons, of whom 35
were employed in technology, 184 were employed in manufacturing operations and
81 provided marketing, administrative, management and other support services.
The Company's employees are not represented by a labor union. The Company
believes its employee relations to be satisfactory.
ITEM 2. PROPERTIES.
The Company's administrative offices and the offices and production
facilities of SpecTran Communication Fiber Technologies, Inc. are located in an
approximately 50,000 square foot building situated on approximately 43 acres of
land owned by the Company in Sturbridge, Massachusetts. Sixty percent of that
acreage is classified as an industrial zone. The Company also owns an
approximately 5,000 square foot office building used for offices that is next
to this manufacturing facility.
SpecTran Specialty Optics Company leases approximately 33,000 square
feet under three leases in Avon, Connecticut for its office and production
facilities. Each of the leases is for a term of three years expiring February
18, 1997, subject to the subsidiary's right to renew each lease for one
three-year renewal term.
Applied Photonic Devices, Inc. leases office and production facilities
in an approximately 45,000 square foot facility located in Danielson,
Connecticut under a lease with a term of two years expiring January 14, 1998,
subject to the subsidiary's right to renew such lease for two consecutive one
year renewal terms.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded in the over-the-counter market on
the NASDAQ National Market System under the symbol SPTR. The following table
sets forth the high and low sales prices for the Common Stock for the periods
indicated.
Price
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Fiscal Year Fiscal Quarter Ended High Low
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1994 March 31, 1994 12-1/4 7-1/2
June 30, 1994 8-1/4 4
September 30, 1994 6 4-1/8
December 31, 1994 7 4-1/4
1995 March 31, 1995 6-5/8 4-5/8
June 30, 1995 7-1/4 4-7/8
September 30, 1995 7-1/8 5-1/2
December 31, 1995 6-5/8 5
The approximate number of shareholders of record of the Company's
Common Stock as of February 7, 1996 was 800 which includes all shares held in
nominee names by brokerage firms and financial institutions as one stockholder.
It is estimated that such shares held in street name are held for approximately
5,200 stockholders.
The Company has never declared or paid cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA.
Year Ended December 31
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OPERATING RESULTS 1995 1994 1993 1992 1991
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Net Sales $38,581 $26,926 $25,578 $21,371 $16,255
Gross Profit 13,061 7,623 9,615 8,734 6,096
Income (loss) Before Taxes 777 (487) 5,629 5,012 3,428
Net Income (loss) 542 (487) 3,655 3,644 2,758
Net Income (loss) Per Share of
Common Stock .10 (.09) .67 .66 .50
FINANCIAL POSITION
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Total Assets 40,365 31,362 26,712 22,800 19,810
Total Long-Term Debt 10,000 5,240 300 367 708
Total Stockholders' Equity 24,295 23,104 23,613 20,009 15,864
Notes to Selected Financial Data
(1) In thousands of dollars except per share data.
(2) The Company has never declared or paid cash dividends.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Operating Results
Year Ended December 31, 1995 Versus Year Ended December 31, 1994
Overview
In 1995, SpecTran's revenues increased 43.3% to $38,580,608 and the
Company earned net income of $542,037, or $.10 per share compared with revenues
of $26,926,077 and a loss of $487,381, or $.09 per share in 1994. The improved
revenues and earnings in 1995 were primarily due to strong market demand for
the Company's standard and specialty products. The acquisition of Applied
Photonic Devices, Inc. also contributed to higher revenues in 1995. Although
SpecTran returned to profitability in 1995, income was still constrained by
significant investment in manufacturing development costs, primarily related to
communication fiber products.
Net Sales
Net sales of $38,580,608 for the year ended December 31, 1995, were
$11,654,531 (43.3%) higher than for the year ended December 31, 1994. The
increase was primarily caused by higher sales volumes due to strong market
demand for the Company's standard communication fiber, both multimode and
single-mode, as well as specialty products. The acquisition of Applied
Photonic Devices, Inc. and a full year of sales of SpecTran Specialty Optics
Company, acquired in February, 1994, also contributed to the increase.
Gross Profit
The Company earned a gross profit of $13,061,053 during 1995 which was
a $5,438,427 (71.3%) increase over 1994. The gross profit, as a percentage of
sales, increased to 33.9% in 1995 from 28.3% in 1994. Major factors positively
impacting gross profit were improved manufacturing efficiencies, especially in
the Company's single-mode product line. However, the gross profit was
negatively impacted in 1995 by approximately $1.8 million of costs associated
with manufacturing development of single-mode fiber compared to $2 million in
1994. Royalties on sales were approximately 4.1% and 5.5% of total net sales
during 1995 and 1994, respectively. The decrease was due to a higher level of
sales in 1995 not subject to royalties.
Selling & Administrative
Selling and administrative costs increased by $3,350,655 (53.0%)
during 1995. As a percentage of sales, these costs increased during 1995 to
25.1% from 23.5% during 1994. The significant increase in total selling and
administrative spending is primarily due to expenses related to
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the operation of the acquired Applied Photonic Devices, Inc., increased
personnel costs and increased market development activities related to
single-mode fiber in 1995.
Research and Development
Research and development costs increased by $852,401 (43.2%) during
1995. Research and development costs as a percentage of sales remained
constant from 1994 to 1995 at 7.3%. The Company has continued to invest in
programs to improve manufacturing cost and product performance in both the
single-mode and multimode product lines, to develop new special performance
fiber products and to develop alternative process technologies.
Other Income (Expense), net
Net other income increased $29,244 (16.0%) during 1995. Interest
expense increased $322,922 (106.7%) during 1995 as a result of increased levels
of outstanding debt during 1995 associated with the acquisition of Applied
Photonic Devices, Inc. Other income increased in 1995 by $351,386 primarily
due to non-recurring material recovery income and proceeds received in
connection with the conversion of the Company's primary group health insurance
provider from a mutual company to a stock company.
Income Taxes
Income tax expense for the year ended December 31, 1995 was 30.3% of
pre-tax income versus no tax provision or benefit for the previous year.
Income tax expense was reduced due to a reduction in the valuation allowance
for deferred tax assets. The valuation allowance was reduced $437,000 in 1995
due to the Company's belief that it is more likely than not that the additional
deferred tax asset will be realized. Excluding the effect of adjusting the
valuation allowance, income tax expense as a percentage of pre-tax income was
56.0% in 1995. See Note 8 of "Notes to Consolidated Financial Statements." No
tax benefit was provided in 1994 due to the uncertainty of the future
realization of net operating loss and tax credit carryforwards.
Net Income (loss)
The Company's net income in 1995 was $542,037, a 1.4% return on sales
compared to a net loss in 1994 of $487,381.
Year Ended December 31, 1994 Versus Year Ended December 31, 1993
Overview
SpecTran incurred a net loss for 1994 of $487,381, or $.09 per share
as a result of manufacturing and marketing costs associated with development of
single-mode fiber and unfavorable market conditions for the Company's standard
products which existed through most of the year. This
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was partially offset by the results of SpecTran Specialty Optics Company, which
was acquired in February 1994.
Net Sales
Net sales of $26,926,077 for the year ended December 31, 1994, were
$1,347,882 (5.3%) higher than for the year ended December 31, 1993, due
primarily to additional revenue provided by SpecTran Specialty Optics Company.
The increased revenue provided by SpecTran Specialty Optics Company
offset the decline in revenues from the Company's standard products where sales
to two key customers, as anticipated and previously reported, declined
significantly in 1994 and unfavorable market conditions throughout most of the
year caused lower average unit selling prices than in 1993. Also helping to
offset the decrease in sales of the Company's standard datacommunication
multimode fiber were initial sales of single-mode optical fiber.
Gross Profit
The Company earned a gross profit of $7,622,626 during 1994 which was
a $1,992,235 (20.7%) decline over 1993. The gross profit, as a percentage of
sales, dropped to 28.3% in 1994 from 37.6% in 1993. A major factor negatively
impacting gross profit was approximately $2 million of costs associated with
manufacturing development of single-mode fiber. Royalties on sales were
approximately 5.5% and 6.4% of total net sales during 1994 and 1993,
respectively. The decrease was due to a higher level of sales in 1994 not
subject to royalties.
Selling & Administrative
Selling and administrative costs increased by $3,025,949 (91.9%)
during 1994. As a percentage of sales, these costs increased during 1994 to
23.5% from 12.9% during 1993. The significant increase in total selling and
administrative spending is primarily due to expenses related to the operation
of the acquired SpecTran Specialty Optics Company, increased personnel costs,
and higher costs associated with international marketing of single-mode fiber.
Research & Development
Research and development costs increased by $1,020,763 (107.0%) during
1994. Research and development costs as a percentage of sales increased to
7.3% in 1994 from 3.7% in 1993. The Company has invested heavily in improved
multimode products and processes, alternative process technologies and
development of single-mode fiber, accounting for this increase.
Other Income (Expense), net
Other income (expense) net decreased $77,814 (29.8%) during 1994. The
change is made up of increased interest income of $81,544 (33.2%), increased
interest expense of $265,672 (720.5%), and increased other income of $106,314
(203.4%). Interest income increased during 1994 primarily as
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a result of higher yields on investments. The increase in interest expense is a
result of increased levels of outstanding debt during 1994. The Company had
$5,240,000 outstanding on a revolving loan at a variable rate of interest.
Other income increased in 1994 by $106,314 primarily due to royalty income
received by SpecTran Specialty Optics Company.
Income Taxes
No tax benefit was provided for the 1994 loss largely due to the
uncertainty of future realization of certain of the carry forward amounts of
investment and research and experimentation tax credits which begin to expire
in 1996. A tax provision of 35.1% of pre-tax income was provided in 1993.
Net Income (loss)
The Company's net loss in 1994 was $487,381. Net income in 1993 was
$3,655,084 which was a 14.3% return on sales.
Liquidity and Capital Resources
At December 31, 1995, the Company had net working capital of
$15,958,150, a current ratio of 3.6 to 1, and an aggregate of $1,624,515 in
cash and cash equivalents. In addition, the Company had total marketable
securities of $5,220,998, including $1,132,682 classified as long-term, which
could be converted into cash if needed.
On March 30, 1995, the Company entered into an amended agreement with
its principal bank, Fleet Bank of Massachusetts, N.A. ("the Bank") under which
the Company can borrow the lesser of $10,000,000 or an amount based upon
certain percentages of the value of cash on deposit, eligible accounts
receivable and eligible inventory. As of December 31, 1995, the full
$10,000,000 was outstanding under the agreement. Interest is payable at the
lower of prime or the LIBOR rate plus 1.5%. The loan agreement terminates on
March 31, 1997, and any outstanding balances must be repaid on that date. As
security for the loan the Company has pledged all of its assets, except its
real property. In addition the obligation is guaranteed by the Company's
subsidiaries and is secured by their assets.
Capital expenditures for 1995 were $2,540,678, an increase of 1.4%
over 1994, principally for manufacturing equipment and software to improve
efficiencies and increase capacity. Investments were also made to upgrade
management information systems to strengthen the Company's infrastructure. The
Company is considering a significant increase in capital expenditures for 1996
to further improve efficiencies and increase capacity and is exploring
financing necessary for these expenditures.
Existing working capital, borrowings, and expected positive cash flow
from 1996 operations should be sufficient to meet the Company's cash needs in
1996.
14
15
Subsequent Events
Applied Photonic Devices, Inc. ("APD") leased an additional 36,410
square foot facility located in Dayville, Connecticut, which will be largely
dedicated to increasing manufacturing capacity, on February 6, 1996 with
another 26,250 square feet to be available on or before July 1, 1997. The
lease is for a term of five years expiring February 6, 2001, at an annual rate
of $100,125. APD has the right to renew the lease for one three-year extension
and one two-year extension.
New Accounting Pronouncements
Effective January 1, 1996, the Company will adopt Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The Statement encourages, but does not
require, a fair value based method of accounting for stock-based compensation
plans. SFAS No. 123 allows an entity to continue to measure compensation cost
for those plans using the intrinsic value based method prescribed by APB
Opinion No. 25. For those entities to use the intrinsic value based method,
SFAS No. 123 requires pro forma disclosures of net income and earnings per
share computed as if the fair value based method had been applied. The Company
intends to continue to account for stock-based compensation costs under APB
Opinion No. 25 and will provide the additional required disclosures relating to
1995 and 1996 stock options in its 1996 financial reports.
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. This statement also requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying value or fair value less costs to sell.
Adoption of the statement had no impact on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item is submitted as a separate section of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information to be contained under the heading "Election of
Directors" in the Company's proxy statement relating to the 1996 Annual Meeting
of Shareholders (the "Proxy Statement") is hereby incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information with respect to compensation of certain executive
officers and all executive officers of the Company as a group to be contained
under the headings "Compensation of Executive Officers and Directors" in the
Proxy Statement is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information with respect to ownership of the Company's Common
Stock by management and by certain other beneficial owners to be contained
under the heading "Principal Stockholders and Other Information" in the Proxy
Statement is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information with respect to certain relationships and related
transactions to be contained under the heading "Certain Transactions" in the
Proxy Statement is hereby incorporated herein by reference.
16
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. & 2. Financial Statements and Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this Form 10-K.
3. Exhibits:
See Exhibit Index on Pages 19 through 21 of this Form 10-K.
(b) Reports on Form 8-K filed during the final quarter of fiscal
1995: None
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.
Dated: SPECTRAN CORPORATION
March 29, 1996 By: /s/ Glenn Moore
--------------------------------
Glenn Moore
President and
Chief Executive Officer
March 29, 1996 By: /s/ Bruce A. Cannon
----------------------------
Bruce A. Cannon
Senior Vice President
and Chief Financial
Officer and Chief
Accounting Officer
17
18
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Raymond E. Jaeger Chairman of the Board March 29, 1996
-------------------------
Raymond E. Jaeger
/s/ Glenn Moore Director, President and March 29, 1996
----------------------- Chief Executive Officer
Glenn Moore
/s/ Richard A.M.C. Johnson Director March 29, 1996
--------------------------
Richard A.M.C. Johnson
/s/ Ira S. Nordlicht Director March 29, 1996
---------------------------
Ira S. Nordlicht
/s/ Bruce A. Cannon Director and Principal March 29, 1996
------------------------ Financial Officer
Bruce A. Cannon
/s/ Paul D. Lazay Director March 29, 1996
-----------------------
Paul D. Lazay
/s/ Joseph C. Bothwell, Jr. Director March 29, 1996
-----------------------------
Joseph C. Bothwell, Jr.
/s/ Richard Donofrio Director March 29, 1996
------------------------
Richard Donofrio
/s/ John E. Chapman Director and Principal March 29, 1996
----------------------- Operating Officer
John E. Chapman
/s/ Lily K. Lai Director March 29, 1996
------------------------
Lily K. Lai
18
19
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1 Certificate of Incorporation of the Registrant, as amended.
(Incorporated by reference to Registrant's Annual Report on Form
10-K for its fiscal year ended December 31, 1991.)
3.2 By-Laws of the Registrant, as amended. (Incorporated by reference
to Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1991.)
4.5* Form of Stock Certificate for Voting Common Stock.
10.1 Registrant's 1991 Incentive Stock Option Plan. (Incorporated by
reference to the Registrant's Proxy Statement dated April 9, 1991.)
10.7* License Agreement dated August 15, 1981, between the Registrant and
Western Electric Company, Incorporated. (Registrant has been
granted confidential treatment of portions of this Exhibit.)
10.9 License Agreement dated October 31, 1983, between the Registrant and
Gulf & Western Manufacturing Company. (Incorporated by reference to
Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1989.)
10.15 License Agreement dated January 21, 1985, between the Registrant and
Aetna Telecommunications Laboratories. (Registrant has been granted
confidential treatment of portions of this Exhibit.) (Incorporated
by reference to the Registrant's Annual Report on Form 10-K for its
fiscal year ended December 31, 1990.)
10.45 Conversion Agreement dated as of November 8, 1990, by and among
Registrant, Allen & Company Incorporated, Richard A.M.C. Johnson and
Patrick E. Brake. (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1990.)
10.46 Common Stock Purchase Warrant issued to Allen & Company Incorporated
pursuant to the Conversion Agreement listed as Exhibit 10.45.
(Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended December 31, 1990.)
10.49 License Agreement dated as of the first day of January 1991 by and
between the Registrant and Corning, Incorporated. (Registrant has
been granted confidential treatment of portions of this Exhibit.)
(Incorporated by reference to Registrant's Annual Report on Form
10-K for its fiscal year ended December 31, 1991.)
19
20
10.51 Registrant's Income Growth Incentive Plan adopted effective January
1, 1990. (Incorporated by reference to the Registrant's Annual
Report on Form 10-K for its fiscal year ended December 31, 1990.)
10.53 Asset Purchase Agreement between Ensign-Bickford Optics Company and
SpecTran Specialty Optics Company dated February 18, 1994.
(Incorporated by reference to the Registrant's Report on Form 8-K
filed March 4, 1994.)
10.54 Stock Purchase Agreement between Ensign-Bickford Optical
Technologies, Inc. and EBOT Acquisition Corp. dated February 18,
1994. (Incorporated by reference to the Registrant's Report on Form
8-K dated March 4, 1994.)
10.55 Lease between 150 Fisher Associates Limited Partnership and SpecTran
Specialty Optics Company dated February 18, 1994. (Incorporated by
reference to the Registrant's Report on Form 10-K dated March 30,
1994.)
10.56 Lease between Avon Park Properties and SpecTran Specialty Optics
Company dated February 18, 1994. (Incorporated by reference to the
Registrant's Report on Form 10-K dated March 30, 1994.)
10.57 Lease between Avon Park Properties and SpecTran Specialty Optics
Company dated February 18, 1994. (Incorporated by reference to the
Registrant's Report on Form 10-K dated March 30, 1994.)
10.58 Patent License Agreement dated as of July 7, 1987 between Sumitomo
Electric Industries, Ltd. and Lightwave Technologies, Inc.
(Incorporated by reference to the Registrant's Report on Form 10-K
dated March 30, 1994.)
10.59 Loan Agreement dated January 21, 1994, between Fleet Bank of
Massachusetts, N.A. and SpecTran Corporation. (Incorporated by
reference to the Registrant's Report on Form 10-K dated March 30,
1994.)
10.60 Loan Agreement dated March 30, 1995, between Fleet Bank of
Massachusetts, N.A. and SpecTran Corporation. (Incorporated by
reference to the Registrant's Report on Form 10-K dated March 31,
1995.)
10.61 Stock Purchase Agreement among APD Acquisition Crop. and Irving N.
Dwyer, David P. DaVia, The Irving N. Dwyer and Annette M. Dwyer
Charitable Remainder Trust and the DaVia Charitable Remainder Trust.
(Incorporated by reference to the Registrant's Report on Form 8-K
filed June 7, 1995.)
10.62 Directors Retirement Plan dated December 27, 1995.
10.63 Registrant's Employee Profit Sharing Plan as revised and adopted
effective January 1, 1995.
20
21
10.64 Lease between Mark C. Yellin and Applied Photonic Devices, Inc.
dated January 15, 1996.
10.65 Lease between Fabrilock, Inc. and Applied Photonic Devices, Inc.
dated February 6, 1996.
11.1 Schedule of Earnings Per Share Calculation.
21.0 Subsidiaries.
- ------------------------------
* Incorporated by reference to Registrant's Registration Statement
on Form S-1 (Reg. No. 2-83172) effective June 2, 1983.
21
22
SPECTRAN CORPORATION
FORM 10-K
ITEMS 8, 14 (a) (1) AND (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
The following consolidated financial statements of the registrant required to
be included in Item 8 and 14 (a) (1) are listed below:
Page
----
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-3 and F-4
Consolidated Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 F-6
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements F-8 through F-23
The following financial statement schedule of the registrant is included
pursuant to Item 14 (a) (2):
Financial Statement Schedule Page
- ---------------------------- ----
II. Valuation and Qualifying Accounts F-24
Schedules other than those mentioned above are omitted because the conditions
requiring their filing do not exist or because the required information is
presented in the consolidated financial statements, including the notes
thereto.
F-1
23
Independent Auditors' Report
The Board of Directors and Stockholders
SpecTran Corporation:
We have audited the consolidated financial statements of SpecTran Corporation
as listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement 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 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 financial position of SpecTran
Corporation as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 2, 1996
F-2
24
SPECTRAN CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---- ----
Current Assets (Note 6):
Cash and Cash Equivalents $ 1,624,515 $ 477,022
Current Portion of Marketable Securities (Note 2) 4,088,316 2,563,400
Accounts Receivable, trade, net of allowance for
doubtful accounts of $265,061 and $123,795 in 1995 and 1994,
respectively 7,798,517 6,183,461
Inventories (Note 3) 7,414,718 4,100,179
Income Taxes Receivable -- 501,629
Deferred Income Taxes, net of valuation allowance of $120,000 and
$66,000 in 1995 and 1994, respectively (Note 8)
588,000 303,000
Prepaid Expenses and Other Current Assets 513,356 267,871
------------ -----------
Total Current Assets 22,027,422 14,396,562
------------ -----------
Property, Plant and Equipment (Note 6):
Land and Land Improvements 407,705 395,113
Buildings and Building Improvements 3,729,114 3,266,189
Machinery and Equipment 17,229,195 14,612,501
Construction in Progress 1,640,786 1,625,056
------------ -----------
23,006,800 19,898,859
Less Accumulated Depreciation and Amortization 12,716,752 10,482,710
------------ -----------
10,290,048 9,416,149
------------ -----------
Other Assets (Note 6):
Long-term Marketable Securities (Note 2) 1,132,682 3,274,759
License Agreements, net of accumulated amortization of
$1,004,416 and $803,500 in 1995 and 1994, respectively (Note 4)
1,004,417 1,205,300
Deferred Income Taxes, net of valuation allowance of
$910,000 and $1,401,000 in 1995 and 1994, respectively (Note 8)
1,652,000 1,702,000
Goodwill, net of accumulated amortization of $279,302 and $74,600 in
1995 and 1994, respectively (Note 12) 4,156,392 1,106,806
Other, net 101,751 260,361
----------- -----------
8,047,242 7,549,226
----------- -----------
Total Assets $40,364,712 $31,361,937
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
25
SPECTRAN CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
---- ----
Current Liabilities:
Accounts Payable $ 2,762,265 $ 751,455
Income Taxes Payable 224,576 --
Accrued Defined Benefit Pension Liability (Note 11) 117,798 65,571
Accrued Liabilities (Note 5) 2,964,633 2,200,825
----------- -----------
Total Current Liabilities 6,069,272 3,017,851
----------- -----------
Long-term Debt (Note 6) 10,000,000 5,240,000
----------- -----------
Stockholders' Equity (Note 7):
Common Stock, voting, $.10 par value; authorized 20,000,000 shares;
issued and outstanding 5,353,686 shares and 5,207,409 shares in
1995 and 1994, respectively 535,369 520,741
Common Stock, non-voting, $.10 par value;
authorized 250,000 shares, no shares
issued or outstanding -- --
Paid-in Capital 26,442,794 26,028,279
Net unrealized loss on marketable securities (22,264) (242,438)
Retained Earnings (Deficit) (2,660,459) (3,202,496)
----------- -----------
Total Stockholders' Equity 24,295,440 23,104,086
----------- -----------
Total Liabilities and Stockholders' Equity $40,364,712 $31,361,937
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
26
SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Net Sales (Note 9) $38,580,608 $26,926,077 $25,578,195
Cost of Sales 25,519,555 19,303,451 15,963,334
----------- ----------- -----------
Gross Profit 13,061,053 7,622,626 9,614,861
Selling and Administrative Expenses 9,669,316 6,318,661 3,292,712
Research and Development Costs 2,826,867 1,974,466 953,703
----------- ----------- -----------
Income (Loss) from Operations 564,870 (670,501) 5,368,446
----------- ----------- -----------
Other Income (Expense):
Interest Income 327,873 327,093 245,549
Interest Expense (625,468) (302,546) (36,874)
Other, Net 509,959 158,573 52,259
----------- ----------- -----------
Other Income 212,364 183,120 260,934
----------- ----------- -----------
Income (Loss) before Income Taxes 777,234 (487,381) 5,629,380
Income Tax Expense (Note 8) 235,197 -- 1,974,296
----------- ----------- -----------
Net Income (Loss) $542,037 $ (487,381) $ 3,655,084
=========== =========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding - Primary 5,582,349 5,202,604 5,484,406
=========== =========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding -
Fully Diluted 5,582,752 5,202,604 5,487,949
=========== =========== ===========
Net Income (Loss) per Share of Common Stock:
Primary $.10 $(.09) $.67
==== ====== ====
Fully Diluted $.10 $(.09) $.67
==== ====== ====
See accompanying notes to consolidated financial statements.
F-5
27
SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Cash Flows from Operating Activities:
Net income (loss) $ 542,037 $ (487,381) $ 3,655,084
Reconciliation of Net income (loss) to Net Cash Provided by
Operating Activities
Add charges (deduct credits) not affecting cash:
Depreciation and amortization 2,337,624 1,685,902 1,025,215
Loss (gain) on sale of assets 7,900 3,700 (50,151)
Loss on sale of marketable securities 17,308 -- --
Changes in valuation accounts (632,579) 265,454 (100,400)
Change in long-term deferred income taxes 576,446 (1,384,000) 1,651,271
Change in other long-term assets (109,908) (6,459) --
Changes in assets and liabilities, net of effects from
purchase of businesses:
Current deferred income taxes (339,000) 967,000 3,825
Accounts receivable (408,642) (467,297) (2,007,296)
Inventories (2,501,207) 1,136,606 (809,484)
Prepaid expenses and other current assets (259,717) 87,610 61,553
Income taxes payable/receivable 716,212 (694,763) 402,624
Accounts payable and accrued liabilities 1,853,768 (58,661) 133,409
--------------- ------------- ------------
Net Cash Provided by Operating Activities 1,800,242 1,047,711 3,965,650
--------------- ------------- ------------
Cash Flows from Investing Activities:
Acquisition of businesses, net of cash acquired (3,821,707) (6,662,226) (326,697)
Acquisition of property, plant and equipment (2,540,678) (2,499,511) (1,342,885)
Purchase of marketable securities (10,893,792) (3,178,186) (8,881,587)
Proceeds from sale/maturity of marketable securities 11,838,928 3,137,214 2,831,590
Proceeds from sale of equipment 4,500 -- 151
Acquisitions of other assets, net -- -- 20,000
--------------- ------------- ------------
Net Cash Used in Investing Activities (5,412,749) (9,202,709) (7,699,428)
--------------- ------------- ------------
Cash Flows from Financing Activities:
Borrowings of long-term debt 4,760,000 5,240,000 --
Reduction of debt -- (366,673) (66,666)
Tax effect of disqualifying disposition of ISO shares -- 119,700 (105,800)
Proceeds from exercise of stock options and warrants -- 100,803 55,195
--------------- ------------- ------------
Net Cash Provided by (Used in) Financing Activities 4,760,000 5,093,830 (117,271)
--------------- ------------- ------------
Increase (Decrease) in Cash and Cash Equivalents 1,147,493 (3,061,168) (3,851,049)
Cash and Cash Equivalents at Beginning of Year 477,022 3,538,190 7,389,239
--------------- ------------- ------------
Cash and Cash Equivalents at End of Year $ 1,624,515 $ 477,022 $ 3,538,190
=============== ============= ============
See accompanying notes to consolidated financial statements.
F-6
28
SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Net
Unrealized
Common Stock Loss on Retained Total
------------ Paid-in Marketable Earnings Stockholders
Shares Par Value Capital Securities (Deficit) Equity
------ --------- ------- --------- --------- ------
Balance at December 31, 1992 5,140,573 $514,057 $25,865,065 $ -- $ (6,370,199) $ 20,008,923
Exercise of Warrants (Note 7) 20,000 2,000 38,000 -- -- 40,000
Exercise of Stock Options 4,502 451 14,744 -- -- 15,195
Tax Effect of Disqualifying
Disposition of ISO
Shares (Note 8) -- -- (105,800) -- -- (105,800)
Net Income -- -- -- -- 3,655,084 3,655,084
--------- -------- ----------- -------- ----------- ----------
Balance at December 31, 1993 5,165,075 516,508 25,812,009 -- (2,715,115) 23,613,402
Exercise of Stock Options
(Note 7) 42,334 4,233 96,570 -- -- 100,803
Tax Effect of Disqualifying
Disposition of ISO
Shares (Note 8) -- -- 119,700 -- -- 119,700
Unrealized Loss on
Marketable Securities -- -- -- (242,438) -- (242,438)
Net Loss -- -- -- -- (487,381) (487,381)
--------- -------- ----------- -------- ----------- ----------
Balance at December 31, 1994 5,207,409 520,741 26,028,279 (242,438) (3,202,496) 23,104,086
Exercise of Stock Options
(Note 7) 1,833 183 6,461 -- -- 6,644
Issuance of Shares in
Connection with
Acquisition (Note 12) 144,444 14,445 408,054 -- -- 422,499
Unrealized Gain on
Marketable Securities -- -- -- 220,174 -- 220,174
Net Income -- -- -- -- 542,037 542,037
--------- -------- ----------- -------- ----------- ----------
Balance at December 31, 1995 5,353,686 $535,369 $26,442,794 $ (22,264) $ (2,660,459) $24,295,440
========= ======== =========== ======== =========== ===========
See accompanying notes to consolidated financial statements.
F-7
29
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
SpecTran develops, manufactures and markets a wide range of fiber
optic products. These include multimode and single-mode optical fiber, cable
and cable assemblies for use in data communications and telecommunications
applications. The Company also develops special performance fibers, coatings,
cables and other value-added products for use in a variety of specialty
markets.
PRINCIPLES OF CONSOLIDATION AND BASIS OF ACCOUNTING
The consolidated financial statements include the accounts of SpecTran
Corporation (the Company) and all wholly owned subsidiaries: SpecTran
Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, and
Applied Photonic Devices, Inc. All significant intercompany balances and
transactions have been eliminated.
Management uses estimates and assumptions in preparing the financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities
and the reported revenue and expenses. Actual results may vary from the
estimates.
Certain 1994 and 1993 balances have been reclassified to be consistent
with the current year's presentation.
REVENUE RECOGNITION
Sales revenues are recognized upon shipment of goods. Customers
generally have the right to return for replacement any goods which do not meet
the customer's purchase order specifications. Sales revenues and cost of sales
as reported in the consolidated statements of operations are adjusted to
reflect estimated returns and warranty costs.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale and
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity, net of estimated
income taxes. Gains and losses on the sale of marketable securities are
recognized at the time of sale on a specific identification basis.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method.
F-8
30
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with original maturities of three
months or less to be cash equivalents.
Supplemental disclosure of cash flow information includes cash paid
during the year for:
1995 1994 1993
---- ---- ----
Interest $509,535 $238,565 $34,334
Income Taxes 99,700 560,000 372,376
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Machinery and
equipment assembled by the Company are valued at the cost of component parts
purchased, plus the approximate labor and overhead costs to the Company.
Significant renewals and betterments are capitalized. The cost of maintenance
and repairs is charged to income as incurred. Repairs and maintenance costs
amounted to $967,581, $697,366 and $624,822 in 1995, 1994 and 1993,
respectively.
Depreciation is provided by the straight-line method. The principal
annual rates of depreciation are:
Buildings and building improvements..................4%
Machinery and equipment.......................20% to 33 1/3%
Depreciation expense of property, plant and equipment amounted to
$1,901,052, $1,390,462 and $806,252 in 1995, 1994 and 1993, respectively.
COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES
The Company monitors its cost in excess of net assets acquired
(goodwill) and its other intangibles to determine whether any impairment of
these assets has occurred. In making such determination with respect to
goodwill, the Company evaluates the performance, on an undiscounted basis, of
the underlying businesses which gave rise to such amount. Amortization of
goodwill is recorded on a straight-line basis over the estimated useful life of
15 years.
With respect to other intangibles, which include the cost of license
agreements and patents, the Company bases its determination of impairment on
the performance, on an undiscounted basis, of the related products.
F-9
31
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
LICENSE AGREEMENT AND OTHER ASSETS
The total cost of the license agreement obtained in 1991 is being
amortized and charged to expense based on a ten year life. Amortization
expense amounted to $200,883 for 1995, 1994 and 1993. Deferred financing costs
are amortized and charged to expense over the lives of the related debt.
Patents are being amortized over a seventeen year life.
SINGLE-MODE FIBER MANUFACTURING DEVELOPMENT COSTS
Manufacturing development costs are expensed as incurred. In addition
to Research and Development expenses for single-mode fiber, there were
manufacturing development costs relating to single-mode fiber of approximately
$1.8 million in 1995 and $2 million in 1994, respectively, that were included
in cost of sales.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
INCOME (LOSS) PER SHARE OF COMMON STOCK
Income (loss) per share of common stock as computed is based on the
weighted average number of shares outstanding during the periods, including
common stock equivalents of stock purchase warrants and stock options. For
1994, the stock purchase warrants and stock options have not been included in
the computation of loss per share since the effect would be antidilutive.
FINANCIAL INSTRUMENTS
Financial instruments of the Company consist of cash and cash
equivalents, marketable securities, accounts receivable, accounts payable and
its bank loan. The carrying amounts of these financial instruments approximate
their fair value.
F-10
32
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
2 - MARKETABLE SECURITIES
A summary of marketable securities available for sale at December 31,
1995 and 1994 is as follows.
Quoted
Purchase Amortized Unrealized Unrealized Market
Price Cost Gains Losses Value
----- ---- ----- ------ -----
1995
- ----
Mutual Funds $1,190,392 $1,190,392 $ -- $ -- $1,190,392
U.S. Government and
Agency Obligations 3,924,523 3,922,976 1,803 32,385 3,892,394
Corporate Equities 129,895 129,895 8,317 -- 138,212
---------- ---------- ------- -------- ----------
Total $5,244,810 $5,243,263 $10,120 $ 32,385 $5,220,998
========== ========== ======= ======== ==========
1994
- ----
Mutual Funds $500,000 $ 500,000 $ -- $ -- $ 500,000
U.S. Government and
Agency Obligations 5,582,389 5,580,597 -- 242,438 5,338,159
--------- ------------- ------- -------- ----------
Total $6,082,389 $ 6,080,597 $ -- $242,438 $5,838,159
========== ============= ======= ======== ==========
The Company received 5,119 shares of stock, with a value of $129,895, as a
result of the conversion of State Mutual Life Assurance Company of America, the
Company's health insurer, from a mutual company to a stock company in November
1995.
The amortized cost and estimated market value of debt securities are shown
below.
1995 1994
---- ----
Amortized Quoted Amortized Quoted
Cost Market Value Cost Market Value
---- ------------ ---- ------------
Expected Maturities:
Within one year $2,917,219 $2,894,111 $2,165,704 $2,063,400
One to five years 1,005,757 998,283 3,414,893 3,274,759
Proceeds from sales of marketable securities during 1995 were $1,490,000; a
pretax loss of $17,308 was recognized on these sales. There were no sales of
marketable securities during 1994 or 1993.
F-11
33
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
3 - INVENTORIES
Inventories consisted of:
December 31,
-------------------------------
1995 1994
---- ----
Raw Materials $3,131,753 $1,751,859
Work in Process 1,507,830 779,067
Finished Goods 2,775,135 1,569,253
---------- -----------
$7,414,718 $4,100,179
========== ===========
4 - LICENSE AGREEMENTS
In February, 1983, the Company obtained from Corning, Incorporated
("Corning") a limited, non-assignable, non-exclusive royalty-bearing license to
make, use and sell optical fiber under certain of Corning's United States
patents owned or filed for on or before January 1, 1988. The Company granted
to Corning a non-exclusive royalty-free license for any United States patents
filed for on or before January 1, 1988 related to the subject matter of the
Corning or Company patents licensed under the agreement.
In January, 1991, the Company entered into a new fiber manufacturing
license agreement with Corning which expanded and extended the original 1983
agreement. The new agreement gives SpecTran the ability to increase
substantially its fiber production using Corning's United States patents,
providing for an immediate considerable increase in licensed fiber eligible for
manufacture by SpecTran in 1991, with further annual increases through the year
2000. The Company paid a $2 million fee for the new license agreement in four
semiannual installments of $500,000, beginning in January, 1991. The license
obtained from Corning is limited, non-assignable, non-exclusive and
royalty-bearing, to make, use and sell optical fiber under certain of Corning's
United States patents owned or filed for on or before January 1, 1996. The
Company granted to Corning a non-exclusive royalty-free license for any United
States patents filed for on or before January 1, 1996 related to optical fiber.
The Company believes that its manufacturing and sale of single-mode fiber is
not subject to the Corning license agreement.
At December 31, 1995, the Company or its subsidiaries had a
non-assignable, non-exclusive, unlimited, royalty-bearing license from AT&T
Technologies, Inc. and a non-exclusive, royalty-bearing license granted by
Sumitomo Electric Industries, Ltd. to make, use and sell optical fibers under
certain patents owned by those companies. No payments are required under these
licenses other than royalty payments.
F-12
34
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
Total royalties expensed during the years ended December 31, 1995,
1994 and 1993 were $1,591,309, $1,474,254 and $1,643,659, respectively.
5 - ACCRUED LIABILITIES
Accrued liabilities consisted of:
December 31,
--------------------------------------
1995 1994
---- ----
Salaries and Wages $ 435,979 $ 226,751
Royalties 889,305 809,205
Health Insurance 411,339 258,471
Incentive Compensation 503,380 317,732
Other 724,630 588,666
----------- ----------
$ 2,964,633 $2,200,825
=========== ==========
6 - LONG-TERM DEBT
Long-term debt consisted of the following:
December 31,
--------------------------
1995 1994
---- ----
Bank revolving loan up to the lesser of $10 million or an amount based upon
certain percentages of the value of cash on deposit, eligible accounts
receivable and eligible inventory, provided that if at any time the
outstanding principal of the loan exceeds the total amount which may be
borrowed under the terms of the amended agreement, the full amount of the
excess, together with accrued and unpaid interest on the excess, is payable
in full. Interest is payable quarterly in arrears at the lower of prime or
the LIBOR rate plus 1.5% (7.365% at December 31, 1995). The loan agreement
terminates on March 31, 1997 and any outstanding balances must be repaid on
that date. As security for the loan, the Company has pledged all of its
assets, except its real property. The loan also carries certain restrictive
covenants for which the Company was in compliance at December 31, 1995. In
addition, the obligation is guaranteed by the Company's subsidiaries and is
secured by its assets.
$10,000,000 $5,240,000
=========== ==========
F-13
35
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
7 - STOCKHOLDERS' EQUITY
(a) Warrants
As part of an agreement entered into in September, 1990 with Allen &
Company, Incorporated (Allen), warrants to purchase 350,000, 30,000 and 20,000
shares of SpecTran voting common stock at an exercise price of $2.00 through
August 14, 1999, were issued to Allen, Richard A.M.C. Johnson, a current
director of the Company, and Patrick E. Brake, a former director of the
Company, respectively. At December 31, 1995 Allen owned 3.1% of the Company's
outstanding stock. If the entire Allen warrant were exercised, Allen would own
approximately 9.0% of the Company's outstanding stock. In June, 1992 the
Johnson warrant was exercised and in January, 1993 the Brake warrant was
exercised.
(b) Stock Options
Pursuant to the Company's Incentive Stock Option Plan adopted in
November, 1981, as amended, incentive and nonqualified options may be granted
to purchase up to an aggregate of 455,000 shares of the Company's voting Common
Stock, $.10 par value, at prices not less than 100% of the fair market value of
the shares at the time the options are granted. Currently, all options are
exercisable in full three years from the date of grant in cumulative annual
installments of 33 1/3% commencing one year after the date of grant, and expire
ten years after grant.
Under its provisions, no options were to be issued under the Incentive
Stock Option Plan adopted in November, 1981 (Old Plan) after the plan reached
its tenth anniversary. During the year ended December 31, 1991, a new
Incentive Stock Option Plan (New Plan) was adopted. The terms of the New Plan
are identical to those of the Old Plan except that (1) the number of shares
eligible for issuance shall be 625,490, (2) provision is made for the
non-discretionary grant of nonqualified options to directors who are not
full-time employees of the Company or any subsidiary ("outside directors") and
(3) provision is made for all outstanding options to vest upon the occurrence
of a change in control (as defined in the New Plan).
F-14
36
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
Activity in the plans for the years ended December 31, 1995, 1994 and
1993 is summarized below:
Shares Shares Under Option
Available -------------------
for Option Shares Price Amount
---------------- ------------ --------------------------- --------------
Balance at December 31, 1992 239,758 235,608 $1.188 - $22.250 $1,933,541
Options Granted (117,900) 117,900 $8.000 - $11.750 1,038,225
Options Exercised -- (4,502) $ 3.370 (15,195)
Options Forfeited 1,767 (1,767) $3.375 - $22.250 (21,164)
------------ ---------- ------------ ----------- -----------
Balance at December 31, 1993 123,625 347,239 $1.188 - $22.250 2,935,407
Increase in Shares Reserved 255,000 -- -- -- --
Options Granted (125,600) 125,600 $4.750 - $ 8.870 831,225
Options Exercised -- (42,334) $1.375 - $ 3.370 (100,803)
Options Forfeited 19,234 (19,234) $3.375 - $22.250 (228,546)
------------ ---------- ------------ ----------- -----------
Balance at December 31, 1994 272,259 411,271 $1.188 - $22.250 3,437,283
Options Granted (139,750) 139,750 $5.375 - $ 5.500 733,000
Options Exercised -- (1,833) $3.375 - $ 4.750 (6,644)
Options Forfeited 5,700 (5,700) $6.000 - $22.250 (56,750)
------------ ---------- ------------ ----------- -----------
Balance at December 31, 1995 138,209 543,488 $3.375 - $22.250 $4,106,889
============ ========== ============ =========== ===========
As of December 31, 1995, options for 280,789 shares were vested and exercisable
at an aggregate exercise amount of $2,437,321 ($8.68 per share).
F-15
37
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
8 - INCOME TAXES
Income tax expense attributable to income (loss) from operations
differs from the computed expected tax expense (benefit) determined by applying
the federal income tax rate of 34 percent as follows:
1995 1994 1993
------ ---- ----
Computed expected tax expense (benefit)
at 34% $ 264,000 $ (165,710) $ 1,913,989
State income taxes, net of federal
effect and change in valuation
allowance 81,000 (30,717) 366,384
Research and experimentation credits 243,975 (243,975) --
Goodwill amortization 50,000 -- --
Increase (decrease) in valuation
allowance for deferred income taxes (437,000) 417,000 (350,000)
Other 33,222 23,402 43,923
---------- ------------ -------------
$ 235,197 $ -- $ 1,974,296
=========== ============ =============
Total income tax expense (benefit) for the years ended December 31,
1995, 1994 and 1993 was allocated as follows:
1995 1994 1993
------ ---- ----
Income tax expense (benefit)
attributable to:
Income from operations $ 235,197 -- $ 1,868,496
Stockholders' equity, for
compensation expense for tax purposes
from the disqualifying disposition of
stock options -- (119,700) 105,800
----------- ------------ -------------
$ 235,197 $ (119,700) $ 1,974,296
=========== ============ =============
F-16
38
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
Income tax expense (benefit) attributable to income from operations
consists of:
Current Deferred Total
------- -------- -----
Year ended December 31, 1995:
Federal $ 276,750 $ (119,553) $ 157,197
State 158,000 (80,000) 78,000
--------- ------------ -----------
$ 434,750 $ (199,553) $ 235,197
========= =========== ===========
Year ended December 31, 1994:
Federal $ -- $ 27,000 $ 27,000
State -- (27,000) (27,000)
--------- ----------- ----------
$ -- $ -- $ --
========= =========== ===========
Year ended December 31, 1993:
Federal $ 226,000 $ 1,193,170 $ 1,419,170
State 549,000 6,126 555,126
--------- ----------- -----------
$ 775,000 $ 1,199,296 $ 1,974,296
========== ========== ===========
The significant components of deferred income tax expense (benefit)
attributable to income from operations for the years ended December 31, 1995,
1994 and 1993 are as follows:
1995 1994 1993
------ ---- ----
Deferred tax expense (benefit) (exclusive of the
effects of other components listed below)
$ 237,447 $ (417,000) $ 1,549,296
Increase (decrease) in valuation allowance for
deferred income taxes (437,000) 417,000 (350,000)
----------- ---------- -----------
Deferred income tax expense (benefit)
attributable to income from operations $ (199,553) $ -- $ 1,199,296
============ ========== ===========
F-17
39
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
1995 1994
---- ----
Deferred tax assets:
Accounts receivable $115,000 $ 54,000
Inventories 433,000 91,000
Accrued liability - compensation related expense 122,000 99,000
Accrued liability - pension and post retirement benefits 121,000 8,000
Other nondeductible reserves and accruals (49,000) 188,000
Fixed assets (27,000) 79,000
Net operating loss carryforward benefit 998,000 1,283,000
Credit carryforwards benefit 1,657,000 1,748,000
----------- -----------
Total gross deferred tax assets 3,370,000 3,550,000
Less valuation allowance (1,030,000) (1,467,000)
----------- -----------
Net deferred tax assets 2,340,000 2,083,000
Deferred tax liabilities (100,000) (78,000)
----------- -----------
Net deferred tax assets 2,240,000 2,005,000
Less current portion 588,000 303,000
----------- -----------
Long-term deferred tax asset $ 1,652,000 $ 1,702,000
=========== ===========
The valuation allowance for deferred tax assets as of December 31, 1995 was
$1,030,000. Based on the Company's level of net income and projected future
earnings, the Company believes that it is more likely than not that a portion
of the deferred tax asset will be realized in the future. In 1995, the portion
of the deferred tax asset which is expected to be realized increased from 1994;
therefore, the Company reduced its valuation allowance by $437,000. The
remaining valuation allowance relates primarily to the risk that a portion of
the tax credit carryforwards will not be used before they expire.
F-18
40
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
At December 31, 1995, the Company had the following net operating loss
carryforwards available to offset future taxable income and income tax credits
available to offset future income taxes:
Amount Expires
------ -------
Net Operating Loss Carryforward $2,521,000 2001-2009
Federal Research and Experimentation Tax Credits 290,000 1996-2001
Federal Investment Tax Credits 879,000 1996-2001
Alternative Minimum Tax Credit 487,000 Indefinite
9 - MAJOR CUSTOMERS
The approximate net product sales by the Company to customers
accounting for 10% or more of total net annual sales are as follows:
1995 1994 1993
---- ---- ----
Customer Amount % Amount % Amount %
-------- ------ - ------ - ------ -
A $5,040,131 13 $4,034,253 15 $3,491,710 14
B 4,152,736 11 5,076,782 19 5,177,935 20
C 2,591,995 10 7,591,420 30
Substantially all of the Company's business is to customers in the
telecommunications and data communications industries. International sales,
primarily in Asia and Europe, accounted for 22% of total sales.
10 - COMMITMENTS
SpecTran Specialty Optics Company leases office and production
facilities under leases through February 18, 1997 with a right to renew for one
three-year renewal term. Applied Photonic Devices, Inc. leases office and
production facilities under a lease through January 14, 1998 with a right to
renew for two consecutive one-year renewal terms. The scheduled rental
payments required under these operating leases at December 31, 1995 are as
follows:
1996 $314,000
1997 74,000
1998 2,000
--------
Total $390,000
--------
Total rent expense for the years ended December 31, 1995 and 1994 was
$363,938 and $241,592, respectively. There was no rent expense in 1993.
F-19
41
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
11 - EMPLOYEE BENEFIT PLANS
a) Defined Benefit Pension Plan
The Company sponsors a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and an average of the employee's highest ten consecutive years of earnings.
The Company's funding policy is, to the extent possible, to contribute annually
the maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future.
The Company had an unrecognized loss in 1995 was due to a change in
the discount rate to 7.0% from 8.5% in the prior year as a result of declining
interest rates. This was partially offset by investment gains in excess of
actuarially assumed returns. This is the primary reason for the increase in
the projected benefit obligation for 1995. The following table sets forth the
plan's funded status and amounts recognized in the Company's consolidated
balance sheets at December 31, 1995 and 1994.
Actuarial present value of benefit obligations:
1995 1994
---- ----
Vested benefit obligation $ 612,782 $ 348,701
========== ============
Accumulated benefit obligation $ 751,158 $ 395,367
========== ============
Projected benefit obligation $1,437,020 $ 771,899
Plan assets at fair value - primarily mutual funds 911,923 603,938
---------- ------------
Projected benefit obligation in excess of plan assets 525,097 167,961
Unrecognized net gain (loss) (162,760) 161,892
Unrecognized net obligation at January 1, 1991
being recognized over 17.4 years (244,539) (264,282)
---------- -----------
Accrued pension cost $ 117,798 $ 65,571
========== ===========
Net pension cost for 1995 and 1994 included the following components:
1995 1994
---- ----
Service cost - benefits earned during period $ 151,425 $134,015
Interest cost on projected benefit obligation 66,441 59,365
Actual return on assets (186,244) (36,018)
Net amortization and deferral 145,428 15,339
----------- --------
Net pension cost $ 177,050 $172,701
=========== ========
F-20
42
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
Assumptions used in the accounting as of December 31 were as follows:
1995 1994
---- ----
Discount rate 7.0% 8.5%
Rates of increase in compensation levels 5.0% 5.0%
Expected long-term rate of return on assets 8.5% 8.5%
b) Directors Retirement Plan
In December, 1995 the Company adopted a Directors Retirement Plan
which provides for retirement benefits for all outside directors with five full
calendar years of service as of the named retirement date (Age 70). The
Company expensed $100,000 in 1995 to provide for past service costs.
c) Defined Contribution Pension Plan
The Company sponsors a defined contribution pension plan covering
substantially all of its employees. Contributions to the plan are
discretionary and amounted to $83,490, $113,831 and $96,757 in 1995, 1994 and
1993, respectively.
d) Bonus Plans
The Company sponsors an Employee Profit Sharing Plan covering all
employees. The Company also sponsored a transitional plan covering key
employees in 1995 which replaced an Income Growth Incentive Plan in 1994 and
1993. These plans provide for the payment of bonuses if certain performance
objectives are obtained. Bonuses of $379,967, $331,174 and $455,779,
respectively, were charged to operations in 1995, 1994 and 1993.
12 - ACQUISITIONS
a) Applied Photonic Devices, Inc.
On May 23, 1995 the Company purchased all the outstanding capital
stock of Applied Photonic Devices, Inc. ("APD") for cash and common stock worth
approximately $3.9 million. The Company also retired approximately $600,000 of
APD bank debt. APD, located in Danielson, Connecticut, manufactures and sells
fiber optic cable and related components.
The purchase method of accounting was used and the results of
operations of APD are included in the consolidated financial statements from
May 23, 1995.
Goodwill of $3,255,165 resulted from the purchase and is being
amortized over 15 years. Amortization expense amounted to $126,590 in 1995.
F-21
43
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
b) Ensign-Bickford Acquisitions
On February 18, 1994 the Company purchased substantially all assets of
Ensign-Bickford Optics Company ("EBOC") and Ensign-Bickford Optical
Technologies, Inc. ("EBOT"), wholly owned subsidiaries of Ensign-Bickford
Industries, Inc., for approximately $7 million. EBOC, renamed SpecTran
Specialty Optics Company, manufactures and sells optical fibers, cables and
related components. The operations of EBOT, which were conducted in Van Nuys,
California, were moved to Sturbridge, Massachusetts.
The purchase method of accounting was used and the results of
operations of SpecTran Specialty Optics Company are included in the
consolidated financial statements from February 18, 1994.
c) Proforma Statements of Operations
The following pro-forma statements of operations for the years ended
December 31, 1995 and 1994 present the results of operations as if the Company
had acquired APD as of January 1, 1994. Also included in 1994 are the results
of operations as if the Company had acquired the assets of EBOC and EBOT as of
January 1, 1994.
Statements of Operations (unaudited) 1995 1994
---- ----
Sales $ 41,481,721 $ 33,253,945
Cost of Sales 27,657,265 23,733,979
--------------- ---------------
Gross Profit 13,824,456 9,519,966
Operating Expenses 13,210,111 9,950,605
Other Income 212,364 160,135
--------------- ---------------
Income (loss) Before Taxes 826,709 (270,504)
Income Tax Expense 255,481 --
--------------- ---------------
Income (loss) $ 571,228 $ (270,504)
=============== ===============
Earnings (loss) per share:
Weighted average shares outstanding 5,654,571 5,347,048
========= =========
Net Income (loss) per share $.10 $(.05)
==== =====
F-22
44
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995 and 1994
13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarters First Second Third Fourth
-------------------------------------------------------------------------------------------------------------
1995
----
Net Sales $7,965,079 $9,099,384 $9,970,586 $11,545,559
Gross Profit 2,893,576 2,841,480 3,359,437 3,966,560
Net Income 82,914 8,219 178,837 272,067
Net Income per Share .02 -- .03 .05
1994
----
Net Sales $5,786,219 $6,639,044 $6,135,369 $ 8,365,445
Gross Profit 2,061,402 2,103,432 1,266,815 2,190,977
Net Income (Loss) 319,018 136,331 (720,374) (222,356)
Net Income (Loss) per Share .06 .03 (.14) (.04)
F-23
45
SPECTRAN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Additions Balance
Beginning Charged to at End
Description of Period Expenses Deductions of Period
------------ --------- -------- ---------- ---------
For the Year Ended December 31, 1995:
Allowance - Net Deferred Tax Asset $1,467,000 $ -- $437,000 $1,030,000
========== ======== ======== ==========
Allowance for Doubtful Accounts $ 123,795 $141,266 $ -- $ 265,061
========== ======== ======== ==========
Allowance for Obsolete Inventory $ 556,489 $ -- $ 89,395 $ 467,094
========== ======== ======== ==========
For the Year Ended December 31, 1994:
Allowance - Net Deferred Tax Asset $1,050,000 $417,000 $ -- $1,467,000
========== ======== ========= ==========
Allowance for Doubtful Accounts $ 100,000 $ 81,546 $ 57,751 $ 123,795
========== ======== ========= ==========
Allowance for Obsolete Inventory $ 434,600 $300,000 $ 178,111 $ 556,489
========== ======== ========= ==========
For the Year Ended December 31, 1993:
Allowance - Net Deferred Tax Asset $1,400,000 $ -- $ 350,000 $1,050,000
========== ======== ========= ==========
Allowance for Doubtful Accounts $ 150,000 $ -- $ 50,000 $ 100,000
========== ======== ========= ==========
Allowance for Obsolete Inventory $ 135,000 $299,600 $ -- $ 434,600
========== ======== ========= ==========
F-24
46
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1 Certificate of Incorporation of the Registrant, as amended.
(Incorporated by reference to Registrant's Annual Report on Form
10-K for its fiscal year ended December 31, 1991.)
3.2 By-Laws of the Registrant, as amended. (Incorporated by reference
to Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1991.)
4.5* Form of Stock Certificate for Voting Common Stock.
10.1 Registrant's 1991 Incentive Stock Option Plan. (Incorporated by
reference to the Registrant's Proxy Statement dated April 9, 1991.)
10.7* License Agreement dated August 15, 1981, between the Registrant and
Western Electric Company, Incorporated. (Registrant has been
granted confidential treatment of portions of this Exhibit.)
10.9 License Agreement dated October 31, 1983, between the Registrant and
Gulf & Western Manufacturing Company. (Incorporated by reference to
Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1989.)
10.15 License Agreement dated January 21, 1985, between the Registrant and
Aetna Telecommunications Laboratories. (Registrant has been granted
confidential treatment of portions of this Exhibit.) (Incorporated
by reference to the Registrant's Annual Report on Form 10-K for its
fiscal year ended December 31, 1990.)
10.45 Conversion Agreement dated as of November 8, 1990, by and among
Registrant, Allen & Company Incorporated, Richard A.M.C. Johnson and
Patrick E. Brake. (Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1990.)
10.46 Common Stock Purchase Warrant issued to Allen & Company Incorporated
pursuant to the Conversion Agreement listed as Exhibit 10.45.
(Incorporated by reference to the Registrant's Annual Report on Form
10-K for its fiscal year ended December 31, 1990.)
10.49 License Agreement dated as of the first day of January 1991 by and
between the Registrant and Corning, Incorporated. (Registrant has
been granted confidential treatment of portions of this Exhibit.)
(Incorporated by reference to Registrant's Annual Report on Form
10-K for its fiscal year ended December 31, 1991.)
47
10.51 Registrant's Income Growth Incentive Plan adopted effective January
1, 1990. (Incorporated by reference to the Registrant's Annual
Report on Form 10-K for its fiscal year ended December 31, 1990.)
10.53 Asset Purchase Agreement between Ensign-Bickford Optics Company and
SpecTran Specialty Optics Company dated February 18, 1994.
(Incorporated by reference to the Registrant's Report on Form 8-K
filed March 4, 1994.)
10.54 Stock Purchase Agreement between Ensign-Bickford Optical
Technologies, Inc. and EBOT Acquisition Corp. dated February 18,
1994. (Incorporated by reference to the Registrant's Report on Form
8-K dated March 4, 1994.)
10.55 Lease between 150 Fisher Associates Limited Partnership and SpecTran
Specialty Optics Company dated February 18, 1994. (Incorporated by
reference to the Registrant's Report on Form 10-K dated March 30,
1994.)
10.56 Lease between Avon Park Properties and SpecTran Specialty Optics
Company dated February 18, 1994. (Incorporated by reference to the
Registrant's Report on Form 10-K dated March 30, 1994.)
10.57 Lease between Avon Park Properties and SpecTran Specialty Optics
Company dated February 18, 1994. (Incorporated by reference to the
Registrant's Report on Form 10-K dated March 30, 1994.)
10.58 Patent License Agreement dated as of July 7, 1987 between Sumitomo
Electric Industries, Ltd. and Lightwave Technologies, Inc.
(Incorporated by reference to the Registrant's Report on Form 10-K
dated March 30, 1994.)
10.59 Loan Agreement dated January 21, 1994, between Fleet Bank of
Massachusetts, N.A. and SpecTran Corporation. (Incorporated by
reference to the Registrant's Report on Form 10-K dated March 30,
1994.)
10.60 Loan Agreement dated March 30, 1995, between Fleet Bank of
Massachusetts, N.A. and SpecTran Corporation. (Incorporated by
reference to the Registrant's Report on Form 10-K dated March 31,
1995.)
10.61 Stock Purchase Agreement among APD Acquisition Crop. and Irving N.
Dwyer, David P. DaVia, The Irving N. Dwyer and Annette M. Dwyer
Charitable Remainder Trust and the DaVia Charitable Remainder Trust.
(Incorporated by reference to the Registrant's Report on Form 8-K
filed June 7, 1995.)
10.62 Directors Retirement Plan dated December 27, 1995.
10.63 Registrant's Employee Profit Sharing Plan as revised and adopted
effective January 1, 1995.
48
10.64 Lease between Mark C. Yellin and Applied Photonic Devices, Inc.
dated January 15, 1996.
10.65 Lease between Fabrilock, Inc. and Applied Photonic Devices, Inc.
dated February 6, 1996.
11.1 Schedule of Earnings Per Share Calculation.
21.0 Subsidiaries.
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* Incorporated by reference to Registrant's Registration Statement
on Form S-1 (Reg. No. 2-83172) effective June 2, 1983.