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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-12489
SPECTRAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2729372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Hall Road, Sturbridge, Massachusetts 01566
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 347-2261
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No.
The number of shares of the registrant's Common Stock outstanding as of
April 30, 1996, was 5,354,052.
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PART I - FINANCIAL INFORMATION
SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
---------------------------
1996 1995
------------ -----------
Net Sales $ 13,472,523 $ 7,965,079
Cost of Sales 8,716,304 5,071,503
------------ -----------
Gross Profit 4,756,219 2,893,576
Selling & Administrative Expenses 2,819,116 2,037,649
Research & Development Costs 909,279 753,445
------------ -----------
Income from Operations 1,027,824 102,482
Other Income (Expense):
Interest Income 67,912 84,623
Interest Expense (186,198) (101,813)
Other 33,778 56,146
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(84,508) 38,956
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Income before Income Taxes 943,316 141,438
Income Tax Expense 259,411 58,524
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Net Income $ 683,905 $ 82,914
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Weighted Average Number of Shares of
Common Stock Outstanding 5,749,951 5,228,710
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Net Income per Share of Common Stock $ .12 $ .02
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See accompanying notes to these consolidated condensed financial statements.
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SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 1,037,046 $ 1,624,515
Current Portion of Marketable Securities 1,228,320 4,088,316
Accounts Receivable, Trade, net 8,746,521 7,798,517
Inventories 7,700,736 7,414,718
Current Deferred Income Taxes, net 588,000 588,000
Prepaid Expenses and Other Current Assets 659,931 513,356
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Total Current Assets 19,960,554 22,027,422
Property, Plant and Equipment, net 11,779,190 10,290,048
Other Assets:
Long-term Marketable Securities 2,065,599 1,132,682
License Agreements, net 954,195 1,004,417
Deferred Income Taxes, net 1,852,000 1,652,000
Goodwill, net 4,082,611 4,156,392
Other 110,509 101,751
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Total Other Assets 9,064,914 8,047,242
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Total Assets $ 40,804,658 $ 40,364,712
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 2,729,774 $ 2,762,265
Income Taxes Payable 565,987 224,576
Accrued Liabilities 2,546,018 3,082,431
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Total Current Liabilities 5,841,779 6,069,272
Long-term Debt 10,000,000 10,000,000
Stockholders' Equity:
Common Stock, voting, $.10 par value; authorized
20,000,000 shares; outstanding 5,354,052 shares and
5,353,686 shares in 1996 and 1995, respectively 535,405 535,369
Common Stock, non-voting, $.10 par value;
authorized 250,000 shares; no shares outstanding -- --
Paid-in Capital 26,444,953 26,442,794
Net Unrealized Loss on Marketable Securities (40,925) (22,264)
Retained Earnings (Deficit) (1,976,554) (2,660,459)
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Total Stockholders' Equity 24,962,879 24,295,440
------------ ------------
Total Liabilities & Stockholders' Equity $ 40,804,658 $ 40,364,712
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See accompanying notes to these consolidated condensed financial statements.
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SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Cash Flows from Operating Activities:
Net Income $ 683,905 $ 82,914
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
Add Charges (Deduct Credits) Items Not Affecting Cash:
Depreciation and Amortization 705,863 484,795
Other Non-Cash Charges (71,202) (17,517)
Changes in Other Components of Working Capital (1,748,636) (115,548)
----------- -----------
Net Cash Provided by Operating Activities (430,070) 434,644
Cash Flows from Investing Activities:
Deposit on Acquisition of Business -- (1,613,062)
Acquisition of Property, Plant and Equipment (2,064,941) (420,643)
Purchase of Marketable Securities (6,011,110) (352,943)
Proceeds from Sale/Maturity of Marketable Securities 7,916,457 --
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Cash Used in Investing Activities (159,594) (2,386,648)
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Cash Flows from Financing Activities:
Borrowings of Long-term Debt -- 1,651,942
Proceeds from Exercise of Stock Options and Warrants 2,195 --
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Cash Provided by Financing Activities 2,195 1,651,942
Decrease in Cash and Cash Equivalents (587,469) (300,062)
Cash and Cash Equivalents at Beginning of Period 1,624,515 477,022
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Cash and Cash Equivalents at End of Period $ 1,037,046 $ 176,960
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See accompanying notes to these consolidated condensed financial statements.
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SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information for the three months ended March 31, 1996, is
unaudited but reflects all adjustments (consisting solely of normal recurring
adjustments) which the Company considers necessary for a fair statement of
results for the interim period. The results of operations for the three months
ended March 31, 1996, are not necessarily indicative of the results for the
entire year.
The consolidated results for the three months ended March 31, 1996,
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.
These financial statements supplement, and should be read in
conjunction with, the Company's audited financial statements for the year ended
December 31, 1995, as contained in the Company's Form 10-K as filed with the
United States Securities and Exchange Commission.
2. INVENTORIES
Inventories consisted of:
March 31, 1996 December 31, 1995
-------------- -----------------
Raw Materials $3,342,814 $3,131,753
Work in Process 1,342,515 1,507,830
Finished Goods 3,015,407 2,775,135
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$7,700,736 $7,414,718
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3. PROPERTY, PLANT & EQUIPMENT
March 31, 1996 December 31, 1995
-------------- -----------------
Property, plant and equipment consisted of:
Land and Land Improvements $ 407,705 $ 407,705
Buildings and Improvements 3,747,097 3,729,114
Machinery and Equipment 17,650,882 17,229,195
Construction in Progress 3,266,057 1,640,786
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25,071,741 23,006,800
Less Accumulated Depreciation and Amortization 13,292,551 12,716,752
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$11,779,190 $10,290,048
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4. INCOME PER SHARE OF COMMON STOCK
Income per share of common stock is based on the weighted average of
the number of shares outstanding during the periods, including common stock
equivalents of stock purchase warrants and stock options for both primary and
fully diluted earnings per share. Fully diluted income per share approximates
primary income per share.
5. SUBSEQUENT EVENT
On April 25, 1996, SpecTran Corporation and its subsidiaries
(collectively, the "Company") entered into a Loan and Security Agreement with
Fleet National Bank ("Fleet Bank") pursuant to which the Company can borrow up
to $22,000,000, subject to certain limitations based on the Company's accounts
receivable and inventory and the appraisal value of certain machinery, equipment
and real property owned by the Company. The loan consists of a $12,000,000
revolving note which is payable April 1, 1999, a $5,000,000 term note which is
payable in quarterly installments commencing January 1, 1997 and matures on
April 1, 2001 and a $5,000,000 mortgage note which is payable in quarterly
installments commencing July 1, 1997 and matures on April 1, 2006. Interest on
each note is payable quarterly commencing July 1, 1996. The Company has the
option from time to time to select the interest rate on the notes at either
Fleet Bank's prime rate or the LIBOR rate plus 1.5%, provided that under certain
circumstances, Fleet Bank may deem that the LIBOR rate is not available. The
loans are secured by all of the Company's assets, including real property.
At March 31, 1996, the Company had outstanding a $10 million loan under
a revolving credit agreement with Fleet. This loan was repaid from the proceeds
from the new $12 million revolving credit agreement, leaving $2 million of
borrowing available under the agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Versus Three Months Ended March 31,
1995
Overview
SpecTran's revenue increased 69.1% to $13,472,523 and the Company
earned net income of $683,905, or $.12 per share in the first quarter of 1996
compared with revenues of $7,965,079 and net income of $82,914, or $.02 per
share in the first quarter of 1995. The improved revenues and earnings in 1996
resulted from continued strong market demand for the Company's standard and
specialty products and the results of Applied Photonic Devices, Inc., acquired
in May 1995.
Net Sales
Consolidated net sales of $13,472,523 for the three months ended March
31, 1996, were $5,507,444 (69.1%) higher than for the comparable period of 1995.
The increase was primarily due to strong market demand for the Company's
standard multimode fiber products. Also contributing to the increase in the
first quarter of 1996 were sales of Applied Photonic Devices, Inc., acquired by
the Company in May 1995.
Gross Profit
SpecTran earned a consolidated gross profit of $4,756,219 during the
1996 first quarter which was $1,862,643 (64.4%) higher than the comparable
period of 1995. The increase in gross profit was primarily due to the higher
sales level in the 1996 first quarter. The gross margin, as a percentage of
sales, decreased to 35.3% in 1996 from 36.3% in the first quarter of 1995. The
decrease in the margin was principally due to the lower margin earned by the APD
cabling operation which was acquired in May 1995. Royalties expense was 4.2% and
5.1% of SpecTran's sales during the first quarter of 1996 and 1995,
respectively, with a higher level of sales in the 1996 first quarter not subject
to royalties.
Selling and Administration
Consolidated selling and administrative expenses increased by $781,467
(38.4%) during the 1996 first quarter. The increase was primarily due to
expenses incurred by Applied Photonic Devices, Inc. in the 1996 March quarter.
As a percentage of sales these expenses decreased during 1996 to 20.9% from
25.6% in the first quarter of 1995.
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Research and Development
Consolidated spending for internal research and development increased
by $155,834 (20.7%) during the 1996 first quarter. As a percentage of sales,
consolidated research and development costs decreased to 6.7% in the first
quarter of 1996 versus 9.5% in the comparable period of 1995. The Company's
increased research and development spending is primarily in programs designed to
improve manufacturing cost and product performance in both the multimode and
single-mode product lines, to develop new special performance fiber products and
to develop alternative process technologies.
Other Income (Expense), net
Net other expense in the first quarter of 1996 was $84,509 compared to
net other income in the first quarter of 1995 of $38,956, a change of $123,465
(316.9%). Interest income decreased by $16,711 (19.7%) during the 1996 first
quarter primarily as a result of a lower investment balance than in the
comparable period of 1995. Interest expense increased during the first quarter
of 1996 by $84,385 (82.9%) as a result of increased debt levels.
Income Taxes
A tax provision of 27.5% of pre-tax income was provided in the first
quarter of 1996 compared to a tax provision of 41% of pre-tax income in the
first quarter of 1995. The estimated effective tax rate for 1996 of 27.5% is
lower than the statutory tax rate due to an anticipated reduction in the
valuation allowance for deferred tax assets due to the Company's belief that it
is more likely than not that the additional deferred tax asset will be realized
through the utilization of operating loss and tax credit carryforwards.
Net Income
Net income for the 1996 first quarter was $683,905 which was a 5.1%
return on sales. Net income for the same period in 1995 was $82,914, or 1.0% of
sales, an increase of $600,991 (724.8%).
Liquidity and Capital Resources
At March 31, 1996, the Company had net working capital of $14,118,775,
a current ratio of 3.4 to 1, and an aggregate of $1,037,046 in cash and cash
equivalents. In addition, the Company had total marketable securities of
$3,293,919 including $2,065,599 classified at long-term which could be converted
into cash if needed.
Capital expenditures in the first quarter of 1996 were $2,064,941, an
increase of $1,644,298 (390.9%) compared to capital expenditures in the first
quarter of 1995, for the purpose of increasing capacity and efficiency. The
Company is considering additional significant increases in capital expenditures
during the remainder of 1996 and is exploring debt financing necessary to
support these expenditures (see "Subsequent Event").
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The Company expects but can not assure that existing working capital,
borrowings, and expected positive cash flow should be sufficient to meet the
Company's cash needs in 1996.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.66 Loan and Security Agreement Among SpecTran Corporation,
SpecTran Specialty Optics Company, Applied Photonic
Devices, Inc., SpecTran Communication Fiber
Technologies, Inc. and Fleet National Bank dated April
25, 1996.
Exhibit 10.67 Mortgage By SpecTran Corporation in Favor of Fleet
National Bank dated April 25, 1996.
Exhibit 10.68 Pledge Agreement Among SpecTran Corporation, Fleet
National Bank and Fleet Investment Advisors dated April
25, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
which this report was filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPECTRAN CORPORATION
(Registrant)
Date: May 10, 1996 BY:
/s/ Glenn E. Moore
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Glenn E. Moore
President and
Chief Executive Officer
Date: May 10, 1996 BY:
/s/ Bruce A. Cannon
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Bruce A. Cannon
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
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Exhibit 10.66 Loan and Security Agreement Among SpecTran Corporation,
SpecTran Specialty Optics Company, Applied Photonic
Devices, Inc., SpecTran Communication Fiber
Technologies, Inc. and Fleet National Bank dated April
25, 1996.
Exhibit 10.67 Mortgage By SpecTran Corporation in Favor of Fleet
National Bank dated April 25, 1996.
Exhibit 10.68 Pledge Agreement Among SpecTran Corporation, Fleet
National Bank and Fleet Investment Advisors dated April
25, 1996.
Exhibit 27 Financial Data Schedule